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Key Takeaways from LFJ’s Special Digital Event “Litigation Finance: Investor Perspectives”

April 8, 2024

Key Takeaways from LFJ’s Special Digital Event “Litigation Finance: Investor Perspectives”

On Thursday April 4th, 2024, Litigation Finance Journal hosted a special digital event titled “Litigation Finance: Investor Perspectives.” The panel discussion featured Bobby Curtis (BC), Principal at Cloverlay, Cesar Bello (CB), Partner at Corbin Capital, and Zachary Krug (ZK), Managing Director at NorthWall Capital. The event was moderated by Ed Truant, Founder of Slingshot Capital. Below are some key takeaways from the event: If you were to pinpoint some factors that you pay particular attention to when analyzing managers & their track records, what would those be? BC: It’s a similar setup to any strategy that you’re looking at–you want to slice and dice a track record as much as possible, to try to get to the answer of what’s driving returns. Within litigation finance, that could be what sub-sectors are they focused on, is it intellectual property? Is it ex-US deals? What’s the sourcing been? How has deployment been historically relative to the capital they’re looking to raise now? It’s an industry that is starting to become data rich. You have publicly-listed companies that have some pretty interesting track record that’s available. I’m constantly consuming track record data and we’re building our internal database to be able to comp against. Within PE broadly, a lot of people are talking about DPI is the new IRR, and I think that’s particularly true in litigation finance. If I’m opening a new investment with a fund I’ve never partnered with before, my eyes are going to ‘how long have they been at it, and what’s the realization activity?’ There is also a qualitative aspect to this–has the team been together for a while, do they have a nice mix of legal acumen, investment and structuring acumen, what’s the overall firm look like? It’s a little bit art and science, but not too dissimilar from any track record analysis with alternative investment opportunities. Zach, you’ve got a bit more of a credit-focus. What are you looking for in your opportunities?  ZK: We want to understand where the realizations are coming from. So if I’m looking at a track record, I want to understand if these realizations are coming through settlements or late-stage trial events. From my perspective as an investor, I’d be more attracted to those late-stage settlements, even if the returns were a little bit lower than a track record that had several large trial wins. And I say that because when you’re looking at the types of cases that you’ll be investing in, you want to invest in cases that will resolve before trial and get away from that binary risk. You want cases that have good merit, make economic sense, and have alignment between claimant and law firm, and ultimately are settleable by defendants. That type of track record is much more replicable than if you have a few outsized trial wins. What are things that managers generally do particularly well in this asset class, and particularly poorly?  CB: I don’t want to paint with a broad brush here. With managers it can be idiosyncratic, but there can be structuring mistakes – not getting paid for extension risks, not putting in IRR provisions. Portfolio construction mistakes like not deploying enough and being undercommitted, which is a killer. Conversely, on the good side, we’ve seen a ton of activity around insurance, which seems to be a bigger part of the landscape. We also welcome risk management optionality with secondaries. Some folks are clearly skating to where the puck is going and doing more innovative things, so it really depends who you’re dealing with. But on the fundamental underwriting, you rarely see a consistent train wreck – it’s more on the other stuff where people get tripped up. How do you approach valuation of litigation finance portfolios? What I’m more specifically interested in is (i) do you rely on manager portfolio valuations, (ii) do you apply rules of thumb to determine valuations, (iii) do you focus your diligence efforts on a few meaningful cases or review & value the entire portfolio, and (iv) do you use third parties to assist in valuations?  CB: If you’re in a fund, you’re relying on the manager’s marks. What we do is not that – we own the assets directly or make co-investments. We see a lot of people approach this differently. Sometimes we have the same underlying exposure as partners and they’re marking it differently. Not to say that one party is rational and the other is not, it’s just hard to do. So this is one we struggle with. I don’t love mark-to-motion. I know there’s a tug toward trying to fair value things more, but as we’ve experienced in the venture space, you can put a lot of valuations in DPI, but I like to keep it at cost unless there is a material event. Check out the full 1-hour discussion here.

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Commercial

LCM Secures Covenant Waiver Extension as Fresh Case Write-Downs Loom

Litigation Capital Management has won another short extension of the covenant waiver on its debt facility, buying the funder additional time to resolve its capital structure while it pursues a strategic review. The AIM-listed funder paired the announcement with a warning of fresh write-downs on two case investments, sending its shares sharply lower.

As reported by Proactive Investors, lender Northleaf agreed to extend the covenant waiver by one month, to June 30, with the loan's interest margin remaining two percentage points higher than its standard rate but without an additional waiver fee. The extension follows earlier waivers granted in December 2025 and January 2026, underscoring the prolonged nature of LCM's efforts to stabilize its balance sheet.

Alongside the waiver, LCM disclosed adverse developments in two case investments carrying roughly A$9 million of deployed capital, which are expected to produce material write-downs in its next set of financial statements. Investors reacted by sending the stock down around 13%.

The update lands as LCM continues a strategic review aimed at addressing the mismatch between its funding commitments and available capital — a challenge that has weighed on several listed funders as longer case durations and adverse outcomes test the patience of lenders and shareholders alike. How LCM resolves its covenant position in the coming weeks will be closely watched as a barometer for the listed litigation finance sector.

Commercial

New Zealand Family Law Firms Turn to Third-Party Funding to Ease Cashflow Crunch

New Zealand family law practices are increasingly treating third-party funding as a core part of their business model rather than a last resort, as firms look to convert uncertain and delayed fee recovery into secured, predictable revenue. The shift reflects a broader migration of litigation finance into the consumer and family-law space, where client liquidity — not the merits of a matter — often dictates whether a case proceeds.

As reported by LawFuel, Australian-based family law funder JustFund, which launched in New Zealand last year, has now approved close to NZ$5 million in funding across 92 accredited firms, with its loan book growing 36% in the most recent quarter. Once funding is approved, invoices are paid within 24 hours, shifting the financial risk of delayed settlements away from the firm.

The model assesses funding against expected property settlements, a structure suited to family disputes where assets exist but remain locked up until resolution. New Zealand recorded 7,887 divorces in 2025, up 5% on the prior year, underscoring steady demand.

Lauren Milne, JustFund's Director of Family Law, said firms are increasingly "bringing funding into matters earlier, embedding it into client onboarding rather than waiting for payment issues to emerge." The trend points to a maturing market in which funding is positioned not as a rescue mechanism for distressed matters but as standard infrastructure for managing a practice's cashflow — even among clients whose income belies their short-term capacity to pay.

Commercial

High Court Rules Litigation Funding Documents Are Not Protected by Privilege

The English High Court has ruled that communications generated to secure third-party funding are not shielded by litigation privilege, a decision that sharpens the disclosure risks facing funded claimants and the funders who back them. The ruling came in the long-running £300 million-plus claim brought by some 13,000 black-cab drivers against Uber, which alleges the company misrepresented its business model to Transport for London.

As reported by Legal Futures, Mr Justice Birt rejected arguments that documents passing between the claimants' solicitors, Mishcon de Reya, their litigation funder, and the Licensed Taxi Drivers' Association were covered by litigation privilege. Uber had sought disclosure of materials created between late 2017 and October 2018 — before the claimants had formally instructed solicitors — and the court agreed they were disclosable.

Central to the judgment was a distinction the court drew between a party assessing its own potential claim, which attracts privilege, and a funder evaluating whether to support someone else's litigation, which does not. The documents' dominant purpose, the judge found, was to enable a funding decision rather than to conduct litigation. As one firm observing the case put it, "the decision to fund litigation is not itself conduct of litigation."

The practical implications are significant. Defendants in group actions may now gain access to early communications that reveal what claimants knew, and when, while prospective litigants are being urged to weigh carefully what information they share with funders before a claim is formally underway.