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“Edge” for Litigation Finance Managers

July 22, 2020

“Edge” for Litigation Finance Managers

The following article is part of an ongoing column titled ‘Investor Insights.’  Brought to you by Ed Truant, founder and content manager of Slingshot Capital, ‘Investor Insights’ will provide thoughtful and engaging perspectives on all aspects of investing in litigation finance.  EXECUTIVE SUMMARY
  • As the litigation finance industry matures, there will be more competition, more fragmentation and more specialization
  • Competitive advantages will be necessary for managers to differentiate themselves in the marketplace and produce strong risk-adjusted returns
  • Managers should institutionalize their “edge” to create equity value for themselves, and separate the value of their organizations from the principals running it
INVESTOR INSIGHTS
  • Investors should be looking for managers that have some advantage, or “edge” vis-à-vis their competition; an informational advantage is one approach
  • Funders should be open-minded about their diligence process, and experiment with non-conventional approaches to add value to the case
  • Informational advantages may be particularly beneficial in collections and enforcements
In the capital markets industry, there is a concept referred to as “edge”, which can be defined as any legal form of information, insight or proprietary process or knowledge which an investor possesses that allows him or her to outperform peers and generate alpha.  Investors look for managers with “edge” as a point of differentiation, and as a means to lower risk and enhance returns in a given investment strategy. In thinking about how a litigation funder can develop ‘edge’, one option is to acquire an informational advantage that enables the funder to invest where others do not dare to tread, or avoid investing where the path is well worn.  One way to obtain an informational advantage is to look where others are not looking.  Today, we have at our disposal the world’s largest accessible database free for anyone to access – the worldwide web.  We also have the so-called “dark web”, where fewer dare to participate, but which may possess insights nonetheless. In order to get a better perspective on the nuggets of gold that lie within the web, I decided to reach out to Cameron Colquhoun of NEONCentury, a UK-based intelligence firm, to better understand how the litigation finance community may be able to generate edge. The Web…. In some ways, little has changed about our use of the internet in 30 years: we all still use screens, keyboards and mice to open windows and browser pages. What has changed, without exception, is the size of the world behind our screens – which is far bigger than our brains and imaginations can appreciate. As of 2016, Google revealed it knew of 130 trillion web pages, and the real number today is likely to exceed 200 or 300 trillion. To put it another way; as the Head of Security at Twitter pointed out back in 2011, one-in-a-million events happen on the internet every second, and one in a billion events happen almost as frequently. It is a mathematical near-certainty that within all of this data, game-changing intelligence is sitting there, waiting to be found – vital to the success of any litigation. The truth is, very few law firms or investors understand this reality, and therefore rarely ever engage or commission the type of intensive, detailed online investigations that are required to push the confidence intervals of success up by 1, 2, 5, 10 or even 20%. In the biggest cases, this can mean tens if not hundreds of millions of dollars of difference in settlement. …and the Dark Web The dark and unindexed web is another part of the web that is as yet untouched by both law firms and litigation finance. In particular, leaked data and data ‘dump’ sites hold huge amounts of pivotal intelligence. The most prominent case of leaked data to date is of course the Panama Papers, where millions of files belonging to a single Panamanian law firm were leaked online and led to over $1.2bn in recoveries (the real figure is likely to be far higher, as most countries do not make settlement data public). Dozens of prominent individuals had their assets exposed, and with millions of documents available to research – many more hidden assets and frauds are likely to be revealed amongst the 11.5 million files. Every time a new major leak is released online, (more recently BlueLeaks and 29Leaks), law firms or litigation financiers should be feverishly combing through its contents looking for angles. Case Study At NEONCentury, we are often tasked with conducting investigations prior to a potential litigation. In one case, a hedge fund asked for our help as they believed a group of CEOs were meeting in secret, and were considering a litigation. This global company, they suspected, was going to be sold for several billion below market value in some kind of backroom boys club deal. Using our data capabilities, we tracked the private jets owned by those who attended these meetings, but the planes were delisted from public view (this is known as a BARR / LADD request and often used by CEOs and Ultra High Net Worth investors for anonymity). BARR-listed jets do not appear on sites like FlightRadar and FlightAware. However, these aircraft, by law, must emit radio signals (ADS-B) data, and using the right online databases and sources, the aircraft can be tracked and historical manifests can be discovered. We were able to conclusively prove that the private jets belonging to three members of the secret meetings were all on the same runways at multiple times and locations, giving our client a route to a potentially multi-billion dollar litigation. It is difficult to imagine a single law firm on the planet that would have these capabilities in-house, or even understand the ‘art of the possible’ when it comes to open data. Today, litigation financiers allow law firms to manage the research and investigation sides of a case, hoping that either the law firms’ in-house research teams or external corporate intel firms might yield further intelligence to tip the outcome in their favour. Law firms are not known for their technological prowess or understanding of the internet, generally, and therefore the litigation finance world may be missing real value in allowing law firms to manage the technical and cyber side of a case on their behalf. …the “Edge” If investors can accept that game-changing intelligence for any litigation is out there in the public domain, they may be better-prepared to commission this research directly with corporate investigations firms *before* any litigation is even considered. Investors would then be forearmed with a much stronger hand when they engage both law firms and claimants. This approach would greatly improve the ROI of litigation finance, and is analogous with the world of hedge funds and short-sellers. Many of these firms spend months or years investigating a company, searching for hidden value or opportunity. In the case of Wirecard, hedge funds discovered evidence of fraud just by conducting deep online investigations of Wirecard’s clients. Some walked away with billions in returns on this research. There is no reason why the same approach cannot be applied to the world of litigation finance: forward-thinking investors, who understand the power of corporate intelligence and the scale of the internet, can partner with world class investigators, and take these results to the right law firms to alter the course of multimillion and multibillion-dollar litigations. Investor Insights As the litigation finance industry matures, there will be a significant increase in managers who are attracted by the returns inherent in the industry, and the intellectual challenge of applying their litigation craft in another application.  The industry will scale, fragment and specialize.  This will make it more difficult for fund managers to differentiate their approach and value.  Forward-thinking managers should be looking at ways to create “edge” for themselves to attract institutional capital and generate superior risk-adjusted returns.  An informational advantage is one such way to create “edge”. As always, I am open to criticism and other points of view, so feel free to contact me to exchange ideas.  Edward Truant is the founder of Slingshot Capital Inc., an investor in the litigation finance industry (consumer and commercial) and a former partner in a private equity.  Ed is currently designing a new fund focused on institutional investors who are seeking to make allocations to the commercial litigation finance asset class.  Cameron Colquhoun is the founder of Neon Century, a former UK intelligence officer and winner of the Fulbright Award for Cyber Security. Neon Century is an elite corporate intelligence firm based in London, providing clients in the hedge fund, equity and litigation sectors with decisive advantage.

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Longford Capital Doubles Down to Support American Innovation

By John Freund |

Longford Capital Management, LP today announced that it has launched the Longford Capital American Innovation Initiative to help American inventors protect their legal rights, access the U.S. legal system, and advance American innovation.

America is the greatest country in the world and Americans are achieving advancements in every facet of our lives, including healthcare, artificial intelligence, clean energy, technology, aerospace, cybersecurity, transportation, wireless communications, and many others. Intellectual property is critical to American exceptionalism and national security. American inventors are systematically the victims of intellectual property theft at the hands of foreign and domestic bad actors. Well-financed multi-national corporations steal the innovations of small and medium size American companies leaving them will little options to protect their legal rights in the expensive U.S. legal system. For more than a decade, Longford has been supporting American inventors, investing approximately $500 million to support nearly 100 intellectual property owners trying to defend their assets. These efforts have resulted in recoveries of more than $1.5 billion from patent infringers.

Take, for example, Malcolm Beyer, Jr., a graduate of the United States Naval Academy, retired Captain in the U.S. Marines, and small business owner. His company developed a communication system that increases safety and operational effectiveness for the U.S. military, law enforcement, and first responders. When his patented technology was infringed by foreign companies, he didn’t have the money to defend his legal rights in court. He turned to Longford Capital. Longford provided millions of dollars to pay his legal fees, which allowed Mr. Beyer to successfully defend his legal rights and protect his innovation. Without access to litigation finance, Malcolm Beyer’s company would not have survived.

Today, we are ramping up our efforts to support our country, American inventors, small and medium size businesses, and the advancement of American exceptionalism. The ability to protect innovation through the patent system and the U.S. legal system is essential to attract investment and encourage the best and brightest Americans to dedicate their careers to improving our lives. Longford’s funding empowers American innovation and makes America stronger. Members of Longford’s legal team are perennially recognized as leading IP strategists with an established record of developing and implementing world-class IP value creation programs for American companies.

About Longford Capital

Longford Capital is a leading private investment company that provides capital to leading law firms, public and private companies, research universities, government agencies, and other entities involved in large-scale, commercial legal disputes. Longford was one of the first litigation funds in the United States and is among the world’s largest litigation finance companies with more than $1.2 billion in assets under management. Typically, Longford funds attorneys’ fees and other costs necessary to pursue meritorious legal claims in return for a share of a favorable settlement or award. The firm manages a diversified portfolio, and considers investments in subject matter areas where it has developed considerable expertise, including, business-to-business contract claims, antitrust and trade regulation claims, intellectual property claims (including patent, trademark, copyright, and trade secret), fiduciary duty claims, fraud claims, claims in bankruptcy and liquidation, domestic and international arbitrations, claim monetization, insurance matters, and a variety of others.

Commercial Legal Innovation

Startup Founder Touts Data-Driven Funding Model

By John Freund |

A litigation funding startup founder is making the case that technology, disciplined underwriting, and alignment with law firms will define the next phase of growth in the funding industry.

In Part II of its interview series, Above the Law spotlights the founder’s views on building a differentiated funding platform in an increasingly competitive market. The discussion centers on how newer entrants can compete with established players by leveraging data analytics, focusing on select case types, and maintaining tight operational controls. Rather than pursuing volume for its own sake, the founder emphasizes a strategy built around rigorous case selection and long-term partnerships with law firms.

A key theme in the interview is the importance of underwriting discipline. The founder notes that not all meritorious cases make good investments, underscoring the need to evaluate damages models, collectability, and litigation timelines with precision. Technology plays a central role in that process, with analytics tools helping to assess risk factors and identify patterns across similar claims. This approach, the founder argues, allows the company to move efficiently while avoiding the pitfalls of overly aggressive capital deployment.

The interview also touches on market education. Despite litigation finance’s growing acceptance, misconceptions persist among lawyers and corporate stakeholders. The founder suggests that transparency around pricing, control, and alignment of interests remains critical to winning trust—particularly among firms that may be considering funding for the first time.

Commercial

AI Reshapes Mass Torts With Cost-Saving Promise

By John Freund |

Artificial intelligence is rapidly moving from a back-office efficiency tool to a central driver of strategy in mass tort litigation, with significant implications for plaintiff firms, defense counsel, and the litigation funding community.

An article in Bloomberg Law explores how AI-powered tools are transforming the economics of large-scale product liability and personal injury cases. From claimant intake and medical record review to document analysis and settlement modeling, AI platforms are enabling law firms to process vast amounts of data at a fraction of the traditional cost and time. In mass torts—where tens of thousands of claims can hinge on nuanced medical and factual distinctions—these efficiencies are particularly valuable.

According to the report, firms are deploying AI to automate the review of medical records, identify injury patterns, and categorize claimants more quickly. This not only reduces overhead, but also enhances early case assessment, helping firms determine which claims warrant full investment. On the defense side, corporate legal teams are leveraging similar technologies to assess exposure and streamline discovery. The result is a technological arms race in high-volume litigation.

While some observers raise concerns about accuracy, oversight, and ethical guardrails, proponents argue that AI can reduce administrative waste and free attorneys to focus on higher-value legal analysis. Vendors servicing the mass tort bar are also positioning AI as a way to increase access to justice by lowering the cost of bringing claims that might otherwise be economically unviable.