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Day Two Recap of the LF Dealmakers Conference

October 1, 2021

Day Two Recap of the LF Dealmakers Conference

Day two of of the two-day event saw a trio of panels that covered topics such as investment strategy and risk management, the interplay between fund types, and litigation finance as a tool for ESG. The first panel of the day was titles “CIO Roundtable: Focus on Investment Strategy & Risk Management,” and was moderated by Steven Molo, Founding Partner of MoloLamken. Panelists included:
  • Patrick Dempsey, Chief Investment Officer, US, Therium Capital
  • Sarah Johnson, Co-Head Litigation Finance, The D. E. Shaw Group
  • Aaron Katz, Chief Investment Officer, Parabellum Capital
  • David Kerstein, Chief Risk Officer & Senior Investment Manager, Validity Finance
The conversation began with the rise of business interruption claims. Patrick Dempsey of Therium hasn’t seen much in the way of business interruption claims that have been successful yet.  There was an initial interest in this case type, but then a lot of negative decisions came out of federal courts, and so interest waned. That said, you can build a portfolio of these claims and hedge your risk going forward. Aaron Katz of Parabellum noted how his firm hasn’t been active in the business interruption space, though the pace of all other claim types is picking up, with interesting new product areas being developed, including credit-like structures, different stages of cases being presented, lower risk investment types, and even partial recourse feature investment. Sarah Johnson of D.E. Shaw commented on the emergence of new entrants into the litigation funding space. Competition does affect pricing, and this has more of an impact in creative structuring—with new tranches of risk being created. David Kerstein of Validity jumped in to parse this out. He has seen more competition in pricing in larger size deals, however not so much in the more modestly-sized deals. There is still competition there, as claimants are approaching a lot of funders, just not as much price pressure in these types of claims. The conversation then turned to bankruptcy. This was a very quick distressed cycle—given that there was a lot of sophisticated money chasing these deals, there wasn’t as much of a need for litigation funding. However, we may soon begin to see bankruptcies driven by litigation, which could prompt claimants to approach funders for partnership or monetization. And smaller cases might be a place for funders, given that these bankruptcy claims are typically underfunded. As David Kerstein of Validity noted, “When there are bankruptcies that are based on litigation assets or issues, litigation funders are well placed to come in and provide value.” And on the issue of insurance, Aaron Katz noted that judgments are being protected with insurance, products are out there to preserve capital or even back some of the profit in a deal. That said, Parabellum hasn’t seen it as part of the bread and butter of their work. Yet Katz feels it’s only a matter of time before insurance permeates the space, but we’re not there yet. Patrick Dempsey chimed in on his experience with insurance in UK-based claims. Adverse costs insurance is inherent in the jurisdiction there, and so insurance on a portfolio basis was being considered very early on. That was ultimately deemed unnecessary, but that discussion is starting to return, and will likely come back in full force. Therium only uses insurance for judgment protection in the U.S. On the issue of regrets, Sarah Johnson noted how she wishes she had been more aggressive at the outset—doing more deals, and being less price sensitive. Having worked previously in distressed investments, she was used to price sensitivity being an issue, but she found that the industry grew a lot faster and provided much better returns than perhaps even she expected. This speaks well to the industry’s continued growth potential. Later in the day, a pair of panels tackled topics such as fund types, deal structures and costs of capital, as well as ESG and impact investing. One interesting takeaway from the former discussion came from Sarah Lieber, Managing Director and Co-Head of the Finance Group at Stifel. Lieber commented on the large commercial bank syndication model that her firm is structured with. What Stifel does is essentially a merchant banking model—they use their own balance sheet and originate their own transactions. When they approach a partner, whether that is a litigation funder, insurance company, private equity or multi-strategy firm, they choose their partner based on the return profile. And they can syndicate their partnerships within a larger deal construct. Stifel generally operates in the $50MM+ range, and can take on multiple co-investors with various tranches. So Stifel operates in cooperation with many other in the space, in a syndicated investment model. Stifel’s very presence in the market is emblematic of how prominent the funding industry has grown, and how much it has matured over the past few years. Doubtless there will be further maturation ahead, and likely more funding entities which enact a similar merchant banking model. As Tets Ishikawa Managing Director of LionFish noted (on the same panel discussion): “When the market started in the last 15-20 years, it really started as a litigation funding industry—as one single entity. But I believe this market will become like the commercial real estate market. There are many different types of real estate, just as there are many different types of litigation, so in the end there will be many different types of litigation finance investors.”

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Commercial Regulatory Issues

Congress Debates Litigation Funding Bill

By John Freund |

Republican lawmakers have renewed their push to rein in third-party litigation funding, with a House Judiciary Committee debate highlighting how politically charged the issue has become.

An article in The Daily Signal reports that members of the House Judiciary Committee clashed this week over legislation that would require disclosure of third-party litigation funding arrangements in federal courts. Supporters of the bill framed it as a transparency measure aimed at exposing the financial interests behind major lawsuits, while opponents warned that the proposal risks limiting access to justice and unfairly targeting a growing segment of the legal finance market.

During the committee debate, Republican lawmakers argued that outside investors are increasingly influencing litigation in ways that can distort outcomes and inflate settlement values. Several speakers characterized litigation funders as profit-driven actors operating in the shadows, asserting that judges and defendants deserve to know who stands to benefit financially from a case. Proponents also linked litigation funding to broader concerns about rising legal costs and what they describe as abusive litigation practices.

Democratic members pushed back, questioning whether the bill was designed to solve an actual problem or simply to deter plaintiffs from bringing legitimate claims. Critics of the proposal argued that disclosure requirements could chill funding for complex and expensive cases, particularly those involving individual plaintiffs or smaller businesses facing well-capitalized defendants. They also raised concerns about confidentiality and whether revealing funding arrangements could give defendants a tactical advantage.

The debate reflects a broader national conversation about the role of litigation finance in the civil justice system. While disclosure requirements have already been adopted in certain courts and jurisdictions, the proposed legislation would impose a uniform federal standard. Supporters say this consistency is overdue, while opponents argue it could undermine carefully negotiated funding structures that allow cases to proceed at all.

Commercial

APCIA Supports Federal Litigation Funding Disclosure Bill

By John Freund |

The insurance industry has intensified its campaign for greater scrutiny of third-party litigation funding, with one of its most influential trade groups backing new federal legislation aimed squarely at disclosure.

An article in Insurance Journal reports that the American Property Casualty Insurance Association has thrown its support behind a proposed federal bill that would require parties in civil litigation to disclose the existence of litigation funding agreements. The legislation, which is currently being considered by the House Judiciary Committee, would mandate that courts be informed when a third party has a financial stake in the outcome of a lawsuit. Proponents argue that this information is essential for judges to understand who stands behind a claim and whether outside financial interests may be influencing litigation strategy.

APCIA framed its endorsement around long-standing concerns about rising litigation costs and what insurers describe as “social inflation.” According to the group, undisclosed litigation funding arrangements can drive up claim severity, prolong disputes, and ultimately increase costs for insurers and policyholders alike. By requiring transparency, APCIA believes courts would be better positioned to manage conflicts of interest, assess discovery disputes, and evaluate settlement dynamics.

The association has been an active voice in the national debate over litigation finance for several years, often aligning with other insurance and business groups calling for disclosure regimes at both the state and federal level. APCIA leadership emphasized that the proposed legislation is not intended to ban or restrict litigation funding outright, but rather to ensure that judges and opposing parties have visibility into financial relationships that could bear on a case.

The bill would apply broadly in federal courts and could have significant implications for how funded cases are litigated, particularly in complex commercial disputes and class actions where third-party capital is more common. Insurers view federal action as a way to establish consistency across jurisdictions, rather than relying on a patchwork of state rules and local practices.

Commercial Regulatory Issues

Why Big Law Is Walking Away From Suits Against Governments

Elite global law firms are increasingly declining to pursue massive claims against sovereign states, even when potential recoveries run into the billions. The trend reflects a reassessment inside Big Law of the risk, cost, and strategic value of investor state and public law disputes that can take years to resolve and often carry significant political and reputational complications.

An article in Law.com International reports that top-tier firms which once dominated investor state arbitration and other government facing disputes are now far more selective about taking on such matters. Lawyers interviewed for the piece point to a combination of commercial pressure, client demands, and internal firm dynamics that make these cases less attractive than they once were. Although headline damages can be enormous, the cases typically require years of work, large multidisciplinary teams, and significant upfront investment with no guarantee of recovery.

Another key factor is reputational risk. Firms are increasingly cautious about being seen as adversaries of governments, particularly in sensitive jurisdictions or disputes involving public policy, natural resources, or infrastructure. Partners noted that political backlash, enforcement uncertainty, and the potential impact on other client relationships all weigh heavily when firms decide whether to proceed.

The article also highlights that many corporate clients are less willing to bankroll these disputes directly. Budget scrutiny has intensified, and companies facing disputes with states are often reluctant to commit tens of millions in legal fees over a long time horizon. This dynamic has contributed to a rise in alternative fee arrangements and third party litigation funding, though even those tools do not fully offset the burden for law firms carrying significant work in progress.

As a result, specialist boutiques and arbitration focused firms are increasingly stepping into the space once dominated by global giants. These smaller players often have lower overhead, deeper niche expertise, and a greater tolerance for the long timelines associated with sovereign disputes.