
‘Secondary’ Investing in Litigation Finance: Why, why now, and how to approach investing in Lit Fin Secondaries
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
Slingshot Insights:
In part 2 of this article, I will explore some of the intricacies of ‘investing in the tail’ and explore considerations for investing in secondary transactions in litigation finance investments.
Slingshot Insights For those investors interested in the litigation finance secondary market, I think it is important to approach the investment with caution and a high level of expert diligence to offset the implied volatility that the ‘tail’ of the portfolio offers. It is also important to understand the motivations of the seller – a manager looking to create a track record will have different motivations than an investor who needs liquidity. The seller’s motivations may also offer insight into the extent price can be negotiated. It is important not to lose sight of the typical loss rate of the industry and the fact that the tail should exhibit enhanced volatility (more losses) as compared to a whole portfolio, and so an investor should model their returns, and hence their entry price, accordingly. Should you choose to make a secondary investment, consider a variety of options to de-risk the investment by sharing risks and rewards with others (i.e. insurance providers or the vendor of the asset). Above all else, make sure your secondaries are diversified or part of a larger diversified pool of assets. As always, I welcome your comments and counter-points to those raised in this article. Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial litigation finance industry. Slingshot Capital inc. is involved in the origination and design of unique opportunities in legal finance markets, globally, investing with and alongside institutional investors
- Evolution of Litigation Finance necessitates the need for a secondary market
- Investing in Litigation Finance secondaries is much more difficult than other forms of private equity due to the inherent difficulty in valuing the ‘tail’
- Experts should be utilized to assess case merits and valuation
- Life cycle of litigation finance suggests timing is right for secondaries

- Investing in the ‘tail’ of a portfolio, where most secondary transactions will take place, can be more difficult than primary investing
- Dynamics of the ‘tail’ of a portfolio are inherently riskier than a whole portfolio, which is partially offset by enhanced information related to the underlying cases
- Secondary portfolios are best reviewed by experts in the field and each significant investment should be reviewed extensively
- Derive little comfort from portfolios that have been marked-to-market by the underlying manager
- Investing in secondaries requires a discount to market value to offset the implied volatility associated with the tail

