Podcast: Akiva Katz & Bow Street
Bow Street has a unique take on Litigation Finance. Instead of funding cases from the outset, Bow Street finds and buys litigation assets in cases where guilt has already been adjudicated. That means the main focus is on the damages. As reported in Livemarkets, Akiva Katz and Howard Shainker created a hedge fund poised to earn in any economic environment by combining a research-driven approach with an eye for impactful events. The goal is to earn returns between 25% and 40% annually. Below are some highlights from the podcast interview: AK: It’s tough to find in today’s market opportunities that others have not found before you. Where are those inefficiencies? One is inactive engagement. It’s actually in getting your hands dirty—which isn’t that scalable. That’s why we only do three to five investments a year. Another is complexity. Investors swim to what is simple. Complexity scares folks. To the extent that people in my seat are willing to dig in—there’s real reward there. The litigation claims business basically met those two criteria. AK: The litigation market in the US is tepid, low level in terms of reward. To the best of our understanding, the European markets were dominated by lawyers. That means lots of guys running around making the ambulance chaser proposition. We take 20% of the upside and bear the cost of taking your case. That always seemed wrong to us as investors, since we’re in the business of pricing risk. Our view was, we could increase our exposure by coming in with a balance sheet. That would be appealing to clients at the other end who don’t want to be involved in a year’s long protracted legal process. DC: What makes a better claim versus a claim that’s less attractive? AK: The single most important differentiating factor that we exercise has everything to do with attention to detail and documentation. The single place we take risks is on documentation. We’re not going to lose a case, because there’s been a guilty plea. But there’s risk if we don’t submit our entire documentation package and the court finds a technicality on which to award the case to the defendant. That risk is amplified by the fact that we pay full price for claims. We are cash out of pocket the day the claim comes to court. DC: Can you talk about insurance underpinning the capital? I can’t understand how that works. AK: It’s important to remember that it works as a function of the asset value. The way it works is like any other insurance policy. We’re taking out a nine-year policy to cover all our capital. No matter what judgment comes down, that insurance company covers the value of our claims and cost. So why don’t we do that always? We can’t, or we would. That option being available to us is a function of the value we created. All that insurance policy tells you is that we’ve created something that’s worth multiples of what we’ve paid for it.
