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

• Modern Portfolio Theory (MPT) - a mathematical framework based on the “mean-variance” analysis - argues that it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk
• MPT states that assets (such as stocks) face both “systematic risks” - market risks such as interest rates - as well as “unsystematic risks” - mostly uncorrelated exposures that are characteristic to each asset, including management changes or poor sales resulting from unforeseen events
• Post-modern Portfolio Theory (PMPT) adds a layer of refinement to the definition of risk
• Diversification of a portfolio can mitigate the impact of unsystematic risks on portfolio performance - although, it depends on its composition of assets
• Behavioural Finance (BF) introduces a suggestion that psychological influences and biases affect the financial behaviors of investors and financial practitioners, also applicable to litigation finance

Slingshot Insights:

• Portfolio theory is important to the commercial litigation finance asset class due to its inherently high level of unsystematic risks
• Slingshot’s Rule of Thumb: a portfolio should contain no less than 20 investments in order to provide the benefits associated with portfolio theory
• Diversification is critical for every fund manager
• Specialty fund managers may play a positive role in a comprehensive litigation finance investing strategy by assisting with meeting a particular performance objective when defined in the context of acceptable “mean-variance” targets
• Diversification provides optionality for an under-performing manager to ‘live to fight another day’ if their first fund achieved sub-par performance
• Portfolio theory is applicable to consumer litigation finance

For those new to the commercial litigation finance sector, one aspect worth discovering from an investment perspective is the existence of unique risks attributable to this asset class.  For investment managers looking to get started in the industry, it is critical to understand the implications of the risks inherent in the asset class, especially for those with a limited track record in litigation finance.  Accordingly, significant attention should be paid to portfolio construction and diversification, in particular during the early stages of the life cycle of an industry where investments possess both idiosyncratic and binary risk, and where there is much less empirical data to guide investment decisions.  Portfolio risk is generally influenced by three main factors: volatility of results, correlation (of outcomes within a given portfolio) and the size of the portfolio.  For the purposes of this article, I have assumed that correlation within a portfolio is non-existent, as each case stands on its own and is not influenced by others in the portfolio. However, to the extent correlation does exist, it can have a significant impact on the value of portfolio theory.  As the industry evolves so too will its data requirements When the litigation finance industry first originated, the concept of portfolio theory was less important, given the recognition within the industry of a requisite level of experimentation (i.e. risk) to be assumed in order for a conclusion to be drawn about the attractiveness of the asset class. Therefore, the industry attracted the appropriate level of risk capital correlating to the risk/reward promise of litigation finance.  As the asset class matures and managers prove out the return profile, the early risk money is being supplemented with institutional capital, which is less inclined to assume the same level of risk as that of high net worth and family office investors.  Accordingly, in order to attract such capital, an element of data and analysis will need to be captured and compiled to assist the investor in understanding the dynamics inherent in the industry (returns, duration, volatility, correlation, etc.), which is partly why I believe the concepts in this article will grow increasingly significant in the near future. Portfolio Theory Concepts Before we discuss the applicability of portfolio theory to litigation finance, let’s dig into some portfolio theory concepts. While an in-depth study into portfolio theory is beyond the scope of this article, the following will provide readers with some theoretical concepts that have been developed and refined over the last 70 years.  Multitudes of research studies and articles have been published over the years and are publicly available.

1. Modern Portfolio Theory (“MPT”)

Modern Portfolio Theory was developed by Harry Markowitz and published under the title “Portfolio Selection” in the journal of Finance in 1952, and remains one of the most important and influential economic theories dealing with finance and investment.  In essence, the theory suggests that investors can reduce risk through diversification.  Risk, in the context of modern portfolio theory, is the concept of the standard deviation of return as compared to the average return for the markets.  The theory states that the risk for individual stock returns has two components: Systematic Risk – These are market risks that cannot be diversified away. Interest rates, recessions and wars are examples of systematic risks in the context of public equities. Unsystematic Risk – Also known as "specific risk," this risk is specific to individual stocks, such as a change in management or a decline in operations. This kind of risk can be diversified away as one increase the number of stocks in one’s portfolio. It represents the component of a stock's return that is not correlated with general market moves. One of the limitations of MPT is the fact that it assumes a normal distribution of outcomes in the shape of a ‘normal bell curve’, which may be applicable for markets where there is perfect information, but not applicable to many private market investments where there is a meaningful information asymmetry among market participants (thereby resulting in skewed performance distributions and potentially heavy tails).  Essentially, MPT is limited by measures of risk and return that do not always represent the realities of the investment market. Nonetheless, it laid the foundation for additional theories which have served to refine the original, underlying one.

2. Post-modern Portfolio Theory (“PMPT”)

The term ‘post-modern portfolio theory’ has its roots in research undertaken at the Pension Research Institute at San Francisco University in 1983, and was created in 1991 by software entrepreneurs Brian M. Rom and Kathleen Ferguson, in order to differentiate the portfolio-construction software developed by their company from those provided by traditional MPT.  The PMPT theory uses the standard deviation of negative returns as the measure of risk, while MPT uses the standard deviation of all returns as a measure of risk. The authors determined that the normal distribution curve which represents the basis for MPT does not accurately reflect all markets and is merely a subset of PMPT. Essentially, different than MPT which tends to focus on risk in the context of derivation from mean market returns, PMPT focuses on risk and reward relative to an expected Internal Rate of Return (“IRR”) required for a given set of risks, which is more of a risk-adjusted return philosophy.  However, a key limitation of both MPT and PMPT is that they are both premised on the assumption of efficient markets, being the theory that all participants in a market have the same access to information. Enter Behavioural Finance…

3. Behaviour Finance (“BF”)

I think we can all agree that most financial markets are anything but rational, which means there must be something else influencing their behaviour and, hence, their performance.  Behavioural Finance is a conceptual framework to study the influence of psychology on the behavior of investors and financial analysts. It also recognizes the subsequent effects on markets. BF focuses on the fact that investors are not always rational, have limits to their self-control, and are influenced by their own biases.  BF believes that investors are subject to a variety of judgment errors or biases, which are broadly defined as Self-Deception (you think you know more than you do), Heuristic Simplification (information processing errors), Social Influence (how our decisions are influenced by others) and Emotion (your mood’s impact on rational thinking at the time of investment).  The applicability of BF cannot be overstated in the context of litigation as there is the potential for many biases to enter the decision-making process, especially by litigators who’s own experience may be impacting their decisions. While many theories exist to explain market behaviour and how investors should position their portfolios to address risk, I have focused on the three above as they are among the most prominent.  While they serve as a guide to address risk in the context of portfolio construction, they also serve to highlight an investor’s inherent limitations, and give rise to questions litigation finance managers should be asking themselves: are my biases working their way into my portfolio construction?  Of course, much of the research on which these theories are predicated relate to the public equities marketplace, which simplifies analysis via transparency and quantum of data.  In the context of litigation finance, we have a private market which is not large and not very transparent.  In addition, it is a market that is very inefficient due to the confidential nature of litigation - because it is a private market - and due to its relative nascency.  This is, in part, one of the reasons that I am presently pursuing the Slingshot Data Project (more to come in future articles) through a “Give to Get” model, where value (in the form of analytics) will be provided to a variety of participating constituents.

Application to Commercial Litigation Finance

Before we can discuss the application of portfolio theory to commercial litigation finance, it is important to determine the risks that are inherent in the asset class. The litigation finance asset class exhibits a significant number of unique risks, some of which are Systematic and others Unsystematic, and some which fall into both categories.  As an example of a dual risk, collectability risk is inherent in any piece of litigation where one party is suing another (i.e. a Systematic Risk). In addition, there is the specific collection risk associated with a given defendant (are they more likely to settle and pay quickly, or delay, appeal and negotiate a settlement over a protracted period of time), which may be higher or lower than the overall risk inherent in litigation (i.e. an Unsystematic Risk)). Generally, I find the level of Unsystematic risks to be high in litigation finance given that the outcome of each case is idiosyncratic to the aspects of the case (case merits, credibility of the witnesses, the credibility of professional witnesses, the litigious nature of the defendant, legal counsel effectiveness, defense counsel effectiveness, judiciary effectiveness, jurisdiction and collectability – to name some of the more significant risks).  However, litigation finance also has a number of Systematic exposures (binary outcomes, duration, liquidity, counter-party, collectability, case precedent, regulatory, legislative, etc.) which may not be fully addressable through the application of portfolio theory. With respect to the influence of binary risk, I would add that while each case possesses binary risk at the outset, very few cases in fact are determined by a judicial decision (as with most litigation, the vast majority of cases are settled out of court). So, while binary risk (a Systematic risk) is endemic to the asset class, its application - in particular in the context of a portfolio - should not be overstated, because it rarely influences the performance directly - unless there is a series of highly correlated cases embedded in a portfolio (although the threat of a judicial outcome is a significant factor in any settlement).  In addition, certain case types have a higher propensity to be settled via a judicial decision (e.g. International Arbitrations) as opposed to others (e.g. Breach of Contract). Having said that, if one is only looking at the tail end of a portfolio, binary risk can be disproportionately higher, as those cases within the tail likely have a higher probability of being decided by a judiciary simply because they have had longer case durations which may indicate that neither side is willing to negotiate a settlement, or that the case is heading toward a trial decision. This proves that correlations – and thereby a degree of diversification – are not constant across a spectrum of case distributions. In the second part of this article, which can be found here, I apply the portfolio theories outlined above to the commercial litigation finance marketplace and offer some perspectives on responsible portfolio construction. Slingshot Insights Investing in a nascent asset class like litigation finance is mainly about investing in people.  Most managers simply don’t have the track record of a fully realized portfolio on which investors can base their investment decision.  Accordingly, much time and attention is spent on understanding how managers think about building their business and in particular their first portfolio.  In addition to the underwriting process, one of the most important considerations for investors to understand is how managers think about portfolio construction and diversification. Portfolio theory plays an integral role in terms of how managers should be thinking about constructing their portfolios from the perspective of the number of cases in the portfolio, but managers should also ensure their own personal bias is not entering into the portfolio and that they have thought about all of the systematic risks that can affect like cases. My general rule of thumb is that most first time managers should be targeting a portfolio of at least 20 equal sized commitments, appreciating that it is almost impossible to achieve equal sized deployments due to deployment risk. It is also not in the manager’s best long-term interest to take a short-cut on diversification for expediency sake (i.e. to raise the next larger fund) and to do so may be interpreted as poor judgment from an investor’s perspective! 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.

DOHA, Qatar, Feb. 27, 2020 -- The Swifthold Foundation, which was defrauded by Sheikh Fahad bin Ahmad bin Mohamed bin Thani Al Thani and his Qatari company, Fast Trading Group, has been patiently waiting for the Qatari Enforcement Court to enforce Swifthold's $6 billion U.K. High Court Judgment since the Qatari Trial Court issued a Writ of Execution to formally recognize the Judgment in Qatar in the Summer of 2019. Upon the Writ of Execution being issued, the Qatari Enforcement Court informed the Foundation on July 4, 2019 that it would begin to contact various Qatari governmental agencies and financial institutions to commence the seizure of the defendants' assets in satisfaction of the Judgment. However, according to Delta Capital Partners, the American litigation finance and support firm that the Foundation has retained, the enforcement process has been opaque, slow and wholly unsatisfactory. Delta's CEO, Christopher DeLise, stated, "The Enforcement Court's progress has been quite disappointing as we are given only general updates rather than specific details of the actions being taken by the court to satisfy Swifthold's judgment. This is unacceptable as great effort was taken, and resources expended, to have the judgment recognized by the Qatari Trial Court. Once this occurred, we expected the defendants' assets to be seized within a few months. Now it is eight months later and assets that have been identified still have not been seized in satisfaction of the judgment and when we press the court for detailed updates and explanations, we are given vague general statements. When we began the recognition and enforcement action in early-2019, we were assured by the Qatari Attorney General, Ali Bin Fetais Al-Marri, that the Qatari courts would respect international law and thereby enable Swifthold to timely obtain justice for the harm caused by the defendants. He assured us that if we did not obtain such results then we should call upon him for assistance. As such, we have now begun the process of asking him for assistance and potentially seeking assistance from other governments so that justice can finally be served." A spokesperson for Swifthold commented, "We were hopeful that the recognition of the judgment in Qatar would be the last major issue for us to overcome, but the speed at which the Qatari Enforcement Court operates is now causing us to wait needlessly and further delay justice.  This is incredibly unfair given how long and how hard we have had to fight to receive compensation for the harm caused us." In July 2019, Swifthold hired the international law firm Akin Gump to advise on the enforcement efforts in the Qatari Courts. The Akin Gump representation is led by Ms. Ileana Ros-Lehtinen, Senior Advisor, Member of Congress (Ret) and former Chairwoman of the House Foreign Affairs Committee. Ros-Lehtinen stated, "I recently called upon Qatar in The Jerusalem Post to mend its ways, not just mouth the words, when it comes to halting its extremist financing. In this case, Sheikh Fahad has previously violated U.N. sanctions when he imported dual-use laser devices to Iraq in 2003, he also co-owns a Qatari entity with convicted money launder Antonio Castelli, who helped pocket Swifthold's assets, and he is believed to have channeled these assets and others to parties supporting extremist groups." Delta's CEO closed by commenting, "After engaging several world-class investigative and asset tracing firms to identify assets of the defendants, we have become aware of other acts perpetrated by Sheikh Fahad and certain other persons within and outside Qatar that would be of interest to the governments of Qatari, the U.S., the U.K. and perhaps others. Indeed, it appears that Sheikh Fahad is living two lives: one where he ostensibly operates as a legitimate businessman, and another where he engages in unlawful activities with nefarious parties in the Middle East and elsewhere." For additional information, please visit http://sheikh-fahad-judgment.com/.

The business of Insurance is a complex one, full of costly legal pitfalls. This is especially true within two core components of the Insurance industry: subrogation and reinsurance. Fortunately, litigation funding provides an antidote to Insurance companies who may find themselves embroiled in legal turmoil stemming from either practice. As noted on IMF Bentham's website, subrogation is the act of recoupment by an Insurance company of their payment to a policy holder. The Insurance company may be on the hook to the policy holder, but can attempt to recoup their policy payout by suing the allegedly liable party. So for example, if a homeowner declares property damage, the Insurance company will pay out the requisite amount as stated in the policy, but assuming a third party is liable for that property damage, the Insurance company may pursue legal action against the third party to recoup their payout. It goes without saying that subrogation is fraught with risk. The third party may be impecunious, therefore making collectability an issue. And there is always the risk that the litigation will go awry, despite the underlying merits. This is where litigation finance comes in. By its very nature, litigation finance mitigates risk, and in this instance allows the Insurance company to pursue meritorious subrogation claims. Similarly, funders can partner with contingency-fee law firms who take on subrogation claims from large Insurance providers on a portfolio basis, thus mitigating the law firm's risk as well. So there are multiple avenues here where funding can be applied. Reinsurance involves a similar circumstance. An Insurance provider may take out reinsurance on the policy the company writes (that reinsurance may in turn be reinsured; and on and on...sort of like a 'Russian Doll' of insurance policies). The higher the number of reinsurances, the more likely a conflict over who is liable for the payout. Reinsurance litigation is essentially a breach of contract claim, except given the complexity, it is often decided by a judge, rather than a jury. As with subrogation, litigation finance provides certainty that legal costs will not encumber the plaintiff and ensure them access to justice. So for any Insurance company - or law firm with a portfolio of subrogation or reinsurance claims - litigation finance is a helpful tool worth considering.

SAN FRANCISCO, Feb. 26, 2020 /PRNewswire/ -- RPX Corporation today announced that it has secured license rights to Excalibur IP's patent portfolio for a syndicate made up of a subset of the RPX membership, while also reserving rights for additional and future members. Excalibur IP is a subsidiary of Altaba Inc., the company formerly known as Yahoo, Inc. prior to the sale of Yahoo!'s operating businesses to Verizon in 2017. The global portfolio consists of more than 2,000 patents owned by Excalibur IP.

"We are pleased to have reached this agreement with Excalibur IP. It is yet another example of RPX's unique ability to efficiently secure rights to large patent portfolios," said Dan McCurdy, Chief Executive Officer of RPX. "Our membership continues to grow as companies join RPX to collaboratively clear patent risk in transactions such as this."

RPX members across a wide range of technology sectors are receiving licenses to the Excalibur IP portfolio in connection with this transaction.

ABOUT RPX RPX Corporation is the leading patent risk management platform, offering defensive buying, acquisition syndication, patent intelligence, insurance services, and advisory services. Since its founding in 2008, RPX has introduced efficiency to the patent market by providing a rational alternative to litigation. The San Francisco-based company's pioneering approach combines principal capital, deep patent expertise, and client contributions to generate enhanced patent buying power. By acquiring patents and patent rights, RPX helps to mitigate and manage patent risk for its growing client network.

As of December 31, 2019, RPX had invested over $2.7B to acquire rights to more than 48,000 US and international patent assets on behalf of more than 320 clients in eight key sectors: automotive, consumer electronics and PCs, e-commerce and software, financial services, media content and distribution, mobile communications and devices, networking, and semiconductors.

Media Contact RPX Corporation media@rpxcorp.com

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

Market	Australia (AUS$)	UK (£)	USA (US$)
Implied Commitment Capacity	AUS $1B	£2B	US $10B
Implied Annual commitments1	AUS $333MM	£667MM	US $3.3B

The chart above summarizes the results of quantifying the size of the most mature markets for litigation finance.  If you were to attempt to perform the same analysis three years ago, I suspect you would find that the industry was less than half its current size.  Accordingly, it is a dynamic and growing market that should be on most investors’ radar screens if you are interested in non-correlated exposures. Investor Insights

• Growing, dynamic market
• Diversification is critical to responsible investing; “tail risk” can be significant
• Relatively few managers with long track records
• New investors should focus on the small subset of experienced fund managers

Approach and Limitation of Sizing I am often asked about the size of the commercial litigation finance market by individual and institutional investors alike, whether relative to the US market or other large global markets. I often hesitate to answer the question as the answer is dependent on an element of transparency not currently inherent in the industry itself.  Nevertheless, I think it is important for all stakeholders to understand the size of an industry, so investors can determine whether it has the scale and growth attributes necessary to justify a long-term approach to investing in the sector. However, before I describe the approaches taken, I think it is important to recognize the limitations of attempting to size the industry, as past estimates have varied wildly. Limitation #1: Dedicated Funds vs. Opaque Capital Pools vs. Non-Organized Capital Pools While there are many dedicated litigation funders (“Funders”) servicing the global marketplace, both private and publicly-traded, they only represent a portion of the available financing for the industry (especially in the US). Even the Funders that service the market are relatively private about the amount of capital they have available and the amount of capital they deploy annually (not to mention committed capital vs. drawn capital).  On the odd occasion, you will have a funder trumpet their latest close size, but it is often just a headline number and you are left wondering exactly what it means as it could be inclusive of co-invest capacity, side cars, discretionary separately managed accounts, etc. Then there are the Opaque Capital Pools.  These are the hedge funds, the multi-strategy funds with a sliver of their fund dedicated to litigation finance, merchant banks, credit funds, etc.  Even PIMCO, the world’s largest bond fund, has allocated capital to one of the UK funders (a tiny allocation for PIMCO, but perhaps the ‘thin edge of the wedge,’ if they achieve success).  The problem from a data perspective is that many of these funding sources don’t disclose how much of their capital has been allocated to litigation finance, as they don’t necessarily want the world, or their competitors, to know where they are investing. Finally, there are a host of other financiers in the marketplace, which I will refer to as Disorganized Capital Pools.  These are the lawyers, law firms, High Net Worth (HNW) and Ultra HNW (UHNW) individual investors, family offices and the like that have decided they want exposure to single case risks or portfolios thereof.  Investors who have not dedicated a lot of time and attention to the asset class are probably best served by investing in a series of funds, as opposed to going direct with one manager or a series of individual cases. Often times, the second and third categories are what I call flexible pools of capital, meaning that if they achieve success in investing they will allocate more capital, and if they don’t have a positive experience they will retreat and ‘run-off’ their remaining investments, and “chalk that one up to experience”.   The Opaque Capital Pools and Disorganized Capital Pools are what I refer to as “Non-Fund Investors”.  Accordingly, due to the flexibility and private nature of the Opaque and Disorganized Capital Pools, it is difficult to determine the exact amount of capital they represent at any given point in time. Limitation #2: Financing Fees vs. Financing Out of Pocket There is a distinction in the industry between financing legal fees (which is not always possible in all jurisdictions) and financing out-of-pocket expenses (court costs, discovery costs, expert reports, etc.).  There is also a third bucket where financiers will provide “working capital” as part of their litigation finance commitment. Funds which provide working capital are grounded in a belief by the Funder that the piece of litigation has value, and if the value exceeds the various costs necessary to pursue the case, then they are comfortable providing any excess capital to the business for working capital purposes.  The other aspect to working capital is that the litigation funder does not want to find itself in the middle of litigation with an insolvent enterprise where the management team is no longer focused on the litigation prize, and so they argue it is in their best interest to keep the company solvent while the litigation is being pursued.  Arguably, working capital loans belong in the world of specialty finance, not litigation finance, but in this case the underlying security is the outcome of the litigation. The reason I draw the first distinction is because it could be argued that a large segment of litigation finance is already being provided through contingent fee arrangements, which have been in existence for decades in the US, but have been the sole purview of lawyers.  Should these contingent fees count towards industry sizing?  I think a logical argument can be made that they should be included, as these are funds that could or would otherwise be provided by a third-party litigation funder, but then again, they will never be funded by Funders. Some people believe that law firms are taking the best cases for themselves and the litigation funding industry is fighting for the cast-offs (termed ‘adverse selection risk’).  I don’t necessarily subscribe to this theory, as the high success rates in the Litigation Finance industry support the notion that good cases are being undertaken by third party funders. Interestingly, one of the world’s largest law firms, Kirkland & Ellis, recently announced that they are going to double down on their contingent fee arrangements through the establishment of a plaintiff side litigation group, which was previously the sole purview of scrappy plaintiff side lawyers (many of whom have achieved tremendous financial success in doing so). Perhaps the grass really is greener… For the purpose of this article, I have assumed that contingent fees are not included in the industry sizing exercise. Limitation #3: It’s Getting Global A few years ago, the various funders were entrenched in their local jurisdictions and happy to toil away in their own back yards. Then something interesting happened.  It got global, fast!  Over the last 3-5 years, the industry saw litigation funders move outside of their home base, and do so in a significant way.  UK funders moved into the US, Australian funders moved into the US and UK, UK funders moved into Australia, and more recently, some funders figured my host country, Canada, was also an interesting opportunity.  Is this a reflection of their local markets being saturated, or is this a global ‘land grab’? I point this out because when you analyze pools of capital by litigation funders, you cannot solely look at where that funder is domiciled and conclude their capital is solely dedicated to their home country.  Some funders, like IMF Bentham, have set up dedicated pools to service the US and other pools to service Rest of World (i.e. ex-US).  Other funders do not have dedicated pools, but look for the best risk-adjusted opportunities around the globe, or in specific markets in which they are comfortable investing (typically other English common law or common law derived markets, but not necessarily so).  I say this because the available data forces one to look at global litigation funding sizing, as it is difficult to know where the funder will deploy its capital.  This doesn’t even consider foreign exchange rate fluctuations and their effect on industry sizing – the Brexit impact on the GBP would have had a significant impact on the USD equivalent alone. Limitation #4: Cultural Differences and Punitive Damages There is no arguing that the US is a much more permissive culture in terms of utilizing litigation to settle differences – ‘nothin’ like a good gun fight to settle a dispute’, one might say.  This means that while the size of the litigation industry is much larger, one could argue that you have to parse out the less meritorious claims to find the jewels that litigation finance would support – their money is not frivolous, hence the cases they fund are also not frivolous. Accordingly, when you look at the size of the entire industry, you must assign a lower litigation funding applicability rate in the US because of the aggressive nature of the claim environment (i.e. while the US legal market is much larger because the culture is more permissive, there are a smaller percentage of claims that attract litigation finance). The second and more important issue, is the relative extent of punitive damages in the American civil justice system vs other civil justice systems.  There is no doubt – and it has been well documented through empirical evidence – that awards are larger in the US.  Accordingly, this would suggest that comparing data from other jurisdictions and applying that to try and size the US market, or any other market for that matter, is somewhat limiting. In addition, each market has its own nuances and peculiarities, and so it is very difficult to compare different jurisdictions and draw solid conclusions.  All of the aforementioned would suggest the industry is difficult to size with any degree of accuracy.  I think there is some truth to that supposition. Limitation #5 – What is included in “Commercial”? While the commercial litigation finance market is generally defined to include financing of litigation involving two corporate entities, the funders involved in the space have expanded the definition to include, amongst other things, Investor-State, product class action and insolvency cases where there is typically not another commercial entity on the other side of the dispute, but rather a sovereign, a set of consumers or an individual (director or shareholder), respectively.  Accordingly, the commercial litigation finance funders have expanded the definition of what is included in the market by including large, complex cases involving non-commercial entities.  Nevertheless, these cases are typically financed by commercial litigation finance funders and should be captured in the size estimates. So, with all of the limitations above, I have tried to approach industry sizing using a pair of different approaches: micro and macro. Macro Perspective:  When looking at it from a macro perspective, I like to focus on one of the more mature markets for litigation finance and draw inferences – that market being Australia. Australia is a common law market; it has been utilizing litigation finance for close to two decades, and therefore is one of the more mature markets, which suggests market penetration for Litigation Finance is relatively high.  The one limitation of using Australia as a benchmark is that the jurisdiction generally does not allow contingent fees, so arguably, litigation finance levels are higher because lawyers are not able to put their fees at risk, hence their fees are financed by Funders.  I also believe Australia has fewer Non-Funder investors than the United States, and so we can likely draw better conclusions about the size of their market by looking at the active funders there. The following chart attempts to put the relative markets into perspective.

Country	Contingent Fees	Adverse Costs	Litigation Culture	Legal Market	Funding Type
US	Yes	No	Permissive	$437B US	Legal fees, working capital & disbursements
UK	Yes	Yes	Moderate	£29B GBP	Legal fees & disbursements
Australia	No	Yes	Moderate	$21B AUD	Legal Fees, disbursements & indemnities

So, if one considers the Dedicated Funds in Australia, and tries to estimate the amount of capital they have dedicated to the local industry and compare that to the overall size of the litigation market (a number that is fairly well tracked), we can see that the Australian market is approximately AUS$200-300MM in annual commitments, and has commitment capacity of about 2-3 times that, or $500-750MM (using the mid-point).  This would suggest that litigation finance – in terms of annual commitments – represents about 1 to 1.5% of their $21B legal market (where the “legal market” is the market for all legal services, not just those dedicated to litigation). Applying the same methodology to the UK market, and adjusting for the fact that contingent fees are more prevalent in the UK, one could argue that the UK market, being younger than the Australian market, should be less penetrated, with less capital being required due to contingent fees.  Perhaps the litigation finance market is closer to 1% of the legal market, or approximately £290MM and commitment capacity of 2-3 times that amount of £600-900MM. Extending this logic to the US market, and allowing for a strong punitive damage system, strong contingent fee usage and a low relative penetration rate, we can surmise that the market is similarly close to 1% of the size of its legal market, or $4B in annual commitments with commitment capacity of 2-3 times that or $8-12B.

Market	Australia (AUS$)	UK (£)	USA (US$)
Commitment Capacity	AUS $500-750MM	£600-900MM	US $8-12B
Annual Commitments	AUS $ 2-300MM	£250-350MM	US $3-4B

Micro Perspective: The other approach to sizing the market is to build up the annual commitments and the commitment capacity on an investor-by-investor basis.  Westfleet Advisors has recently published a “Buyer’s Guide” to estimate the size of the US market using this approach, and their results seem to correlate with the approach I have used below.  The difference in results between our two approaches results from the size of the non-fund sources of capital, and my approach is admittedly a best guess estimate.  Nevertheless, I have used the following assumptions to try and triangulate the market sizes.  I took my knowledge of the various funders’ commitment capacity in each of the jurisdictions to determine the total commitment capacity of the market, and then I interpolated the size of the total market by estimating what percent of funding is represented by these Dedicated Funds.

Market	Australia (AUS$)	UK (£)	USA (US$)
Fund Commitment Capacity	AUS $1B	£1.6B	US $5B
% of Market represented by Funders	100%	80%	50%
Implied Commitment Capacity	AUS $1B	£2B	US $ 10B
Implied Annual commitments1	AUS $333MM	£667MM	US $3.3B

1 Annual commitments determined by dividing the Commitment Capacity by 3 (typical fund investment period, assuming extensions)

Conclusion The two approaches seem to triangulate fairly well, and are buttressed by the micro analysis performed by WestFleet in the US market.  Accordingly, I think the two approaches provide a high-level view of the amount of capital available and annual commitments for the various jurisdictions.  While I would not rely on the exact figures, I believe the numbers are directionally correct, and provide investors with an order of magnitude assessment of the current market as to whether this market provides sufficient scale to justify a long-term exposure to the asset class, or whether investors should consider it a more opportunistic investment within one of their niche strategies or pools of capital. While the industry is presently not sizable enough to attract many large pension plans and sovereign wealth funds that typically invest no less than $100’s of million at a time, it is quickly achieving a level of scale that has become attractive to some larger investors. By example, a large sovereign wealth fund has made a US$667MM commitment to Burford’s 2019 Private Partnership through a separately managed account.  The remaining external capital, $300 million, was provided by a series of small and medium-sized investors rumoured to include family offices, foundations, endowments and the like.  Whereas this scale of investor would not have invested in the asset class even three years ago, it appears the more aggressive of these investors have decided this is an asset class that merits serious consideration and investment, and I expect more to follow. Investor Insight: For investors interested in investing in one of the truly non-correlated asset classes, they would be best to spend the time to analyze the various managers in the sector, of which there are relatively few on a global basis that I would consider “institutional” in nature.  They would also be well served to focus on those few managers with  a track record that includes fully realized funds, of which there are even fewer, or be prepared to spend the time and resources to assess the unrealized portion of those managers’ portfolios as ‘tail risk’ in this industry can be significant depending on the concentration of the portfolio.  As always, diversification is a key success factor to investing in this asset class as the idiosyncratic risk of cases and the binary nature of trial/arbitral awards make it particularly well suited for the application of portfolio theory. Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial litigation finance industry.