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Cesar Bello of Corbin Capital Discusses Litigation Funding as an Investment

On the most recent episode of the Litigation Finance Podcast, Cesar Bello, Partner and Deputy General Counsel of Corbin Capital, explained how he evaluates litigation finance investments, what his ROI expectations are, and how funders can mitigate risk. Below are some key takeaways from the discussion.

What about the funding industry drew your attention and your interest? The stock answer here is that it’s non-correlated compared to a lot of other alternative assets. What else can you say about this asset class that really draws your interest—especially when compared to other alternative assets.

Obviously that’s a big part of it. It’s differentiated—it’s particularly attractive in times of market volatility. When you expect more fat tails, we think there’s a good chance that that type of environment will persist in the near term. We’ve seen over the last year those kinds of spikes with meme stocks, heightened government intervention, obviously the pandemic, political climate, etc. So it was nice for us, we had some good outcomes last March and April when everything else was not working so great. So it really helps the portfolio.

Beyond the uncorrelated nature of it, obviously the opportunity to earn outsized returns. Single case risk is generally structured to make a 3-5x return—so you’re getting paid well for the risk. Private lending for the more credit-oriented type of LitFin plays—you’re still getting paid, or overpaid since the sector is still largely underbanked—although increasingly less so. The underlying collateral is not well understood by traditional lenders.

Back to the market as a whole, it’s still, I think, growing. The legal services industry is a $1 trillion industry worldwide. Litigation Finance has grown a lot. There’s a growing awareness among mainstream corporates, if they have assets on their balance sheets that they can monetize, Fortune 500 companies are awakening to this possibility of using Litigation Finance to bring cases without sucking up the budget or disrupting their cashflows. 

How important is ESG to investors such as Corbin, and also to your LP investors? 

Obviously, we do a lot more than just Litigation Finance, but with respect to Litigation Finance in particular, the easiest way to think about it is not necessarily equal access to justice in our legal system. Right? Litigation Finance helps level the playing field, so David can go after Goliath. That’s obvious and simple to understand. But it kind of flows through and manifests itself in different ways. Take mass torts—environmental cases, for example—there’s a long history of poor minority communities being used as toxic dumping grounds. We have opioids, we have sexual abuse cases, etc, so from an environmental, socioeconomic, social justice perspective—there’s a clear angle there.

But back to how we think about it more broadly, our approach to ESG is focused on the thoughtful application of ESG factors to enhance our business and it takes a lot of work. We’ve been working on it over the last 2-3 years. With the help of leading experts in the space and consultants to help us navigate what remains of a pretty fragmented information environment.

We believe in meaningful integration of material ESG factors that can lead to a more complete picture of risk and opportunity, driving more informed decision-making with the opportunity to get better risk-adjusted returns. 

Let’s say I’m a commercial litigation funding manager. I approach you for an investment opportunity. Is there anything you wish these fund managers did more of or less of? Any advice you can give to them?

I think it’s important to have a real understanding and self-awareness of where you sit in the marketplace and to be commercial—it’s hard to raise money. The safe thing to do is to give money to the bigger players, particularly if you’re just starting out. We’ve seen a lot of people try to raise funds with unrealistic expectations, and refusing to partner with people in creative ways because they want a fund and don’t want to do co-investments—not thinking about the long game, and not realizing the best path to unlock capital may not be the one that they came into the meeting with. So really listening and trying to figure out where that happy medium is, to find a way to work together.

Back to the point about most of the money coming in is going to established players, that’s the nature of the asset management industry as a whole. So we also like people who can talk through a bad outcome—lessons learned—that buys some goodwill. … Find a way to get in the door, build trust, and hopefully everybody gets more comfortable and it becomes easier to build a relationship. 

When you look at this industry, what opportunities are you seeing down the road for the funding industry? How do you see this industry developing in the coming years?

Good question. I think everybody would tell you it’s probably going to grow and there’s probably going to be some price compression as the asset class matures. Maybe something you won’t hear as much—I really would like it to evolve into having a more active secondary market, which would help with the duration issue. As anything that helps generate liquidity, we would view as a positive. And obviously, it would help with valuation price discovery as well.

So there’s a lot of activity now in private equity funds and private credit funds in terms of secondaries and continuation funds, as some of the older vintages are getting long in the tooth. It would be interesting to have some growth there, and I think similarly there’s a good amount of the bigger funds that are running up against the end of their fund life and they’re going to be motivated to sort of solve for that.

I think there are some characteristics here that are going to make it harder for secondary markets to flourish in the marketplace. This stuff is idiosyncratic and hard to underwrite. You’re not buying IBM bonds. But it’s doable, and I think it’ll happen eventually. When it does I think it will be a very positive signal for the asset class.

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Community Spotlights

Community Spotlight: Guillermo Ruiz Medrano, Attorney, CUATRECASAS

By John Freund |

Guillermo Ruiz Medrano is a Spanish lawyer based in Barcelona, specializing in advising local and international clients on litigation finance deals and restructuring transactions, with a focus on international and cross-border deals, and engaged in the implementation of cutting-edge litigation funding structures.

Company Name and Description: CUATRECASAS - a leading multi-disciplinary Spanish law firm, providing comprehensive legal services to clients across various industries. With a strong presence in Spain, Portugal, and Latin America, among others, the firm is recognized for its innovative solutions and commitment to excellence.  

Company Website: https://www.cuatrecasas.com/en/spain/

Year Founded: 1917

Headquarters: Barcelona and Madrid (Spain).

Area of Focus: Litigation Funding and Restructuring

Member Quote: Litigation funding in Spain is experiencing a dynamic transformation, making it an exciting jurisdiction for both national and international players. With the market expanding rapidly and new regulations on the horizon, particularly for consumer cases, Spain offers a fertile ground for innovative funding solutions. This burgeoning landscape ensures that litigation funding here is not only robust but also poised for sustainable growth, making Spain a premier destination for legal investment.

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Pegasus Legal Capital Completes $74 Million Securitization to Fuel Growth

Pegasus Legal Capital, LLC ("Pegasus") (mylawfunds.com), a prominent pre-settlement legal funding company in the United States, announced today that it has successfully completed a $74 million litigation finance securitization. This achievement marks Pegasus' second securitization transaction in the asset class and another significant milestone in its capital market journey. The proceeds from this transaction will further propel Pegasus' growth across key markets in the United States.

Pegasus Managing Director, Alexander Khanas, expressed, "With the successful completion of this transaction, Pegasus will expand its business in the personal injury market while upholding its industry-leading service standards."

GreensLedge Capital Markets LLC played the role of Placement Agent for Pegasus. GreensLedge Senior Managing Director, Douglas Lipton, added, "We are delighted to continue expanding Pegasus' investor base through their second securitization issuance and assisting them in creatively developing their platform."

Headquartered in Deerfield Beach, Florida, Pegasus was founded in 2008 as a pre-settlement litigation finance company. Since its inception, the company's management team has successfully sourced, underwritten, and serviced over half a billion dollars through more than 30,000 advances. While Pegasus has traditionally focused on the New York market, it has established a strong presence in the Southeast and Texas markets as well.

Pegasus is a proud member of the American Legal Finance Association (ALFA), a national organization comprising companies that provide non-recourse funds to personal injury victims. ALFA's primary objective is to establish industry standards for transparency in legal funding transactions, ensuring upfront and clear disclosure to consumers.

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Litigation Lending Appoints Emma Colantonio as Chief Investment Officer

In a post on LinkedIn, Australian funder Litigation Lending Services (LLS) announced the promotion of Emma Colantonio to the position of Chief Investment Officer. In the announcement, LLS said that Emma’s dedication and strategic insight have been instrumental to the success of the business.

Colantonio joined LLS in 2021 as an investment manager and served in that role for two years before being promoted to senior investment manager in May 2023. Prior to joining LLS in 2021, Colantonio had also spent five years at MinterEllison as a senior associate, as well as having served as a senior legal counsel at Commonwealth Bank. 

In her own post on LinkedIn, Colantonio provided the following comment: “Excited to step into the role as Chief Investment Officer at Litigation Lending Services Limited! A big thank you to the leadership team for their trust and support. Looking forward to driving our mission forward and exploring new opportunities in litigation funding.”As LFJ reported in August of this year, Colantonio was recently appointed to the board of The Association of Litigation Funders of Australia (AALF) as a non executive director, replacing LLS’ own Stephen Conrad in that position.