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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

Senate Bill Targets Litigation Funding Transparency With Non-Profit Exemption

By John Freund |

U.S. lawmakers are seeking to impose new transparency requirements on third-party litigation financing in major lawsuits, while carving out protections for nonprofit legal organizations that receive funding to provide free legal services.

An article in Reuters reports that a group of Senate Republicans led by Judiciary Committee Chair Chuck Grassley has introduced the Litigation Funding Transparency Act. The bill would require disclosure of third-party financing in class actions and mass tort litigation, a narrower scope than past proposals aimed at all civil cases. Importantly for the legal funding market, the legislation includes an exemption for nonprofit legal groups funded by U.S. donors that provide pro bono representation, protecting those organizations from having to disclose their backers.

Supporters of the measure frame it as a move toward greater openness about who is financing high-stakes litigation, arguing that visibility into funding sources is essential to ensure fairness and guard against undue influence. The bill would also bar third-party funders from influencing litigation strategy, settlement negotiations, or accessing confidential documents. However, critics—including the International Legal Finance Association, an industry body—contend that imposing disclosure rules could chill litigation finance and potentially limit access to justice for plaintiffs who rely on third-party capital to pursue claims. Conservative advocacy groups have also weighed in against the bill, fearing that disclosure mandates could expose donors to political scrutiny despite the nonprofit carveout.

The bill’s introduction builds on a history of legislative efforts by Grassley to regulate litigation funding transparency, though previous versions have stalled in the House amid bipartisan opposition.

For the legal funding industry, this legislation raises crucial questions about regulatory risk and disclosure expectations in the U.S. If enacted, the bill could reshape how funders participate in large-scale litigation and how transparency requirements are balanced against concerns over client privacy, fundraising, and the broader access-to-justice mission.

Commercial Deals

UK Funder Makes Fresh Pitch After Liquidating Core Fund

By John Freund |

A UK-based litigation funder is seeking to reset its strategy and reassure investors after liquidating one of its key funds, underscoring the mounting pressures facing capital providers in an increasingly competitive and scrutinized funding market.

An article in Bloomberg reports that Katch Investment Group wound down a flagship vehicle and returned capital to investors, following a period of underperformance and portfolio challenges. The move marks a significant inflection point for the firm, which is now presenting a revised investment strategy aimed at regaining investor confidence and stabilizing its platform.

According to the report, the funder’s leadership has framed the liquidation as a proactive step designed to preserve value and recalibrate its approach in light of shifting market dynamics. The litigation finance sector has faced headwinds in recent years, including longer case durations, delayed resolutions, and increased regulatory and judicial scrutiny—particularly in collective proceedings. These factors have complicated return profiles and made capital raising more challenging, especially for publicly listed or institutionally backed funders under pressure to demonstrate consistent performance.

The firm is now pitching a refined model that emphasizes disciplined case selection, portfolio diversification, and closer alignment with investor expectations. The reset comes at a time when several UK-based funders are reassessing their exposure to large, high-risk group actions and exploring alternative structures, including co-investment arrangements and bespoke mandates.

Case Developments Commercial

Law Firm in J&J Baby Powder Cases Sues Litigation Funders

By John Freund |

A dispute emerging from the long-running talc litigation against Johnson & Johnson has spilled into a new front, as a plaintiffs’ law firm has filed suit against its own litigation funders in a high-stakes funding battle tied to the baby powder cases.

An article in Reuters reports that the firm, which represents claimants alleging that Johnson & Johnson’s baby powder products caused cancer, has sued multiple litigation funders over the terms and enforcement of its funding agreements. The complaint centers on allegations that the funders are seeking repayment amounts the firm contends are excessive or otherwise improper under the governing contracts. The lawsuit underscores the financial strain and complex capital structures underpinning mass tort litigation, particularly in sprawling, multi-year proceedings like the talc cases.

According to the report, the firm argues that the funders’ demands threaten its financial stability and ability to continue representing clients in the ongoing litigation. The case reflects the high-risk, high-reward nature of funding large portfolios of mass tort claims, where returns can hinge on bankruptcy proceedings, global settlements, or appellate outcomes. Johnson & Johnson’s use of bankruptcy maneuvers to resolve talc liabilities has already added further uncertainty and delay, complicating recovery timelines for plaintiffs’ firms and their capital providers.

The dispute highlights the intricate dynamics between law firms and funders in contingency-heavy practices. Funding arrangements in mass torts often involve layered investments, staged drawdowns, and complex priority waterfalls. When case timelines stretch or resolution values shift, tensions over repayment multiples and control rights can quickly surface.