Key Takeaways from LFJ’s Special Digital Event: Insights from New Entrants into Litigation Funding

On Wednesday, December 15th, Litigation Finance Journal hosted a special digital event featuring insights from new entrants into litigation funding. A panel featuring Charles Schmerler (CS), Senior Managing Director of Pretium Partners, Zachary Krug (ZK), Director of Signal Capital Partners, and Mark Wells (MW), Co-Founder of Almatura, discussed deal sourcing fundraising and hiring from a new entrant’s perspective. 

Below are some key takeaways from the panel discussion, which was moderated by Ed Truant, founder of Slingshot Capital:

Broadly speaking, how do you view the current investor landscape for fundraising in the jurisdiction in which you’re involved? Also, what sort of goals do LPs have when approaching the litigation finance space, and how should new entrants into the space prepare when speaking to prospective investors?

MW: Our first fundraise really was a slow burn between 2008 – 2010 when we closed the first fund. You’ll remember when we arrived in the market then, pretty much everyone was a first time manager. There was very little in the way of seasoned product, or to say nothing of the type fund 2 fund 3 type of opportunities. So the investors who were attracted in those days were the pioneering investors and they really had no choice but to commit themselves to first time managers.

I think if we fast forward to 2021, it’s a much more mixed environment. There’s a lot more players. My experience is mainly on the European side, but I understand this is also true on the west side. And a number of the players have now matured and are on fund 3, fund 4, fund 5, so investors are presented with a more complete offering ranging from first time managers all the way through to repeat managers.

ZK: In some respects, I think the high returns that are uncorrelated to the market remains, and is even a stronger factor in terms of investor appetite, particularly when you look at a landscape where many asset classes are at historically high valuations and it’s difficult to achieve the kind of multiple style returns that you can potentially achieve in litigation funding. So I think that attraction remains there and is quite strong. I think the difficulty for anyone who’s trying to raise money, there’s certainly a lot of money out there, and interest—but the difficulty is, if you’re a new entrant without a track record, you may be an excellent litigator with a long track record of trial victories, but I think without a track record of successful realizations, it can be difficult. Given the asset class and how it performs, it takes a while to develop a track record that’s worth anything because of the long tail risk in these assets.

CS: My advice at first was ‘don’t try to raise a lot of money at the beginning of a global pandemic.’ But once you get past that, I think these are key points. Mark touched on something important in that there’s been a significant change in the way investors are able to approach the asset class from the way it was ten years ago. There’s much more data available right now. It’s not a mature industry yet, but there is empirical data out there. So investors are able to diligence this very carefully and they have a number of choices, there are a lot of players as Mark and Zach said. So I think anyone who is looking to raise capital has to be extremely well prepared.

Let’s turn our attention toward deal sourcing. Where are you currently originating deals from, and to the extent that you’re willing and able to respond—what methods have you tried and what have yielded the best and worst results?

MW: I think we’d say probably four channels of deal flow, the most important deals are from lawyers, and then the other sources would be claimants coming to us direct typically via advertising, LinkedIn, Google, media mentions, stuff like that. And then brokers and intermediaries; both specialist brokers and some of the ad hoc intermediaries.

ZK: Mark hit on the key channels from my perspective. I do think it remains very much a relationship driven business, and in terms of what works and what doesn’t work. There is, I think in terms of the lawyers and even the brokers and intermediaries, and I suppose with the funders as well, an aspect where there’s a fair amount of relationship building, business development, what have you, that’s important to maintain those relationships.

Let’s shift into a different topic: Hiring. How do you think about organizational design for your firms in terms of a combination of finance, legal, quants type of expertise. Mark, how do you tackle that, historically?

MW: Yeah, that’s interesting how you list the financing and the legal and quantitative skills. I think I’d add one more characteristic which can really cut across all those disciplines—and that’s factual curiosity and factual inspection. In our experience over the years, when we look back and look very long and hard about why we lose cases., often it’s singular one-off factors. Something that we get a few times is that we lost the case because the facts that were eventually found deviated from what we’d assume when we were underwriting the case. I think really probing the facts and thinking about what can fill in any blanks in the claimant’s narrative is a really important part of the picture that needs to apply to everyone involved in underwriting the cases.

ZK: It’s an interesting question, one that I’m grappling with as we speak, as a relatively new strategy within what is otherwise a very quantitative and numbers-driven organization. My experience is that most litigation funders are staffed by ex-litigators or have many lawyers on staff. They tend to bring that litigation mindset with them, which obviously is important from an underwriting and diligence perspective. But often when you put a bunch of litigators into a room to discuss a case, we can be very good at identifying the risks of what could go wrong, but less good at being creative about how to structure for those risks or to price for those risks, or be willing to take those risks. So my sense in terms of organization and hiring is—it’ll be more important to find folks who are creative about deal structuring and pricing more than simply smart lawyers. It’s more important to have that commercial acumen.

Charles, can you comment about what the market for talent is like at the moment and what’s the general professional background that you’re seeing from some of your hires?

CS: This feeds off the discussion you were just having with Mark and Zach. The market is good, there is always opportunity to find smart capable lawyers. We have a lot of analysts and quantitative people at the firm already. So we are less in need of hiring those. But I think you already touched on what is the ongoing debate—which is, where should you focus your energies? Should it be on the analytical side, the financial analytical side, or the legal side? We find that you can hire—but the question is: What’s the best way to go about hiring?

So for us, we are looking more for people who are not just creative in structuring, but who understand how to recognize value. And that can mean different things in different contexts. For example, we have a particularly strong patent team. Between our two senior-most people, only one is a lawyer. Both have extensive experience monetizing patents over decades, and they understand how to assess the value of a portfolio in ways that most other people cannot.

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Computer Weekly Provides In-Depth History of Post Office Horizon Inquiry

By Harry Moran |

The Post Office Horizon IT scandal represented not only one of the most significant cases of institutional malpractice and miscarriage of justice in British history, but also catapulted the use of litigation funding into the public spotlight.

An article in Computer Weekly provides an in-depth summary of the statutory public inquiry into the Post Office Horizon IT scandal, giving readers a detailed account of all the key revelations that emerged across the last three years of the inquiry’s work. The feature breaks down these revelations on a chronological basis, starting in May 2022 with ‘phase one’ of the inquiry’s hearings and going all the way through to ‘phase seven’ in September 2024.

The feature explains how each of these seven phases gathered evidence on different aspects of the scandal, beginning in 2022 with phase one hearing testimonies from the victims, and the phase two investigation into the Horizon IT system itself.

Phase three saw the examination of the Horizon system over the subsequent year, whilst phase four switched focus to assess the activities of lawyers and investigators who participated in the subpostmasters’ prosecutions. Finally, the feature guides us through the inquiry’s work this year, with phases five and six putting the behaviour of directors, politicians and civil servants in the spotlight, before concluding with phase seven that took a broader look at the Post Office’s present and future.

Within the feature, readers can find links to individual articles that provide deep dives into each of these individual phases, cataloguing the most important pieces of evidence unearthed by the inquiry’s hearings. 

Community Spotlights

Community Spotlight: Dr. Detlef A. Huber, Managing Director, AURIGON LRC

By John Freund |

Detlef is a German attorney, former executive of a Swiss reinsurance company and as head of former Carpentum Capital Ltd. one of the pioneers of litigation funding in Latin America. Through his activities as executive in the insurance claims area and litigation funder he gained a wealth of experience in arbitrations/litigations in various businesses. He is certified arbitrator of ARIAS US and ARIAS UK (AIDA Reinsurance and Insurance Arbitration Society) and listed on the arbitrators panel of DIS (German Arbitration Institute).

He studied law in Germany and Spain, obtained a Master in European Law (Autónoma Madrid) and doctorate in insurance law (University of Hamburg).

Detlef speaks German, Spanish, English fluently and some Portuguese.

Company Name and Description:  AURIGON LRC (Litigation Risk Consulting) is at home in two worlds: dispute funding and insurance. They set up the first European litigation fund dedicated to Latin America many years ago and operate as consultants in the re/insurance sector since over a decade.

Both worlds are increasingly overlapping with insurers offering ever more litigation risk transfer products and funders recurring to insurance in order to hedge their risks. Complexity is increasing for what is already a complex product.

Aurigon acts as intermediary in the dispute finance sector and offers consultancy on relevant insurance matters.

Company Website: www.aurigon-lrc.ch

Year Founded: 2011, since 2024 offering litigation risk consulting  

Headquarters: Alte Steinhauserstr. 1, 6330 Cham/Zug Switzerland

Area of Focus:  Litigation funding related to Latin America and re/insurance disputes

Member Quote: “It´s the economy, stupid. Not my words but fits our business well. Dont focus on merits, focus on maths.”

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Manolete Partners Releases Half-Year Results for the Six Months Ended 30 September 2024

By Harry Moran |

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its unaudited results for the six months ended 30 September 2024. 

Steven Cooklin, Chief Executive Officer, commented: 

“These are a strong set of results, particularly in terms of organic cash generation. In this six-month period, gross cash collected rose 63% to a new record at £14.3m. That strong organic cash generation comfortably covered all cash operating costs, as well as all cash costs of financing the ongoing portfolio of 413 live cases, enabling Manolete to reduce net debt by £1.25m to £11.9m as at 30 September 2024. 

As a consequence of Manolete completing a record number of 137 case completions, realised revenues rose by 60% to a further record high of £15m. That is a strong indicator of further, and similarly high levels, of near-term future cash generation. A record pipeline of 437 new case investment opportunities were received in this latest six month trading period, underpinning the further strong growth prospects for the business. 

The record £14.3.m gross cash was collected from 253 separate completed cases, highlighting the highly granular and diversified profile of Manolete’s income stream. 

Manolete has generated a Compound Average Growth Rate of 39% in gross cash receipts over the last five H1 trading periods: from H1 FY20 up to and including the current H1 FY25. The resilience of the Manolete business model, even after the extraordinary pressures presented by the extended Covid period, is now clear to see. 

This generated net cash income of £7.6m in H1 FY25 (after payment of all legal costs and all payments made to the numerous insolvent estates on those completed cases), an increase of 66% over the comparative six-month period for the prior year. Net cash income not only exceeded by £4.5m all the cash overheads required to run the Company, it also exceeded all the costs of running Manolete’s ongoing 413 cases, including the 126 new case investments made in H1 FY25. 

The Company recorded its highest ever realised revenues for H1 FY25 of £15.0m, exceeding H1 FY24 by 60%. On average, Manolete receives all the cash owed to it by the defendants of completed cases within approximately 12 months of the cases being legally completed. This impressive 60% rise in realised revenues therefore provides good near-term visibility for a continuation of Manolete’s strong, and well-established, track record of organic, operational cash generation. 

New case investment opportunities arise daily from our wide-ranging, proprietary, UK referral network of insolvency practitioner firms and specialist insolvency and restructuring solicitor practices. We are delighted to report that the referrals for H1 FY25 reached a new H1 company record of 437. A 27% higher volume than in H1 FY24, which was itself a new record for the Company this time last year. That points to a very healthy pipeline as we move forward into the second half of the trading year.” 

Financial highlights: 

  • Total revenues increased by 28% to £14.4m from H1 FY24 (£11.2m) as a result of the outstanding delivery of realised revenues generated in the six months to 30th September 2024.
    • Realised revenues achieved a record level of £15.0m in H1 FY25, a notable increase of 60% on H1 FY24 (£9.4m). This provides good visibility of near-term further strong cash generation, as on average Manolete collects all cash on settled cases within approximately 12 months of the legal settlement of those cases
    • Unrealised revenue in H1 FY25 was £(633k) compared to £1.8m for the comparative H1 FY24. This was due to: (1) the record number of 137 case completions in H1 FY25, which resulted in a beneficial movement from Unrealised revenues to Realised revenues; and (2) the current lower average fair value of new case investments made relative to the higher fair value of the completed cases. The latter point also explains the main reason for the marginally lower gross profit reported of £4.4m in this period, H1 FY25, compared to £5.0m in H1 FY24. 
  • EBIT for H1 FY25 was £0.7m compared to H1 FY24 of £1.6m. As well as the reduced Gross profit contribution explained above, staff costs increased by £165k to £2.3m and based on the standard formula used by the Company to calculate Expected Credit Losses, (“ECL”), generated a charge of £140k (H1 3 FY24: £nil) due to trade debtors rising to £26.8m as at 30 September 2024, compared to £21.7m as at 30 September 2023. The trade debtor increase was driven by the outstanding record level of £15.0m Realised revenues achieved in H1 FY25.
  • Loss Before Tax was (£0.2m) compared to a Profit Before Tax of £0.9m in H1 FY24, due to the above factors together with a lower corporation tax charge being largely offset by higher interest costs. 
  • Basic earnings per share (0.5) pence (H1 FY24: 1.4 pence).
  • Gross cash generated from completed cases increased 63% to £14.3m in the 6 months to 30 September 2024 (H1 FY24: £8.7m). 5-year H1 CAGR: 39%.
  • Cash income from completed cases after payments of all legal costs and payments to Insolvent Estates rose by 66% to £7.6m (H1 FY24: £4.6m). 5-year H1 CAGR: 46%.
  • Net cashflow after all operating costs but before new case investments rose by 193% to £4.5m (H1 FY24: £1.5m). 5-year H1 CAGR: 126%.
  • Net assets as at 30 September 2024 were £40.5m (H1 FY24: £39.8m). Net debt was reduced to £11.9m and comprises borrowings of £12.5m, offset by cash balances of £0.6m. (Net debt as 31 March 2024 was £12.3m.)
  • £5m of the £17.5m HSBC Revolving Credit Facility remains available for use, as at 30 September 2024. That figure does not take into account the Company’s available cash balances referred to above.

Operational highlights:

  • Ongoing delivery of record realised returns: 137 case completions in H1 FY25 representing a 18% increase (116 case realisations in H1 FY24), generating gross settlement proceeds receivable of £13.9m for H1 FY25, which is 51% higher than the H1 FY24 figure of £9.2m. This very strong increase in case settlements provides visibility for further high levels of cash income, as it takes the Company, on average, around 12 months to collect in all cash from previously completed cases.
  • The average realised revenue per completed case (“ARRCC”) for H1 FY25 was £109k, compared to the ARRCC of £81k for H1 FY24. That 35% increase in ARRCC is an important and an encouraging Key Performance Indicator for the Company. Before the onset and impact of the Covid pandemic in 2020, the Company was achieving an ARRCC of approximately £200k. Progress back to that ARRCC level, together with the Company maintaining its recent high case acquisition and case completion volumes, would lead to a material transformation of Company profitability.
  • The 137 cases completed in H1 FY25 had an average case duration of 15.7 months. This was higher than the average case duration of 11.5 months for the 118 cases completed in H1 FY24, because in H1 FY25 Manolete was able to complete a relatively higher number of older cases, as evidenced by the Vintages Table below.
  • Average case duration across Manolete’s full lifetime portfolio of 1,064 completed cases, as at 30 September 2024 was 13.3 months (H1 FY24: 12.7 months).
  • Excluding the Barclays Bounce Back Loan (“BBL”) pilot cases, new case investments remained at historically elevated levels of 126 for H1 FY25 (H1 FY24: 146 new case investments).
  • New case enquiries (again excluding just two Barclays BBL pilot cases from the H1 FY24 figure) achieved another new Company record of 437 in H1 FY25, 27% higher than the H1 FY24 figure of 343. This excellent KPI is a strong indicator of future business performance and activity levels.
  • Stable portfolio of live cases: 413 in progress as at 30 September 2024 (417 as at 30 September 2023) which includes 35 live BBLs.
  • Excluding the Truck Cartel cases, all vintages up to and including the 2019 vintage have now been fully, and legally completed. Only one case remains ongoing in the 2020 vintage. 72% of the Company’s live cases have been signed in the last 18 months.
  • The Truck Cartel cases continue to progress well. As previously reported, settlement discussions, to varying degrees of progress, continue with a number of Defendant manufacturers. Further updates will be provided as concrete outcomes emerge.
  • The Company awaits the appointment of the new Labour Government’s Covid Corruption Commissioner and hopes that appointment will set the clear direction of any further potential material involvement for Manolete in the Government’s BBL recovery programme.
  • The Board proposes no interim dividend for H1 FY25 (H1 FY24: £nil).

The full report of Manolete’s half-year results can be read here.

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