Key Takeaways from LFJ’s Special Digital Event–Litigation Funding in 2022: What to Expect

Litigation Finance News

This past Tuesday, Litigation Finance Journal hosted a panel discussion and Q&A with a global swathe of litigation funding experts. The subject was key trends facing the industry in 2022, and the panel did not disappoint by delivering in-depth responses across a broad array of subjects.

The event was moderated by Peter Petyt (PP), Co-Founder of 4 Rivers Services. Panelists included Tets Ishikawa (TI), Managing Director of Lionfish in the UK, Stuart Price (SP), Co-Founder of CASL in Australia, and Molly Pease (MP), Managing Director of Curiam Capital in the US.

Below are some key takeaways from the discussion:

PP: Stuart, I’d like to get your view on this: Is there an ideal portfolio that a funder might invest in, in terms of the numbers of cases, the types of cases, the size of cases?

SP: I think that’s an interesting question, Peter. I come at it from a first principles perspective and it’s portfolio theory 101, so we’ve got to salute a problem within the law firm that they’re looking to solve, and we’re trying to tailor a solution for them. I think ultimately portfolio theory says you need diversification…you need to have the ability that you can spread the risk across multiple cases, so really depending on the nature of what the problem is, you may structure a portfolio to be thematic…and when I say thematic, it might have an insolvency or flavor or class action securities flavor because that’s a problem that you’re trying to solve. But really, the art and design and pinning together of portfolio funding is probably understanding what the problem is, and I think starting from that you need to have the diversity across a number of cases. I’d look and see on a portfolio, you certainly shouldn’t have more than ten percent in one case. I think logically that follows that you have to have at least ten cases then, that concentration and manage properly. But I think that defining the ideal portfolio is a very difficult component because you’ve got to start at first principles. I think the duration is important to consider, long and short, and dated assets, jurisdiction and common issues that may arise when you get a contagion risk in particular cases. You’ve got to consider the return profile and ideally you want to mix those factors all together and ensure that you’ve got the diversification, ensure that you’ve got an appropriate funding source to actually meet what the client ultimately is wanting, and put that all together and deliver something that’s tailored, I really push back against us as litigation funders defining what the product law firms or corporates want. We should listen to what their problems are, and tailor something to their requirements.

PP: Molly, obviously Curiam has been around for a while now, and I’m assuming you’re seeing an increase in uptake on portfolio funding from law firms, more inquiries, more interesting opportunities being presented to you?

MP: Yes, it’s definitely become more prominent than it was four years ago when we started. I really think there is not an ideal portfolio. I think it’s so dependent on the circumstances and there are so many different ways to do it, that can all work out well for all the parties involved. You could have a portfolio that is a collection of cases all for one claimant, and maybe they have one case that’s very very strong and very likely to succeed, and has significant enough damages to be able to cover a number of other cases, or are maybe a little bit more of a long shot or have more binary risk or whatever it is. So they may see some benefit in being able to pursue all of the cases, and maybe have the handful of cases that aren’t as strong free ride a little bit off the really strong case. So that could be an instance where you have a small portfolio, but it might make a lot of sense in that context, versus the other end of the spectrum where you could have a law firm trying to pool together a number of different cases for different clients across different practice areas that really have quite a bit of diversification. And that’s probably a little bit more work to figure out the appropriate pricing on that. But I think it’s certainly doable, and I think at every point in between there are portfolios that make sense. So I agree with Stuart, that you just have to understand the situation, what the law firm and the clients are trying to accomplish. I think there’s almost a portfolio that makes sense of all different types. So it’s very broad and I think there’s a lot to consider.

PP: Yes, I can see that there isn’t necessarily an ideal portfolio, you need to look at each one as a separate entity. Tets, I was wondering what your views were, being someone from the investment banking background on pricing for portfolio funding? Clearly, if you can get it right, the costs of capital for portfolio funding structure should be significantly better than just looking at single case funding. Shouldn’t it?

TI: Absolutely. I mean I started in fixed income but I was actually doing credit portfolios and that’s just heavily involved in a lot of the early days of the credit indexes, which are now part of the standard credit benchmarks. When we were constructing those portfolios, we were saying basically a combination of both the principles of 101, of keeping it diverse but also at the same time having to be relevant to the actual market that you want, which in this case is the client base. In terms of pricing, of course diversification is always going to work, but I don’t think diversification necessarily means looking through different types of cases. What you have to also factor in, is also the alignment of interest and the areas of expertise that the law firm has. So you can have a firm that’s specialized in one type of law, the diversification comes just from the cases themselves because each case is so sufficiently different that the fact that they’re in the same area of law doesn’t necessarily mean that they’re correlated. And that in itself brings down pricing. But what does also help bring down pricing at least on an academic level, and whether this translates to another market is another matter, but on an academic level when you have diversification and you have strong skills which back it up and an alignment of interest by the people running the claims, then absolutely pricing should be reduced to reflect those risk mitigants.

PP: What we want in the market are well-funded, well-capitalized, well-run funds. And certainly, there’s been some issues recently. In the UK, Affinity went into administration, Augusta had to shed half of its staff, move to other premises, restructure its lending agreement with lenders. Vannin got subsumed into Fortress, so clearly there were some business model issues, probably has something to do with working capital during the time it takes for cases to resolve. Stuart, I don’t know what your view is on this, but I would have thought there’s a need for consolidation at some point, amongst the funder market, what’s your view?

SP: Consolidation in the traditional sense of funders or businesses—I think is probably not likely. I think you’ll have a bit of exits from the industry. You will have groups of people leaving one funder and joining or establishing another funder. So I think you will have an aggregation and consolidation, but not in the traditional sense of a mergers and acquisitions approach. I don’t think that necessarily is the nature of this market—unless you’re getting together two very large funders or two very established funders, and taking a global view on the market.

PP: We’ll see. I think you’re right that there will be movement between funders, there’ll be split-off groups and I think there might be some traditional, good old fashioned M&A at some point. But it’s an evolving market so we’ll see. 

Let’s move onto blockchain crowdfunding platforms—do you as panelists see this as being an interesting way of raising money for you funds?  

TI: We don’t actually manage money, so we don’t really think about raising capital. As a business model, I think it’s a slightly different business model to be raising money. So I don’t have a particular view on that. Having said that, I don’t really understand blockchain. That’s not to say ‘therefore it’s bad.’ Just that I don’t have the intellectual capacity or the ability to understand it as things stand. But yeah, it’s certainly been very successful in other markets at raising capital. And if it means raising cheaper capital and it means raising and passing some of that benefit onto the end users of litigation, then I don’t think that can be anything but a good thing.

LFJ will be hosting more panel discussions with audience Q&As throughout the year. Please stay tuned for information on future events.

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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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