In recent years, litigation funders have worked hard to cast themselves less as profiteers benefitting from strife and more as socially responsible investors facilitating access to justice—even while often enjoying high, non-correlated returns.
As testament to the strength of litigation investment, returns on funding were resilient during COVID-19. A 2020 report by a global litigation finance firm indicated that the reported use of legal finance has increased by 105% since 2017. Increased litigation regarding issues like supply chain disruptions only means more business for funders and further interest from institutional and high-net-worth investors.
This undeniable industry growth is an opportunity to improve litigation funding business models, for consumers to demand more favorable terms from investors, and for funders to innovate to offer better choice and solutions for the market.
Litigation funding consumers include law firms funding operations by financing claims portfolios, individual plaintiffs financing expensive litigation, and corporate legal departments challenged by legal budgets or pursuing legal claims to generate revenue and support corporate strategy. The standard hedge fund model, where a funder acts as a manager investing on behalf of institutional investors, is not well-suited to most of the litigation in which these consumers engage. Incentivizing a high ratio of assets to overhead costs creates an operational bias toward funding large cases, and return expectations, bolstered by news of extraordinary successes, drive up funding costs for these users.
If investors begin bypassing established funders to save on management and performance fees, funding consumers could benefit from increased competition among funding sources on price terms, length of due diligence reviews, and time to close a transaction. While diversified sources could improve access to financing, product quality, and expertise within the industry, consumers should also be wary that inexperienced investors could offer them less optimal terms.
As consumers themselves grow more familiar with and savvy about litigation finance products, they may drive funders to develop more specialized and nuanced offerings. Algorithms that allow funders to study lawyers, claimants, defendants, judges, courts, and past results, using data that is now more accessible and cheaper to acquire, could inform their pricing and allocation decisions.
If specialization and financer differentiation accelerate, institutions, businesses, and law firms could form durable relationships with preferred financial partners. These strengthened relationships with funders could allow law firms and businesses to budget and monetize claims in ways previously outside their budgetary constraints.
It will be interesting to see how litigation funding sources adapt in the future to suit the specialized needs of individual businesses and firms.
At LevelEsq, we focus on facilitating litigation for plaintiffs’ representatives on their terms—now. Rather than get bogged down in algorithms and investor return expectations, we trust attorneys to value their cases and choose the coverage and financing they need for each matter.
Our superior Lawsuit Cost Financing makes funds for cases available to attorneys—in the amount they request as needed—within hours of completing a quick online application. Repayment terms are personalized to maximize firm cash flow and facilitate growth.
And lawyers can insure their out-of-pocket case expenses with our unique Litigation Cost Protection. Via a four-question online application, lawyers select coverage, from $3,500 to as much as $500,000, which is bound immediately. In the event of a trial loss, they recoup what they spent using a hassle-free claims process.
Why wait for tomorrow when LevelEsq offers the solutions plaintiffs’ lawyers need today?