A Rising Tide Lifting Seaworthy Boats In Litigation Finance

Litigation finance is growing rapidly and shows no sign of stopping anytime soon.

As the equities world increasingly moves towards passive equity allocations, investors and fund managers who once focused on finding market inefficiencies among stocks may need to move to greener pastures. The law offers one such pasture.

Litigation finance is growing rapidly and shows no sign of stopping anytime soon. For evidence of that, one need look no further than the latest earnings release from Burford Capital. But even outside of the publicly traded British industry giant, the industry is doing well.

Burford’s earnings were great. The firm is clearly growing rapidly. The ~$3B giant reported that it “has generated more profit in the first six months of 2017 than it has ever generated before in a full year of operation.” And that is all before factoring in results from the Gerchen Keller Capital acquisition last year. This growth has led Burford to become one of London’s top 250 firms. At this stage, the biggest disappointment for American investors might be the lack of ability to directly invest in Burford because of its London listing (a position Burford is unlikely to change anytime soon).

As Burford reported, “The Petersen investment is Burford’s most successful investment in the company’s history. It sold 25% of its entitlement in the bankruptcy matter generating more than $100 million in actual cash profit – more than five times the original investment – and still owns 75% of the investment.”

What does all of this mean for the markets and U.S. investors? The reality is that getting access to Burford is challenging for many U.S. investors — but there are other options.

Take Longford Capital, which reportedly started the year looking to raise $250M for its new fund. Rumors from fund insiders suggest that the firm has been even more successful with its most recent fund, actually raising an impressive $500 million. That figure is extremely significant for a few reasons.

First, Longford is not a particularly well-known name in the litigation finance space. The group lacks the historical pedigree of Parabellum or the tenure and deep-pocketed hedge-fund backing of IMF Bentham. Longford is also a U.S.-focused firm, so it lacks the continental connections of groups like Vannin or Augusta and the associated benefits those connections bring. So the fact that distinctly American Longford has raised half a billion dollars in a short span of time should raise eyebrows.

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Longford’s success is not limited to fund raising, though. The firm has reportedly deployed almost $100M in capital, and had successful resolutions or positive developments in several of its investments recently, suggesting that initial capital deployment has been prudent and investors will likely start seeing an early return on capital.

Now to be fair, Longford is a well-managed fund in an arena where unfortunately there are still far too many badly run players and funds that probably lack the wherewithal to survive in the long run. But it’s not the only thriving fund; boutique firms like TownCenter Partners are enjoying success as well.

The key for investors is finding the right investments that will complement their risk tolerance while enhancing returns. And not all funds are created equal; in fact, in my experience as someone assisting institutional and high-net-worth investors in the space, many funds are poor investment choices.

The rising tide of the litigation finance market is lifting all boats — or at least all boats without holes in the bottom. Those boats need not be famous or even well-known; they just need to be seaworthy.

UPDATE (8/17/2017, 11:45 a.m.): Christopher Bogart, CEO of Burford Capital, contacted me with the following information:

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Thanks for the kind words about Burford. However, Burford is actually a multinational business with the US as its largest market and almost all of its senior team based in the US, and its public equity and debt securities are easily purchased by US investors (and indeed a significant portion of our shareholder base is in the US). Moreover, Burford is also a SEC-registered investment manager with a number of private funds that are open to, and composed largely of, accredited US investors.

It’s easy for US investors to buy LSE [London Stock Excchange] securities directly. Virtually every US brokerage firm has the capability. We are widely held by US institutional investors.


Michael McDonald is an assistant professor of finance at Fairfield University in Connecticut. He holds a PhD in finance. Michael consults extensively through Morning Investments Consulting and writes for Litigation Finance Journal. Michael has served as an expert witness in legal disputes, and is an arbitrator with the Financial Industry National Regulatory Authority (FINRA). Michael can be reached at M.McDonald@MorningInvestmentsCT.com.