Heavy-hitters take AIM at litigation

Developments have been coming thick and fast in the litigation funding world.

Last month, London’s Alternative Investment Market (AIM) welcomed not one, but two litigation funders. The first was specialist insolvency player Manolete Partners, backed by financier Jon Moulton, raising £29m. 

The second was Australian funder Litigation Capital Management Limited, which has moved its public listing from the Australian Stock Exchange. It has come knocking in the UK to broaden its shareholder base and tap into new equity markets; its London listing raised £20m.

Funding giant Burford is already listed on AIM, of course – and, incidentally, joined the rush of news announcements last month. Burford has just signed a deal with an unnamed sovereign wealth fund that will be providing almost a billion dollars’ worth of fresh capital for funding cases.

Rather than having one outlier from the litigation funding industry – albeit a very successful one – the AIM market is now home to three litigation funders. That makes a very big difference to potential investors, who prefer companies with natural comparators against which performance can be judged. Now, each of the three AIM-listed funders can be judged against one another; albeit that they are actually fairly different beasts. Investing in one of them will seem less like a brave move and more like a mainstream choice. All three will benefit from one another’s presence.

AIM is now firmly the market of choice for the funding industry, and more listings will surely follow. Indeed, we already know that UK funder Vannin Capital plans to launch on AIM at some point – though it pulled back from its planned October listing due to concerns about ‘volatility’ in the equity market. The funder is now biding its time and has not committed to any timetable for a new stockmarket bid. Perhaps these recent developments will encourage it to make the jump sooner rather than later.

It would be remiss not to mention the fate of the first listed funder, Juridica, however. The company joined AIM in 2007, but ran into difficulty and closed to new cases in 2015. It delisted from AIM last month and is being wound up, with only a handful of cases remaining. Juridica’s problems stemmed from a lack of scale – and a portfolio that placed too many eggs in one basket. But other funders have watched closely and learnt the lessons of Juridica’s mistakes. Diversification of portfolio is now one of the industry’s key mantras. 

As well as all the stockmarket news, there were further glad tidings from the global funding sector towards the end of last year, with Australian funder IMF Bentham – which is making ambitious inroads into the US – announcing that it has successfully attracted investment for a new $500m fund for US commercial litigation finance, with the potential to ‘upsize’ this to $1bn. 

There was also a surprise revelation from Calunius, one of the core players in the UK funding industry, with an enviable record for picking winners and a loyal investor base. The funder revealed that with its latest £100m fund having completed its investments, it would be closing its doors to new cases rather than pressing ahead to gather investment for a new fund. Could this be a sign that all is not as rosy as it seems in the funding garden? From what I understand, it would be wrong to read too much into the decision of Calunius not to continue, which is more about ‘artistic differences’ between the partners than anything else.

Riding on the tidal wave of recent announcements from the sector, City firm Reynolds Porter Chamberlain published an analysis of the volume of finance available in the funding market, which leaves no doubt as to the bursting coffers that the industry has available to it. The law firm estimates that UK funders’ ‘war chests’ have expanded by 31% to £1.3bn over the past year; and that is based on figures to 31 March 2018, so by now the total is even higher.

RPC points to the ‘problem’ that funders now have of finding enough good cases in which to place their ample investment cash. This is undoubtedly an issue and one of the reasons why many are changing the way they operate. Not only are funders now more likely to put in cash up front to help law firms build their case – for example, to attract claimants for group action litigation – they are also increasingly investing in law firms’ portfolios of litigation, or in some cases, investing in the law firm itself.

The more capital the funders raise, the more innovative they will need to become in order to deploy it effectively. Areas of litigation that are popular with funders will inevitably grow. One example of this is the current glut of truck cartel litigation. For claimant law firms that can establish good relationships with the funding sector, the opportunities should not be underestimated.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs. For subscription details, tel: 020 8049 3890