Increased demand for litigation funding amid the current financial crisis may not be met because backers are taking on more lucrative work, an expert has warned.

Hedge funds and private equity houses – which were providing more and more cash to the emerging third-party funding market – have begun ‘stepping away’, Mark Wells, co-founder of Calunius Capital, which brokers third-party funding, said last week.

He told the Day Robinson litigation funding briefing day that backers had begun seeking better prospects elsewhere, for example, by charging banks large fees to acquire distressed loans.

It would be difficult to bring new backers to the table as long as lending between banks and other financial institutions remained tight, Wells said. ‘There’s a great demand for funding in the market at the moment. There are going to be more financially stressed litigants and claims resulting from recent events.

‘But if the interest in litigation funding doubled suddenly, then there would be an imbalance. There is already more desire to have capital applied than there is capital available.’