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The Economist Says Litigation Funders Posting 'Fat Returns'

Third-party litigation funding's moment may already be here, as I have previously noted. But just the same, it is a little surprising to find stories about litigation funding at virtually every turn, with stories over the weekend appearing, for example, in The Economist and in the Wall Street Journal, among other publications. Two things seem to be driving this media attention: the results that early entrants to the litigation funding arena are achieving; and the arrival of new entrants into the field, undoubtedly attracted by the early entrants' results.

The April 6, 2013 Economist article, entitled "Investing in Litigation: Second-Hand Suits" (here), reports that litigation funders are posting "fat returns." The article cites the results of two of the publicly traded litigation funders. Juridica, which is listed on the London AIM exchange, on March 15, 2013 reported that during the prior year the company had made cash profits of $38 million on fund of $256 million under investment. Last year, the company "offered the highest dividend yield on London's AIM market." Burford Capital, which is also traded on the London AIM but is newer and bigger than Juridica, "boasts a 61% net return on invested capital in 2012."

With results like these, it is little surprise that the litigation funding arena is attracting new entrants. In an April 8, 2013 Wall Street Journal article entitled "Investors Put Up Millions of Dollars to Fund Lawsuits" (here), investors seem to think that litigation is an "increasingly good bet" and that a new generation of investors is "plunging into" litigation funding. Among the entrants identified in the Journal article is Gerchen Keller Capital, which, as described in an April 8, 2013 Crain's Chicago Business article (here), has raised more than $100 million and which closed its first deal on April 2, 2013. As detailed in an April 7, 2013 interview on Alison Frankel's On the Case blog (here), the Gerchen Keller firm is well connected and has the advantage, as Frankel puts it, of "sparkly resumes and impressive Rolodexes." (Question: Does anyone still use Rolodexes? Do they even exist any more? Does anyone under, say, 35 years old have any idea what a Rolodex is? Isn't the world a better place without Rolodexes? )

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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.

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