The value of the pipeline of court cases and cash held by top UK litigation funders has hit £2bn for the first time as the asset class grows in popularity.
The value held by litigation funders has rocketed in recent years, according to data by law firm RPC, with funding doubling in three years from £1bn in 2016/117 to £2bn in 2019/20, when the latest data was available.
Litigation funders provide finance to support legal disputes. In return, funders receive a multiple of their investment in the claim, if the case succeeds.
Litigation funding has been a fast-growing asset class for investors over the last five years, as it allows investors to diversify their investments away from traditional opportunities, such as the stock market.
According to RPC, the returns made from litigation funding should be uncorrelated with the performance of the broader economy, as economic downturns tend to increase litigation.
Geraldine Elliott, head of RPC’s commercial litigation group, said: “The challenge for litigation funders is to find high quality legal disputes to fund and maintain a broad enough pipeline of cases so that earnings don’t become too volatile and lumpy.
“We are seeing funders launch new strategies to originate cases and being more creative about where they deploy capital.”
Growing areas where funders are looking to build their portfolio of cases includes insolvency and the enforcement of large international arbitration awards.
There is expected to be a surge in the volume of disputes arising from insolvencies once government support for businesses, like the furlough scheme, falls away and restrictions on insolvency activity are lifted.
The growth in group action style cases in the UK also offers litigation funders more opportunities to achieve the size of settlement from one action that their investors are looking for.