More money and an ‘initial litigation offering’ – funding boom goes on

Rothkopf: Strong demand for our capital

Litigation funder Balance Legal Capital has raised £130m in the first close for a new fund, while LionFish – the funding arm of listed law firm owner RBG Holdings – has agreed a £20m deal.

We also report on a year of investment by Burford Capital, backing for an insolvency funder and an ‘initial litigation offering’ in the US.

Balance has tapped eight institutional investors for the fund, bringing its total assets under management to over £250m. Balance is targeting the second quarter of the year for a second and final close.

The investors include repeat investors from Balance’s prior vehicles plus new global institutional backers located in the UK, US, Switzerland, the Nordics and Australia.

In addition to its discretionary capital pools, Balance said it has direct access to significant further co-investment capital from its investors.

Managing partner Robert Rothkopf said: “This is the second multi-investor fund we have launched in two years and demonstrates the strong demand for our capital.”

Among the claims Balance is backing are the audit negligence claim by the Patisserie Valerie Group (in liquidation) against Grant Thornton and Leigh Day’s group of vehicle owner bringing emissions claims against BMW, Vauxhall, Peugeot and Citroen.

LionFish Litigation Finance said it has agreed a £20m litigation investment arrangement with an unnamed “large alternative investment firm”.

LionFish is part of RBG Holdings PLC, which owns the law firms Rosenblatt and Memery Crystal. It funds cases run by other solicitors.

The investment firm will put in up to 75% of all of LionFish’s cases over a two-year period. RBG told investors that LionFish would be entitled to receive “a significant share of the returns of the arrangement after a high single-digit return hurdle has been met, therefore providing significant additional potential returns to LionFish beyond its own investment”.

LionFish will have sole discretion in terms of which investments to pursue within a broad set of agreed parameters, which it said were similar to its current set.

“The arrangement provides LionFish with significant additional capital flexibility in the investments it makes, allowing it to manage a more diversified and granular portfolio of risks off balance sheet, as well as to move away from the investor sales model currently being used to reduce risk.

“By partnering with a large alternative investment manager, LionFish has the opportunity to extend or repeat the arrangement on a rolling basis, potentially providing a long-term flexible capital source that can grow in line with the business.”

Tets Ishikawa, managing director of LionFish, said: ” It increases our capacity to invest in litigation funding without falling back on a low-margin, deployment-focused fund management model.

“The arrangement allows us to diversify our own investment book and enhance the return profiles from our core investment business. This sets up LionFish for an exciting and profitable period of growth.”

In a business update for 2021 published last week, Burford Capital said it had made $1.1bn (£800m) of new commitments across its group and deployed $841m in cash, up 48% and 41% respectively.

Case realisations, however, were modest, “due in part to continuing court delays caused by the pandemic impacting the pace and progression of matters in our portfolio”. As a result, the company expects to report a net loss of between $70m and $80m for 2021.

Chief executive Christopher Bogart said: “To write more than $1.1bn of new commitments during an ongoing pandemic is a significant achievement and positions the business well for future potential income.

“We would have preferred cases to move through the judicial system faster than they have since the pandemic began, but the slow pace we are experiencing is a timing issue, not one affecting our view of the ultimate realisable value of the portfolio. No client has discontinued a single matter due to these delays.”

Elsewhere, litigation investment company Henderson & Jones – which specialises in buying claims from insolvent companies – has received an initial £5m working capital facility from Secure Trust Bank Commercial Finance to support its growth ambitions.

Gwilym Jones, managing director at Henderson & Jones, said: “Litigation investment is an innovative and profitable sector, and this facility recognises the real opportunities for growth through first-class litigation of appropriate claims.”

Over in the US, meanwhile, investors can back an ‘initial litigation offering’, an offering with a blockchain-enabled payment to finance a case being brought by Apothio, a company that researches and commercialises hemp, over the alleged wholesale destruction of its crops in California.

The claim is said to be worth between $500m and $1bn.

Investors will be issued tokens in the amount equal to their investment. In the event the case wins, they will receive a multiplier based on the number of tokens they hold and the time taken to resolve the litigation – the multiplier increases as the case goes on and the return could be as much as 3.5 times the investment.

The payment will be in the form of a stablecoin, a digital currency. It will be net of the contingency fee of Apothio’s lawyers, Roche Freedman, which is a third of any proceeds up to $100m, 30% of proceeds between $100m and $300m, and 25% thereafter.

Roche Freedman has also announced plans to create a ‘stock market’ of ILOs, called Ryval, to allow people to buy and sell tokens invested in litigation.

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