With Harbour Litigation Funding raising £60m in May and recent statistics showing high-value disputes in the High Court up by 10%, third-party litigation funders in the UK look set to enjoy a fertile 12 months.
Harbour – which is run by former IM Litigation Funding Head Susan Dunn, chief executive Brett Carron and former Travers Smith litigation head John Kingston – raised £10m more than its target of £50m. The firm’s litigation portfolio will comprise at least 25 cases with a minimum claim value per case of £3m. Investors in the new fund include endowments, family offices, private wealth managers and high-net-worth individuals.
‘Having set out to raise £50m, we were very encouraged by the level of investor interest and support, and are delighted with the result,’ Carron said.
Other third-party funders are due to follow suit. Calunius Capital, co-founded by former Freshfields Bruckhaus Deringer associate Mick Smith, and chaired by former Osborne Clarke managing partner Leslie Perrin, is due to close its own fund by the end of September this year.
Smith said he hoped to raise the same amount of capital as Harbour did earlier this month but would be happy to close with around £50m in funds.
‘The market is not as frozen as it was in 2008/2009, but investors are still very cautious,’ he said. ‘Harbour has done very well given we’re in such a tough market.’
‘The biggest difficulty many funders have probably faced is the available capacity and investor appetite, particular for those funders without book experience,’ said James Delaney, owner of litigation funding broker TheJudge. ‘Harbour’s recent raising is probably testament to the fact – they succeeded where others have failed as they have a track record that they can point to.’
The recent rise in investor interest coincides with date released by Reynolds Porter Chamberlain showing an increase in big-ticket commercial litigation in theUK. The number of claims for over £25,000 in the High Court increased 10% to 3,090 in Q4 2009, up from 2,799 in the last quarter of 2008. RPC said that a surge in credit crunch-related disputes, such as at least five cases related to the collapse of the Icelandic banks, was particularly evident.
‘We’re certainly seeing an upswing in litigation,’ said Neil Purslow of Therium Capital Management, a fund set up by Purslow and John Byrne, former head of Dorsey & Whitney’sLondonoffice, last year. ‘It’s hard to tell if that’s because there’s more litigation out there or there’s more demand for third-party funding, or demand for our third-party funding.’
Therium aborted its planned listed on AIM earlier this year but sold a 50% stake in the business to City ofLondonGroup for £300,000.
‘More funders will inevitably emerge over the coming 12 months, as indeed will litigation insurers,’ Delaney added. ‘It’s probably fair to say demand still exceeds capacity.’
But the aborted listing Therium, and the recent failure of another litigation funding firm, Alvaro, to list on AIM, shows that raising funds on the public markets remains difficult. Just two predominantly US-focused funds have been able to float inLondon.
Rosenblatt Solicitors founder Ian Rosenblatt, who launches Alvaro last year, said he had hoped to attract investment worth £30m to £50m to enable a listing on AIM but fell short with £27m. Rosenblatt said that he was currently talking to a private equity investor interested in backing Alvaro, but listing the company wasn’t viable.
‘I think the opportunity [for litigation funding] is very real and very exciting,’ he said. ‘There just seems to be cultural resistance to investing in this asset class by focused, long-term investors. I think you’ll always find the odd hedge fund that will put a bit of money here, or the rich individual that will invest a bit of money there, but it’s hard to find somebody with real, solid, available capital.’
Purslow said the feeding frenzy of 2008 had dies down and the market was left with serious players. ‘There was a lot of activity in 2008/09 and there was a lot of discussion about new entrants coming in; we’ve encountered quite a lot of teams that were looking at doing this,’ Purslow said. ‘What’s interesting is that they didn’t materialise, no doubt because of the difficulty in raising money in this area. Post-Alvaro, I’ve not heard of anyone trying to do a public listing. I think people have just looked at us and Alvaro and said, “we’ll keep our powder dry”.’
Of the two major US-based litigation funders, Burford Capital and Juridica, only Juridica has made a clear statement of intent to raise funds for UK-specific litigation. Chief executive Richard Fields, who announced earlier this year that Juridica would look to raise investment to fund cases in the UK in 2011, told LB that an announcement was imminent that would confirm its concrete plans for the UK.
‘We are certainly still on track to do something this year,’ Fields said. ‘We’re in the process of expanding our operation in theUKas it is important for us to have a robust offering there. Our average deal size is $5m in the US but we’re prepared to look at cases worth £500,000 in the UK.’
Burford, on the other hand, remains committed to major international litigation and arbitration, with a particular focus on the US. Although it listed on AIM last year, which founder and former Latham & Watkins partner Selvyn Seidel said was because investors in the UK were more switched on to litigation funding, it will remain focused on US case.
‘We’re focused on US litigation that includes UK parties, and we’re concentrating on international arbitration which is quite heavily centred in the UK,’ Seidel said. ‘At the same time, we are interested in special cases that might come out of the UK. But we’re not doing what Jurdica is doing, our strategy is different.’