To understand litigation finance, it is important to comprehend the different forms of litigation funding that are available.
The three main types of funding that are offered by litigation funders are:
The funder provides funding for a legal claim on a one-off basis in exchange for an agreed return if the case is won. This type of funding is non-recourse, meaning that if the case is lost, the funder carries all the risk and cannot recoup its investment.
The funder provides a funding package that covers multiple cases of a company or law firm. This form of funding allows for greater diversification than traditional single-case funding.
Law firm lending
The funder provides a loan to a law firm to allow them to grow their business or take on a larger volume of cases. Under this scenario, the funder receives interest in return for the loan and in some instances, a participation to the upside of winning cases.
The form of funding that is provided by litigation funders will depend on their risk appetite, return objectives and overall investment strategy.
For example, litigation funders that take a more opportunistic approach may decide to invest in several forms of litigation funding, funders with a high risk/return objective may invest solely in non-recourse single-case funding, while more conservative funders may only invest in law firm lending.
For investors that are new to the asset class, the more conservative approach of funders providing loans to law firms will likely be more adequate, while more seasoned investors may opt for a higher yielding, yet riskier, single-case funding strategy.
Interested in litigation funds? Do not hesitate to contact us at Blue Lakes Advisors