by Maurice Power

Who funds the funders and why?

Article published in: Modern Law Magazine | Published in February 2017

As third-party litigation funding matures in the European market, investors are increasingly considering the attractions of backing the funders. It is increasingly becoming a partnership that is working for both sides, and the key to success for investors lies in working with teams that are able to originate and source cases – because there is plenty of capital queueing up to back the right opportunities.

The decision to litigate can be cost sensitive, particularly in the insolvency market, where the removal of the exemption from LAS PO for insolvency litigation means insolvency practitioners have nowhere to go. They would have to be able to budget for solicitors’ fees, legal disbursements and costly after-the-event insurance before pursuing an action. So, IPs have claims, but don’t have the money to pursue them.

Our funding partner at FLF is a private fund advised by Omni Partners. These investment funds are driven by low interest rates and a lack of access to capital, meaning the potential returns through litigation funding are attractive to investors. In our case, the real driver behind the fund’s interest is the uncorrelated nature of the returns, as these are not dependent on the economy or the state of the markets.

Our funding partners see us as an attractive dynamic. The market is an example of one where simply having the access to capital shifts the odds of a successful outcome in your favour. The cost of litigation, particularly in the insolvency arena, is now so high that, very often, strong cases for reclaiming money are not taken forward, because no-one is willing to put up the cash. The fact that our partners have deep pockets and a proven appetite to provide funding reduces the risk at the outset.

Recent changes in legislation are designed to be investor-friendly, so we are going where the government wants our partners to go. Access to justice is what’s driving this, and the government wants third-party capital to come in to create a route to access justice.