Island trust makes claims on Britain

15 March 2010 | By Will Jackson

Juridica Investments will expand its activities in Britain, says Richard Fields, the fund’s manager. Since its launch at the end of 2007, the Guernsey-domiciled investment trust has focused primarily on the $33 billion (£22 billion) American market for financing business law claims. This year, Fields says Juridica will turn its attention across the Atlantic, as part of a “long-term strategic play” in the British market.

The Alternative Investment Market-listed fund invests in commercial litigation–including antitrust, intellectual property, financial disputes and contract disputes. Investments typically involve buying an interest in–or financing the cost of pursuing–claims, in exchange for a share of the reward. Fields says he generally looks for a minimum return on investment of 30-40%.

”We look for good cases that are likely to settle”

Claims are vetted to ensure they are of a “high quality”, which includes consultations with outside specialists and background checks on the lawyers. “It is a 60 to 90-day process and overall we spend about 2% of investor capital on due diligence” says Fields. “We look for good cases that are likely to settle.” The trust has taken on 27 of the 400 opportunities it examined since launch, he adds.

Juridica says its clients are typically “Fortune 1000 companies, FT Global 500 companies, inventors, major universities, and the leading law firms that represent them.” However, its biggest win so far resulted from a dispute between two hedge fund managers, which concluded in 2008. According to a trading statement released on July 4, 2008, the settlement of the case brought in a profit of $3.5m. (article continues below)

More recently, the trust enjoyed a substantial gain last December, when the completion of its first patent infringement case generated a return of $2.4m, from an investment of $1.4m made in January 2009. An internet-related patent case also brought success as two defendants settled for $750,000, with Juridica receiving cash proceeds of $500,000. Three related cases, involving more than 20 defendants, are ongoing.

Individual investments are typically less than $10m, with an average size of $5m. Where direct funding is not possible, the trust is also able to loan money to law firms, including Fields Scrantom Sullivan (FSS), which is owned by Juridica’s principals. At the start of February, the fund had exposure to five antitrust cases through a loan to FSS, including a price-fixing cartel case against multiple defendants in Britain.

Since December 2007, Juridica has made 19 investments in 27 cases–six of which have generated cash returns for the fund. Just one case has been written down, although Fields says the fund is “pursuing” ways to recover its investment. At the start of February, Juridica had 15 investments involving 23 cases and total commitments of $121m (see table).

 

The fund aims to provide a diversified exposure, by investing in claims of various ages, types and sizes, and across different jurisdictions and law firms. The average age of cases in the fund is 2.6 years–ranging from under one year to over nine years. Fields says he expects to conclude one of the older cases this year.

Nick Greenwood, a fund manager at Miton, says the trust is “esoteric but quite interesting.” He held one meeting with Juridica and took a small stake in the trust, with a view to buying extra shares at a later date.

Donald Robertson, a fund of funds manager at SVM, holds 3% and 1% allocations to Juridica in the firm’s Global Opportunities Oeic and Global investment trust respectively. “It is non-correlated, and was doing something different from other funds when it was launched,” he says. SVM may increase its stake further, Robertson adds, if it can acquire shares “at the right price”.

Juridica generated a dividend of 4.6p per share in its first year–a yield of 4.6% based on the issue price–and Robertson says he is happy with performance so far. The fund also has an “interesting pipeline” of claims, he adds, that should allow further distributions, and could trigger an upward revision of the share price. “There are a couple of situations–one in the next quarter or so–that look quite profitable,” says Robertson.

Fields agrees that investments should begin to mature at a faster rate in 2010. “At launch I told shareholders that the portfolio would take 24-36 months to mature,” he adds. “We are now in the zone where there should be a lot of activity.”