Fund Strategy has learnt of plans to launch a Guernsey-domiciled closed-ended fund later this year, which will be the first publicly listed fund to invest in British litigation cases.
The fund is designed to provide financing for litigation cases that are picked by a the managers, made up of a group of legal professionals from some of London’s top law firms who specialise in litigation law.
They will be joined by a leading underwriter of after-the-event insurance to ensure that a defendant’s costs are covered in losing cases.
The management will look to invest in about 36 cases a year, with a minimum cost of £100,000 and a maximum of £5m a case. The areas they will look to fund include insolvency, professional negligence, shareholder disputes, trusts and probate, group actions, tax, intellectual property, arbitration and adjudication. They will not, however, invest in disputes over construction, defamation or personal injury claims.
In each case, the target return will be 250% of the original investment. The win rate needs to be 60% for the fund to break even, although the management is targeting a win rate of 90%.
Because of the nature of the investments, the key risk is poor case selection. While the managers will be able to carry out due diligence on a case-by-case basis, it will ultimately have no direct control over the choices of
the claimant, including whether they accept a settlement or decide against pursuing the case.
James Davies, an investment research manager at Chartwell, says that while it is undoubtedly a very specialist product, it could still hold appeal for investors.
“I’m sure there’s a market for it,” he says. “People have been looking for ways to get access to returns that are not correlated to other asset classes. If you look at things like fine wines, and to the same extent property and commodities they are all affected by economic factors in a way that this clearly isn’t.”
The group is targeting a listing on the Alternative Investment Market (Aim) with a fund size of £75m at launch. It will have an initial 2% base fee, which drops off to a minimum of 0.5% during the run-off period. There will also be a performance fee of 12% based on the growth of returns over a 6% hurdle rate.