Once considered an alternative investing niche, litigation financing has become a multi-billion-dollar industry. Burford Capital (NYSE: BUR), one of the oldest and biggest players in the space, says the emerging asset class will only get bigger.
With an initial $130 million in funding, Burford Capital set out in 2009 to turn an academic idea into a business that profits by backing lawsuits and paying out litigants in line for payouts.
Since then, Burford has ballooned into the largest litigation finance firm, bringing in $3 billion in realizations and reporting a cumulative IRR of 21 percent. The sector has grown at the same time from nearly nothing to a $15 billion-a-year industry as the customer base expands beyond law firms.
That has prompted a wave of private equity and institutional capital to pour into the litigation finance sector.
“Our core audience had historically been law firms who understand the cost of litigating and the risks of litigating,” says Burford Managing Director Evan Meyerson. “In the last five years, the pendulum has swung to investing more with corporate entities directly.”
Investors looking for higher yields and diversified returns poured about $15 billion into litigation funding globally in each of 2022 and 2023, up from $9.5 billion five years ago, according to Westfleet Advisors. The litigation financing advisory firm counted 39 firms in the space in 2023.
Fortress Investment Group, for instance, is seeking to raise about $1 billion for its latest fund in litigation finance, a sector in which it’s becoming a powerhouse with $6.8 billion in commitments.
Longford Capital Management last year announced it had committed up to $40 million in equity capital to PE clients of the law firm Quinn Emanuel Urquhart & Sullivan involved in litigation, funding attorneys’ fees and litigation costs, and monetizing legal claims.
Other players include Omni Bridgeway, Parabellum Capital and GLS Capital.
Burford has also expanded beyond the U.S. with the firm backing international cases to recover judgments and settlements beyond the reach of many of its clients acting on their own.
The New York-based firm, for instance, is entitled to about 35 percent of whatever is ultimately recovered from a $16 billion judgment against Argentina over the government’s take-over of energy firm YPF without compensating minority owners. Argentina is appealing, but Burford expects the case will ultimately settle.
Meyerson says the perception of litigation financing is changing, too, from a last-ditch financial instrument to a corporate finance tool. Burford began as a financial backer to litigants who couldn’t otherwise fund lawsuits against bigger parties.
“We did operate in more of a David-versus-Goliath world early on in our history,” Meyerson says. “But now, as both our product offering and our place in the market has gotten more sophisticated, large companies are starting to realize we are a familiar version of corporate financing. But instead of financing future cash flows from the business, we’re financing potential future cash flows from litigation.”
He says one of Burford’s biggest tasks to keep growing is “winning hearts and minds” to view litigation funding as a legitimate corporate financing tool.
“We are a product that is still in the early innings of adoption and understanding,” Meyerson says.
Does your company have a pending legal settlement you’d like to cash out now? Contact Meyerson at [email protected].
