A global shortage of yield-bearing assets for investors seeking to generate income is boosting the popularity of funds that back lawsuits in return for a slice of the proceeds if they win.
Next month, a new $1.5 billion firm called Contingency Capital will become the latest member of a club that's already lured hedge funds including D.E. Shaw & Co., Fortress Investment Group and Elliott Management Corp.
The move follows the foundation of the International Legal Finance Association, the first global trade body set up to represent the sector; as well as the recent debut listing of a litigation funder on the New York Stock Exchange.
Assets under management in the industry doubled in the last three years to more than $10 billion, according to ILFA, as investors seek bigger risks to boost returns. Central bank stimulus is now fueling the trend even more, along with investors' demand for sparsely-traded assets to shelter from the pandemic's impact on whipsawing markets.
The need for an independent asset class is huge at the moment, according to Leslie Perrin, chairman of ILFA. "It doesn't matter what happens to interest rates or the stock market, litigation assets will go unaffected."