Litigation Finance - A new asset class in waiting
Updated: Aug 14, 2020
Litigation Finance is a practice where a third party invests capital in a case in return for a portion of the financial recovery from a lawsuit.
Litigation Finance is primarily done in commercial cases between two corporations in cases like Breach of Contract, Infringement upon Intellectual Property, Product Liability and so on.
This segment picked up when Blackrock Inc invested in a Litigation claim of Hindustan Construction Company, INR 1750 crores.
Any commercial legal claim is akin to an invoice, and investing in a commercial legal claim is similar to buying future receivables in a lesser valuation.
All companies who do Litigation Funding, run thorough due diligence on all the requests that it receives for case investments. As per industry standards, only 1% of cases actually end up getting funded from the cumulative case requests seeking funding.
The benefits of investing in Litigation Claims are that-
- Invested in legal claims generally do not depend on capital markets or broader macroeconomic factors
- Litigation funding gives a higher return than other asset class. Historical track record in other countries
- Unlike other asset classes where monetization events are uncertain, legal claim investments are assured realization event
- On average a civil lawsuit in India upper court takes 30-36 months from filing to disposition
Commercial litigation investment is an exciting alternative asset class for investors, with a moderate investment period it gives around 40 % IRR.
On average, a civil lawsuit in the High court takes 36 months from filing to disposition, 16 months in Supreme court and less than a year in NCLT.
Interestingly, the greater the time it takes for a case to resolve once financed the greater the returns for the investors are in this model.