ANALYSIS: Expect to See Targeted Growth in Litigation Finance

2023 has been an eventful year for litigation finance as the industry continues to mature. Buoyed by consistent demand for financing in key practice areas, and undeterred by calls for greater transparency, litigation finance is set to continue its upward trajectory in 2024.

Optimism about the industry’s direction will also help bolster it in the coming year. Results from Bloomberg Law’s 2023 Litigation Finance and State of Practice surveys indicate that both litigation funders and the lawyers who utilize their investments overwhelmingly agree that the industry is steadily growing.

Certain practice areas will continue to attract the lion’s share of investment in 2024, but other areas are showing potential for long-term growth. Next year, funders and lawyers will direct funding into a more targeted pool of cases related to the types of claims that provide the clearest path to success.

More Single-Case Funding Into Key Practice Areas

A common option among litigation funders looking to spread the risk inherent in funding lawsuits has been to fund a selection of a firm’s cases in the form of a portfolio. But as funders look to focus their investments, interest in funding single cases—either through a law firm or by providing funding directly to the claimholder—will prevail over other funding options in 2024.

Bloomberg Law surveyed over 450 attorneys in the most recent State of Practice Survey and 20 funders in its industry-specific Litigation Finance Survey regarding their use of litigation finance. Of the 19 funders who answered the question regarding the kinds of cases they finance, on average, 54% of their funding was invested in “direct to claimholder single-case financing” while 37% was directed to “law firm single-case financing.”

Top Litigation Finance Practice Areas

Patent, antitrust, commercial litigation, and bankruptcy lawsuits have attracted the most activity—whether as part of a portfolio or a single-case funding—from funders, according to results from previous Bloomberg Law surveys.

And the 2023 Litigation Finance Survey results mirror these past results. Almost all the respondents (19 out of 20) financed commercial or bankruptcy cases, and 15 out of 20 financed patent or antitrust cases.

Litigation funding for bankruptcy cases tends to correlate with Chapter 11 filings. 2023 saw a rise in bankruptcy activity, presenting attractive opportunities for litigation funders to support debtors seeking an alternative source of capital to traditional corporate loans. A tight market for capital in 2024 will encourage funders to continue backing litigation against third parties accused of contributing to a company’s distress.

Likewise, commercial litigation will retain its place as one of the largest recipients of third-party funding into the next year. Funders continue to invest in claims seeking damages from the breach of contract terms, especially where liability has been determined and the claimholder is involved in efforts to collect an award. Expect funding of these claims to continue as corporations and law firms seek to keep their costs down and avoid borrowing in an environment with increasing interest rates.

International Litigation, ESG on the Rise

Although commercial litigation and bankruptcy have been attractive areas for funding, other practice areas are still attracting significant attention from litigation financiers. In fact, some of the most high-profile successes have been found in complex international matters, despite their reputation for lengthy delays and the uncertainty surrounding the recovery of awards.

Earlier this fall, Burford Capital achieved a remarkable 37,000% return on its initial investment in a suit against the government of Argentina concerning the country’s 2012 seizure of the oil company YPF SA. With Burford’s share of the award calculated to be about $6.2 billion, such a successful outcome may encourage other funders to, at a minimum, explore international claims with the potential for a windfall.

Along with international litigation, cases related to environmental, social and governance (ESG) issues should see an increase in funding next year. Litigation funders who responded to Bloomberg Law’s survey selected ESG the most often out of 12 areas of law that they’re interested in financing.

As ESG begins to establish itself as a good fit for investors interested in supporting claims targeted at environmental and social change, funds like Aristata Capital are attracting support from investors like The Soros Economic Development Fund.

Environmental litigation was also one of the areas that funders said they were most interested in financing in both the 2021 and 2022 Litigation Finance Surveys, indicating that ESG will most likely continue its growth as an attractive target of funding into 2024.

Disclosure Isn’t a Roadblock

This year—like past years—saw state and federal proposals aimed at requiring greater disclosure of litigation funding, and next year will likely be no different.

State Actions

California and Louisiana legislatures attempted to introduce more transparency into the financing of lawsuits in state courts. A California bill would have required all parties in lawsuits in California state courts to disclose investment or lending from third parties. The bill was ultimately watered down to require disclosure only if a judge orders it.

Louisiana’s legislature introduced a bill requiring disclosure of funding agreements that was vetoed by the governor.

Despite the setbacks, both proposals show that the transparency of litigation funding arrangements is a concern for state legislators.

Federal Action

At the federal level, a Senate bill currently pending would require disclosure of foreign third-party funders and would ban sovereign wealth funds and foreign governments from participating in litigation finance.

Disclosure: Lawyers Versus Funders

Lawyers are more open to mandatory disclosure than litigation funders, based on Bloomberg Law survey results.

Forty-six percent of lawyers responding to the most recent State of Practice Survey, which included questions on litigation finance, agreed that disclosure of litigation finance deals should be mandatory at the start of all cases. An additional 21% were neutral, with only a minority of lawyers expressing a negative attitude toward mandatory disclosures.

Litigation funders are more averse to the idea of mandatory disclosures. Seventeen out of 20 funders who responded to the Litigation Finance Survey disagreed with the statement that funding information should be disclosed. A majority of funders also disagreed with the statement in each of the previous surveys as well (33 out of 42 in 2021, and 19 out of 24 in 2022).

A robust majority of funders (19 out of 20) believe that the industry is steadily growing, according the the litigation finance survey. Increased transparency doesn’t appear to be a major concern, and won’t discourage future funding by investors seeking a healthy return.

Access additional analyses from our Bloomberg Law 2024 series here, covering trends in Litigation, Transactions & Contracts, Artificial Intelligence, Regulatory & Compliance, and the Practice of Law.

Bloomberg Law subscribers can find related content on our In Focus: Litigation Finance page.

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