A new survey from brokerage firm Westfleet Advisors appears to counter claims made by litigation funders that the pandemic would be a boon for their business and that Big Law firms are major users of third-party financing for suits.
The survey of 46 litigation finance industry participants released Wednesday is one of the few sources of hard data in the growing and highly opaque world of lawsuit funding.
The survey said the amount committed to new investments by funders grew 6% to $2.47 billion from June 2019 to June 2020 compared to the same period the year prior.
In total, the 46 funders managed a combined $11.3 billion in assets allocated to U.S. commercial litigation investments, which represented an 18% increase from the previous year, according to the survey.
But these figures have some limitations. The reporting period ended in June, which may preclude the survey from reflecting the bulk of the impact on the industry caused by the pandemic.
“My first reaction was: ‘Wow, the industry didn’t really grow last year in terms of new capital committed to investments,’” said Charles Agee, CEO of Westfleet Advisors. “I feel pretty confident the main reason for the seemingly anemic growth rate was Covid.”
Of total investment, 28% was deployed to AmLaw 200 firms, the survey said. Last year’s survey found AmLaw 200 firms received 30% of the industry’s spending.
With most trials on pause, many cases that may have resolved last year have dragged on. But Agee said the bigger barrier to deal making was clients and firms simply having other priorities, such as getting their employees used to remote working.
Early in the pandemic, some litigation funders said they may stand to benefit from delays in cases. That’s because their share of a lawsuit’s returns grow as the length of the case grows.
The survey also showed that only 9% of so-called portfolio deals, in which funders provide capital to back a number of a law firm’s cases, are executed with Am Law 200 firms. Large firms much more commonly receive funding for single cases at the direction of their clients, the survey shows. Of those types of one-off financings, 43% involved Am Law 200 firms.
“Everyone still says corporate utilization will go way up, Big Law will start doing a bunch of portfolio deals, there’s all this demand just under the surface,” Agee said. “Maybe that’s true. There are some reasons to believe it’s true. But the numbers don’t lie.”
Last year, the inaugural Westfleet survey cautioned that there was excess capital in the industry, which may provide negotiating leverage for clients or law firms looking for deals. That survey was criticized by Burford Capital, one of the largest funders, as “obviously self-interested.”