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Lawsuit Funders Look to Take Advantage of Currency Value Plunge

Sept. 29, 2022, 9:30 AM

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at how litigation funders are looking to arbitrage a strong dollar, while US law firms might struggle to take advantage of currency fluctuations. Sign up to receive this column in your Inbox on Thursday mornings.

Anybody who’s vacationed in Europe this summer knows there are bargains to be had.

The pound sterling has fallen to just over $1, and the euro is trading just below that threshold. Both are record lows against the greenback, with declines of about 20% and 15%, respectively, this year.

Litigation funders are cashing in by deploying capital for cases in Europe and the UK, one of them told me at a conference in New York this week. These funders pay the cost of plaintiffs’ lawsuits with the hope of turning a profit on the back end from verdicts and settlements.

The currency plunge presents an opportunity because lawsuits typically take years to play out. Investors can bolster future returns in the UK and Europe assuming that currencies rise from historic depths by then.

Not everyone is interested in the arbitrage play. Another funder that does business in the US and Europe told me the focus is evaluating cases based on merits—not currency fluctuations.

But the fact that some investors are considering the currency strategy shows how quickly they adapt to financial conditions.

Big Law firms in the US typically lack such flexibility. But they too, at least in theory, could take advantage of a strong dollar. They could increase the size of offers to hire UK-based partners from competitors in the country, for instance.

Law firm consultants say it’s not that simple. There’s too much uncertainty around currency fluctuations for major US law firms to change their long-term strategy, said Ralph Baxter, a former chair of Orrick Herrington & Sutcliffe who advises firms and legal tech companies.

“You’re going to have lower expenses in England than you had at a different exchange rate, but you’ll have lower revenues as well,” he said.

Those of us who report on legal industry financial results are well familiar with firms that have a significant presence in the UK and Europe blaming “exchange rates” for denting their results.

A group of 1,200 large companies in the US and Europe by the end of this quarter will have lost more than $60 billion in sales to foreign-currency fluctuations since January, Bloomberg reported, citing an estimate by a senior strategist at treasury management software provider Kyriba Corp.

Kent Zimmermann, a partner at law firm advisory Zeughauser Group, said he’s not spoken to any law firms who cite a weaker pound or euro as reasons to boost efforts to grow in London or Europe.

“Most firms have deeply rooted priorities and don’t pivot quickly in most cases,” he said. “They are more like turning an ocean liner than a Boston Whaler.”

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On DOJ Hires: Richard Powers, the former acting head of DOJ’s antitrust division and a current deputy, has left the agency for a partner position at Fried, Frank, Harris, Shriver & Jacobson, Dan Papscun reports.

On Wilson Sonsini: Wilson Sonsini is expanding a digital platform that provides legal services to startup companies by offering automated employment agreements and other corporate governance advice in a new fixed-fee model. The additions are to Neuron, which launched last year and is described by David Wang, Wilson Sonsini’s chief technology officer, as an effort to automate every aspect of legal advice that “should” be automated.

“I’m not saying we’re going to get there tomorrow, but we are now beyond the experimentation phase of this,” Wang told me this week.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at rstrom@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com