Litigation Finance Has Surpassed $1 Billion Raised in Busy 2020

The launch of a new $200 million fund by Pravati Capital on Tuesday brings litigation finance firms over the $1 billion mark for funds raised in 2020, according to a Bloomberg Law analysis.

The inflow of capital comes as litigation funders, which invest in lawsuits and are paid out only if cases earn a return, say they have seen a surge in demand related to the coronavirus. Parties in ongoing cases are seeking to monetize their claims rather than continue to pay to litigate, and new lawsuits related to business disruptions caused by lockdowns are attracting funders.

“Our assessment last year was there was at least a temporary oversupply of capital in the market relative to attractive cases, and I think the tables have turned,” said Charles Agee, an industry veteran and managing partner of brokerage Westfleet Advisors. “Already the pandemic has caused demand to spike.”

Phoenix-based Pravati Capital launched its fifth fund since 2013, aiming to invest $200 million in the next 18 months. Like other litigation finance firms, Pravati invests in complex, plaintiff-side commercial disputes.

Pravati has also served as a lender to small and mid-size law firms, which CEO Alexander Chucri said in a statement was an aim of the new fund as smaller firms struggle in the fall-out from the coronavirus pandemic.

“The present crisis has exacerbated the need for capital to continue operating or is the only solution to implement a restructuring process that allows smaller law firms to survive or explore the possibility to merge with others,” Chucri said in a statement.

Law firms rarely disclose partnerships with funders, but at least one of Pravati’s law firm relationships, with Pierce Bainbridge, was publicly announced.

Pravati said last year it was no longer working with the law firm, which has seen a number of partners leave in recent months.

Pravati is at least the fifth major litigation finance fund to raise a nine-figure sum this year.

Parabellum Capital raised more than $450 million and GLS Capital raised over $345 million. LexShares announced in June it was raising up to $100 million, and Validity Finance raised an extra $100 million in July. The $200 million from Pravati would bring the total to at least $1.195 billion.

A survey of 41 litigation funders in the U.S. last year by brokerage Westfleet Advisors found the industry had $9.5 billion in dedicated financing. During a 12-month period starting in July 2018, the survey found $2.3 billion was committed to litigation finance transactions in the U.S.

Westfleet Advisors’ Agee said the $1 billion in capital raised this year was not an anomaly and reflected growing interest in the asset class as it matures.

“I am a little concerned about whether there is enough capital in the market currently to support the next 12 months of demand,” he said. “The world changed.”