Parabellum’s New $754 Million Litigation Fund Is Among Largest

Parabellum Capital, spun off 12 years ago from Credit Suisse, has closed on a $754 million fund that is among the largest private pools raised for litigation finance.

Parabellum has committed two-thirds of the fund to 50 investments in which the firm seeks a return by paying for the cost of commercial lawsuits. Parabellum declines to identify investors who bought into the fund or name the lawsuits the pool of money is backing.

The new fund, which is Parabellum’s third—and biggest—shows the rising popularity of the litigation finance industry as an option for returns that are uncorrelated to equity markets. Forty-four funders managed $13.5 billion in US commercial litigation investments in 2022, up 9% from the previous year, according to Westfleet Advisors.

“The asset class is moving out of infancy and moving into a state of maturity,” Howard Shams, chief executive officer and co-founder of Parabellum, said in an interview. “Serious people can recognize this as a way to make money over and over again with excellent results—private equity-like results.”

Large players such as Parabellum are increasingly dominating the litigation finance space, while some smaller rivals fall off the radar, said Rebecca Berrebi, a litigation finance broker and consultant.

“The proof of their success is in their ability to fund-raise large amounts,” Berrebi said of Parabellum. “In this market, $700 million-plus in one fund is quite a bit. It takes a lot to raise that much capital.”

Shams and Aaron Katz, Parabellum’s chief investment officer, in 2006 started what was then called the legal risk strategies and finance business at Credit Suisse—the first institutional commercial litigation finance business of its kind, according to Parabellum. In the more than a decade since Credit Suisse spun it off, Parabellum has grown to $1.45 billion in assets under management with 18 employees.

Parabellum’s last litigation finance fund of $465 million raised in 2020 resulted in 78 investments in around 400 to 500 cases. That fund is now in harvest mode—meaning it is managing cases rather than investing in new ones—and should complete its life in about a year, Shams said.

The First Fund

Parabellum’s first fund closed for $166 million and financed 55 investments, adding up to hundreds of cases. The firm sold the remaining partially-realized, and unrealized, assets from the first fund in a nine-figure secondary transaction, amounting to about half of the original investments.

Shams said the buyer is an established investment manager and the purchase returned all capital to the investors, plus profit. “Nobody’s done a secondary trade of that size,” he said.

The litigation finance secondary market has seen growth in recent years. In December, Omni Bridgeway announced the sale of a 25% interest in a portfolio of 15 intellectual property investments to an affiliate of GLS Capital Partners for $21.5 million.

Parabellum’s $754 million fund included some insurance protection for around 20% of the investors, or $158 million, which is able to be used for leverage.

While insurance markets have begun to compete with litigation finance deals and take some of the industry’s top talent, there are also ways they work in tandem. Parabellum’s structure is one example.

“The insurance attracts the leverage,” Shams said. “Most leverage providers, they’re not litigation financiers, they’re coming in and they’re saying, ‘I’d love to lend, but I don’t know how to evaluate this stuff.’ But once an insurer’s able to come in and say, `We’ll guarantee that you won’t lose money,’ at that point, it’s off to the races.”