As discussed in detail last quarter, we continue to be bullish on the industry’s trajectory despite broader economic concerns, compounded by ongoing international conflict. In the last monetary policy meeting of the year, the U.S. Federal Reserve continued to combat inflation with a seventh consecutive rate hike, expecting interest rates to reach 5% by next year. While these rate hikes and ongoing investor sentiment push the U.S. closer to a potential recession, we are observing positive tailwinds in legal claim investments. This helps to reaffirm our belief that these assets are generally uncorrelated to public market volatility.

In a recent Bloomberg Law survey, 75% of funders are reporting improved business performance compared to the same period last year. The same portion of polled funders expect deal volume to increase if an economic downturn occurs in 2023. These findings largely reflect our internal assumptions regarding future performance in this turbulent economic environment.

We also observed a new entrant into the litigation finance space, pointing to favorable investor sentiment toward the asset class, despite overall market volatility. Lex Ferenda Litigation Funding is targeting a new $100 million fund focused on commercial litigation and domestic arbitration matters in the U.S. As of the first close, the firm had raised more than half of its target and exceeded its fundraising expectations.

60 Minutes Spotlight and Regulatory News

The litigation funding industry took center stage nationally as it was featured on CBS’ 60 Minutes in December. We view this as a pivotal moment for industry visibility given the news program’s large viewership: the live episode drew an estimated 11 million viewers, many of whom were likely unfamiliar with litigation finance.

We were particularly pleased that the segment portrayed the marked differences between sophisticated commercial litigation funders and consumer-facing firms that primarily finance personal injury claims. Given that business owners and executives will need to source capital more creatively in a rising rate environment, this timely publicity could help spur additional demand for third-party funding in 2023. The episode also largely affirmed our internal thesis that litigation funding allows companies to de-risk their litigation assets, which traditional lenders are largely unequipped to underwrite.

In the latest development in Delaware relating to the disclosure of litigation finance arrangements, the U.S. Court of Appeals for the Federal Circuit was asked to overturn the litigation funding disclosure mandate handed down by Delaware’s chief federal judge, Colm F. Connolly. The plaintiff, Nimitz Technologies, compared Connolly’s order to turn over correspondence and bank statements related to litigation funding to an "inquisition." The Federal Circuit temporarily paused Connolly’s order to allow for a response. We continue to closely monitor the developments of all court orders related to disclosures of litigation finance arrangements.

The Latest at LexShares

During the quarter, Matthew Oxman, LexShares’ Vice President of Business Development & Investments, and Allan Yancy, LexShares’ Director of Investments, authored an article published by Reuters Westlaw, titled The Entrepreneurial Attorney: Insider Tactics for Obtaining Litigation Funding, where they explored how attorneys, and their clients can better position themselves to secure third-party financing.

In addition, LexShares published in the American Bar Assocation's Business Law Section, titled Litigation Finance: A Modern Financial Tool for Corporate Counsel, which explores use of litigation finance by in-house counsel.

This release may contain “forward looking statements” which are not guaranteed. Investment opportunities posted on LexShares are offered by WealthForge Securities, LLC, a registered broker-dealer and member FINRA / SIPC. LexShares and WealthForge are separate entities. Investment opportunities offered by LexShares are “private placements'' of securities that are not publicly traded, are not able to be voluntarily redeemed or sold, and are intended for investors who do not need a liquid investment. Private placements are speculative. Investments in legal claims are speculative, carry a high degree of risk and may result in loss of entire investment.