Since our last report in Q1 2023, we have seen significant declines in US inflation as measured by personal consumption expenditure, which exhibited the lowest annualized rates since early 2021, falling to 3%. Despite the Fed’s most recent quarter point rate increase that brings benchmark borrowing costs to highs not seen for 20 years, there is optimism for an economic soft landing. With US GDP and employment stubbornly resilient, the system may well have managed to put the inflation genie back in the bottle without a slew of job losses and corporate failures. Once target inflation is under control, we may see interest rates come down quicker than expected, which could lead to a period of heightened asset class correlations.
During these times, we would remind investors that an investment in a diversified portfolio of underwritten litigation finance assets will produce returns that are entirely uncorrelated to other available asset classes such as stocks, bonds, commodities, real estate etc. This lack of correlation allows investors to diversify their portfolio effectively. When assets have a low or negative correlation, they tend to move independently of each other. By including Litigation finance assets, the overall risk of a portfolio can be reduced because losses in one asset may be offset by gains in another. This should help to spread risk more effectively and reduce portfolio volatility.
LexShares is still seeing high demand for capital from plaintiffs, corporates, law firms and insolvency trustees for both single cases and portfolios of cases. There is a burgeoning two-way secondary market for legal assets, which we think is a positive sign of industry maturing and becoming more efficient. Given the idiosyncratic nature of risk in legal disputes, we remain convinced that strong diversification is the only effective way to reduce risk in litigation finance portfolios.
We note that there have been some significant rulings during Q2 2023 that bode well for litigation finance investors, including a ruling against 3M that sought to use somewhat arcane bankruptcy laws to limit its exposure to over 230,000 personal injury claims from the military. This is a trend that has become more common; however, shutting down this cynical use of insolvency laws, which are in place to strike a balance between creditor protection, orderly market process and reward for entrepreneurial endeavour, is a good thing for the underdog plaintiff.
We have seen increasing regulation activities in consumer legal funding, most notably in the recent actions of Missouri, which has strengthened consumer legislation. However, LexShares is not involved in this niche of litigation finance mostly associated with personal injury pre-settlement loans. Our focus remains in the small to medium end of commercial litigation finance and collateralized law firm funding.
The Latest at LexShares
We are excited to announce that Max Doyle joined LexShares in late May as our new CEO, succeeding former and interims CEOs Cayse Llorens and Lane Dietmeier. With an involvement in the litigation finance industry since 2012, Max brings a unique blend of skills and a wealth of experience to the LexShares leadership team. Under his direction, we are poised to further grow and innovate in our legal finance business. This includes plans for the launch of our upcoming fund, LMFIII, all the while ensuring stringent stewardship of our existing funds. Additionally, are also pleased to welcome Grant Rutledge and Derick Ingling to our operations division, which is led by Lane Dietmeier. We would also like to express our gratitude to Ray Marchand for his unwavering dedication during his tenure at LexShares. As he departs, we wish him every success in his future endeavors.
Finally, we’ve recently rolled out additional Fund reporting functionality on our platform. With this new reporting view, investors are able to track case updates for all fund investments via a timeline of major milestones. Our goal is to update all investments on a quarterly basis, but will target posting material updates more frequently. This report can be accessed through your investor dashboard, navigating to the fund updates ribbon.
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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.
