Alternative asset classes have attracted significant press coverage this year as investors increasingly seek returns outside of traditional debt and equity markets. Based on recent fundraising activity from the likes of Fundrise, Masterworks, and numerous other alternative investing platforms, the attention appears justified.
Institutional investors have long viewed alternative asset classes as an option for potentially shielding their portfolios against systematic risk. A CAIA Association survey shows that United States pension funds increased their allocation to alternative asset classes from 8.7% to 15.7% from 2001-09. As more individual investors participate in these markets, continued growth is logical. Alternative asset data firm Preqin, for instance, forecasts a 9.8% increase in overall market CAGR over the next 5 years.
Many of the companies operating in the alternative investment space share a common purpose with LexShares: expanding investor access to asset classes that were historically only available to large institutional asset managers. The LexShares investment platform and managed funds are two of the only ways individual accredited investors can participate in the burgeoning litigation finance industry, which over the last decade has become increasingly accepted by U.S. lawyers and legal professional associations.
Our industry’s growth took center stage last month at the third annual IMN litigation finance summit, where I joined a speaking panel to discuss the future of the asset class. In light of the ongoing dislocation we have witnessed in public equities, I was asked if litigation finance has shown any correlation to these macroeconomic shifts.
For investors who are recent LexShares platform participants, the answer may not surprise you: demand for our offerings has been consistently strong since March 2020, which itself supports the notion that this asset class can be resilient against broad market uncertainty. Court closures have certainly affected case resolution timelines, as we have noted. However, these procedural delays may have a positive impact on investment returns for litigation funders.
As a result, we believe the historical returns generated by litigation finance will remain attractive to both institutional and individual accredited investors. As a natural byproduct, we also expect new players to continue entering our market — which only heightens the importance of a funder’s experience, track record, and ability to source compelling investment opportunities. Ultimately, as attorneys and law firms become more intimately familiar with litigation finance, we believe they will seek these traits in a preferred funding partner.
Those interested can listen to the entirety of my IMN discussion, "Investor Perspectives: The Future of Litigation Finance as an Asset Class," via the following video. The panel also featured Brian Roth (CEO, Rocade Capital), Joseph Dunn (Managing Director, Fortress Investment Group) and moderator Stuart Grant (Managing Director, Bench Walk Advisors).