For the last decade-plus, litigation finance has become increasingly accepted as both a sound financial product and alternative investment opportunity. This is particularly true in the United States, where expansion of the asset class has led to growing specialization among litigation finance providers. In fact, the market can be grouped into two distinct subcategories:
- Commercial litigation finance, which supports businesses involved in complex lawsuits and law firms representing multiple cases. Funding recipients are sophisticated and require considerable financial resources to cover their legal or operating expenses.
- Consumer litigation finance, which typically serves personal injury victims who need upfront payment to cover medical and personal expenses.
While consumer funding is the more mature market, commercial litigation finance investments are seeing far more rapid growth, as LexShares CEO Cayse Llorens noted during a recent appearance on the How My Business Works Podcast.
“You look at the commercial space and it has been in more of a growth phase from an industry life cycle perspective,” Llorens told host and serial entrepreneur Michael Girdley. “I also think it’s possible to have real subject matter expertise in some of the sub-niches on the commercial side. That comes back to the prowess of our in-house legal team... It’s important for us to stay within our sweet spot.”
LexShares prioritizes the commercial litigation finance “middle market” — cases with funding requirements between $200,000 and $5 million — and relies on an expert team of former litigators to underwrite our investment opportunities. Attorneys and plaintiffs who receive investment from LexShares often lack the significant amounts of liquid capital required to access legal expertise and resources in the U.S.
Unlike other commercial funders, LexShares also gives accredited investors access to litigation-related investments through its online marketplace and dedicated fund. Litigation finance has the benefit of being generally uncorrelated to activity in public capital markets, as case outcomes largely rest on their legal merits and the skill level of the attorneys litigating them. As a result, LexShares investors can potentially reduce their exposure to systematic market volatility and diversify their portfolios outside of traditional asset classes.
“As commodity prices change, as interest rates (fluctuate), as we go from boom to bust cycles, investing in these cases — investing in helping people pursue justice — is really tied to the outcome of the case, and not the macroeconomy as much as other asset classes may be,” Llorens said.
In the 30-minute podcast linked below, Llorens and Girdley discuss several other aspects of investing in litigation finance, including:
- Common deal structures employed by litigation finance firms
- The types of cases LexShares primarily funds
- How technology helps LexShares source and evaluate investment opportunities
Learn more: View recent LexShares investments.