Sometimes it takes a high profile individual to bring an under-reported topic to the forefront. When it was discovered that billionaire entrepreneur, venture capitalist, and hedge fund manager Peter Thiel has been investing in litigation, the national media erupted about this brand new field of litigation finance.
Litigation funding is not brand new, however, and has in fact been an investment strategy of the wealthy for decades. The ability to invest in commercial lawsuits is not known by many as traditionally this asset class has been available to only a small percentage of wealthy individuals and institutional investors. These sophisticated investors are attracted to the asset class not only because of the potential for outsized returns, but also because of its uncorrelated nature; returns are not influenced by capital markets or macroeconomic activity. These savvy investors often have significant exposure to broader capital markets and therefore seek to diversify their portfolios with non-correlated assets - either assets that have little correlation to each other, or little correlation to systemic forces. Few assets beside litigation funding offer a lack of correlation and asymmetric return potential.
It shouldn't be a surprise that Peter Thiel invests in litigation. The co-founder of PayPal, Thiel is arguably one of the savviest innovators in Silicon Valley. The headlines focus on Hulk Hogan's massive $140M verdict, but this should really be seen as a win for all future plaintiffs, as it has brought a funding option to light that many hadn't previously known. While LexShares’ interest is in maximizing returns for investors, the similarity between Thiel’s issue-based litigation financing and traditional commercial litigation financing is that both level the playing field and afford all plaintiffs equal access to justice, regardless of their financial ability to self-fund their cases.
Without third-party lawsuit funding, many plaintiffs are forced to accept settlements well below the true value of their cases or even cease proceeding with their meritorious claims altogether. This is especially true in David vs Goliath situations where one party has significantly more resources than the other. Removing the financial disparity from lawsuits results in litigation outcomes that are based on the merits of the case rather than financial resources, and this is good for all of us.
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