Litigation finance has emerged as an alternative investment asset class that provides financing for legal disputes in return for a share of the settlement or award if the case succeeds. As an investor, understanding the key strategies around investing in litigation finance can help maximize returns while managing risks. This article will provide an overview of litigation finance investing and share key tips on litigation finance investment strategy based on publicly available insights.
Conduct thorough due diligence on litigation finance firms
One of the most important things for investors in litigation finance is conducting thorough due diligence on litigation finance firms before investing. This includes understanding the firm’s underwriting criteria, historical case performance, management expertise, portfolio diversification and risk management strategies. Reputable litigation finance firms should provide transparency into their historical returns across varying case types.
Diversify across multiple cases and firm strategies
Litigation finance cases carry inherent uncertainty, so diversifying your investments across multiple cases can help mitigate concentration risk. Investors can diversify their portfolio across different case types, firm investment strategies, geographies and duration of cases. Many litigation finance firms have portfolios across hundreds of cases, providing diversification.
Understand case selection methodology
The case selection methodology is critical in litigation finance investing. Reputable firms utilize rigorous frameworks to assess the legal merits and potential damages awards for cases before investing. Investors should understand the case selection criteria utilized by firms to pick cases likely to succeed.
Leverage portfolio reporting for oversight
Ongoing portfolio monitoring and reporting provides investors visibility into the progression of cases within a litigation finance portfolio. Many firms provide periodic portfolio reporting on key case milestones, which allows investors to track the status of their investments.
In summary, key litigation finance investment strategies include conducting due diligence on firms, diversifying across multiple cases, understanding case selection methodology and leveraging portfolio reporting. Following these tips can help investors capitalize on this alternative asset while effectively managing risks.