Investments in litigation in the UK have increased £25m in value in the last year as the sector gains increasing traction amongst business.
According to research from City firm RPC, litigation funders committed £723m to legal claims in 2016, compared to £575m in 2015.
The figures are based on the balance sheets of the 20 biggest independent litigation funders, who agree to pay legal costs for individuals or businesses in exchange for a share of any damages won.
RPC said hedge funds or private equity houses see litigation funding as an attractive ‘alternative asset class’ as returns are uncorrelated to the stock market or bond returns.
More businesses are now seeking to share the financial risks involved in litigation or arbitration, the firm said, and use third-party investors on a wide range of cases from environmental claims to litigation against banks.
RPC said the Jackson reforms, which abolished the recoverability of success fees and after-the-event insurance, has also been a boost for the sector, in addition to court fees introduced since Jackson.
Geraldine Elliott, partner and head of commercial litigation at RPC, said: 'Third-party litigation funding has become an increasingly vital component of the justice system. Few businesses want their cash tied up in funding litigation that will run on for months or even years, but litigation funders are set up to make that longer-term investment.
‘Now with litigation funding, parties without deep pockets can pursue claims even against larger and richer organisations like global corporates – whereas previously the legal costs may have been too high, or they may have been forced to settle early for just a small slice of the damages due to them.’
AIM-listed Burford Capital recently announced the acquisition of US litigation funder Gerchen Keller Capital for £142.5m, and assets of the combined company will reportedly be worth more than £977m in total.
The likes of Calunius Capital, Therium Capital Management and Augusta Ventures have all committed at least £50m to the UK market in the last two years.
RPC says the balance sheet of UK funders has grown by 55% in five years, from £437m in 2011 to the £723m last year.
Funding bonanza as litigation investors commit £723m to UK
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