Litigation Proceeds as an asset class? Should feelings be agnostic from an investment standpoint if the returns are there?
Recently the litigation finance space has experienced a dramatic growth, over 700% in the last 3 years. This is where investors advance funds to a plaintiff (or pool of plaintiffs) or law firm, for a portion of the future recovery, The returns are typically above 50% and the hedge funds are killing. We do the same thing, but for retail investors online.
How does this group "feel" about this type of investment as an asset class? Should emotions be agnostic if the returns are there?
And, if there are negative feelings, what can deal providers do to change that?
Thanks in advance for your input!
Let's see proof that this asset class has 50% IRRs. I don't know of any legitimate hedge funds killing it here - unless of course you're talking about "appraisal rights arbitrage" in which case this is a poorly written law that will eventually change.
Do a search for Burford Capital's 2014 annual report. Burford is a publicly traded alternative litigation finance fund.
The admin won't let me post the link here.
Note: they report a 60% return on invested capital.
And, by the way, our assets routinely hit 90% IRRs.
It's no secret that this space is hugely profitable.
Your assets are $10k crowd-sourced campaigns so the IRRs aren't meaningful to institutional investors (pensions, etc.) unless continuously reinvested. Limited partners won't be interested because the at the quantum of checks they are writing these returns won't exist. No way a $50mm check from CALPERS is turning into $1.2bn in 5 years vis-a-vis litigation finance.
You asked investor perception - I'm giving it to you.
Right, right...that's why institutional investors didn't start buying everything off of Lending Club.
And, why it doesn't have a $5.4 B market cap now?
Oh wait, both of those things happened.
LC isn't boasting 90% IRRs, and it isn't a litigation finance fund. You're straw-manning. But FWIW, the stock is down over 40% from IPO. The market cap isn't really relevant to the original question (also notably the total addressable market for litigation is significantly smaller than originating and distributing 100% credit risk on unsecured consumer debt).
If you're trying to raise a legitimate fund then you'll have to talk with LPs - promising 90% IRRs will destroy your credibility (though frankly promoting on a forum for mostly college kids also doesn't help). What are the standard GP commitments here? You came here for a question, didn't like the response, and now have changed the conversation entirely.
If you want professional advice, I'd recommend Park Hill: http://parkhillgroup.com/ - serve as placement agent for many PE / HF and will likely give you a similar answer.
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