Hedge Funds Turn to Litigation Finance in Diversification Push, Boosts to Bottom Lines

Litigation finance has become a $39 billion industry, thanks to billions of investments by hedge funds, sovereign wealth funds, and private equity firms, according to Bloomberg.

The increased investment by asset management funds reflects a push to diversify risks and boost earnings.

Fortress Investment Fund LLC’s head of legal assets operations says the firms invest in claims with a strong backing of law and evidence that have higher chances of success.

Omni Bridgeway Ltd estimates that litigation finance has a global addressable market of about $100 billion. The industry is believed to be greater than reported due to limited disclosure and transparency.

Litigation funding proponents say the industry is critical in ensuring that legal personnel get paid and facilitate access to justice for individuals or firms with limited resources. Critics say the claimants could earn little for the benefit of the investors.

Regulators are now poking holes on whether litigation finance has sufficient oversight, with the European Union already reviewing rules for the industry.

Litigation finance involves paying litigation fees upfront for consideration in the eventual payout for suits that range from divorce to fraud. Funds get paid about 3 to 4 times of their invested capital in successful litigations.