The popularity of alternative investments has surged in recent years, with everything from fine art to French wine to Neil Young’s musical catalog enticing investors seeking to diversify their holdings.
The commercial litigation financing industry is ready for a larger role among this diverse group as a growing share of corporate legal departments and large law firms leverage third-party dispute funders as a tool in their economic arsenals.
Money from these firms provide financial executives a way to help smooth cash flows and free capital for their core business. For in-house legal departments, the funds can bolster legal budgets and unlock value from an asset — a successful lawsuit — where collecting a judgment could be months or even years away.
Funders can also provide legal capital to litigate cases in which the company may not want to fund a lawsuit unilaterally, such as an intellectual property claim. Some financing agreements also allow companies to use funds, backed by the collateral of other, ongoing cases, to defend against lawsuits.
“I think there’s increasing pressure on in-house counsel to be more than a cost center, and even if not necessarily to be a profit center to be more commercially aligned with the rest of the company,” said Brian Rice, chief operating officer and general counsel at Legalist, an alternative asset investment firm that has deployed more than $500 million to fund litigation.
“From the people I speak to, I think that’s an opportunity that a lot of in-house counsel really relish.”
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