Daniel Digiaimo from Baker Street Funding explains the privately unregulated field of litigation finance.
The article you are currently reading was written by the president and CEO of a litigation funding company called Baker Street Funding. In it, he discusses the expanding market of litigation finance.
A non-correlated asset that has the potential to attract investments worth billions of dollars
The field of litigation financing has experienced phenomenal growth during the past ten years. The industry is largely unregulated, with the exception of a few states that use legal precedents dating back a century or more, such as champerty, in an effort to control this emerging and rapidly expanding industry.
As a result of the plaintiffs in these states being unable to access legal funding, these plaintiffs are now at a significant disadvantage. As a result, many of these plaintiffs end up settling their cases for an amount that is significantly lower than what their cases are actually worth in order to cover their bills and expenses.
Global leaders in the industry such as Baker Street Funding and Lex Shares Financial provide value to clients and attorneys by enabling them to leverage the future asset that is a settlement in order to cover immediate expenses. This allows clients and attorneys to better manage their financial situations. This provides the attorneys who battle these claims with sufficient time to negotiate a settlement for a better value than they would be able to get if their client was pressured into reaching a settlement due of their client’s financial situation.
A significant number of these claimants have suffered life-threatening injuries and are unable to provide for themselves or their families.
Law firms all over the country recognise the value that litigation funding brings to their customers because it enables them to leverage their future receivables. As a result, these law firms are able to negotiate for longer periods of time with insurance companies, which are notorious for making low offers in order to drag the case along or generate a quick settlement that is below the actual value of the case.
In addition to this, a lot of lawyers are using the money they will make in the future to pay for marketing, expert testimony, and the onboarding of new clients.
Plaintiffs’ attorneys typically have a highly unpredictable revenue stream, particularly in the initial few years of their careers, when they are required to spend monthly funds on fighting cases and must wait to earn any income from those cases until they settle.
Why should you put money towards legal funding?
Non-correlation: The legal finance business is non-correlated, which means that it does not follow the typical stock market or economic trends. This distinction is important to keep in mind. The profits that businesses and investors receive are typically unaffected by the state of the economy or the stock market. Even though the economy is struggling, there seems to be a growth in the legal fundraising arena, according to the speculation of certain people.
Investments that produce a higher return: The rate of return that investors get from investing in individual cases or a portfolio of cases is higher than the rate of return they get from investing in other assets that have risk profiles that are comparable. Due to the extensive amount of research that goes into underwriting each claim, the likelihood of incurring a loss of principal is typically cut down significantly.
Historically, high-net-worth individuals and family offices have been the primary investors in legal finance. In recent years, there has been an unprecedented influx of financial institutions, private equity firms, and alternative investment managers into the market. Although there is significantly more money to be made in the sector, there is also a greater degree of danger. Some businesses are willing to compromise on case quality in order to guarantee that sufficient capital is invested on a monthly or quarterly basis.
Where does the market now stand for this sector?
In spite of the heightened regulatory attention, the legal finance sector in the United States has risen to over $10 billion. This rapidly expanding industry has the ability to level the playing field between individual plaintiffs and giant insurance corporations. Even though there will be more stringent regulations, there will continue to be a significant demand for financial support for the legal system in the years to come, and more capital will be spent in the sector overall.