Guide to Hedge Fund Litigatio Funding

The latest hedge fund strategy to emerge internationally is litigation funding. This is where a hedge fund dedicates a portfolio or section of a portfolio towards funding litigation that the manager believe highly favors the party they are supporting. With third party litigation funding, the investors cover a portion or all of the costs of litigation in exchange for a share of awards by the court. Funds employing this strategy retain legal experts and refer to niche experts on each case before weighing in on the change of possible victory. MKM Longboat, a British hedge fund has had dedicated $100M towards a litigation funding portfolio focussed on legal cases in Europe.

This an important development because it could be yet another way for hedge funds to produce un-correlated returns to the general stock market. Cases are decided and awards appointed regardless of bear and bull markets. Three interesting developments might arise out of this movement.

1. I wonder how many litigation funding hedge funds will sponsor litigation cases involving other hedge funds.
2. The number of hedge fund savvy lawyers hanging their own shingle on this strategy could explode by the 3rd and 4th quarter of 2008.
3. If the market became large enough some funds might turn into "green litigation funding" firms only support cases helping the environment, etc. That could get interesting playing off of current market trends.

- Richard

Permanent Link: Litigation Funding