Wariness in the Market
The industry has also been weathering scrutiny over its accounting methods. In particular, Burford Capital, one of only two major industry players that are publicly traded, faced a backlash in August after a short seller report questioned its accounting practices and claimed that the firm misled investors about its realized gains, as Bloomberg News reported. Burford saw its stock price plunge by more than half in one day, according to Bloomberg Terminal data, and the company is now facing a shareholder class action lawsuit. Other litigation finance firms have since sought to differentiate their accounting practices from Burford’s
Shortly after Burford’s stock dip, major industry player Vannin Capital was acquired by investment firm Fortress Investment Group. Bloomberg Law Litigation Finance Survey results indicated that litigation funders believe that a top obstacle to funding is that their potential clients do not understand how funding works. These signals of investor wariness and market confusion foretell that more IPOs in this industry are not expected in 2020.
- Room for Growth
Despite current industry scrutiny, Bloomberg Law survey results indicate that interest in obtaining funding outpaces current levels of funding that is, interest in litigation funding is high and there is room for growth, as evidenced by IMF Bentham’s recently announced merger with Omni Bridgeway. Kirkland & Ellis’s launch of a plaintiff-side contingency fee litigation practice is further evidence of law firms’ interest in new ways to increase capital. Additionally, while General Counsels and in-house legal departments are looking for ways to cut costs and increase efficiency, they rarely initiate litigation funding requests suggesting space for growth in the corporations-as-clients space.
With a potential economic downturn looming and budgets constrained, litigation funding presents an opportunity that law firms and their clients may not be able to turn down. Still, the industry can expect continued scrutiny in 2020, in the form of court-ordered disclosures, state disclosure laws, and investor wariness. Shedding more light on this opaque industry will be critical to making litigation funding ubiquitous.
Topics: Burford Capital | Vannin Capital | IMF Bentham | Kirkland & Ellis
Work Cited: Bloomberg Law | Transparency Wanted in Litigation Finance | November 04, 2019