Lawyer Monthly Magazine - April 2019 Edition

11 Monthly Round-Up www. lawyer-monthly .com APR 2019 Litigation funding is un- deniably becoming a mainstream asset class with the market set to double in the next five years. This is the prediction from Dilip N Massand of Legal Ventures, a UAE based fund by Phoenix Advisors that specialises in emerging markets. It is backed by Dalma Capital, a leading alter- native investment man- ager. Litigation funding takes place when a third party, with no direct interest in the proceed- ings, finances the cost of litigation in return for a share of the claim pro- ceeds if the litigation is successful. Mr Massand, who has over two decades of experience working on cross-border matters in- volving India, the Mid- dle East, and the US, comments: “Depending on the jurisdiction, liti- gation funding is either about Litigation Funding to Double in Five Years as Asset Class Becomes Mainstream FUNDING to become - or already is - a mainstream asset class. “What is clear is the di- rection of travel: litiga- tion finance is now un- deniably emerging as a mainstream asset in its own right on a global level.” He continues: “In Aus- tralia, for example, the market is already heav- ily developed, but even the Australian market is expected to grow, ow- ing to rising litigation de- mand for class actions. “The US, which currently accounts for around 40 per cent of all litigation funding, also remains a significant growth mar- ket primarily due to it being the largest litiga- tion market. “At 5 per cent, the UK is a considerably smaller but a highly attrac- tive region for litigation funders being home to over 200 law firms and four of the top 10 global law firms. “Elsewhere, litigation funding for arbitration cases has been recently authorised in Singapore and Hong Kong. “Whilst the Middle East, being a central hub for global trade, regularly sees substantial high- value disputes involving sophisticated entities and multiple jurisdic- tions. Most recently, sig- nificant discussion is tak- ing place in India about the role litigation fund- ing can play in making the resolution of domes- tic cases more efficient and providing access to justice for those who otherwise might not be able to afford it.” Besides the growing global reach of the sec- tor, there are, says Mr Massand, other major ‘pull factors’ for inves- tors. “Clearly, the market itself has enormous po- tential for growth on a global scale, as ongo- ing and increasing regu- latory reforms open the litigation funding market in many more regions. “But there are other at- tractive elements com- pelling investors to in- vest in litigation funding. “These include uncor- relation to traditional capital markets, allow- ing for greater portfolio diversification – which is universally recognised as the investors’ best weapon to mitigate risk. In addition, there are outsized historical returns and a reduced time to liquidity.” Indeed, a study by Pro- fessor Michael McDon- ald in 2016 on the litiga- tion funding industry ROI indicated an average annual return of 36 per cent. “Given the market is expanding due to regu- latory reforms in more global jurisdictions, the fact that there will al- ways be legal claims, and that it represents an attractive alternative for investors, I am confident the litigation funding sector will double within the next five years. It will continue to extend itself into new jurisdictions in the emerging markets surrounding us in the UAE.” “As we enter the late stages of economic and credit cycles glob- ally, sophisticated in- vestors are increasingly seeking uncorrelated asset classes that can perform well in a market downturn” adds Zach- ary Cefaratti, CEO of Dalma Capital, “Litiga- tion funding is a unique asset class in this regard; demand for litigation funding increases dur- ing downturns in the markets – a time when litigation spikes.” “As was the case in 2008, we expect the performance and op- portunities for litigation funds to increase in the event of downturns and increasing market volatility.”