Private Equity Funds Deploy New Investment Strategy: Financing Lawsuits
Private Equity Funds Deploy New Investment Strategy: Financing Lawsuits
Private equity and hedge funds have found a new way to get richer: Financing lawsuits in exchange for a cut of the winnings.
The investment funds, which have raised billions of dollars to funnel into promising cases, have become a rich source of cash for lawyers to acquire cases, buy advertising, recruit clients and underwrite litigation expenses. If the lawyers win, private equity backers can pocket up to six times their initial investments, amounting to as much as 50 percent of a settlement or trial verdict.
This large and growing pool of money has opened the door for lawyers to gamble on big cases against big companies involving thousands of victims and millions of dollars in damages, but it also raises questions of whether lawyers will act in the best interest of clients or their financiers, who might prefer a quick settlement over a lengthy trial. In addition, the cuts taken by private equity and hedge funds can be so high that clients who win big awards on paper may end up with as little as 10 cents on (sic) dollar, legal experts say.
“Litigation finance has been around for more than a decade, but only in recent years has it taken off as private equity and hedge funds seek better returns beyond stock, bond and commodity markets, according to legal and finance specialists. By some estimates, more than one-third of U.S. law firms used litigation financing in 2017, up from 7 percent four years earlier, while private equity and hedge fund investments in lawsuits have surged to about…read more
Source: L.M. Sixel, San Antonio Express News
Originally Published: May 29, 2018
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