UK Hedge Funds Investing in Litigation
As discussed in this post, a recent WSJ article reported that London has become a hot spot for U.S.-style antitrust litigation against international cartels. The article attributed this to, among other things, a newly-emerging lawsuit-financing industry in the U.K. in which "hedge funds, insurers and private investors have begun putting up money for lawsuits in exchange for a share of any awards."
The growing practice of UK hedge funds financing litigation is examined in detail in this article in yesterday’s Financial Mail. According to the article,
Litigation funding, in which investors pay the legal costs of bringing a court action in return for a share in any damages, is the latest tactic being used by hedge funds - unconventional investment funds that use a range of complex techniques to make their profits.
Chris Warren-Smith, partner at City law firm Barlow Lyde & Gilbert, said: ‘This is already happening in London. We know of a number of cases where hedge funds are providing finance and there is going to be a lot more of it in the future.
‘Assuming there is going to be some sort of economic slowdown, hedge funds are looking for other ways of making returns outside financial markets.’
One reported example of such financing is a case now under consideration against the Ministry of Defence on behalf of former servicemen. Susan Dunn, managing director of the UK’s leading litigation funding company, Insolvency Management, confirmed that hedge funds were playing an increasing role in funding her clients’ cases:
‘We arrange to cover all the costs of bringing an action and to cover the costs if the case is lost,’ she said. ‘In return, we take between 25 per cent and 50% of any sums won if the case is successful. Investors such as hedge funds will take a share from that return.’
