Litigation is the new strategy
Where there is market turmoil, you can bet your bottom dollar there will be a lawsuit. And indeed, more than betting, these days investors are handing over money on a long-term basis to fund managers who will pick out lawsuits that are likely to pay out.
Juridica Capital Management is one such manager. Juridica began operations in December 2007 and its net asset value is up at the end of its first year. When returns for the aggregated hedge fund index were minus 18%, it is no surprise that the strategy is gaining favour.
"If you are involved in major litigation but earnings are dropping and there is pressure on cashflow, funds like ours can fill the financing gap"
Richard Fields, Juridica
Competition is still limited, however. Juridica focuses on the UK and the US. "The US corporate litigation market is a $30 billion-plus litigation market and we have very little competition other than one major investment bank that provides its own capital. There were some players before the crash but we believe they are facing liquidity constraints. In intellectual property there are more players," says Richard Fields, chief executive of Juridica. Investments might include cases that involve shareholder, antitrust, and contract disputes. Juridica provides capital to companies or lawyers that might require finance to continue a case but more often are seeking to transfer a proportion of the risk of litigation in exchange for a percentage of the possible proceeds of the litigation.