Over the last decade, third party litigation funding has emerged as a stand alone asset class - uncorrelated to the more traditional asset classes of equities, fixed income, FX, and commodities. Moreover, returns on investment are not contingent on the amount invested because in many cases, returns are derived from the damages awarded which equate to multiples of the capital outlay. Litigation funding therefore offers an unparalleled opportunity for portfolio diversification and long-term wealth appreciation.
In the current economic climate, litigation funding is also rapidly developing a reputation as an attractive yet conservative alternative that continues to buck the near stagflation conditions affecting other asset classes. Historically, litigation funding has returned 17.5% p.a. over a ten-year period with a standard deviation of 14.1% p.a. compared with a return of 3.6% p.a. and a standard deviation of 4.8% p.a. for the MSCI World Index.
The increasing demand for third party litigation funding is driven by a continuously growing number of litigious actions, a shortage of funds to run these, and favourable government policy positions coupled by the legal requirement by solicitors to advise their clients of alternative funding solutions and a growing demand by litigants to offload litigation funding from their balance sheet.