Looking for those elusive uncorrelated assets? How about investing in U.S. lawsuits? Juridica, a closed-end fund, does just that, buying stakes in commercial plaintiffs’ claims and extending credit to law firms in return for interest and a share of the spoils of settlements or court awards.
Juridica’s managers contend that their U.K.-listed fund represents an entirely new asset class, and it has attracted the backing of such high-profile U.K. investors as Invesco Perpetual’s Neil Woodford, Jupiter Asset Management’s Anthony Nutt and Artemis Investment Management’s John Dodd.
Launched in December 2007 by a group of lawyers led by American Richard Fields, Juridica has $115.4 million, or roughly 60 percent of its assets, deployed across 23 cases. The fund benefited from wins in the first three to reach maturity, reaping $6.41 million. Fields warned at the outset, however, that it would be two to three years before investors started seeing good returns, as results would depend on cases’ coming to maturity. The fund’s return for its first fiscal year was 4.6 percent. Law firm borrowers — conspicuously including Fields’ own firm, Fields Scrantom Sullivan — currently pay an interest rate of 12 percent and must share any settlement or award. Juridica concerns itself with corporate cases; there are no smokers in its case files. Antitrust cases account for almost 70 percent of its committed capital.
Fields, a veteran U.S. corporate plaintiff’s attorney, says demand for legal funding is high, as law firms have difficulty obtaining traditional loans. The fund can thus be highly selective, investing in fewer than 10 percent of the cases it reviews. “These are difficult assets to evaluate,” allows Fields. “Things are always going to go wrong. We spend 2 percent of our investment capital on outside experts.”
Diversity is critical — as much so as for an equity portfolio. The fund diversifies its cases by timing (to ensure a steady flow of funds), as well as by sector, jurisdiction and legal system. It expects to expand eventually to Europe and Australia and possibly the U.K. (although Britain’s loser-pays-costs system is a deterrent).
The fund has a number of cases coming to maturity, and if these go well, Juridica expects to do another fundraising. Launched at 100 pence, the closely held fund was trading at 120 pence in mid-January.
Now other groups — commercial litigation insurance brokerage firm ILF and hedge fund consulting firm IGS Group — are launching funds with similar objectives. Next, no doubt: securitized lawsuits.