The emerging litigation financing market
The importance of third-party funding of litigation costs has increased significantly in recent years. Legal Finance believes that the litigation funding market will continue to grow dynamically in the coming years, both in Germany and internationally, driven by innovations and new product approaches as well as a growing number of providers. For companies that want to better manage the cost risk from legal disputes, new approaches to classic litigation funding are available. These include financing-specific solutions such as portfolio/defence/or seed financing, but also non-financial solutions such as (out-of-court) negotiation support or case management, which – unlike many lawyers – not only ensure the isolated success of the process, but also the entrepreneurial aspects of a cost-effective handling of the entire dispute portfolio as part of an overarching corporate strategy. It is plausible that internationally operating private equity firms will become active in the business area of litigation finance in the coming years. Legal Finance's declared ambition is not only to actively participate in the dynamic growth of the overall market, but also to benefit monetarily.
In the United States, the volume of funding issued and receivables successfully filed by litigation funders continues to reach new heights. There, litigation funding firms had approximately $12.4 billion in assets under management (AUM) in 2021, 10% more than they had in 2020 and 32% more than they had in 2019. The industry's compound annual growth rate (CAGR) is a remarkable 27.82%. A similar trend is also expected in Europe and Germany.
The business environment of the litigation funding industry and the core business can be considered positive, as it is fundamentally counter-cyclical in nature. Especially in economically difficult times, accounting scandals, for example, are often uncovered that remained hidden in the previous growth environment and can lead to substantial legal receivables. Due to the rampant uncertainty in the markets caused by rising inflation rates and simultaneously rising key interest rates, the company is forecasting an increasing number of enquiries from potential clients who would like to assign their receivables. If the global economy fluctuates, the number of processes and receivables relevant to the company is likely to increase. A larger selection of relevant processes and receivables then gives the opportunity to further increase the quality of the receivables portfolio, which leads to a constantly increasing success rate.
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Litigation financing is the assumption of litigation risk and legal and litigation costs by a litigation financing company such as Legal Finance. As remuneration for the assumption of costs, Legal Finance receives a performance-related commission. In plain language: We finance your case with no ifs or buts, regardless of whether you win or lose. We receive remuneration from any proceeds from the case. If you don't get money, we don't get anything.