In litigation funding, a third party can fund legal battles in return for a portion of the money collected from the settlement of the case(s). Litigation funding from third parties is becoming popular among companies who can afford it but do not want the inherent risks of litigation to be a burden on their cash flow or a source of further debt. Many disputes and wrongdoings can be resolved with the help of litigation finance companies.

Using litigation funding to your benefit

Litigation financing has a number of benefits, some of which are described below:

Profitability

Litigation finance is notorious for providing investors with extraordinarily high profits. This is why investment banks and other large financial institutions have been drawn to this area of study. Hedge funds, for example, have recently expressed an interest in lawsuit financing as well.

The large profits are mostly due to the minimal initial investment and the high return on that investment that may be expected. If a business is found guilty, courts often require it to pay substantial damages. Investors get a portion of the ultimate settlement. The outcome is that the original investment is typically multiplied by multiples. Returns are lower in circumstances when the litigation duration is short, and the victory is guaranteed. There is also less risk associated with lawsuit financing compared to other investing options.

Unrelated to any other investments

Litigation funding is a fantastic investment for investors since it isn’t tied to any one economic cycle. As a result, litigation financing seems unaffected by a decline in the value of other assets during a downturn. In reality, the number of liquidations rises while the economy is in decline. Because of this, there is more litigation, which means that investors are making more money. Litigation finance has become more popular as a means of risk management for savvy investors.

Access to the courts of law

Litigation funding is excellent news for the general public’s access to the judicial system. Litigation financing ensures that everyone can have a fair trial. The fact that attorneys can accept these cases, even for the impoverished, is due to the support of a financier. In order to reduce annoyance to the consumer community, companies establish procedures that are strong.

Secondary Market

Finally, litigation financing is not an illiquid asset type in the secondary market. As long as there are enough buyers, the asset can be sold to a third party. So, if financer A wants to sell their stock to financer B in a certain circumstance, they may do so. Investors may breathe a sigh of relief. Having the knowledge that investors may recoup their money if the litigation drags on for too long is a positive thing.

The final note

It’s safe to say that litigation funding will be around for a long time. According to estimates, over $2 billion has been invested in these funds. As a result, despite all the regulations, litigation funding is projected to see a significant increase in demand in the future years.