Commercial litigation financer Longford raises biggest fund yet – Law News

on Sep19

18 September 2017 | 6:00 pm

Longford Capital Management said it has raised the largest single litigation investment fund in North America, raking in $500 million to finance commercial lawsuits.

Longford, led by former Morgan Stanley investment banker Bill Strong, nearly doubled investors’ money with its first fund at a time when bond investors have been hard-pressed to earn even 2 percent.

The firm is benefiting from a surge of interest from institutional investors, like pension funds, eager to gobble up generous returns. Still, the surge of interest is fueling competitors, too, and may make it more difficult to nab cases that are ripe for investment.

“Investors generally are eager to invest in successful litigation funders because they are generating outsized returns,” said industry consultant Peter Zeughauser. “Longford appears to be investing in top talent, which is a key to success. Generally, the corporate litigation market continues to respond well to the notion of litigation finance.”

Zeughauser agreed with Longford that its second fund is likely the largest ever raised in the continent.

Strong joined the firm in 2014 as chairman and managing director after returning from Hong Kong, where he had been a co-chief of Morgan Stanley’s Asia-Pacific region. Longford was founded a year before Strong arrived by attorneys Bill Farrell and Michael Nicolas, former partners at Chicago law firm Neal Gerber & Eisenberg.

Longford taps the lawyers’ knowledge to select bankruptcy, antitrust, breach of contract and intellectual property cases, targeting legal claims of between $25 million and $1 billion. When the cases are resolved, typically through a settlement, though sometimes a trial, the investors benefit from the results.

With the added funds, Longford bolsters its firepower to take on large-scale cases, Strong said in an interview. So far, the firm has invested $137 million in 102 lawsuits and has reached resolution in 43 of those cases, with 59 still pending, said Farrell, who declined to discuss the cases it works on or the lawyers involved.

Farrell and Strong also declined to discuss Longford returns, but a consultant for one investor said earlier this year that returns for the first fund ranged from 70 percent to 90 percent, well beyond dividends even from the bull market that has pushed up stocks.

With returns like that, it’s little wonder investors were eager to get into the firm’s second fund. In addition, Strong said investors are eager to be part of an investment fund that is not linked to other markets. “Litigation finance is uncorrelated with other economic indicators,” he said.

The firm raised $56.5 million in its first fund, closed in 2014. This second fund listed $250 million as a target in the proxy filing, but Longford always aimed to raise more, Strong said.

While the range of claims is wide, Farrell said the average size of the case that Longford takes is one with about $100 million in claims, and that will continue to be true with this second fund, he said.

Given results at Longford and the scant number of other early litigation investment firms, it’s also not surprising that the industry is expanding as others look for a piece of the lucrative returns. Another Chicago firm, Gerchen Keller Capital, was formed the same year as Longford but was acquired last year by rival Burford Capital, which had previously raised the largest fund.

Zeughauser noted that Burford’s stock surged in value on “skyrocketing” profits, indicating exceptionally strong returns on their litigation investments.

With additional competitors, though, returns can be squeezed as it becomes increasingly difficult to grab the most lucrative cases at the lowest investments possible. That’s what has happened in the broader private-equity sphere as rising stock markets have pushed up prices that firms must pay to acquire companies.

Still, Longford’s Farrell believes the industry has a long way to go before the pace of rising competition outstrips increasing demand for the services.

“We don’t think increased competition will adversely affect our returns whatsoever,” Farrell said.

This story has been corrected to identify William Farrell as a co-founder of Longford, and as the speaker behind quotes attributed to Farrell.



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