Risk is rarely a word that pleases lawyers and their firms. It’s why so many avoid taking on large portfolios of contingency matters—even when doing so could expand their client base and open significant new sources of revenue.
By working with a litigation funder to finance a carefully selected portfolio of cases, firms can mitigate those risks and take advantage of the potential financial upside that contingency cases offer. In fact, a strong portfolio of cases is likely to attract the interest of funders, who are looking to reduce their own risk and improve returns by cross-collateralizing their investments across several cases at once.
As the Connecticut Law Tribune recently noted in an article on the rise of portfolio financing among law firms, “In a sector already adverse to risk, a portfolio of cases could work much the same as mutual funds, helping to improve the chances of strong returns from multiple sources, rather than relying on just one piece of litigation.”
Rather than focusing on a one-off case, a portfolio allows a firm to raise a large amount of capital by bundling a group of cases that are strong on the merits, have large potential recoveries, and offer a significant chance of success and the ability to collect the recovery.
What We Fund
Bentham IMF works with law firms to create litigation portfolios of three or more meritorious commercial cases. When a law firm collects contingency fees from one or more of the cases in the portfolio, it pays a multiple on Bentham’s investment. Portfolio funding is non-recourse, which means we collect a return only in the event of a successful recovery in one or more of the cases.
Our minimum portfolio funding investment is $2 million, and we often fund portfolios much larger than that. We set a minimum portfolio investment amount not only to ensure that we will receive an adequate return on our investment, but to help the law firm and its clients obtain a significant share of the recovery as well.
Because Bentham’s return for portfolio funding is typically defined as a multiple of its investment, rather than a percentage of the total recoveries, this means that once Bentham obtains its return, the law firm can keep the entirety of its contingency fees on the remaining cases as they resolve. In an ideal situation, most or all of the cases in the portfolio produce strong results. In this scenario, a firm may recover far more than the funder.
Improving the Odds
Obviously, there is no guarantee that every case in a portfolio will be successful. In fact, all of the cases might fail to bring about an expected result. Litigation is inherently risky and unpredictable. A single adverse ruling on a critical motion, for instance, can seriously damage a case.
But funding allows firms to improve the odds. Bentham places a heavy premium on rigorous case selection. Our team of litigation experts—many of them veteran litigators from elite firms—are skilled at assessing the merits of a case and its potential value. Bentham’s professionals often serve as a resource to help firms and claimants build litigation investment portfolios that are most likely to produce the most significant returns. Indeed, more than 90 percent of the cases we have invested in have been funded to a win or a settlement.
And even when every case in a portfolio does not succeed, the law firm has limited its exposure by working with the funder. A funded portfolio essentially transforms a full contingency into a partial contingency. This is because a substantial portion of the firm’s fees are covered by the funder’s up-front investment, and the investment is non-recourse—which means any return to the funder must come from a recovery or settlement.
A portfolio approach allows law firms to take a measured risk on contingency litigation. Rather than shoulder the entire risk of a group of contingent cases, the firm accepts capital up front from the funder that can be used to cover its fees and for any other purpose that it deems necessary.
You can learn more about the benefits portfolio funding through our previous coverage on this blog. For instance, we have written about how firms may leverage portfolio funding to help develop a new practice; extend discounts on defense-side matters; and offer hybrid fee arrangements without sacrificing revenue.
To learn more on how portfolio financing can benefit your firm, contact us for a consultation.