Return Assessment

Undrawn Capital Return Calculations – approach differs based on funder, ability to overstate returns

ATE Coverage and Cost Thereof – fund or GP expense, funded upfront or over time

Tax considerations – active business income vs. capital gains vs. interest; tax minimization; withholding tax

Win/Loss Rates – manager strategy will impact the win/loss ratio

Settlement vs. Judicial Outcomes – less binary vs. more binary outcomes

Strategy – implications for origination, timing, duration, scaling, loss ratios, etc.

Fund Manager

Jurisdiction – each geography has its own legislation, trends, competitive dynamics and other characteristics which make the outcomes unique

Persistence of Returns

Team Compensation and Churn – as industry matures there will be more M&A and spin-outs, making it important to be close to the industry to understand market dynamics

Attribution – difficulty in determining who is responsible for which results

GP Solvency – small fund managers may have difficulty remaining solvent as they build their business, especially if they have long duration assets and a European style carry

Track Record – duration, volatility & unresolved cases

Strategy Shift – a strong consideration as managers scale their business in a growing but niche asset class

Adverse Selection Risk – are managers seeing the best cases or other investors’ cast-offs

Portfolio Type

Consumer vs. Commercial – different risk/rewards associated with each sector and within sub-sectors

Litigation Risk vs. Collection Risk – variety of options available to investors

Short (12 months) vs. Long (5+ years) Duration – significant impact on returns

Equity vs. Debt – some investments have equity attributes and others have credit attributes

Low vs. High Volatility – correlation between volatility and size and nature of cases

Jurisdiction

Availability of Contingent Fee Arrangements – sometimes necessary to attract funding; jurisdiction specific

Adverse Costs – “Loser Pays” rules; jurisdiction and case type specific

Cost and Availability of After-The-Event (ATE) Insurance for Risk Sharing – managers can use insurance to hedge their positions

Population of Institutional Fund Managers – limited number of institutional quality managers globally

Size of Market / Type and Size of Cases – effects your ability to deploy at scale

Champerty and Maintenance Restrictions – ability to utilize litigation finance

Market Awareness and Penetration – implications for scale and pace of financing opportunities

Court Approval – implications for utilization and timing of litigation finance

Fund Terms

Investment Periods

Recycling Provisions

Management Fee and Carry Structure

Key Man Provisions

Non-Market Fees at the Operational Level

Waterfall Type

Portfolio Construction

Case Types

Concentration Limits

Concentration Limit Overrides

Geography

Scaling Strategy

Investment Strategy

Case Type Examples

Contract disputes

International Arbitration

Intellectual Property

Construction Claims

Small Cap vs. Mid-Market vs. Large Cap

Investor-State

‘Whistle Blower’

Government Agency

Large Consumer Class / Mass Torts

Anti-Trust/Competition

Case Type Implications

Return Volatility

Duration

Economic Funding Limitations

Court Approvals

Capital Commitment vs. Deployment

Ability to Appeal

Plaintiff Motivations