The International Legal Finance Association expects to spend roughly $1 million in its first year to elevate the profile of the industry in the face of attacks by business groups worldwide.
By Dan Packel | September 08, 2020
Thirteen commercial litigation funders from across the world have lined up to launch the first global trade association for the rapidly growing industry.
The International Legal Finance Association aims to advocate for the industry in a climate where business organizations like the U.S. Chamber of Commerce have sought to sow doubt about the benefits of third-party capital. The organization anticipates spending roughly $1 million in its first year.
ILFA’s inaugural chairman will be Leslie Perrin, leader of London-based Calunius Capital and the former managing partner of international firm Osborne Clarke.
“The Chamber, of course, has set its face against litigation funding, and they have, in theory, had their own way. In the various jurisdictions in which they have challenged legal finance, they’ve dealt with just the local player,” Perrin said. “We felt that was giving them an undue advantage.”
The organization counts six founding members: Burford Capital, Harbour Litigation Funding, Longford Capital Management, Omni Bridgeway, Therium Capital Management and Woodsford Litigation Funding. Most of these players were already involved in the Association of Litigation Funders, an industry group focused on England and Wales.
“What’s complicated about the regulation of litigation finance is that you have to do it locally,” sad Therium Capital co-founder and chief investment officer Neil Purslow, who sits on the ALF board of directors. “Each jurisdiction is different: they have their own quirks, bar associations have their own particular issues. You can’t take a one-size-all approach. What you need to do is apply a certain set of common principles and work out how that best fits the local environment.”
Seven others have since signed on, including investment giants who have litigation funding assets, like Fortress Investment Group and D.E. Shaw, along with more focused litigation funders like Parabellum Capital and Validity Finance.
“More than anything else, it’s an organized way for what has become a significant global financial industry to be able to able to communicate in a thoughtful way with policy makers, judicial officers and so on,” said Burford Capital CEO Christopher Bogart, who is also on the ALF board.
The group’s founding comes at a time when Australia, one of the most lucrative jurisdictions for third-party capital, is in the midst of a pitched battle over regulations. After business groups claimed that funders were causing a surge in shareholder class actions, the Australian government announced in May it would require litigation funders to be licensed and comply with investment fund regulations.
“ILFA’s core mission is to engage with and exert influence on the legislative, regulatory and judicial landscapes, while counteracting attempts by opponents of legal finance to influence those areas, transforming the communications dynamic and presenting legal finance in a positive light, as the global voice of the commercial legal finance industry,” the group’s founding members said in a confidential invitation document shared with The American Lawyer.
In the United States, funders have been spending an increasing amount of money on lobbying at the federal and state levels to push back against advocacy from the U.S. Chamber of Commerce. This fight has largely focused on the question of disclosure of funding agreements in civil actions. Funders have argued this is a “red herring” aimed at giving deep-pocketed defendants a tactical advantage in litigation.
The invitation highlights the disclosure issue as one of several key principles for the organization. Others include the idea that legal finance transactions are private deals between commercial entities and the concept that regulation should be based on “activities” rather than on “entities.”
“There is no basis for singling out providers of commercial legal finance for enhanced regulation when banks, law firms, hedge funds and private investors can engage in the same effective economic activity with different or lesser regulation,” the invitation said.
While the organization does not yet have a fixed budget, the invitation estimated its opening spending at $1 million, a figure that Perrin confirmed.
Members will have their dues determined by their relative share of the funds that all members have invested in funding assets globally. Other funders reticent about sharing the size of their deployments can join the organization for a flat fee of $25,000.
But those flat-fee payers (as long as there are at least four) will have to elect one representative to the organization’s management committee. Any firm responsible for at least 15% of the group’s total deployment will automatically have one representative on the committee, while two other at-large seats will be awarded by a vote.
The group will be headquartered in Washington, D.C., and have a significant presence in London. Neither Perrin, nor other members of the executive board, are being paid for their service.
Perrin’s fund, Calunius, is not part of the organization, as it is no longer making new investments and is in the process of paying off its investors. But he said he and his four partners are weighing their next steps in the industry.
“I don’t think you’ve heard the last of any of us,” he said.