2017 Litigation Finance Survey

Transcription

1 BURFORD BAROMETER 2017 Litigation Finance Survey LATEST RESEARCH SHOWS CONTINUED STRONG GROWTH

2 Burford Capital is a leading global finance and investment management firm focused on law. Its businesses include litigation finance and risk management, asset recovery and a wide range of legal finance and advisory activities. Burford is publicly traded on the London Stock Exchange, and it works with law firms and clients around the world from its principal offices in New York, London and Chicago. CONTENTS About the research 4 US snapshot 5 UK snapshot 6 Australian snapshot 7 Dramatic growth 8 Relevance to business needs 14 Obstacles to use 29 Survey demographics 31 Opportunities for more insights 33 Contact Burford: See page 33 for contact info or info@burfordcapital.com 2017 Burford Capital. All rights reserved. Burford, Burford Capital and the Burford logo design are registered trademarks of Burford Capital.

3 Survey snapshot For years, Burford Capital has invested in research to better understand the litigation finance market. Up-to-date insights help us be a nimble and responsive partner and provide solutions tailored to our clients needs. From the beginning, the data have shown the increased use of litigation finance, while at the same time highlighting that there is significantly more opportunity for law firms and their clients to benefit from it. The 2017 survey continues the trend. 3 $33.5 million $28.8 million Average claim value of funded cases brought by in-house and law firm respondents, respectively $3.4 million $2.8 million Average funding sought by in-house and law firm respondents, respectively 37% Companies or firms have used litigation finance 414% Growth in use by US law firms since % Believe litigation finance is increasingly important to the business of law

4 4 About the research Burford retained ALM Media, publisher of The American Lawyer, to conduct statistically reliable independent research among lawyers who practice, handle or support commercial litigation or arbitration in the US, UK and Australia. The research was conducted from May 17 to June 16, 2017 among 331 respondents. More details about respondent demographics can be found on pages Unless otherwise specified, data points provided in this report denote percentages of respondents. Throughout the research, litigation finance was defined as: the provision of capital to a litigant or law firm in exchange for returns tied to commercial litigation outcomes. Typically, a litigation financier provides capital, which may be used to pay for legal fees or expenses or for other corporate purposes, in return for a portion of the resolution if and when cases are successful. (Note that commercial litigation finance does not refer to the funding of consumer lawsuits [e.g., individual personal injury suits].) The survey results show that litigation finance has grown rapidly in a short period of time to become widely known among and increasingly used by lawyers and clients. However, we offer the following caveat to respondents reported use of litigation finance. Some respondents may reflect the well-known research phenomenon of social desirability bias, insofar as they perceive litigation finance as cutting-edge and may therefore have overstated their experience. (The idea that lawyers may overstate their use of litigation finance to avoid being thought of as outdated can only be good for our industry.) We offer this caveat given the incongruence between some survey results and external data around capital flows and market size. Nonetheless, we are confident that as a whole, the research provides ample evidence of the ongoing growth and increased relevance of litigation finance to the business of law.

5 5 US snapshot Almost eight in ten (78%) of US lawyers say they are aware of litigation finance Almost one in three US respondents say their firms or companies have used litigation finance in the past Half (50%) of all lawyers who haven t yet used litigation finance expect to do so within two years Among US law firms, compared to earlier studies, use (36%) has increased by 28% since 2016 and 414% since 2013 US law firm respondents have more than doubled their use of expensesonly funding and tripled their use of portfolio-based financing compared to 2016 US lawyers are twice as likely as their UK and Australian peers to have chosen to forgo claims due to the impact of associated legal expenses on the bottom line US respondents are much more likely to cite competitive concerns as a trigger for using litigation finance

6 6 UK snapshot More than eight in ten (81%) of UK lawyers say they are aware of litigation finance Reported use of litigation finance is highest in the UK (at 41% of total respondents) Reported increases in use in the last two years are highest in the UK, with 70% of in-house and law firm respondents reporting growth, compared to 59% overall More than half (54%) of UK lawyers who haven t yet used litigation finance expect to do so within two years UK respondents are most likely to agree that the more law firms innovate how they finance their firms, the more nimble they will be in serving clients (67%)

7 7 Australia snapshot More than eight in ten (85%) of Australian lawyers say they are aware of litigation finance Almost half of Australian respondents (48%) said growth increased in the last two years More than half (55%) of Australian lawyers who haven t yet used litigation finance expect to do so within two years Australian respondents are most likely to agree that litigation finance is a growing and increasingly important area of the business of law (83%, compared to 72% overall) Respondents in Australia are significantly more likely to cite preserving cash and investing in growth as triggers for using litigation finance Four out of ten (40%) of Australian respondents say their firms or companies have used litigation finance in the past

8 8 Dramatic growth The survey points to dramatic growth in use. Among US law firms, compared to earlier studies, use has increased by 28% since In 2017, 36% of US law firm respondents reported use of litigation finance. That number was just 7% in % 11% 28% 36%

9 9 Reported use Reported use of litigation finance is 37% among all respondents By geography, use is highest in the UK (at 41% of total respondents), followed by Australia (40%) and the US (32%). Among law firm respondents, as many are now reporting use of litigation finance by their firms as not. 32 US UK Australia PERCENT AGREEING THAT FIRM/COMPANY HAS USED LITIGATION FINANCE Has your firm or company used litigation finance? Yes 26 No Unsure ALL RESPONDENTS LAW FIRM RESPONDENTS IN-HOUSE RESPONDENTS

10 10 Strong growth across segments Among those whose firms or companies have used litigation finance, the majority (59%) say use has grown in the last two years. Reported increases in use are highest in the UK, with 70% of in-house and law firm respondents reporting growth. All geographies report growth in last two years, with highest rates of growth in UK US UK Australia INCREASED REMAINED THE SAME DECREASED Over the past two years, has your organization s use of litigation finance services increased, decreased or remained the same? Increased Remained the same Decreased ALL RESPONDENTS IN-HOUSE RESPONDENTS LAW FIRM RESPONDENTS

11 11 Future prospects In addition to demonstrating increasing use of litigation finance, the 2017 Litigation Finance Survey also provides several indicators of continued strong growth in the future. For example, the dominant view among all survey respondents is that litigation finance is a growing and increasingly important area of the business of law. This view is shared by those who have used litigation finance (83%) and those who haven t but would consider it (76%). Even a substantial portion of those who have neither used nor would consider it acknowledge that litigation finance is growing and important (44%). Litigation finance is a growing and increasingly important area in the business of law Agree Neutral Disagree US UK AUSTRALIA Agree Neutral Disagree ALL RESPONDENTS IN-HOUSE RESPONDENTS LAW FIRM RESPONDENTS

12 12 Awareness Awareness of a practice is a strong indicator of its future prospects. Not at all surprisingly, the vast majority of those surveyed say they are, to some degree, familiar with litigation finance. UK respondents, however, are most likely to assert some degree of knowledge of litigation finance. US respondents, however, are more likely to say they are very familiar with litigation finance. Very familiar Somewhat familiar Have heard of it Unfamiliar ALL RESPONDENTS How familiar are you with litigation finance services? Very familiar Somewhat familiar Have heard of it Unfamiliar US UK AUSTRALIA IN-HOUSE LAW FIRM

13 13 Understanding Beyond simple awareness of litigation finance, strong majorities are familiar with the conceptual basis of legal finance. With the exception of those who won t consider using litigation finance, significant majorities in every segment agree with this statement: Litigation is a financeable asset. Litigation Litigation is finance a financeable is a finaceable asset (percent asset agreeing) ALL RESPONDENTS US UK AUSTRALIA IN-HOUSE LAW FIRM USERS OF LITIGATION FINANCE PROSPECTIVE USERS OF LITIGATION FINANCE NO INTEREST IN LITIGATION FINANCE

14 14 Relevance to business needs Respondents to the 2017 Litigation Finance Survey identified a range of business challenges, many of which relate to ongoing economic pressures. The relevance of litigation finance to addressing these challenges is clearly key to its ongoing growth. Some differences emerge. For example, US respondents are twice as likely as their peers in the UK and Australia to have forgone claims because of impact on the bottom line. Litigation is expensive and even large companies benefit from moving costs off balance sheets Cost management is an urgent issue for legal departments and law firms and requires innovative solutions Our organization has chosen to forgo claims due to the impact of associated legal expenses on the bottom line IN-HOUSE LAW FIRM IN-HOUSE LAW FIRM US UK AUSTRALIA Percent agreeing

15 15 In-house business challenges Among corporate respondents, the business challenge ranked most critical on average is the need for new ways to finance litigation and other legal costs, followed by managing legal risk and uncertainty. Percent identifying as critical business challenge (multiple selections allowed) US UK Australia Difficulty enforcing judgments Need for innovation from outside counsel Need to monetize legal receivables more quickly Ongoing legal expenses depress financial results Shareholder or other investor pressure to contain legal and other costs Increased pressure on legal budgets, staffing and spending Managing legal risk and uncertainty Need for new ways of financing litigation and other legal costs

16 16 Law firm business challenges Among law firm respondents, the business challenge ranked most critical on average is the pressure to be more competitive in bringing in new business, followed by increased client pressure on legal budgets, staffing and spending. Percent identifying as critical business challenge (multiple selections allowed) US UK Australia Difficulty enforcing client judgments Need to monetize legal receivables more quickly and manage firm cash flow Managing impact of contingent risk exposure on firm Need to provide clients new financing and pricing options Client concerns about how ongoing legal expenses depress financial results Need for innovation to remain competitive Increased client pressure on legal budgets, staffing and spending Pressure to be more competitive in bringing in new business

17 17 Circumstances leading to use When asked about the circumstances that are most likely to lead to the use of outside capital to finance litigation, survey respondents who have used or would consider using litigation finance were most likely to identify to pursue claims to bring value to the business as a trigger. Clients were significantly more likely than private counsel to cite investing in growth and using capital wisely as well as accounting benefits as triggers. Percent identifying as circumstance leading to use of litigation finance (multiple selections allowed) 64 In-house Law firm To be competitive in the marketplace / because competitors are using Ability to finance pursuit of unpaid judgment debts Reporting and/or accounting benefits Improve control over timing and ability to monetize legal assets Hedge risk exposure Preserve our capital to pursue other financial priorities Invest in growth and use our capital efficiently Bring or sustain proceedings regardless of our cash position Pursue claims that will bring value to the business

18 18 Circumstances leading to use By geography, there are some notable differences in the circumstances that trigger use of litigation finance. In the US, for example, there is a much stronger connection between competitive concerns and the use of litigation finance. Respondents in Australia are significantly more concerned with leveraging litigation finance to preserve and use cash efficiently. Percent identifying as circumstance leading to use of litigation finance (multiple selections allowed) US UK Australia To be competitive in the marketplace / because competitors are using Ability to finance pursuit of unpaid judgment debts Reporting and/or accounting benefits Improve control over timing and ability to monetize legal assets Hedge risk exposure Preserve our capital to pursue other financial priorities Invest in growth and use our capital efficiently Bring or sustain proceedings regardless of our cash position Pursue claims that will bring value to the business

19 19 Perceived benefits of litigation finance When comparing clients to law firms views of litigation finance, multiple benefits are identified by both. For example, firm respondents are more likely to say that the ability to finance the pursuit of unpaid judgment debts is important, but clients are twice as likely to identify this as a very important benefit. Most important benefits of litigation finance (multiple selections allowed) In-house Law firm To be competitive in the marketplace / because competitors are using Ability to finance pursuit of unpaid judgment debts Reporting and/or accounting benefits Improve control over timing and ability to monetize legal assets Hedge risk exposure Preserve our capital to pursue other financial priorities Invest in growth and use our capital efficiently Bring or sustain proceedings regardless of our cash position Pursue claims that will bring value to the business

20 20 Litigation finance as an innovation driver Although the most salient benefits of litigation finance relate to improving legal economics and business efficiencies, respondents also pointed to its ability to drive much-needed innovation. The more law firms innovate how they finance their firms, the more nimble they will be in serving clients Litigation finance is a new business tool that firms can use to sell clients on funded litigation and give women and other underrepresented groups a tool to level the playing field US UK AUSTRALIA IN-HOUSE LAW FIRM US UK AUSTRALIA IN-HOUSE LAW FIRM Percent agreeing

21 21 Current use of litigation finance When asked for what types of matters they would seek financing, respondents were most likely to cite the most high-risk commercial matters, such as IP/Patents, and were generally consistent in their responses. For which types of matters would you be most likely to seek litigation finance? (multiple selections allowed) Some significant differences: Clients are twice as likely as law firms to seek financing for legal receivables Lawyers in Australia are far more likely to seek financing for tax disputes and for recovering assets Client Firm US UK Australia IP/Patents Commercial B-to-B disputes Fraud Contract Tax disputes Antitrust/ competition Bankruptcy Fiduciary duty International arbitration Commercial class action Asset recovery Securities Financing of legal receivables

22 22 Litigation finance use by type An analysis of the types of financing most often employed by the portion of respondents who are already using litigation finance reveals that the vast majority have financed single matters. However, the data also reveal that those who are already using financing are increasing their use of other financing structures (such as portfolios) Which types of litigation finance has your firm/company used? (multiple selections allowed) SINGLE-CASE FUNDING EXPENSE FUNDING PORTFOLIO FUNDING JUDGMENT ENFORCEMENT AND ASSET RECOVERY DEFENSE FUNDING US UK In-house Law firm Australia SINGLE-CASE FUNDING EXPENSE FUNDING PORTFOLIO FUNDING JUDGMENT ENFORCEMENT AND ASSET RECOVERY DEFENSE FUNDING SINGLE-CASE FUNDING EXPENSE FUNDING PORTFOLIO FUNDING JUDGMENT ENFORCEMENT AND ASSET RECOVERY DEFENSE FUNDING

23 23 Funding amount sought Average litigation finance investment sought for a single investment For respondents already using financing, most often to fund single matters, more than half (51%) seek amounts between $1 million and $10 million. $3,400,000 $2,800, IN-HOUSE LAW FIRM LESS THAN $100,000 $100,000 TO $499,000 $500,000 TO $999,000 $1 MILLION TO $4.9 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION OR MORE US UK Australia In-house Law firm LESS THAN $100,000 $100,000 TO $499,000 $500,000 TO $999,000 $1 MILLION TO $4.9 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION OR MORE LESS THAN $100,000 $100,000 TO $499,000 $500,000 TO $999,000 $1 MILLION TO $4.9 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION OR MORE

24 24 Claim value of financed matters Average claim value In-house Law firm $33,500,000 $28,000, IN-HOUSE LAW FIRM LESS THAN $5 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION TO $19.9 MILLION $20 MILLION TO $49.9 MILLION $50 MILLION TO $99.9 MILLION $100 MILLION + US Less than $5 million UK Australia $5 million to $9.9 million $10 million to $19.9 million $20 million to $49.9 million $50 million to $99.9 million $100 million LESS THAN $5 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION TO $19.9 MILLION $20 MILLION TO $49.9 MILLION $50 MILLION TO $99.9 MILLION $100 MILLION +

25 25 Value of unenforced judgments Respondents also point to significant value in unenforced judgments that could be recovered but past studies suggest that few are aware financing is available to pursue these unrealized assets. Average value of unenforced judgments In-house Law firm $24,400, $20,500, IN-HOUSE LAW FIRM LESS THAN $5 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION TO $19.9 MILLION $20 MILLION TO $49.9 MILLION $50 MILLION TO $99.9 MILLION $100 MILLION US UK Australia Less than $5 million $5 million to $9.9 million $10 million to $19.9 million $20 million to $49.9 million $50 million to $99.9 million $100 million LESS THAN $5 MILLION $5 MILLION TO $9.9 MILLION $10 MILLION TO $19.9 MILLION $20 MILLION TO $49.9 MILLION $50 MILLION TO $99.9 MILLION $100 MILLION +

26 26 Decision-making According to survey respondents, clients and firms most often decide to use litigation finance collaboratively. Decisions to use litigation finance are often collaborative In-house Law firm Among respondents who have not only used but increased their use of litigation finance in the last two years, external pressures seem most influential Client decides with little input from firm Decision is made collaboratively Firm recommends to client Don t know External pressures are big influence on increased use In-house Law firm What influences the decision of whether to use litigation finance? Customer or client-driven General economic conditions outside my organization Internal management mandate Other external factors (e.g., political or regulatory environment) Other

27 27 Decision-making In-house 80 When respondents who have used litigation finance in the past were asked about the level of input from finance and pricing teams in choosing whether to use outside financing for upcoming matters, eight out of ten clients indicated that their finance and legal teams work collaboratively to make decisions. 3 Don t know 6 Decision is made by legal team Decision is made collaboratively with finance and legal teams 11 My company s finance team takes the lead in making the decision Among law firm respondents, just over half said that law firm pricing teams have some influence. Law firm How much influence does finance or pricing have on whether to use litigation finance? Don t know My firm does not have a pricing team My firm s pricing team has some influence in making the decision My firm s pricing team takes the lead in making the decision

28 28 Obstacles to use of financing When respondents who have not used litigation finance were asked about obstacles to its possible use, the top concerns were economic factors including a lack of matters suitable for funding. Directly contradicting suggestions there is still some controversy surrounding the practice, ethical concerns ranked last as an obstacle to using litigation finance. Percent identifying as obstacles to use of litigation finance (multiple selections allowed) We don t have matters suitable for litigation finance I/we prefer billable hour arrangements It s too expensive I/we prefer contingency arrangements Loss of control over matters I don t know what financing options are available I ve never heard of it/don t understand it I don t think my competitors are doing it Need for leadership buyin Ethical concerns about the practice All In-house Law firm US UK Australia

29 29 Obstacles to use of financing When respondents who have used litigation finance were asked about the primary challenges to using it, the top concerns were again economic factors. Percent identifying as challenges to use of litigation finance (multiple selections allowed) Perceived cost of financing 60 Concerns about control of litigation Time required to obtain litigation finance Insufficient size of pending litigation Lack of awareness of how it works Concerns about ethics Lack of internal policy on litigation finance Lack of relationships with litigation finance providers In-house Law firm US UK Australia

30 30 Obstacles to use of financing When asked whether litigation finance will lead to frivolous litigation, respondents overwhelmingly disagreed. Litigation finance will lead to frivolous litigation (percent agreeing) Whereas 81% of in-house respondents and just over half of all surveyed in 2012 in the US believed financing would beget unnecessary litigation, just 10% of in-house respondents in the US, UK and Australia persist in that discredited view today. Disagree strongly Disagree somewhat 28 Neutral Agree somewhat Agree strongly 38 In-house Law firm DISAGREE STRONGLY DISAGREE SOMEWHAT NEUTRAL AGREE SOMEWHAT AGREE

31 31 In-house demographics In-house respondents came from companies with a mean annual revenue of $1.32 billion 47% of in-house respondents were from companies with $500 million+ annual revenue Over half (56%) of in-house respondents were GCs, CLOs, Deputy or Assistant GCs or Corporate Counsel Company size Less than $100 million $100 million to $499 million $500 million to $999 million $1 billion to $4.9 billion $5 billion or more One out of four respondents (25%) were CFOs, VPs or Directors of Finance Role Chief Financial Officer, VP or Director of Finance 9 GC or CLO Deputy or Assistant GC Legal professional involved in litigation evaluation and/ or strategy 14 Corporate Counsel Other 24 18

32 32 Law firm demographics Law firm respondents came from firms with a mean size of 258 attorneys 64% of law firm respondents were from firms with 100+ attorneys Over half of law firm respondents (51%) were Managing Partners or Partners Firm size 6 to 24 attorneys 25 to 49 attorneys 50 to 99 attorneys 100 to 499 attorneys 500 attorneys or more Role Partner or Managing Partner Associate or Senior Associate Pricing officer or firm management 9 7 Legal professional involved in litigation evaluation and/or strategy 33 51

33 Contact Burford To request more information about Burford or our research, please contact any of our three major offices. Visit our blog for articles and links to our Burford Quarterly journal on legal finance. With $3.1 billion invested in and available to invest in the legal market, Burford s 90 professionals work with law firms and clients around the world. Lawyers choose Burford because we have more capital and more capacity to invest quickly and efficiently, and a respected team of over 40 lawyers who are experienced, fast and easy to work with. We benefit from a lower cost of capital that we pass on to firms and clients, and we re publicly traded and trusted as a strategic partner that always acts with consummate professionalism. CONTACT ANY OF OUR THREE MAJOR OFFICES OR INFO@BURFORDCAPITAL.COM New York 292 Madison Ave New York, NY Aviva Will awill@burfordcapital.com London 24 Cornhill London EC3V 3ND Craig Arnott carnott@burfordcapital.com +44 (0) Chicago 353 N. Clark Street, Suite 2700 Chicago, IL Travis Lenkner tlenkner@burfordcapital.com +1 ( 312)