In what seems to be a never-ending search by endowment funds for alternative investments, Harvard has joined a strategy that “invests” in lawsuit plaintiffs, and then reaps a share of any settlement. The so-called “litigation finance” business has raked in an estimated $9 billion from investors, according to Bloomberg. Despite the odd ethics behind funding a lawsuit against someone, the strategy has been successful. Bloomberg’s Michael McDonald writes:
“We see ourselves as providing the capital for the Davids to take on the Goliaths,” said Andrew Saker, chief executive officer of IMF Bentham, which manages about $1.4 billion. “More and more plaintiffs are aware of litigation finance as an alternative.”
Litigation finance funds have posted internal rates of return of more than 30%, according to the Bloomberg report. IMF Bentham’s strategies have delivered an IRR of about 60% since July 2011, according to a March 2019 investor document.
Saker said the industry attracts institutional investors because returns aren’t correlated with markets and claims can increase in times of distress.
A spokesman for Harvard’s endowment, which manages $39 billion, declined to comment.
IMF Bentham, which was founded in Australia in 2001, is one of the older players in an industry that has been drawing new entrants. In addition to commercial litigation and class actions, the firm also represents creditors in insolvency cases, according to its website.
The company, which expanded to the U.S. in 2011, has settled 144 cases, won 14 and lost 17 through June 2018, according to an annual report. It has notched $1.5 billion in total recoveries.
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Jeremy Jones, CFA
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