The Long Arm Of The Law

Nicolas Angio, Group CFO of Centaur Asset Management

Legal financing is a little understood asset class, but one which can yield double digit returns for investors. Nicolas Angio explains how investing in the legal process can pay off.

nicMena FM  (MFM):  What exactly is a legal financing fund, and what type of legal cases can it invest in?

Nicolas Angio (NA): Generally, a legal financing fund finances the legal costs for a legal case on behalf of one of the parties who is part of a dispute. The  fund acts as a third party funder of  the legal fees in exchange for a portion of the legal claim value if the funded case is won.

Various legal financing funds will have different criteria determining what type of  legal cases can be invested in.  The Phoenix Legal Financing Fund  I,  for which Centaur Asset Management Ltd acts as the investment advisor, invests primarily in the UK legal financing market and can only invest in cases for  which an insurance policy can be taken to mitigate the downside risk in case a funded case is lost. As of now, there are only a handful of  legal financing funds on the market, the majority of which are moderate in size.

 

MFM:  What type of   investor might benefit from allocating to this asset class?

NA:  Most investors, from high net-worth individuals to institutional investors, will benefit from the diversification that comes from investing into the legal financing asset class. The outcome of a legal case is generally uncorrelated with the direction of the stock market, movements in the real estate market and with interest rates. It is a unique hedge for most investors’ portfolios while providing a healthy return.

 

MFM:   Centaur’s  Phoenix  Legal  Financing Fund I has been running for  18 months. How is it fairing and what are its prospects?

NA:  The  Phoenix Legal Financing Fund I  has returned just over 22%  in  its  first 18 months. This  is  consistent with the expected returns we  had forecast for the strategy. The  fund had initially been run  solely on seed capital for  the first 12 months of  operations. It was recently opened up for  external investors and the AUM has grown to USD15m.  We expect the AUM to grow significantly over the next 12 months as institutional investors finalise their due diligence process on  the fund which is currently underway. Centaur also manages dedicated managed accounts for  institutional investors who wish to get exposure to a tailored strategy in the legal financing market.

 

MFM:  What risks should investors be aware of before venturing into the asset class?

NA: Centaur aims to mitigate the primary risk related to the strategy by  obtaining insurance to cover potential losses from funding a case which does not win.  Obtaining such insurance is a prerequisite for   any investment in the fund. Bespoke insurance policies are negotiated and tailored with well-established insurance companies to protect the interests of the fund’s shareholders.

 

MFM:  Is the asset class Shariah compliant – and if not, is there scope for developing a Shariah version?

NA:  The legal financing asset class itself is Shariah compliant subject to a number of requirements. Of course, the funding documents must be structured in a Shariah compliant way and the parties that are funded cannot be involved in any activities that are not  Shariah compliant. Centaur is currently structuring a  Shariah compliant version of the fund. ■

 

About Centaur Investments

Centaur Investments is the brand of Centaur that offers structured investment products from Centaur’s bond and fund platforms for private, corporate, and institutional investors.

About Centaur Investments

Centaur Investments is the brand of Centaur that offers structured investment products from Centaur’s bond and fund platforms for private, corporate, and institutional investors.

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