Litigation finance is gaining relevance – also for investors
Alternative forms of investments such as real estate, gold and art have long been popular with private clients. Over the past twenty years, private equity and private debt have also become established. One of the more recent opportunities is litigation finance. Selina Ott from PG3 talks about this asset category, potential risks and the cooperation with Colin&Cie in an interview.
Justitia – The goddess of justice with a blindfold, scales and a sword
To increase the stability of client portfolios during difficult market phases without sacrificing returns, Colin&Cie offers the selective addition of alternative investments as part of its asset management mandates. To achieve the necessary diversification, various asset categories (gold, private equity, private debt, litigation finance, insurance finance) are considered. Our cooperation partners are exclusively experienced companies and portfolio managers whose investments clearly don’t correlate with traditional investments and financial markets. In the area of litigation finance, Colin&Cie works together with PG3, the family office of the three founders of Partners Group.
COLIN&CIE: What is litigation finance and what advantages does this asset class offer?
SELINA OTT: Litigation finance is an innovative investment strategy in which investors provide capital to finance legal disputes. If the case is successful, they receive a share of the recovered amount. This form of financing enables small and medium-sized companies to conduct costly litigation without having to use their own capital. If the plaintiff loses the case, it is not the plaintiff but the financier who bears the financial risk. In addition to the high potential returns, the advantage of litigation finance lies in its independence from traditional financial markets. The success of the investment does not depend on stock market prices, interest rates or economic trends, but primarily on case-specific factors such as the legal prospects of success, the evidence available and the quality of the legal team. In this asset class, we can talk about a truly uncorrelated investment strategy.
SELINA OTT: Litigation finance emerged in the Anglo-Saxon world in the 1990s. Since then, litigation financing has also become established in Europe and Asia. Successful precedents have strengthened confidence and significantly advanced market development. Today, the market is dominated by investment companies and funds specialising in litigation finance. Large institutional investors and family offices are also becoming increasingly active in this area. They all appreciate the attractive return opportunities, which are largely independent of developments in traditional investments such as bonds and equities. The market has diversified and now covers a wide range of legal disputes, from patent law to product liability claims and proceedings relating to environmental issues.
COLIN&CIE: Can you give us a specific example of litigation finance from your practice?
SELINA OTT: A prominent example of litigation finance in patent law is the case of the British company Nanoco against Samsung. Nanoco accused the technology group of infringing patents for the manufacture of quantum dot LEDs – a key technology used in Samsung televisions. Nanoco received financial support for the complex and expensive legal dispute from a litigation financier in which PG3 also invested. The financier covered the legal costs, enabling the relatively small company to take legal action against a global corporation. The case, which ended with a settlement and the payment of 150 million US dollars to Nanoco, is a prime example of how litigation finance enables companies to enforce their rights – even if they lack the financial resources for such a lawsuit. In this case, the capital invested by investors was more than doubled.
COLIN&CIE: How do you assess the future potential of litigation finance?
SELINA OTT: Given the ongoing professionalisation of providers, improved risk assessment and growing investor interest, litigation finance is likely to become even more important in the coming years. The high level of acceptance among law firms and companies, as well as an increasingly clear regulatory framework, are further strengthening confidence in the business model – and thus laying the foundation for further growth. In addition, capital can now be used not only to cover the judicial costs of individual disputes, but also to finance law firms. Many law firms, especially those with contingency fee agreements, experience a time lag in their income: fees are only paid once a case has been successfully concluded. They need external capital to cover their running costs. “Law firm lending” offers another attractive form of financing here.
COLIN&CIE: What are the differences between the two approaches?
SELINA OTT: Financing individual legal cases offers a high degree of transparency and allows focused investments in interesting or strategically relevant cases. At the same time, it involves increased risk, as the outcome is binary – either positive or negative. When financing law firms, the capital invested serves to bridge the period until fees are paid. The main advantage of this structure lies in the potentially more stable cash flow generation: the returns derive from many legal cases, which creates internal diversification within the law firm. This generally results in a more stable repayment mechanism and an overall more defensive risk profile, as repayment does not depend on the outcome of a single case, but on the law firm's broad case portfolio.
COLIN&CIE: What is PG3's investment strategy in litigation finance?
SELINA OTT: PG3 and its sister company Nivalion have been active in litigation finance for ten years and pursue a selective, risk-aware and diversified investment approach. We work exclusively with litigation financiers who have many years of experience, a disciplined selection process and a proven track record. PG3 focuses primarily on the US market and invests in legal cases and case portfolios managed by established US litigation financiers. Nivalion, on the other hand, operates mainly in the European market and invests directly in individual European legal cases. To this end, a team of in-house experts was built up to identify, evaluate and monitor investments. Our decisions are based on a thorough assessment of each engagement in line with clearly defined internal risk parameters. The aim is to build a broadly diversified portfolio of legal cases – spread across different jurisdictions, claim types and industries – to ensure a balanced and robust risk profile.
COLIN&CIE: How did the collaboration between PG3 and Nivalion with Colin&Cie come about?
The funds used in litigation finance come from PG3 and Nivalion as well as from selective and like-minded capital investors in Switzerland. These investors, which include Colin&Cie, seek out alternative investments for their clients with an attractive risk/return profile and a low correlation with traditional asset classes – requirements that litigation finance increasingly meets. Through professionally structured investment vehicles, we give these investors and their clients access to a specialised market segment. We have enjoyed a trusting and successful partnership with Colin&Cie since 2016.
COLIN&CIE: Thank you very much for the interview. We wish you and your colleagues continued success.
ABOUT Selina Ott: Selina Ott joined the PG3 team in October 2021. She previously worked at a fintech start-up and spent around four years at Partners Group AG in the investment solutions team. She holds a bachelor's degree in economics from the University of Bern and a master's degree in management and banking & finance from the University of Zurich.
ABOUT PG3: PG3 AG is the family office of the three founders of Partners Group and a FINMA-regulated asset management company based in Baar, Switzerland, founded in 2013. The company specialises in alternative investments and offers investors access to niche strategies with attractive and uncorrelated returns. Its focus is on litigation finance, insurance finance and multi-strategy investments.
ABOUT Nivallion: Nivalion is a leading provider of litigation financing headquartered in Zurich and offices in Frankfurt, Munich, Vienna and London. The company offers tailor-made financing solutions for complex national and international disputes. Nivalion enables companies, law firms and investors to enforce their legal claims without having to bear the associated financial risks themselves. As an independent litigation financier with an experienced team of lawyers and investment professionals, Nivalion combines legal expertise with sound investment experience.
Disclaimer - legal notice
This publication was produced by the Investment Office of the Colin&Cie Group. The information and opinions contained in this document are based on sources we believe to be reliable. However, we cannot guarantee the reliability, completeness or correctness of these sources. All information and quoted rates are only up-to-date at the time of this publication and are subject to change at any time without notice. The content is based on numerous assumptions made by the Colin & Cie Group. It should be noted that different assumptions can lead to materially different results. The forecasts and assessments are only current at the time this publication is prepared and can change at any time without prior notice. Past performance of an investment is not a guarantee of future results. Certain investments can experience sudden and substantial losses in value. This information and views do not constitute a solicitation, offer or recommendation to buy or sell investment instruments or to carry out any other transactions. We recommend interested investors to consult their personal advisor before making decisions on the basis of this document so that personal investment goals, financial situation, individual needs and risk profile as well as further information can be duly taken into account as part of a comprehensive consultation. The information contained in this publication is marketing material that is distributed for advertising purposes only.
