Challenges and Opportunities in the Development of a Secondary Market for Legal Finance: Insights from Industry Leaders

Litigation funders are being urged to exercise extreme caution as the secondary market for legal finance continues to develop. Christopher Bogart, CEO of Burford Capital, issued a warning at the International Litigation Finance Association (ILFA) 2023 European Conference, highlighting the potential risks associated with the loss of legal privilege in this evolving market.

During a panel session discussing the ‘state of the industry’, Bogart emphasized the importance of protecting legal privilege as funders navigate the possibility of becoming originators or secondary participants in deals. He drew parallels to the loan syndication market, where a similar structure exists with one entity creating a deal and syndicating it to others.

While the development of a secondary market is seen as a positive evolution by industry leaders like Andrew Saker of Omni Bridgeway and Sarah Johnson of D.E. Shaw, Bogart raised concerns about the lack of differentiation in pricing between primary and secondary investors. He stressed the need for better financial terms to account for the increased certainty of risks in later stages of the claim journey.

The panel also discussed the potential for funders to invest in law firms or provide growth capital, with Neil Purslow of Therium highlighting the opportunities in this area. However, Bogart criticized regulators for not fully leveraging the opportunities presented by the Legal Services Act 2007, pointing to the bureaucratic challenges faced by law firms in the UK.

Despite the challenges, Bogart remains optimistic about the future of the industry, noting the potential for growth and innovation in other jurisdictions like Arizona and Utah. He lamented the missed opportunities in the UK market, describing it as “largely moribund” compared to the energy and capital flowing into similar transactions in the US.

As the landscape of litigation finance continues to evolve, funders are being urged to tread carefully and prioritize the protection of legal privilege to ensure the long-term sustainability and success of the industry.