New article reports a dip in commercial TPLF funding commitments in 2023, while funding to law firms increased

April 17, 2024 / 5 min read

An interesting new by article by Sara Merken^[1]from Reuters (“Reuters article”) published on March 27, 2024 provides an informative glimpse into third-party litigation funding (TPLF) data in the commercial claims context, along with other data as reported in a new report from litigation finance advisory firm Westfleet Advisors (“Westfleet report”).^[2] Overall, the Reuters article notes that commercial litigation funding was down slightly in 2023 (in comparison to 2022), while funding provided to law firms increased.

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The following highlights key information as contained in Ms. Merken’s interesting and informative article:

Summary

The Reuters article reports that U.S. commercial third-party litigation funders committed about 14% less capital to new deals in 2023, according to the Westfleet report.^[3] Specifically, this report notes that commercial litigation funders committed $2.7 billion to new financing agreements for 2023, down from $3.2 billion in 2022.^[4] It is further noted that litigation funders in the U.S. market had a combined $15.2 billion assets under management in 2023, with this figure noted to be “relatively” flat from 2022.^[5]

As for the reasons behind this dip in commercial TPLF commitments, Westfleet’s CEO, Charles Agee, notes that higher interest rates have caused larger institutional investors to view other classes of assets as more attractive in the short term.^[6] Mr. Agee noted that the difficulty in raising new funds led litigation funders to “’ration”’ capital.^[7]Further, the Reuters article notes that reduced funding commitments also contributed to what the Westfleet report references as a “’significant shake-up’” in the industry, with professionals moving jobs between funders, starting their own funders, or transitioning to other competing fields.^[8] Overall, the Reuters article notes that “the [Westfleet] report said the 2023 results showed ‘an industry in a state of flux.’"^[9]

It is interesting to note that Mr. Agee attributes the reduction in funding commitments more to financial market trends, rather than the performance or demand for litigation financing.^[10] On this point, the Westfleet report notes that many funders still had a “’strong year,’” despite the reduced funding amounts.^[11] As an example, the Reuters article reflects that one funder, Buford Capital, recently reported that its revenues tripled to $1.1 billion last year.^[12]

On other fronts, the Reuters article notes that, according to the Westfleet report, there were 39 active funders in the U.S. market in 2023, down slightly from 44 in 2022.^[13] Further, it is reported that litigation funding for law firms continues to grow, with large law firms increasing their share of total new commitments to 35% in 2023, up from 28% the prior year.^[14] It was also noted that law firms among the 200 highest-grossing U.S. law firms had $960 million allocated to them in 2023, an increase from $890 million of new commitments in 2022.^[15]

Claims Considerations

The Reuters article certainly provides useful information on several fronts. For example, as discussed in the GAO’s 2022 report, there remain, what the GAO report described, as various “data gaps” in obtaining TPLF information to evaluate TPLF’s impact in a number of claims, consumer protection, and policy related areas, including “characteristics of and trends in the commercial and consumer TPLF markets.”^[16] Thus, any opportunity to get a glimpse into actual TPLF data, such as reported in the Reuters article, is always an interesting (and, for many, likely a welcomed) development.

Focusing more specifically on the information in the Reuters article, while the noted dip in commercial litigation funding commitments is noteworthy, it is important to consider, at least from the author’s view, that we are still talking about funding amounts in the “billions.” Also, it is interesting, as noted above, that this dip was attributable more to certain funder financial considerations, rather than a reduced demand for litigation funding itself. Outside of the Reuters article, the author notes that commercial TPLF has been the recent focus of state legislative efforts this year. For example, West Virginia recently amended its TPLF statutes to remove commercial claims from its statutory exclusions. Similarly, Indiana recently passed a new law adding several new statutory provisions to its existing TPLF statutes focused on regulating TPLF practices for commercial claims.

Questions?

Please contact the author if you have any questions. Also, be sure to review the author’s other TPLF articles and resources for additional TPLF updates.

[1] The Reuters article states that Sara Merken reports on the business of law, including legal innovation and law firms in New York and nationally.

[2] Merken, Sara. US litigation funding in 'state of flux' as deal commitments dip, says report. Reuters (March 27, 2024),https://www.reuters.com/legal/transactional/us-litigation-funding-state-flux-deal-commitments-dip-says-report-2024-03-27/. In terms of the information and data contained in the Westfleet report, the Reuter’s article notes that that Westfleet's report cites public sources and self-reported, aggregated data from litigation finance companies on transactions from July 2022 through June 2023. It said most major litigation funders participated.

[3] Merken, Sara. US litigation funding in 'state of flux' as deal commitments dip, says report. Reuters (March 27, 2024), https://www.reuters.com/legal/transactional/us-litigation-funding-state-flux-deal-commitments-dip-says-report-2024-03-27/.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10]Id.

[11]Id.

[12]Id. In addition, the Westfleet report notes that “Buford-only’ commitments dropped 5% to $691 million, but commitments increased 4% to $1.2 billion on a group-wide basis, which includes all assets managed by the company.” Id.

[13] Merken, Sara. US litigation funding in 'state of flux' as deal commitments dip, says report. Reuters (March 27, 2024), https://www.reuters.com/legal/transactional/us-litigation-funding-state-flux-deal-commitments-dip-says-report-2024-03-27/.

[14]Id.

[15] Id.

[16] See, GAO Report, Third-Party Litigation Financing – Market Characteristics, Data, and Trends (December 2022), at p.2.