Litigation Finance Firm Raises $310 Million

January 14th, 2014

Gerchen Keller Capital, a “litigation finance” firm that invests in litigation, expecting a cut of the proceeds, has raised $300 million.

An upstart investment firm that bets on lawsuits has raised hundreds of millions of dollars for its second fund.

The firm, Gerchen Keller Capital, is expected to announce on Monday that it has amassed about $260 million for the fund, bringing its total investor commitments to $310 million. The fresh capital, coming less than a year after Gerchen Keller opened its doors, underscores investors’ confidence in an obscure corner of Wall Street that has gained adherents in recent years.

Litigation finance, as the business is known, often involves bankrolling plaintiffs in exchange for a slice of the lawsuit’s potential winnings. Some firms, including Gerchen Keller, can invest in defendants as well, by advancing legal fees and then collecting a return if the case is successful. If the case fails, the investors walk away with nothing.

Gerchen Keller invests only in litigation between institutions, including contract disputes and intellectual property feuds. The firm and its rivals steer clear of consumer class-action lawsuits or personal injury cases.

Since raising $100 million for its first fund last spring, Gerchen Keller has invested in “more than a dozen” cases, according to the firm, which is bound by confidentiality agreements not to disclose the names of particular cases. (The new fund includes the rollover of some commitments from the first fund.)

And you can be sure they will rely on quantitative legal predictions to, literally,  hedge their bets.

I wonder what influence, if any they exert on the parties. For example, say the parties want to settle for a small amount. Could the firm advance more money to go to trial? Or, say the party wants to go trial, but to minimize litigation costs, the firm could nudge a settlement.