Andrew Cohen, Burford Capital's senior vice president. Courtesy photo

The portfolio-based approach to commercial litigation funding is a growing trend among financiers and their law firm clients, with both acknowledging the benefits of bundling litigation, as opposed to concentrating on one-off cases.

There's still a market to finance individual suits, but industry experts say lenders, who have always been conservative about the law firms and cases they back, are turning more to portfolios to capitalize on commercial litigation's potential windfalls.

Pullman & Comley's Adam Mocciolo, who has watched the trends in litigation funding for years, said the uncertainty of jury trials and other factors lead lenders to reject nearly every request for funding for law firms.

“That's the figure, 90 percent, that people typically talk about at industry conferences,” he said.

Adam Mocciolo, left, a partner with Pullman & Comley, and Kevin McEleney, right, a shareholder with Updike, Kelly & Spellacy. Courtesy photos

In a sector already adverse to risk, a portfolio of cases could work much the same as mutual funds, helping to improve the chances of strong returns from multiple sources, rather than relying on just one piece of litigation.

That's important because commercial litigation funding is nonrecourse, meaning the upfront investment is lost if a law firm borrower comes out on the losing side of the litigation.

“You never know with any one case if you are likely to win,” Mocciolo said. “More cases bundled together smooth out that volatility.”

To increase the chances of financial backing, experts such as Andrew Cohen, senior vice president of Burford Capital LLC in New York, recommend that law firms create a pool of cases. For the lender, this reduces the overall risk, while shaving borrowing expenses and making it cheaper for attorneys to acquire capital.

Especially attractive, according to Mocciolo: litigation over patents or intellectual property, big commercial collections, and breach-of-contract suits, where the legal theory and evidence show potential for significant verdicts or settlements.

Lenders “will take a lot of business tort cases,” said Kevin McEleney, a shareholder with Updike, Kelly & Spellacy. “It's got to be worth a lot of money. They really want not just millions of dollars, but tens of millions of dollars to do a case.”

But there is a catch: the adage that less risk likely reaps smaller rewards.

“The downside is the same as with any other investment,” Mocciolo said. “The more you diversify, the less chance of a nice-sized recovery. If you put all your money, for example, in one stock and that goes through the roof, you will make a large return.”

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