Parabellum Capital, spun off from Credit Suisse 12 years ago, has closed its $754 million fund, the largest private pool raised for litigation financing.
Parabellum has committed two-thirds of its funds to 50 investments and hopes to profit from paying the costs of commercial litigation. Parabellum has not disclosed the identities of the investors in the fund or the names of the lawsuits the pool is supporting.
Parabellum's third and largest new fund signals the growing popularity of the litigation finance industry as an option to earn returns uncorrelated with the stock market. Forty-four funders managed $13.5 billion in U.S. commercial litigation investments in 2022, an increase of 9% from the previous year, according to Westfleet Advisors.
“The asset class is emerging from infancy and entering maturity,” Parabellum co-founder and CEO Howard Shams said in an interview. “Serious people can recognize that this is a way to make money over and over again with good results, private equity-like results.”
Rebecca Berrebi, a litigation finance broker and consultant, says that while large firms such as Parabellum are increasingly controlling the litigation finance space, some smaller rivals are gaining traction. No, he said.
“The proof of their success is their ability to raise large amounts of money,” Berevi said of Parabellum. “Over $700 million for a fund is a significant amount in this market. Raising that much money is expensive.”
Shams and Parabellum Chief Investment Officer Aaron Katz started what was then called the Legal Risk Strategies and Finance business at Credit Suisse in 2006, according to Parabellum. According to Parabellum, this is the first commercial litigation financing business of its kind for institutional investors. In the more than 10 years since the Credit Suisse spin-off, Parabellum has grown to $1.45 billion in assets under management and 18 employees.
Parabellum's last litigation finance fund raised in 2020 was $465 million, with 78 investments in approximately 400-500 cases. The fund is now in harvest mode, meaning it is managing cases rather than investing in new ones, and will end its lifespan in about a year, Shams said.
Parabellum's first fund closed at $166 million and financed 55 investments, totaling hundreds of deals. The firm sold the remaining realized and unrealized assets of the first fund in a nine-figure secondary transaction, representing approximately half of the original investment.
Shams said the buyer was an established investment management company and the acquisition returned all capital and profits to investors. “No one has ever done a secondary transaction of this size,” he said.
The secondary litigation finance market has experienced growth in recent years. In December, Omni Bridgeway announced the sale of a 25% interest in a portfolio of 15 intellectual property investments to an affiliate of GLS Capital Partners for $21.5 million.
Parabellum's $754 million in funding includes insurance on $158 million, about 20% of investors, which can be used as leverage.
While the insurance market is beginning to compete with litigation finance transactions and take away some of the industry's top talent, there are also ways in which they can work together. The structure of Parabellum is one example.
“Insurance attracts influence,” Shams said. “Most of them use providers, but they're not litigation funders. They come in and say, 'We'd love to lend, but we don't know how to value this.'” But Once the insurance company can step in and say, “We guarantee you won't lose,'' that's when the game begins. ”