“Court funds facilitate access to justice”

Asset management


Interview with Paul de Servigny, manager of IVO Capital Partners

The management company IVO Capital Partners, known for its experience in the field of emerging corporate debt, has also been developing its “litigation finance” activity since 2014. Paul de Servigny explains what it is.

What does court finance mean?

This term means “litigation financing”, the activity of providing legal entities in a public or private setting with the necessary financial resources to enable them to pay the costs of legal actions, be it a court or an arbitral tribunal. . We intervene to fund attorneys’ fees, legal proceedings or proceedings and expert fees. You should know that banks do not finance legal proceedings. IVO Capital Partners is one of the rare players in France, and even in continental Europe, to develop this business. Lawyers, as well as courts, are increasingly recognizing the usefulness of litigation funding funds. These funds facilitate full access to justice by financing litigants, companies or groups of individuals who would otherwise not be able to be represented in court. It should be added that litigation funding thus complies with the requirements of the United Nations Sustainable Development Principles.

What is happening internationally?

Australia, USA and England led the way. The Netherlands is one of the most sought-after jurisdictions for legislative developments. In France, where the penetration rate is very low, the number of specialists is limited. According to research by Deminor, another long-standing European player, litigation funding in Europe (excluding the UK) should double within five years, representing around €0.8 billion of potential funding opportunities today. Considering the number of files and requests received in Europe since the launch of our second fund in 2018, this increase seems reasonable to us.

What are the advantages of the formula for the respective institutions?

For companies, litigation financing allows them to complete the procedure under optimal conditions while retaining cash that they can use for something else. It is often used in the context of the generally costly arbitration proceedings that small and medium-sized companies may be subjected to following a contractual dispute. It is increasingly common in the context of collective activities of natural or legal persons, associations or foundations. This financing does not encumber the other assets and liabilities of the financed company that do not support the guarantees, as there is no payment except in the event of a win. An inefficient capital contribution allows a company to unlock potentially significant value in the form of a loss, or to recoup an investment deemed lost in the form of a loss. Funders enable complainants to better defend their rights and receive adequate compensation.

And for investors?

The main advantage of litigation funding, in our experience, is asymmetry. Recoveries are much higher than the cost of financing, whether you receive a majority of your investment (eg, 2 to 4 times or more) or a percentage of the amount ultimately recovered by claimants if successful. eg between 10% and 30%). In our calculations, we retain the best of the two assumptions. In our view, another great strength of the asset class is that it is completely correlated with the economy, interest rates and traditional markets. To manage the risk of capital loss (always present in the context of this type of investment), we apply insurance on the files we invest in. Litigation funding is not a black box. We are also interested in explaining to investors all the stages of the procedures we are involved in.

How do you work?

With a team of three dedicated staff, an exclusive team of Anglo-Saxon partners and relationships with law firms, our tools give us visibility into a wide range of cases from both a selective and diversified source: abusive breach of contract, patent infringement, anti-competitive practices, theft, fraudulent contracts, violation of shareholder rights or even collective actions on various issues (non-compliance with GDPR or general data protection regulation, e.g. TikTok in the Netherlands). We also try to avoid conflicts of interest. Over the past three years, our investments have focused on class actions, commercial arbitrations and investment arbitrations. Since 2020, more than 60% of our investments in Europe and with a significant share of co-investment. To date, we have funded nearly fifty projects. Of our debt of 1.2 billion euros, the financing of the legal process is currently equal to 120 million euros.

What income can we reasonably expect?

Assuming a success rate of just under 50%, the expected internal rate of return to maturity can generally reach 12%-15% per year after eight years. It is important to note that these TRIs are estimates based on models developed by our teams and cannot in any way be taken as specific performance or predict the future.

What kind of car should you choose to introduce yourself to this authentic market?

There are few opportunities to be interested in this unlisted segment today. Last summer we launched a new fund, AIF (alternative investment fund) IVO Legal Strategies Fund III in SLP (free partnership) format. It remains open for subscription in principle until August 2023. It is mainly aimed at professional or similar professional investors. Fees range from 2% (€1 million to €5 million) to 2.5% (investment up to €1 million) to 1.5% (more than €5 million). After a first close of €25 million in August 2022, this third vintage achieved an interim close of €36 million in December. We have already invested in four files. We aim for a size between 100 million euros and 150 million euros. Investing in these types of funds allows you to diversify by improving your risk/return profile.

ML



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