The world’s first litigation finance firm was founded in Australia roughly two decades ago. These niche investment shops have since opened up in London and New York.
The largest of the fledgling bunch now resides in Chicago.
After raising more than $410 million in a new fund, Gerchen Keller Capital LLC said today it now manages more than $1.4 billion in capital, which it said is more than twice its closest competitor.
The business of paying litigation costs in exchange for a possible slice of a reward has been controversial since its beginning. It has also become increasingly popular among investors. Gerchen Keller said more than 80 percent of its latest round of financing came from institutional investors that already placed money in the firm.
In other signs of growth, Gerchen Keller announced it moved into bigger office space at 353 N. Clark St. and made two hires: the chief operating officer from rival funder Burford Capital LLC and the former chief legal officer of Soverain Software. The firm now has 16 employees since opening with three in April 2013.
“We’re here to stay and we invested in significantly more space and headcount because we see long-term potential to be a real partner and a value-add for the legal services industry,” Managing Director Travis D. Lenkner said.
Lenkner attributed the firm’s rise to a focus on “customer service,” hiring “the smartest and best minds” in the industry and its long-term relationships with large, institutional investors.
The private firm also says it offers more financing options than many of its rivals.
What is typically considered traditional litigation financing means a funder partners with a company seeking to pursue a lawsuit and helps fund its legal expenses. If the company wins money in the lawsuit, the funder earns a percentage; if the company loses, the investment is wiped out.
The most recent fundraising round will be used for this type of investment, Lenkner said, which carries relatively high risks and, in turn, high rates of return.
Last February, the firm announced a $475 million fund to be used for a less-risky line of business that is akin to a payday loan for litigation victors.
In its “late-stage” legal financing business, Gerchen Keller purchases awards from judgments or settlements that are pending in the courts to provide liquidity for companies. This business carries lower returns, Lenkner said.
“Acceptance of our services is quickly accelerating as lawyers, law firms and companies come to understand the full range of solutions we provide,” CEO Adam Gerchen said in a release.
By raising funds for these two types of investments separately, Gerchen Keller accomplishes two things. It manages its investors’ expectations for returns and frees itself to more competitively price its financing.
“We can offer investment terms that correspond to the relative level of risk we are undertaking,” Managing Director Ashley C. Keller said in a statement. “We solve problems where others can’t.”
In addition to hiring Andrew Langhoff from Burford and Katharine A. Wolanyk from Soverain Software, Gerchen Keller announced three promotions.
Douglas G. Gruener, a former partner at Katten, Muchin, Rosenman LLP, was named general counsel.
David J. Spiegel, a former litigation attorney at Kirkland & Ellis LLP is now a principal. And Therese M. Stoch is now chief financial officer, a position she previously held at Chicago Fundamental Investment Partners LLC.