In part one of this two-part series, we explored the importance of partnerships and we started to discuss elements of portfolio construction.  In part two, we further delve into portfolio construction issues and then discuss the appropriateness of utilizing debt within the context of commercial litigation finance.

A number of years have passed since the commercial litigation finance industry was established in the UK, USA & Australia (the more mature markets of the global industry), and so I thought it appropriate to reflect on some of the lessons learned within the industry to extract insights both for investors and fund managers.

In the first part of this two-part series, the relatively nascent asset class of Intellectual Property Private Credit (“IP Credit”) was introduced. That article explored the basic premise of the asset class, discussed some of the financiers in the space and reviewed some of the nuances inherent in the asset class. In this part, we take all of the knowledge gained in part one and apply it to a specific example by exploring a publicly traded company, which used IP Credit on a couple of different occasions with great success.

One of the areas in which I am intrigued, is the application of credit to intellectual property (“IP”) and using the value of patents (amongst other forms of intellectual property) as security for the loan, the so-called Intellectual Property Private Credit (“IP Credit”) asset class. While this is strictly speaking a credit asset class as you will see from this article, it sits adjacent to and sometimes crosses over with commercial litigation finance.

In the past, I have written about the importance of diversification, the applicability of portfolio theory (articles one, two & three), and the perils of fund concentration; but I also believe that investors in the asset class should understand the perils of relying on outliers to drive fund performance.

I recently moderated Litigation Finance Journal’s digital conference entitled Investor Insights into Litigation Funding, and the panelists delivered a clear message that the asset class needs to be more transparent.  Accordingly, I decided to pen this article to explore the more opaque aspects of the asset class and the reasons underlying that opacity, and what this means for investors, as well as provide some “watch-outs” for those looking to invest in the industry.