In part 1 of this article I explored some of the basic concepts of secondary investing, specifically in the context of the commercial litigation finance asset class. This article continues the discussion and explores some of the unique aspects and characteristic of the ‘tail’ of a litigation finance portfolio, why now is a particularly good time for secondary transactions and other investment considerations with respect to secondary investing.

In my discussions with litigation finance institutional investors, the topic of secondary investments has been raised a number of times by those who understand the economics of the asset class and are seeking to take advantage of some of the longer duration cases and portfolios in existence. In this article, I explore why there is interest in the secondary market, why now, and how best to approach investing in secondary investments, as well as some watch-outs.

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.