Most innovative Hedge Fund
Phoenix Legal Financing Fund I- Centaur Asset Management
The Phoenix Legal Financing Fund I is an open-ended alternative investment fund run by Centaur Asset Management that makes investments in legal claims and disputes. Nicolas Angio, Group CFO, Centaur Asset Management, tells us how the firm is leading the way in this relatively new sector
Centaur Asset Management’s Phoenix Legal Financing Fund I (PLF1) is a Bermuda domiciled, open ended mutual fund which makes investments in legal claims and disputes using a variety of structures, such as, purchases of disputes, loans, contract based funding arrangements, and other bespoke financial funding which may include direct and indirect investment structures as approved by Centaur Asset Management. PLF1 was established in November 2012 so has a little over two years track record and has achieved a return for investors of over 23% since inception.
The legal financing or litigation funding market is a relatively new sector, which has grown to a substantial size in the past four or five years, says Nicolas Angio, Group CFO, Centaur Asset Management. “At a macro level, investors’ monies are used to finance legal claims or disputes either through a court, tribunal or arbitration process and in exchange the funder receives either a fixed return or a percentage of the winnings of the legal claim or dispute. The asset class is a true hedge to other asset classes as there is no correlation between the legal claims and disputes we fund and what is happening in the forex markets or commodities markets or property sector and so on.
“There are also various ways we can structure the funding packages along with insurance and hedging packages so that we can either reduce the investors risk and produce a moderate return with little risk or produce a higher return with more exposure to risk. With this ability we can create multiple products for different client investment profiles with the same underlying asset class.”
The legal financing industry is a fascinating sector to be involved in at present – and the sector is still in its infancy compared to other sectors, says Angio. “There is tremendous opportunity in the sector to generate substantial returns for investors either through expanding our existing fund AUM or acquiring other funders operating in the market. It is doubtful if litigation funding will ever become a mainstream investment product but we believe an investor’s portfolio should be well balanced and could benefit from having some exposure to the sector.”
Centaur is the only asset manager with a presence in the Middle East region that manages a litigation fund – and so generally the firm doesn’t struggle to distinguish itself, Angio says. “Having said this, we were reluctant to go to market originally with a product that was too similar to our competitors based elsewhere such as the UK so decided to launch a product that was a little more appealing to investors. We did this by making PLF1 an open-ended investment fund with monthly subscriptions and redemptions as opposed to a closed-ended investment fund. The idea being that investors could come into and out of the fund as required and also the funds AUM would grow over time with its track record to allow us to fund a larger volume of legal claims and disputes.”
In being named Legal Financing Hedge Fund of the Year – Bermuda, Angio says the firm is proud to have received recognition for what is usually a niche and often overlooked asset class, and welcomes the publicity for both the Phoenix Legal Financing Fund I and the sector in general.
“Our local promoters have been in the Middle East region promoting PLF1 for almost two years and hopefully our peers and clients have voted because they have seen that we have proven our investment strategy and more importantly, proven the potential returns available from the litigation-funding sector,” he says. “Our peers are generally impressed with the fund’s investment strategy and we have had a host of joint venture and white label opportunities presented to us including the opportunity to structure a Shariah-compliant litigation fund with a major UAE based financial institution.”
The main challenge Centaur Asset Management has had in 2014 has been in accessing sufficient capital to expand the fund’s AUM and fund the volume of legal claims and disputes being offered on an on-going basis, Angio says. “We currently have the resources and infrastructure to invest considerably more monies into the sector and are looking forward to doing this in 2015.”
Looking to the future, Angio says Centaur is planning on using the success of PLF1 to launch a closed ended litigation fund in 2015 which would be both larger in size of AUM and listed on AIM in the UK. “Although we have demonstrated it is possible to achieve an open-ended litigation funding strategy, the sector is more suited to having the knowledge and security that capital is committed for a longer period of time. We are also planning on accessing funds through Shariah-compliant investment products which may or may not be focused on the litigation funding sector as we believe this is a fascinating and growing sector and one we are keen to get involved in.”