RD Legal Capital, which manages a hedge fund focused on litigation financing, is seeking money from foundations, endowments and pensions as it hopes to raise assets to $200-400 million. "We are the only fund that I'm aware of [...] in the post-settlement factoring business," Roni Dersovitz, founder and portfolio manager of the RD Legal Funding Partners fund, told AIN. And the lack of liquidity in the marketplace has opened up an abundance of opportunities.
"Attorneys who we market to have no other sources of liquidity," Dersovitz explained. "It's a tremendous opportunity now. We are poised [to grow] because of the economic and liquidity crisis."
Dersovitz described a typical scenario: a client gets injured, either physically, emotionally or financially. They retain counsel and litigation ensues. Eventually, they will reach a settlement, which often takes three-to-five years. While most lawyers are paid their fees 30-60 days after a settlement, a small percentage of these settlements--between 1-3%--take an additional year or longer to be paid off.
"So how does a lawyer finance himself during that period of time?" Dersovitz asked.
This is where RD Legal comes in. Dersovitz's fund advances legal fees to attorneys. When the fund purchases a legal fee, it generally holds the paper for 10 months before the collection. RD Legal typically discounts the legal fees at between 18% and 24% per annum.
RD Legal offers investors a 13.5% preferred cumulative return, which Dersovitz describes as a high-water mark. The fund only takes its management and incentive fee once the investors collect their returns, he added. RD Legal has shifted its investor focus to investors with longer investment horizons and on April 1, RD Legal secured its first investment worth $1 million from a foundation, which indicated it will put in an additional $9 million by year's end. The fund currently has $50 million in assets.
RD Legal works with lawyers from across the U.S. "I've wired money to Anchorage, Alaska," Dersovitz said, adding that he has lawyers in major cities as well as rural areas.
Before setting up the firm, Dersovitz was an injury lawyer, and experienced first-hand just how difficult it is for lawyers who have delays on fee payments. "I lived through this cash flow problem," he said. "I decided to set this up because I thought it would create a business model that was scalable [...] I was under the impression that I could serve a niche."
"The beauty about what we do is that once a case settles, it's settled. And an attorney is entitled to collect a fee," he added. "There's no guesswork." --Suzy Kenly
This article was originally published in Alternative Investment News.
