Private equity’s newest asset class: real estate litigation
Investors see opportunity for outsized returns
Life insurance settlements and litigation finance are gaining steam in the private equity market, and some investors are focusing on financing real estate lawsuits.
Peter Martenson, head of global distribution at Eaton Partners, discussed the practice at length in an interview with PitchBook. He said one of the advantages of focusing on litigation finance is that investors can choose the type of portfolio that they want to build.
“Some investors focus on pharma cases; some focus on real estate; some focus on tax cases,” he said. “The specialists can build portfolios that cater to LPs’ levels of risk tolerance.”
Martenson compared litigation financing to venture investing, given that they both do not always result in a return of capital. However, if the investor does not want a high loss ratio, they can also get involved during the later stages of a lawsuit when returns are more likely, yet lower.
“So we’re seeing a couple types of risk/reward approaches,” he said, “one that mimics the VC model and one that looks more like synthetic credit investments.” [PitchBook] – Eddie Small