Navigating the Evolving Landscape of Litigation Finance: LexShares Adapts to Pandemic Challenges

In the dynamic world of litigation finance, LexShares, a prominent player in the industry, has found itself navigating the lingering effects of the COVID-19 pandemic. The company has been forced to make strategic adjustments, including shelving plans for a new fund and streamlining its workforce, as it grapples with the unpredictable nature of case resolutions.

Weathering the Storm: LexShares' Shift in Strategy

Pandemic-Induced Delays and the Changing Landscape

The pandemic has had a profound impact on the litigation finance industry, causing significant delays in case resolutions. LexShares' managing director of investments, Max Schmidt, explains that many cases the company had anticipated would be settled or resolved by the middle and end of 2024 have yet to be concluded, remaining in active litigation. This unexpected prolongation has forced LexShares to adapt its strategy, shifting its focus to managing its existing portfolio as it waits for these cases to be resolved.

Streamlining Operations and Weathering the Storm

In response to these challenges, LexShares has made the difficult decision to cut its payroll in half, reducing its workforce from 10 to just 5 employees. This downsizing reflects the company's efforts to weather the storm and maintain financial stability during this period of uncertainty. CEO Max Doyle's departure in June 2022, after only a year in the role, further underscores the turbulence the company has faced.

Navigating the Evolving Litigation Finance Market

The litigation finance industry has undergone significant changes in recent years, with LexShares experiencing its fair share of leadership transitions. Cayse Llorens, who became CEO in 2021 after Brockhurst Capital Partners acquired a controlling stake, stepped down in 2022, paving the way for Doyle's brief tenure. This turnover reflects the dynamic nature of the market, as players adapt to shifting industry dynamics and investor preferences.

Weathering the Storm: LexShares' Shift in Strategy

LexShares' current focus is on managing its existing portfolio, a strategy known as "harvest mode." This approach allows the company to maintain a steady stream of returns while it waits for the resolution of the cases it has backed. Schmidt acknowledges that the duration of these investments has been longer than initially expected, a challenge faced by many players in the industry.

Navigating the Evolving Litigation Finance Market

The litigation finance market has seen a retraction in capital commitments to new deals, with a 14% decline reported by Westfleet Advisors last year. This trend is attributed to broader macroeconomic factors, such as the interest rate environment and a pullback from private credit and private equity asset classes, resulting in less capital available for legal finance.

Preparing for the Future: LexShares' Fundraising Plans

Despite the current challenges, LexShares remains optimistic about the long-term prospects of the litigation finance industry. The company has closed on a million fund in 2018 and a 0 million fund in 2022, with the latter's lead contributor being Titan Advisors, a prominent alternative investor. However, LexShares has decided to pause its fundraising efforts until the end of 2025 or the beginning of 2026, citing unfavorable market conditions for soliciting new investors.

Leveraging Technology and Innovation

One of LexShares' key strengths has been its embrace of technology and innovation. The company launched its proprietary software, Diamond Mine, in 2016, which helps it identify and score potential investment opportunities. This tool has been instrumental in generating a steady flow of case leads, giving the small company a significant advantage in the highly competitive litigation finance landscape.

Diversifying the Portfolio: LexShares' Investment Approach

LexShares has a diverse investment portfolio, funding a range of cases, including patent disputes, commercial disputes, and law firm portfolios in the mass tort space. The company specializes in smaller to medium-sized investments, with an average ticket size between and million. This targeted approach allows LexShares to manage risk and maintain a balanced portfolio, even as it navigates the challenges posed by the pandemic.

Weathering the Storm: LexShares' Resilience and Adaptability

Despite the turbulence in the litigation finance industry, LexShares remains committed to weathering the storm and positioning itself for future growth. The company's focus on managing its existing portfolio, leveraging technology, and diversifying its investments demonstrates its resilience and adaptability in the face of adversity. As the market continues to evolve, LexShares' ability to navigate these changes will be crucial to its long-term success.