If you can't beat them, join them.

[ by Howard Haykin ]

Litigation finance, an obscure corner of Wall Street, is gaining more interest.  And there's apparently room in this market for new firms.  The latest investment shop to dive into the relatively new sector is Chicago-based Gerchen Keller Capital, that has raised $100 million to invest in high-stakes litigation between companies.

Team at GKC.   Gerchen Keller Capital essentially is a 4-person operation.  Joining Chief Executive Adam Gerchen is Ashley Keller, the chief investment officer.  They've added Travis Lenkner, former senior counsel at the Boeing Company - firm’s chief underwriting officer - and Terrance Carlson, former general counsel at Synthes and Medtronic - chairman of the investment committee.

Mr. Gerchen and Mr. Keller previously worked together at Alyeska Investment Group, a hedge fund based in Chicago.  Before that, Mr. Gerchen was an investment banker at Goldman Sachs, while Mr. Keller was a partner at law firm Bartlit Beck Herman Palenchar & Scott.  This type of work requires a combination of legal and financial expertise. “It was a nice marriage of all of our backgrounds,” said Adam Gerchen. 

Profit Expectations.    Earlier this month, GKC closed on its first deal - with a plaintiff in a commercial case in the United States, but the founders would not reveal more information about the case.  Overall, the company's plan is for investments to average about $5 million. 

The prospect of double-digit returns has lured some prominent lawyers to set up litigation finance firms in recent years, bankrolling plaintiffs in exchange for a slice of the potential winnings - though GKC principals caution that it's critical to select cases carefully.  Mr. Lenkner adds, “we won’t be successful if we’re investing in claims that we don’t believe have a very good chance of succeeding.” 

Some funds can invest in defendants as well, by advancing legal fees and then collecting a return if the case is successful.  Such deals are not loans; if cases are not successful, the investors lose their capital.

Others in the Field.   Burford started in the business back in 2009, and Juridica Capital Management started earlier - in 2007.  They have listed their funds in London.  Two other firms – BlackRobe Capital and Fulbrook Capital Management – started up in 2011 and are run by former lawyers.  In 2012, the litigation finance team at Credit Suisse left to form Parabellum Capital.

Critics of this line of business include the United States Chamber of Commerce, which has said these investment firms can inappropriately influence cases or encourage frivolous lawsuits.  But GKC principals counter that statements, saying the firm provides an important service to corporations.

For further details, go to:   [Dealbook, 4/8/13].