Tuesday, 31 May 2016
Last updated 5 min ago
Apr 9 2013 | 10:13am ET
A pair of hedge fund veterans have launched a $100 million litigation finance firm, seeking to profit from others' legal disputes.
Gerchen Keller Capital closed on its first investment this month, following in the footsteps of six-year-old Juridica Capital Management and four-year-old Burford Capital, both of which have listed funds in London. Two other litigation finance firms, BlackRobe Capital and Fulbrook Capital Management, debuted in 2011, and Credit Suisse's unit spun off as Parabellum Capital last year.
Firm founders Adam Gerchen and Ashley Keller were colleagues at Chicago hedge fund Alyeska Investment Group before launching the litigation finance firm alongside former Boeing Co. senior counsel Travis Lenkner and former Synthes and Medtronic general counsel Terrance Carlson. Gerchen, a former Goldman Sachs banker serves as CEO, Keller, a lawyer formerly of Bartlit Beck Herman Palenchar & Scott, as chief investment officer, Lenkner as chief underwriting officer and Carlson as chairman of the investment committee.
The new firm, unlike some of its predecessors, will invest both on the plaintiff's side and the defendants, exclusively in litigation between institutions, investing an average of $5 million in each case. It will not invest in consumer or class-action cases.
Gerchen Keller's first case is with a plaintiff in the U.S., although it would not reveal further details.
"The brand we're attempting to build here is to be the premier capital provider for companies with meritorious claims that we believe should prevail," Keller told The New York Times.
Gerchen and Keller chose to get into litigation finance during their time at Alyeska, where they made event-driven investments in companies involved in legal disputes. "We thought the next logical step was to cut out the middleman, so to speak, and invest directly in claims," Gerchen told the Times.
Not everyone is thrilled by the new development represented by Gerchen Keller.
"This turns the courts into a stock market of sorts," Skadden Arps Slate Meagher & Flom partner John Beisner told The Wall Street Journal, speaking on behalf of the U.S. Chamber of Commerce's Institute for Legal Reform, which believes litigation finance will increase litigation costs. "If investors are getting that sort of return, either defendants are paying a lot more or claimants are receiving a lot less."