Litigation Funding as an asset class is growing. The major appeal being that the returns are not related to movements in the capital markets. This is exactly the reason quoted by Kevin Hegarty, executive vice president and chief financial officer
“The strategy will be diversifying for the portfolio in that the returns are almost entirely independent of movements in the capital markets.”
The total amount invested by the university will be $50 million. The fund, Lake Whillans, is co-founded by Boaz Weinstein and Lee Drucker. Lake Whillans is a litigation finance and distressed venture capital firm providing funding for companies in litigation or arbitration and for emerging or venture/private equity backed companies in distressed situations.
The University of Michigan and Kevin Hegarty are relying on Lake Whillans expertise to select only the most meritious cases:
“The risk of this strategy lies solely in Lake Whillans’ ability to properly underwrite the merits of the cases in which they invest”
This information has been garnered from the agenda of the public school’s Feb. 16 board of regents meeting. The endowment fund will, of course, receive a portion of the proceeds from successful cases. The endowment’s value is as of Dec. 31 was $10.5 billion.
The average annual return for university endowments as of June 30th 2016 was a loss of 1.9 percent. This is according to an industry survey. These figures explain why like many other segments of society universities are looking for alternative investments.
In a low-return environment, schools and other groups look for investments that aren’t correlated to markets. This is a criteria that litigation funding satisfies.