Andrew Saker
Andrew Saker ()

Just two months after the two largest litigation funders, Burford Capital Ltd. and Gerchen Keller Capital LLC, merged to create an industry behemoth, another litigation funder is taking a different route in an effort to scale up its operations in the U.S.

Australia’s IMF Bentham Ltd. announced Tuesday a deal to invest in suits alongside a unit of New York-based investment giant Fortress Investment Group LLC, which oversees about $70 billion in assets. The deal will initially see Fortress Credit Advisors LLC invest $100 million in a new entity operated by Bentham, which will put in $33 million. The deal can grow to $200 million, with Fortress’ investment expanding to $150 million and Bentham’s to $50 million.

The deal is structured so that Fortress will be repaid its investment first, with Bentham and Fortress then splitting the profits from the venture. Bentham will receive 85 percent of the profits to Fortress’ 15 percent. The deal also has a provision that would allow Fortress to assume management of the fund if it doesn’t hit certain performance targets.

For Bentham, the deal is a stroke toward its goal of increasing its portfolio in the U.S., a market it has not cracked to the extent of New York-based Burford, another competitor listed on the London Stock Exchange that spent up to $175 million on its purchase of Chicago-based and U.S.-focused Gerchen Keller. Bentham, which got its start financing class actions in Australia, opened an affiliate in the U.S. back in 2011. During its most recent fiscal year, from June 30, 2015, to June 30, 2016, Bentham derived $7 million in income from its U.S. operation, compared to $46 million from its work in Australia, according to Bentham’s annual report.

Bentham expects that number to grow, however, with 57 percent of the estimated value of its cases as of the end of last year coming from North America; up from 25 percent in September 2015.

The firm, like all litigation funders, is still reliant on winning those cases to make money. Last year, Bentham lost four of the five U.S.-based cases it concluded. Longer term, Bentham’s success rate is 64 percent on the 14 deals it has concluded from its 45 total investments made in North America.

Bentham CEO Andrew Saker said in an interview it was too early to draw “major conclusions” about the firm’s U.S. portfolio, which he said it will augment by opening a Houston office in the near future. The firm, which late last year announced it would increase its investment in whistleblower cases, also opened a San Francisco office in 2015.

“There is no doubt that we had a number of losses last year,” Saker said. “The majority, still, are wins. And the losses are still pretty small.”

Saker said the Fortress deal would allow Bentham to invest in a larger portfolio of investments, minimizing its risk of one-off losses. And by leveraging its investment alongside Fortress, Bentham will also be able to share in a larger profit pool, he said.

“We’re still going to be pursuing similar types of cases, it’s just that we’ll have more capital to be able to do it and we’ll be able to do it in a leveraged fashion,” Saker said.

Bentham was advised by Katten Muchin Rosenman on its agreement with Fortress. The latter’s general counsel, David Brooks, did not return an inquiry into its legal advisers on the deal, which came the same day that Fortress announced its $3.3 billion all-cash sale to Japanese conglomerate SoftBank Group Corp.

On that transaction, expected to close in the second half of 2017, Fortress is being advised by Skadden, Arps, Slate, Meagher & Flom. Paul, Weiss, Rifkind, Wharton & Garrison is counseling Fortress principals, while Davis Polk & Wardwell is representing a special committee of Fortress’ board of directors. Randal Nardone, a former member of the management committee at now-defunct Thacher Proffitt & Wood, serves as a board member and CEO of Fortress.

Weil, Gotshal & Manges and Kirkland & Ellis are advising SoftBank on its proposed purchase of Fortress, which began trading publicly in 2007.

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