Abstract
In <b><i>Litigation Finance Investing: Alternative Investment Returns in the Presence of Information Asymmetry</i></b>, from the Spring 2022 issue of <b><i>The Journal of Alternative Investments</i></b>, <b>Thomas Healey </b>of <b>Harvard Kennedy School</b>, <b>Michael McDonald </b>of <b>Morning Investments</b>, and <b>Thea Haley </b>of <b>Glen Avenue Communications</b> describe the development, structure, and risk–return characteristics of litigation funding—a small and controversial, but growing and lucrative market. On the one hand, third-party financing could promote frivolous litigation and burden the court system. On the other hand, it can permit plaintiffs to retain legal representation they otherwise could not afford. The litigation funding market is not widely understood, with both high information asymmetry and high potential returns, and losses can be extreme. The authors discuss methods of mitigating risk with diversified portfolios. They provide a picture of the various segments of the market, their features, and the potential to structure deals with desired investment horizon, risk, and return preferences.
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