From its roots as a funder of litigation cases, Harbour has expanded to investing in legal businesses themselves. Managing director and chief investment officer Ellora MacPherson explains the market drivers that motivated this evolution in its financial offerings.
Since it was established in 2007, Harbour has acted as a leading port of call for law firms in the high-stakes world of commercial litigation and arbitration. Having raised overUS$1.8bn which it invests in claims by paying legal fees and other costs associated with pursuing a dispute in the past 18 months this private funder has embarked on a transformative journey of expanding its investment portfolio, now offering credit facilities to finance the business of law itself.
Ellora MacPherson, managing director and chief investment officer, says this diversification is the natural extension of Harbour responding to market trends and the needs of its client law firms— and is a measure of the funder’s commitment to the success not only of the claims it finances but the legal businesses themselves. “Our support of individual claims evolved into funding for portfolios of cases and then into funding law firms themselves, for example helping them lay off risk they shared with their clients by way of CFAs or DBAs. We provide them with guaranteed funding, paid regardless of the outcome of the claim, in exchange for a share of any success fee”.
Unlike these lenders, Harbour raises its own funds and — with a team of experienced litigators and financial experts who have a deep understanding of legal business — it is particularly well equipped to underwrite litigation risk and predict law firm revenues.
Portfolio funding to offset risk
On the increasingly competitive litigation landscape, MacPherson says: “We’ve heard from quite a few general counsel about a growing reluctance to embark on new claims and being more conscious of litigation costs. Meanwhile, we’re seeing the spread of firms with a share of the litigation market growing. Previously it was always the top few firms taking on the big cases. It’s a time of change in the litigation market, and people are thinking increasingly creatively about how they, and who, should manage their claims. Law firms need to ensure they remain competitive and find ways to add value for their clients.”
Even in the traditionally risk-averse UK legal market, MacPherson notes that a growing number of firms are therefore seeking to be more entrepreneurial by offering their commercial litigation clients no-win, no-fee arrangements, as well as options for managing multiple cases.
Recognising the “inherent risk in funding disputes and arbitration cases, even strong ones”, Harbour enables firms to pursue more claims while offsetting some of the risk by pooling single claims into a portfolio. These can be groups of specific cases or more open-ended, allowing for the addition of cases yet to be sourced — and cross-collateralising claims means a financial loss in one can be mitigated by successful outcomes in others. Lowering the risk to an investor’s capital can also reduce pricing.
MacPherson also points to a common misconception that only large commercial claims can be funded. “This isn’t the case” she says, “and there are ways in which cases of all kinds of budget size can be made to work. The development of the funding industry and the trust investors place in well-established funders means we have greater flexibility now to create options for all sections of the law firm market”.
At the same time, the Court of Appeal judge stressed the importance of justice being seen to be done: “I think we will want human beings in the process. We will want humans to represent us and we will want humans to make the final decisions in these cases, but I do not see conceptually a reason why you could not have a system like the one I have described.” Sir Colin added that there was no reason why parties could not have an arbitration clause that required them to do whatever ChatGPT told them. “I think that would be nuts… but you could do it already.”
Financing strategic growth
The relationships Harbour has cultivated with law firms over the years have also evolved — from once asking for feedback on the strength of specific claims, many now seek its input on how to grow their businesses.
MacPherson says: “We always start these conversations with questions as broad as: ‘If you had £3m or £5m or £10m, what would you do with it?’ And that’s where the creative dialogue starts to take place. Firms don’t always come to us with a fixed business plan, and though it’s not our place to tell them how to run their businesses, we value their trust and are able to act as a sounding board while they consider where to make strategic investments.”
Growing consolidation in the legal market, marked by recent merger and acquisitions activity, means firms might be pursuing growth strategies through lateral team hires, opening new offices and new firm start up costs, investment in technology, or general working funding, she notes. This led to Harbour offering capital for multiple purposes, providing more flexibility to firms pursuing a multi-pronged growth strategy.
“We find law firms like talking to a lender with deep expertise in the legal sector rather than just in finance” MacPherson continues. “They like us because we speak their language and we are able to have broad conversations around the business of law.”
In recent months, this has included providing Slater and Gordon with a £33m facility to pursue its strategy of staying one of the UK’s leading personal injury claims firms, funding both a substantial book of claims and providing capital to develop its consumer legal services team. Harbour’s funding also recently enabled legal services platform Bamboo Group to acquire a Midlands law firm, and facilitated Rothley Law’s acquisition of an entire private client business, along with its 41-strong team, from another firm.
The hearts and minds at Harbour
Harbour’s people are key to enabling law firms to identify and pursue these opportunities, says MacPherson: “Our DNA is the relationship management that runs through the entire lifecycle of a facility or litigation fund.” With a blend of legal, financial and business expertise, she says the close-knit, knowledge-sharing culture among the team has been vital not only to deepening relationships with law firms, but also to ensuring the funder invests in success by focusing on data-driven decision making.
“Law firms are often surprised by the depth of insight we share with them about their own business. It’s not that we have a crystal ball or spy network — we simply leverage data points we gather about matters we’ve discussed with them, cases we’ve funded or rejected, and our reasons.”
And it is just as vital that firms do the same, MacPherson says: “We’re constantly encouraging law firms, which have a huge wealth of data, to do more work to harness it to their advantage.” This holistic approach ensures that the firms Harbour facilitates are not just financially equipped but also strategically well placed to make wise investments in future.
This interview first appeared in Briefing magazine. If you would like to learn more about how Harbour could help your firm, contact the team for a confidential discussion.
