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Bargain shares: funded for bumper returns

A litigation finance provider that helps third parties to pursue and recover funds from legal claims has raised $200m on the first close of its second third-party fund
Bargain shares: funded for bumper returns
  • First $150m third-party fund 91 per cent invested
  • Second third-party fund raised $200m at first close and has $300m target at final close
  • Litigation Capital Management will co-invest alongside fund

Litigation Capital Management (LIT:120p), a provider of litigation financing that enables third parties to pursue and recover funds from legal claims, has announced the first close of its second third-party fund, LCM Global Alternative Returns Fund II.

The fund raised $200m on first close and a further $100m is expected to be raised in the coming months to boost the group’s third-party assets under management (AUM) to $450m. The new fund has a six-year term and will target global dispute finance investments including corporate portfolio transactions.

LCM will co-invest with investments from its own balance sheet, advancing a 25 per cent contribution (on a monthly basis) over the term of each investment. This means no upfront contribution is required. Performance fees will be payable to LCM as fund manager as follows: 25 per cent of profit earned on each investment as and when it matures over a soft return hurdle of 8 per cent; and an outperformance return of 35 per cent for investments which produce an internal rate of return above 20 per cent. LCM will also receive its 25 per cent share of any profit from each direct investment from its co-investment.

Investors reacted positively, adding further fuel to the share price rally which started after I rated the shares a strong buy, at 94p, and raised my target price from 140p to 150p (‘Bargain shares: Priced for a profitable outcome’, 21 September 2021). The holding is also showing a 55 per cent total return on the entry point in my 2019 Bargain Shares Portfolio. On a modest 10 times Investec Securities’ current year earnings forecasts, and with 40 per cent of LCM’s directly held portfolio 25 months or longer in duration – the 10-year average project length is 27 months – potential for a step-change in earnings continues to be underrated. Buy.

 

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