PHUKET: A little while back my article about litigation funding in general was published and at the time I was kind of sitting on the fence about the asset class.
One of my main hang-ups had been with the fact that generally the access to it that I had seen up to that point had been via structured notes, which had timing issues for a lot of my clients. In a response to my article I was pointed to a great fund within this space, and since then I have had a very positive response to it from just about everyone I have shown it to.
The Axiom fund provides loans to law firms trying non-frivolous lawsuits such as divorce, etc. As with the types of notes I had looked at before, all the cases are insured and there is also insurance taken out against the law firm should it fail. Thus, the protection is extremely high. The main difference is that there is no percentage split of the winnings from the cases, but this is balanced by them charging a slightly higher interest rate to the law firms.
The cases must be almost guaranteed to be settled, otherwise the insurance company will not underwrite the policy. The fund also has an average of about 1,500 loans out at one time, which means their portfolio of loans is highly diversified. Because the term of each loan is usually less than 12 months, this ensures basically the entire portfolio turns over every year and the rate at which the loans are repaid leads to extremely consistent returns for the fund. The standard deviation of returns is less than half a percent. This is even more remarkable given that the fund has averaged almost 12% per annum in its short existence (it is just over two years old).
The best part about this fund is that it is non-correlated with the financial markets and the world economy. I personally believe a 10% holding in just any portfolio provides an excellent buffer against falling stock markets or rising interest rates. I would not go too heavy into this fund as it has a short track record and is still a single fund manager, but I do believe there is not a risk profile out there for which this fund is not appropriate (with the exception of the cash under the mattress crowd).
The fund is available with a minimum investment of £12,500 through an offshore portfolio bond, and is very liquid. It deals monthly with a 30-day notice period. While it is run out of the UK and is based in pounds sterling, there are also USD and EUR tranches available. In a market such as we are currently in where bank deposits are paying virtually nothing in interest, a small allocation in this fund can give a nice little extra bit of return to your portfolio without taking an excessive amount of risk.
David Mayes MBA lives in Phuket and provides wealth management services to expatriates around the world, specializing in UK pension transfers. He can be reached at 085-335-8573 or by email at email@example.com.
— David Mayes
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