An upstart investment firm that bets on lawsuits has raised hundreds of millions of dollars for its second fund.
The firm, Gerchen Keller Capital, is expected to announce on Monday that it has amassed about $260 million for the fund, bringing its total investor commitments to $310 million. The fresh capital, coming less than a year after Gerchen Keller opened its doors, underscores investors’ confidence in an obscure corner of Wall Street that has gained adherents in recent years.
Litigation finance, as the business is known, often involves bankrolling plaintiffs in exchange for a slice of the lawsuit’s potential winnings. Some firms, including Gerchen Keller, can invest in defendants as well, by advancing legal fees and then collecting a return if the case is successful. If the case fails, the investors walk away with nothing.
Gerchen Keller invests only in litigation between institutions, including contract disputes and intellectual property feuds. The firm and its rivals steer clear of consumer class-action lawsuits or personal injury cases.
Since raising $100 million for its first fund last spring, Gerchen Keller has invested in “more than a dozen†cases, according to the firm, which is bound by confidentiality agreements not to disclose the names of particular cases. (The new fund includes the rollover of some commitments from the first fund.)
The new money - gathered from investors like public pension funds, university endowments and family offices - will allow the firm to increase the average size of its investments to about $7 million from $5 million, Gerchen Keller said.
“It gives us the capacity to look at deals of a bigger size than we might have been able to in 2013,†Travis D. Lenkner, a managing director at the firm, said in an interview. “We are seeing demand for some of those larger deals.â€
Though the business of litigation finance in the United States is relatively new, it has attracted a number of prominent lawyers in recent years, lured by the prospect of double-digit returns. Two of the large firms â€" Burford, which started in 2009, and Juridica Capital Management, which started in 2007 â€" have listed their funds in London. In 2012, the litigation finance team at Credit Suisse set up a new firm, Parabellum Capital.
One closely watched firm, BlackRobe Capital Partners, which was started by a team that included John P. Coffey, closed down last year, saying it couldn’t raise enough money from investors. Mr. Coffey, known as Sean, is a prominent figure in the world of white-collar law who has since joined the law firm Kramer Levin Naftalis & Frankel.
Mindful of the risks of betting on the outcome of legal cases, Gerchen Keller says it seeks to diversify its investments.
“We view assembling our portfolio very much the way any finance person would view portfolio construction,†Ashley C. Keller, a founder and managing director of the firm, said. “We don’t want to have single positions that could wipe out our fund.â€
Mr. Keller, once a partner at the law firm Bartlit Beck Herman Palenchar & Scott, previously worked with his co-founder, Adam R. Gerchen, a onetime Goldman Sachs banker, at the Chicago-based hedge fund Alyeska Investment Group. After investing in the stocks of companies involved in legal disputes, they decided to “cut out the middleman†and set up a firm to invest in the claims themselves, Mr. Gerchen said last year.
They added two to their team: Mr. Lenkner, a former senior counsel at the Boeing Company, and Terrance L. Carlson, a former general counsel at Synthes and at Medtronic, who is chairman of the investment committee.
On Monday, the firm plans to announce two new members. Adam J. Gill, once a partner in the intellectual property group at Kirkland & Ellis, has joined Gerchen Keller as a principal focusing on patent litigation. David J. Spiegel, a former litigation attorney at Kirkland & Ellis, has come on board as an analyst concentrating on commercial litigation.
“We feel pretty thrilled with the team,†Mr. Gerchen said.
