NOT MANY alternative finance firms can boast that they earned 43 per cent for investors on their first ever case, and while of course, past performance is not a reliable indicator of future results, AxiaFunder was always going to do things differently
The brainchild of Liberum Alternative Finance founder Cormac Leech; AxiaFunder is a litigation funder which places merit and morality at the heart of its investment approach. By leaning on the substantial experience of its team, AxiaFunder chooses legal cases which have been deemed to have an excellent chance of success in court, while also upholding the moral integrity that is vital to the team.
“Essentially we’re looking for commercial cases that have strong merit and the moral high ground,” says Michael Lent, litigation consultant at AxiaFunder. “We always like to look for those twin peaks. We don’t want to be backing cases that merely have legal and technical grounds and we want to be supporting claimants who have clearly been disadvantaged by the poor behaviour of the defendant.”
Lent is the gatekeeper of the platform, conducting extensive due diligence on each case that is presented to the firm, and choosing only those which meet his exacting requirements. With more than 30 years experience as a solicitor, and then as an After-The-Event (ATE) insurance underwriter, he is one of a handful of people in the UK who is qualified for this role.
AxiaFunder was founded three years ago and officially launched in 2018. It has already funded three cases – the first generated a 43 per cent return after eight months; the second case is ongoing but will return 56.5 per cent to investors if the case is resolved favourably; and the third case is also underway, and expected to generate double digit returns. There will inevitably be some disappointments and losses along the way, but the portfolio appears to be getting off to a good start. The first case was fully funded within a week; the second within five hours; and the third within 30 minutes.
The platform has just accepted its largest case to date, regarding a breach of director’s fiduciary duties enabled by a joint enterprise conspiracy. It hopes to raise £550,000 to help fund the claimant’s case, and investment is set to close on 6 November.
“In broad terms it’s a case against a director for breaching his fiduciary duties to a company where a director has effectively taken away the opportunity that was available to the company and has acquired it for his own purposes,” explains Lent.
“But it becomes complicated by the fact that he has involved a number of other individuals and solicitors to achieve his aims. So there are nine defendants and there’s extensive incriminating email correspondence between the majority of them, which is very useful to the claimant’s case.”
This is exactly the kind of case that AxiaFunder loves to find. It has been reviewed by two separate QC barristers and their juniors, all of who took the view that there is overwhelming evidence of breach of director’s duties. The case has also been investigated by two investment-grade insurance companies who conducted their own due diligence –with external QC barrister input– on the merits of the case.
If the case is settled or wins at trial at any point in the first three years, investors are set to make at least 72 per cent per annum (simple interest). If the case is favourably resolved in two years, investors would make an internal rate of return of more than 100 per cent per annum. Of course, if the claimants lose the case, investors will lose 100 per cent of their capital – a very real risk that Leech and Lent are keen to emphasise to potential lenders.
AxiaFunder manages this risk by following a rigorous and multi-layered due diligence process, which means that the platform has been slow to build up its portfolio of cases. However, Leech reveals that it is planning to be able to consistently offer investors one to two cases per month by the end of the year.
“AxiaFunder is an appointed representative of an FCA-regulated firm, ShareIn, that scrutinises everything we do,” says Leech.
“And we are always careful to communicate to our investors that litigation funding puts your capital at risk and returns are not guaranteed.” The platform is also enabled by ShareIn’s tried and tested technology solution, and 60+ years of collective large cap investment banking experience is also helpful for risk management.
“Some of our investments, including the current case, are eligible for inclusion in an IFISA,” adds Leech.
“While there will be volatility in returns on the platform – particularly until the volume of cases enables good diversification – we estimate that on a portfolio basis, investors should stand to make around 30 per cent per annum on their capital, after factoring in some conservative probability of loss assumptions as well.
“As a thought experiment, if you were to put £20,000 into your IFISA and compound that for 10 years at 30 per cent per annum, you would end up with £275,000 in your IFISA by the end of the decade.”
With returns like that, AxiaFunder is set to draw a lot of attention over the coming months and years; changing the game for alternative finance investors.
Capital is at risk and returns are not guaranteed. You potentially could lose more than you invested. These investments are illiquid and not covered by the FSCS scheme. This article does not constitute investment advice.