Why: carefully selected & diversified portfolio of litigation cases can return 30%+ annually while being totally uncorrelated to traditional assets during a potential crash, plus Pound might rise vs $USD giving additional returns
Litigation funding is outperforming all other asset classes including private equity, real estate, private debt, hedge funds, and the stock index funds.
Yet it still remains very unsexy due to a high barrier of entry (expertise & know-how, large minimum ticket sizes, etc).
Additionally, the UK litigation cases are denominated in British Pounds — has recently broken out of its 13-year downtrend against the greenback.
We are hopeful the Pound might continue appreciating, gifting investors a double return (underlying ROI + exchange rate carry).
We invest in three litigation strategies, but we do not buy public assets since that defeats the whole uncorrelated feature litigation funding offers.
Three strategies are:
i) individual cases
ii) litigation funds
iii) law firm financing
Swensen's portfolio allocation weighting over the years.
"Mr. Swensen often blasted the excessive costs of the mutual-fund industry and the conflicts of interest on Wall Street. He bashed activist investors as value-destroying and asset-gathering managers as out for themselves."
we were told many US states (California, Nevada, Florida, etc) and various countries around the world (Spain, Ireland, etc) were suffering from property shortages.
2/ Once artificial demand pulled back as the downturn started, it turned out we never had any shortages at all.
Many were just buying their 3rd, 5th or 13th investment property by using excessive leverage.
I assume we will get a similar, or worse outcome in the next 5 years.
3/ Excessive leverage fuels booms like nothing else,
and it typically create enormous oversupply (mortal enemy of long term prices).
I can only imagine how much malinvestment we will have to deal with once the tide pulls back and we notice many are swimming without shorts.
#Sentiment very much feels like 2011, 2015, and 2018.
The time to start paying attention to risk management is when the day stock indices continue making new record highs,
while fewer & fewer index components do NOT confirm those new highs.
Last we saw this, in February 2020, we sold a lot of our holdings.
$SPY $ACWI
The lowest quality corporate credit is signaling risky times ahead, as spreads tighten towards 2007 levels.
While no indicator is perfect, historically very tight spreads between CCC junk bonds & Treasuries have indicated euphoric sentiment and overbought public securities.