Once the cases are chosen, most funds enter into a formal written agreement with the party being capitalized and become passive investors, which is why due diligence is so critical. To avoid conflicts of interest, the majority of funders choose to have no control over how the funded companies or their lawyers handle the underlying matters, although most financiers require periodic reports from the attorneys about significant changes in the status of cases.
Not every manager in this evolving space is successful at choosing investments. In the last 12 to 18 months, several litigation funds, along with some of the world's best-known hedge funds, have approached Juris Capital hoping to sell their portfolios at a steep discount. Desser says Juris declined to buy them because they were "higher-risk, lower-likely-return portfolios than the ones we build here. It shocked us."