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This presentation was used to inform and educate hedge funds on TPLF a few years ago. The bottom fell out of most of the hedge funds that were in my pipeline so I decided not to quit my day job.
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High Yield Litigation Bonds for Mis-Sold PPI and MPPI
Capturing Growth in Adverse Times
On-line Informational Presentation
Ian FinlaysonInstitutional Sales Manager
ADJUSTLaw Capital
Chris MillerConsultant / TPLF Investment Strategy
Presented By:
ADJUSTLaw Capital
Background
Between 2006 and 2011 numerous financial firms were fined by the Financial Services Authority (FSA) for mis-sold PPI
In April 2011, the Royal Courts of Justice imposed standards requiring banks to compensate customers who were mis-sold Payment Protection Insurance (PPI) retrospectively
Claims for mis-sold PPI can be processed as far back as 6 years. MPPI can be processed as far back as 12 years
On 9 May 2011, the British Bankers’ Association (BBA) chose not to appeal against the High Court’s payment protection insurance (PPI) judgment
ADJUSTLaw Capital
Background
The amount paid out for mis-sold PPI since January 2011 is £5.9 Bn
The FSA estimates that issuers and advisers overcharged customers by more than £1.4 Bn a year
PPI Claims Paid (in Millions)
Mis-selling happens in all countries – there are several, interconnected reasons why the UK industry has been made to pay so heavily for it
0
100
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800
ADJUSTLaw Capital
Common Examples of Mis-Sold PPI
The high court has ruled that PPI is mis-sold when Claimant:
Did not Understand The Terms
Was Told It Was Compulsory
Did Not Have a Full Time Job
Had Certain Medical Conditions That Made Them Exempt
Was sold Under False Pretences
Having to Opt OUT of the Policy (online) Was Already covered elsewhere
Paid Up Front
ADJUSTLaw Capital
Scale of the PPI Reclaim Market
PPI Payments Hit over £1.9bn in 2011 according to FSA
Following the High Court ruling on 6 April 2011, Barclays, Lloyds, HSBC, RBS and others have collectively set aside over £11Bn
Almost two thirds of all the disputes sent to the FOS relate to mis-sold PPI
Complaints totaled 85,562 between January and June - an increase of 75% compared to the final six months of 2011
Average payout per customer is £2,400
ADJUSTLaw Capital
PPI complaints have increased substantially following the April 2011 ruling…
Complaints to the Financial Ombudsman Service (FOS) surged by 50% in first half of 2011, with PPI complaints accounting for over 60% of total complaints in the period
2007 2008 2009 2010 2011 2012 Q1 2013 est0
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200000
250000
300000
350000
Banking and Credit Investment and Pensions Insurance ex. PPI PPI
ADJUSTLaw Capital
Third Party Litigation Funding (TPLF)
Nothing new (Insurers, Banks, Unions, Legal Aid Funds, etc.) In the US, banks, special TPLF funds and hedge funds are investing substantial capital
Australia has been using TPLF for over 15 years; the UK since 2005; emerged as an asset class in the US in 1997 and has since become a growing phenomenon for mass tort cases outside the US
In 2004, nine lenders specializing in litigation loans to tort plaintiffs formed a trade association known as the American Third-Party Financing Association
Today, basically all top law firms are using or assessing external funding for litigation or arbitration
ADJUSTLaw Capital
TPLF Has Entered the Mainstream
The market in the US and UK for litigation financing is estimated to exceed $1 billion in 2012 1
TPLF is categorized as an “uncorrelated investment” because the returns are not correlated to the price movements of the stock, bond, commodity or traditional markets
Current economic conditions have provided fertile ground for the growth of TPLF. Returns are typically high regardless of the performance of traditional asset classes
TPLF has emerged worldwide as a way to increase access to justice, “level the playing field” and mitigate the costs and risks involved in pursuing claims
1. N.Y.C. Bar Ass’n Comm. on Prof’l and Judicial Ethics, Formal Op. 2011-2 (2011)
ADJUSTLaw Capital
Fund Strategy
Adjust Law Capital aims to create a fund valued at £200M+
The Fund will enable Adjust Law Solicitors to acquire and pursue 150K to 200K cases
The average claim value of a case that Adjust Law Solicitors will conduct is £4,000
Each case has an average net return to Adjust Law Solicitors of £3,500
ADJUSTLaw Capital
Operating Structure
All cases are screened by a Ministry of Justice (MoJ) regulated claims referral company to ensure they meet strict vetting criteria
After The Event (ATE) insurance policy enables Adjust to recover court fees, disbursements and other costs in the rare event of a lost case
No up front fee for client - client receives 100% of their award in every single case
Adjust Law Solicitors have developed a proprietary software system that allows the practice to process a large volume of cases in a rapid and cost efficient manner
ADJUSTLaw Capital
Transaction Structure
ClaimantsAssets
Purchased
Funding
Claims
Settlements£ Return
£££
Litigation
MoJ CompliantClaims Registrant
Adjust LawSolicitors
Adjust Law CapitalFund
Claim Assets >£800M
InvestorInvestor Investor
Adjust Law CapitalFund
Adjust Law CapitalFund
£200M+
Adjust Law CapitalFund
Claim Assets >£800M
ADJUSTLaw Capital
Risk Factors
Risk MitigantValidity of Claim/ Win Rate All claims purchased from MoJ regulated claims
management company (CMCs); all cases meet strict vetting criteria. Win-rate = 98%
Possible obstacles to recovering award
To maintain compliance with the FSA banks have collectively set aside over £11bn in provisions for those who were mis-sold PPI
Reduction in claims due to either competition with CMCs or self processing of claims
Complaints are mounting against many CMCs that are not regulated by the MoJ and many have been forced to shut down. Less than 50% of claimants self process claims
Expense of Lost Cases/ Negative Returns
After-the-Event Insurance eliminates any negative return due to any lost cases
ADJUSTLaw Capital
Efficiency
Average duration of 9 months to judgment
Trial costs cause last minute settlements
Use of mediation increases probability of early settlement
Use of MoJ registered CMCs and Adjust Law Solicitors’ bespoke software ensures a 98% win rate
ATE Insurance mitigates loss
ADJUSTLaw Capital
Total Settlement= £7,700
Investor
Adjust Law Capital Fund
Appellant
Investment example of £10M
Adjust acquires and processes 10,000 pre validated PPI Claims
Cases at a cost of < £1,000 each;
£600.00 to purchase claim £400.00 for processing fees, e.g: Court Filings & Brief to
Senior Counsel
Average Claim £4,200.00
Adjust Law has 98% Win Rate
Solicitors Professional Indemnity
covers investment
capital
ATE Insurance
covers court fees in the event of a lost case
Claimant Paid OutFrom Successful Claim 100% of initial claim
£4,200.00
Adjust Law Solicitors
Court awarded legal costs to Adjust Law
Group average £3,500.00 per claim
Claimant
Invested capital £I,000.00
Int @ 9.1%pa £91.00TOTAL: £1,091.00
100% of initial claim paid. No Upfront fees or success fees.
£4,200.00Balance = £2,410.00Less Ave Costs; £2150.00Per Case Profit = £260.00
Example Investment Flow
£1,091.00 X 10,000 Cases= £10,910,000.00
ADJUSTLaw Capital
Example of £10M Investment(Not Compounded)
Year 1 Year 2 Year 3 Year 4 Year 5 ROI
Guaranteed 6.60% 10,660,000 10,660,000 10,660,000 1,980,000
Quarterly 8.70% 10,870,000 10,870,000 10,870,000 10,870,000 10,870,000 2,610,000
Annual 9.10% 10,910,000 10,910,000 10,910,000 10,910,000 10,910,000 2,730,000
Guaranteed 6.60%
Quarterly 8.70%
Annual 9.10%
£0 £500,000 £1,000,000 £1,500,000 £2,000,000 £2,500,000 £3,000,000
1,980,000
2,610,000
2,730,000
ADJUSTLaw Capital
Guaranteed 6.60%
Quarterly 8.70%
Annual 9.10%
£2,113,555
£5,175,665
£5,456,948
Year 1 Year 2 Year 3 Year 5
Guaranteed 6.60% 10660000 11363560 12113554.96 NaN
Quarterly 8.70% 10870000 11815690 12843655.03 15175664.6301421
Annual 9.10% 10910000 11902810 12985965.71 15456948.2512645
1,000,000
3,000,000
5,000,000
7,000,000
9,000,000
11,000,000
13,000,000
15,000,000
£ M
illion
s
Example of £10M Investment(Compounded)
ADJUSTLaw Capital
The Firm
Offices in Liverpool and Manchester
Regulated by the Solicitors Regulation Authority (SRA)
Incorporated May ‘06; bought out by the current directors in ’09
Specialist in securing successes against high street lenders, including Lloyds Banking Group, Barclays, HSBC, Santander, RBS Group, and sub-prime lenders and finance houses such as Welcome
Significant experience operating in Mis-Sold PPI market, settled 541 cases by early May 2011 with 539 having successful outcomes for claimants
ADJUSTLaw Capital
The Board
Colin Downie has 17 years of post qualification experience as a solicitor in private practice. He trained with Pannone Solicitors in Manchester and after qualification has gained considerable experience in a wide variety of litigation and as an advocate. Mr Downie is the Chief Executive Officer of Adjust.
Mike Wilson qualified in 2001 having trained with Paul Rooney & Co, a leading litigation practice. He worked with Colemans Solicitors in Manchester specialising in personal injury claims and has worked closely with Colin Downie since 2003.
David Brown has practised in law since 1994 and in that time has gained considerable experience and expertise in different areas of litigation. He has brought multi Claimant proceedings in consumer credit cases against a wide variety of banks and has represented Government agencies in litigation proceedings.