Omni Bridgeway pivots to corporate funding

Te funder has set out a deliberate strategy to boost corporate funding side of the business because concentrating on class actions in Australia would have exposed it to too much risk.

Litigation funders must now hold an Australian financial services licence and comply with its obligations.

The COVID-19 crisis has delivered a boost for Omni Bridgeway as corporates contend with low levels of cash and tighter lending markets, leading them to seek out finance to fund their legal battles, according to Andrew Saker, the chief executive of the nation’s largest litigation funder.

Speaking to The Australian after handing down the company’s full-year results, which were headlined by a surge in income over the past 12 months, Mr Saker said the funder had set out a deliberate strategy to boost corporate funding side of the business because concentrating on class actions in Australia would have exposed it to too much risk.

“In terms of opportunities as a consequence of COVID, the answer is yes (there are opportunities).

“There are obviously low levels of liquidity and credit availability (in the market), and as a consequence, corporates are starting to say, ‘I’ve got these good claims against various parties, how do I actually pursue those? I don’t want to use my cash flow because I’m using it for other, higher priority-type expenses’. So they’re looking to other sources of capital to finance litigation,” Mr Saker said.

The types of action Omni Bridgeway funds for corporates is wide-ranging, he said, and includes commercial litigation, commercial arbitration over, say, disputes on contracts, and enforcing judgements against third parties.

“Generally speaking, banks don’t like to lend money against these types of assets (legal actions) because they’re so risky. So corporates like a non-recourse type of credit because if things go bad they don’t have to pay us back.”

As the pandemic rages on, Mr Saker does not expect a surge in COVID-related class actions.

“It’s almost impossible to see a class action arising in relation to COVID where you’re looking at future earnings because it’s so unpredictable that I don’t think any board to be held to account even if they were crazy enough to put out a forward-looking statement,” he said.

The litigation funder, with $2.2bn in its pocket to invest in dispute resolution, plans to expand its global footprint and product offering after recording a spike in income in the past year following a number of class action wins, including its PFAs contamination case against the federal government and an action against former dairy co-operative Murray Goulburn.

For the 12 months through June, Omni Bridgeway posted a net loss attributable to members of $11.5m, while after-tax comprehensive income rose to $10.7m.

Revenue from ordinary activities jumped more than 500 per cent to $26.7m, while total income rocketed 2646 per cent to $157m.

Mr Saker said he was pleased with the result as he outlined the funder’s plans for the future.

“We‘re all pretty pleased with it. It’s been quite a significant year of change for us, and with that have come the results that have followed.”

Australia’s IMF Bentham merged with European funder Omni Bridgeway in late 2019, creating a litigation funder with more than A$2.2bn in capital to finance disputes and enforcement proceedings around the globe. IMF took the Omni Bridgeway name earlier this year once the merger was complete. It is now the largest litigation funder in the world.

Mr Saker is expecting a busy year ahead for Omni Bridgeway, with applications for finance climbing 30 per cent in fiscal 2020.

Application for funding flowed in largely as a result of corporates seeking out litigation finance, he said.

“We either get a commission or a multiple of the funds invested for doing that. And it means that the company doesn‘t have to incur the expense so it improves their P&L, and they don’t have to take the risk for the adverse cost, we take that off their balance sheet too. So it’s a risk management as well as a cash management tool for corporates,” he said.

Corporate litigation funding now accounts for 40 per cent of its total book, compared with class actions, at 21 per cent. Mr Saker expects the corporate side of the business to climb further going forward and sees class actions staying at around the 20 per cent mark.

In the coming year, he is targeting further expansion into new markets as well as increasing its footprint in its current markets.

“We‘re looking at places like India and South Korea and Japan. We’re also looking at additional offices, say within Canada, potentially in the US, and also into potentially new markets. We’re looking at opportunities in South America and North Africa,” he said.

“We‘ve got significant cash and access to capital through the fund structures, significant growth opportunity, so it’s all looking reasonably positive.”

The local regulatory landscape has shifted for funders of late, with new rules coming into force just days ago as part of a push by the federal government to crack down on the industry.

Litigation funders must now hold an Australian financial services licence and comply with its obligations. Litigation funding schemes will also be subject to the managed investment scheme regime in Chapter 5C of the Corporations Act.

Mr Saker said the changes were workable and a new legislative instrument from the corporate regulator on the issue had clarified what was required under the rules of the new regime.

Omni Bridgeway declared a 4c per share final dividend, bringing the full-year dividend to 7c per share.

Omni Bridgeway shares finished Monday’s session up 1.9 per cent at $4.38, after earlier rising more than 3 per cent.