With: Jack Neumark
Managing Partner and Co-Head of Specialty Finance of Fortress Investment Group
Host: John B. Quinn
Founder and chairman, Quinn Emanuel Urquhart & Sullivan
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Episode transcript:
Note: This transcript is generated from a recorded conversation and may contain errors or omissions. It has been edited for clarity but may not fully capture the original intent or context. For accurate interpretation, please refer to the original audio.
JOHN QUINN: [00:00:00] This is John Quinn. This is Law, disrupted.
Today we’re talking with Jack Neumark, who is with Fortress Investment Group, where he is the president and managing partner of Fortress and the founder and CIO of the Legal Asset Group at Fortress. Fortress is a major investor in what they call legal assets which they view as an asset class to itself, and we’re going to talk with Jack about what that means.
But just to give you some sense of the size of Fortress’s business, they have deployed some $6.5 billion in equity investments in legal assets. They presently have a book of—I can’t even read my own handwriting here. Jack, what’s the present book?
JACK NEUMARK: $3 billion
JOHN QUINN: About $3 billion in investments in digital assets. So they’re obviously a major player [00:01:00] in the world of investment in legal assets, particularly litigation. And maybe we could start with that. Well, first, Jack, for those who aren’t familiar with Fortress Investment Group, what is Fortress Investment Group and generally what is the nature of its business?
JACK NEUMARK: Yeah, and thanks John. In terms of Fortress and its history, we’ve been around as an alternative investment manager for about 27 years. We’ve had a credit business at Fortress since 2001, so we’ve been in and around credit for decades.
We focus on a whole variety of different strategies. We focus on direct lending, triple net lease transactions, commercial real estate, specialty finance. But legal assets have been a great new business for us, relatively speaking. We’ve been in it for about 15 years, so we’ve been in it for a long time.
But compared to some of the other strategies that Fortress has [00:02:00] been investing in and known for over our life, it is a relatively new asset class for us.
JOHN QUINN: I mean, certainly, you know, we live in the world of disputes and litigation at Quin Emanuel. We’re 1200 lawyers in 36 places around the world, and that’s all we do. So of course, we bump into you folks and we’re very familiar with Fortress and its role in the litigation business. When you at Fortress speak about legal assets, what do you mean by that?
JACK NEUMARK: Yeah, the name Legal Assets really comes from when we first started looking at the space and we were trying to think about the right way for us to get exposure to litigation claims in a way that was consistent with what our investors were looking for from Fortress.
And so going back to 2012/2011, when we started the business, there were a few smaller pure play litigation funders, as I like to call them, firms that were focused on [00:03:00] investing in single disputes. Investing about $5 to $10 million in an individual case and taking a piece of that recovery.
For us, that was really a binary risk and more of a venture capital-style bet. And that didn’t really fit with our mandate and our view of the world. So, we tried to take that underlying asset and create a credit product. We did that by finding the counterparties out there in the market that owns these legal assets.
It could have been large corporations, law firms with books of contingency fees, or some of these other litigation funders with portfolios of single-case investments. We underwrote those businesses and their assets just like we would any specialty finance trade, and we provided them capital on that combined portfolio basis.
And so we use the term legal assets in that context to really [00:04:00] reference the difference between investing in an individual case. Versus providing capital against a pool of litigation claims or interests in litigation that were owned by one of these, you know, counterparties I was referencing,
JOHN QUINN: I mean, do you do any investments in the legal world other than investments in litigation as you’ve just described?
JACK NEUMARK: So today, and historically, if you look at our book, about 90% of our investments have been in these diversified portfolios. So, that can include things like law firm loans. Where we’ll lend money to law firms on an all-assets basis across all of the cases that they have at the firm. There can be sub-portfolios that we construct with that law firm, but I would really do that as law firm lending because the diversity is significant enough that no individual case drives the outcome, and we can withstand pretty heavy losses across those portfolios and still [00:05:00] hit our base returns.
It involves these portfolio transactions with large corporations where there are corporates sitting on 10, 15, 20 or more different types of litigation that they’re pursuing as the plaintiff, and we provide them with capital either in the form of debt or preferred, against that portfolio, or it’s providing more traditional re-discount or specialty finance lending to litigation funders that have a hundred, $200, $300, or $400 million in the ground in a variety of different cases.
It could be a hundred different cases that they funded and we provide them loans against those assets. And then the world has gotten into it. We have also done certain transactions in the equity, or preferreds of legal services businesses that are providing support to the litigation ecosystem [00:06:00] in some way, shape or form where we feel like we have an edge in terms of underwriting and investing in those businesses and ultimately driving revenue. So we invest in a whole host of ways where we feel like litigation is either at the core of the business model or, at the core of the portfolio of assets that we’re investing in.
JOHN QUINN: I have to say, we, as you might expect over time, have spoken with a lot of litigation funders, but nobody talks about this business the way you do in terms of financial instruments and the structure of the investments.
I mean, it really talking to you, it really is. You’re talking about just a different asset, credit facilities, other types of facilities and investments. In this case, it just happens to be claims, mostly legal claims, pools of claims.
JACK NEUMARK: Yeah, I think that’s ultimately how we got people comfortable with it internally.
I mean, as a firm, we’re very focused on capital preservation as a credit shop, and you can’t afford to [00:07:00] lose money, and so to invest in litigation in a way where you feel like you can’t lose money you have to have significant diversity inside of whatever it is that you’re investing in. And so we have had to think about this really as a credit product.
And you know, at Fortress, we’ve done a lot of investing over the years in consumer and small business finance. REI loan pools, while different at the core asset level, are actually structured very similarly to how we structure our deals in the legal assets business, where we’re doing robust due diligence on files.
We’re managing accounts, we have account control agreements in place. We cash monitor, and we have budgets that are required to be complied with. So we really try to look at this from a specialty finance perspective angle in our structuring and execution and asset management. And then of course we have to have the capability to underwrite the litigation, which we have in-house just given the size of our team.
But it’s [00:08:00] really that marriage, I think, that’s made our approach to the space, a bit unique. And, you know, just going back to some of the details on the portfolio, only about 5% of our portfolio is in single-case investments, that are pre-settlement or pre-award. So it’s actually just a very small percentage of our book.
It’s relatively big dollars compared to maybe some other funders just because of the size of our book. But as a percentage of our portfolio, it is a relatively small percentage.
What makes legal assets different as an asset class?
Well, I think there are two lenses to look at it through. I’d say that compared to specialty finance investments that we do at Fortress more broadly, what really attracts us is the non-correlated nature of the underlying portfolios. I think that’s important, both inside of the portfolio and not correlated to the markets. [00:09:00]
So I think that’s really important. A lot of the other asset classes that Fortress invests in are going to, you know, have some correlation to what’s going on in the broader economy, what the consumer is feeling, what GDP and growth are looking like, where interest rates are. And, legal assets provide a nice anchor inside a lot of our broad mandate funds. Where investors see that a certain percentage of the portfolio is going to be non-correlated. So I think that’s one aspect of it. I think the other aspect of it as compared to our specialty finance investments is because it’s an inefficient market that’s still relatively new in the scheme of things.
We get superior pricing compared to other types of investments that we look at at Fortress. You know, you can go buy a portfolio of unsecured consumer loans right now, that is near prime consumer loans, and maybe you’re [00:10:00] getting 11/12% unlevered. You can still do really attractive legal asset investments, and you’re getting paid, you know, high teens, 20% unlevered.
So that premium that we get for being able to underwrite and originate these legal asset deals makes it fair, very competitively, to some of the other asset classes. As compared to more traditional legal assets businesses. You know, I think what we feel like we have an edge in is just what we’ve already sort of discussed, and that’s this approach to create a capital solutions business that our competitors can invest in, you know, law firms, can invest in corporates, really can pivot around any which way we want to go in the market and create this exposure for our investors doing it.
Anyone that’s been in the financial markets can see it’s a sophisticated financial product and not just, a contract that’s meant to mimic a contingency fee. It really [00:11:00] is a structured financial product.
JOHN QUINN: Well, to have that kind of success, to get, you know, returns in the teens and the like, you have to be pretty good at the underwriting and the due diligence.
We know this to be true in our world, litigation is not predictable a lot of time. We’re always telling clients, sometimes I think it’s a cop-out output. I mean, that’s a fact. If a case is going to trial, I tell clients they have a 15% chance of losing just by turning on the lights in the courtroom.
You know, it’s not science. You don’t know who’s going to be sitting in the jury box. There’s a lot of things, there’s so many things that are unknown. I know you do a lot of investments in IP and patents and there are so many ways to lose a patent case, written description, best mode. There’s a lot of arcane things. It’s very hard to underwrite handicaps in advance. Prior art, you do your best work, [00:12:00] but still something could pop up. How do you guys all get comfortable with a portfolio? How do you do the due diligence and the underwriting when you’re looking at a potential investment in the legal asset world?
JACK NEUMARK: So on the, on the patent point, I would just say, I agree with you. That’s a very specialized niche of legal assets. And so we have a whole team that’s separate from the business that I started here that’s run by my partner, and they have 20 additional folks at Fortress that just invest.
JOHN QUINN: You know, by the way, we have the largest patent practice in the world. He’s never hired us.
JACK NEUMARK: You’re going to take that up with Ron. We’d love to do work with you, John.
JOHN QUINN: Sorry I interrupted you.
JACK NEUMARK: So I think, on the legal asset side, sort of the whole legal world, X patents, we really focus on, you know, the qualitative and the quantitative, which I know that’s to [00:13:00] say, but let’s drill down into that.
So, you’re right, it’s incredibly difficult to predict outcomes in litigation. And so we have a team of 15 litigation analysts based around the world, really focused in London, New York, and Sydney, Australia. And their job is to go and do bottoms-up due diligence on all the litigation claims that are going to be inside of our portfolio. We will use outside counsel to help us with that. So it’s an internal underwriting and an external underwriting exercise, but we obviously have to get comfortable with the cases in the portfolio and take a view on whether or not we think those cases are strong enough that they are likely to settle.
I think your point on going to court is important. Anytime a case goes to trial, it often means that there’s pretty interesting arguments on each side. There’s obviously other reasons that can happen [00:14:00], but the cases that you know are the strongest in our experience seem to settle. And so we do take some pride in underwriting the cases in the portfolio and taking a view on their strengths so there’s that qualitative piece of it. And then on the quantitative side, you know, the more data we get, the more we’re in space, the more the results of different litigations and settlements have become transparent in the market, the more we can try to pin a.
It’s not going to be that way for every type of case. There are different types of cases that lend themselves more to a quantitative analysis than others. Things like securities litigation, mass tort litigation, antitrust cases have more settlement precedent in terms of where those cases have settled, either based on the injury type or based on the damages.
On the antitrust side and sort of where those cases have historically settled out [00:15:00] based on different types of facts and whether or not there’s been criminal charges brought or criminal pleas or, or executives that have gone to jail for that price fixing. And then there are other types of cases that, you know, it’s going to be much more difficult to understand a bilateral dispute, either a contractual dispute or some sort of arbitration dispute.
You see a lot of these in the engineering, procurement and construction side of things where people are disputing delayed changes or charges that changed in the process of construction. Obviously, contractual disputes can be very difficult to assess, and sometimes in those bilateral disputes, you have the incremental problem of being very heavily reliant on witnesses and how they perform.
We tend to find those to be more difficult to underwrite, but we do have both this qualitative and quantitative piece. Finally, there’s the overall portfolio construction. And that’s looking at, you know, how much diversity is in the [00:16:00] portfolio, what the various damages and assumptions are inside those cases.
What’s the status of those cases? How far have they progressed? Can we get any insight into the potential outcome based on, you know, earlier motions or testimony or discovery that’s become available? And then we do an analysis of, okay, well, which cases do we like, which cases don’t we like? Certain cases we think have very low probability.
We kick them out of our projected proceeds model. If there are cases that are low probability, we will cut them down. Then, we’ll usually do an overlay of anywhere from 20 to 40% loss rates across the whole portfolio. Obviously, this is all very investment-specific. So giving you very broad generalizations. And then if we can still feel really good about where we’re attaching and where we’re investing against that projected cash flow net of all these, assessed losses, net of [00:17:00] the cases we don’t like being kicked out of our model, then we feel like we’ve a really good trade.
And, you’ll experience this more than anybody just given your own track record, but, inside of that portfolio, you know, we’re not going to be right on all the ones we thought we were going to be right on, but we’re not also going to be right on all the ones that we thought were going to be losers.
So, I think that diversity, underwriting diligence, and discipline suit us well. So far across our history, I think we’ve had nine basis points, which is almost nothing, right? Inside our portfolios, we’ve had losses for sure, but the way we’ve structured the deals, I think, protects our capital very well.
JOHN QUINN: I mean, it’s very interesting that you said that you, in underwriting, opportunities and litigation investments, that you look at historical data. Different types of cases. what cases have settled for outcomes, presumably? Tell us a little bit about the data that you have [00:18:00] available that can help you make those assessments.
By the way, I don’t know if you’re familiar with a tool that’s out there called Pre/Dicta. Have you heard of that?
JACK NEUMARK: I have, yeah.
JOHN QUINN: It’s really interesting. I mean, we subscribe to it, but basically, if it can predict with just the case never, it can predict with 99% accuracy whether a motion to dismiss will be. 60 different or 70 different data points. Like who are the lawyers? Big firm, small firm, who’s the judge? Where are they from? What’s the law? What law school did they go to? All those different things. And I think they’ve enlarged it. Now they can predict outcomes on motions to change venues, to move from one court, or another, whether that’s likely to be successful and some other things as well.
I find that super remarkable. I mean, what kind of data do you have available and how does that help you underwrite opportunities?
JACK NEUMARK: We [00:19:00] have access to proprietary data that we’ve accumulated over the years on different settlements, where different cases have been resolved. We’ve also obviously scraped and pulled together significant amounts of public data that’s available.
There are a variety of different ways data becomes available that people aggregate mostly through public filings and court filings, where you can piece together different settlement levels that have occurred on different case types. So I think we use all of that. I think the reason we use the historical data is largely because the people that are on the defense side, I think are using it as well.
And so it ultimately ends up being a portion of the analysis when insurance companies or counterparties are deciding to settle. Are they settling for something that seems like it’s a market settlement? You can look at antitrust actions in the US you know, it’s [00:20:00] treble damages, joint and several liability, and you can pull together a lot of historic data on where those settlements, have been struck as a percentage of damages or as a percentage of purchases based on different criteria. I sort of alluded to it earlier, but is it just a civil action that you’re, how many, how many defendants are. The creditworthiness of those defendants and their ability to pay. Have there been criminal charges, and have those with the executive? Pled guilty to criminal price-fixing charges and the settlement levels, sort of correspond or correlate to how severe the infraction is and how much pressure there is being exerted on the criminal side.
Because companies want to clean these liabilities up. And so you’re not going to be perfect, but you can sort of figure it out. On the liability side, it’s [00:21:00] similar, you know, there’s product liability cases and certain types of injuries start to get consistent in terms of what the compensation should be for those injuries when you’re talking about massive actions and large volumes of data. And so again, you’re never going to be a hundred percent right, but you can certainly analyze and stress what a settlement level is for and start to feel comfortable about it if you think that’s a reasonable assumption. And when you layer that analysis in with the qualitative and the portfolio construction, you can really start to get comfortable with your downside.
JOHN QUINN: I mean, it’s interesting that you haven’t mentioned two things that I would always regard as super important, and that is who are the lawyers? Who’s the [00:22:00] defense counsel here? Who’s the judge? What’s the venue? If you tell me those things, that’s going to have a big influence on my assessment of the outcome of the case.
JACK NEUMARK: Yeah, I think that all goes into the qualitative part of the analysis. You know, I think all those things you said are incredibly important.
The law firm is critical. They’re the ones that the asset effectively for you. A lot of our book is in law firm loans. And so there, we know the law firm, because we’re underwriting the firm in its entirety and its track record and who the partners are on the cases that are a part of the portfolio.
So, the law firm is incredibly important in those, but it’s also important in the corporate deals and litigation, you know, funder lines that we provide.
Ultimately you can’t change the judge. Maybe the venue can change, but we are non-control investors so we just look at the facts as they are and try to provide an assessment. And if we think there’s a particularly bad judge or there’s a legal regime that we don’t have comfort in, or a venue that’s been hostile towards a certain type of action or counterparty, that all goes into our analysis of how we rate that case, and how much value we attribute it to in the portfolio.
JOHN QUINN: What do you mean by non-control investors?
JACK NEUMARK: Because we’re effectively a credit capital solutions provider, we underwrite our counterparty’s capabilities, track record, and financials.
We underwrite the assets, and the portfolio from a bottoms-up basis. and then we structure the deal with covenants and other protections in our docents, and we provide capital. As long as our counterparties comply with the credit instrument or the preferred instrument, we’re [00:24:00] not out there, you know, calling the shots or influencing the case.
We are a capital provider. That’s how Fortress has always invested, and that’s how we’re comfortable. Obviously, if people violate covenants or trip contractual provisions, then we’re going to have to talk about amendments and modifications and how to fix the problem that’s obviously occurred as a result of their covenant breach or their trip of the contract, but we’re not involved in the litigation.
I think in this way, the law firm certainly is, and, and I think most funders are, passive as well. But just because of, the structure as we’ve set this up, we do give a lot of discretion to our counterparties because we get our protection in the form of diversification and the event and in the form of equity that is subordinated underneath our debt, where we know those people are highly focused on getting to the right outcome because that’s ultimately how they make money.
JOHN QUINN: Do you get involved in settlement?
JACK NEUMARK: Not on a direct basis. You know, there are some scenarios where people will come to us and ask for concessions on settlement levels if they’re going to need us to reduce our share of an outcome to produce a result. And again, I think that’s really where.
Our diversification comes into play. We have a lot of leeway to create a good outcome for everybody. And we’re always focused on making sure the claimant is happy with the outcome. But yeah, we’re not in direct dialogue with counterparties on settlements.
JOHN QUINN: Who is your team? How large is it and what are the functions of the different members of your team?
JACK NEUMARK: Yeah, so, we have about 30 people, just over 31 people in the group. I really divided it into three buckets. We have the investors, which are people that oftentimes are former lawyers, [00:26:00] but either at Fortress or before Fortress.
They’ve been specialty finance investors, and so they understand how to structure specialty finance trades. The second team is our litigation analyst team, and that’s the team that’s all composed of former lawyers and litigators who are able to underwrite the litigation investments that we are, you know, underpinning our investment to.
The third group is our asset management function. That team is, in our view, really, really important. We have over a hundred different line items in our portfolio. Cash flows come in from thousands of different litigations, and you have to make sure you manage that cash.
You have to make sure that you’re on top of your counterparts so that if something’s going wrong, you can address that situation earlier rather than later. Because oftentimes we’ve found the more focused you are on asset management and risk mitigation, the more you can [00:27:00] actually help everybody involved if there’s a problem that arises and not waiting for it to.
The team from a senior level has just been a great team for us. And I think that they’re doing a fantastic job with the business. But Joseph Dunn is the co-CIO of the legal assets business with me. Joe’s been at Fortress since the end of 2016. He was a Boies Schiller attorney before that.
He runs the US investing side, but he is also the co-CIO of the whole business. Ola Erickson is in London. He’s also a former lawyer. He runs the European and Australian sides of the business from an investment perspective. Jamie Snyder is our head of research and head of single-case investing. He runs the Litigation Analyst team. He was a former equity partner at Boies. Really talented [00:28:00] litigator does a great job sort of making sure that the team is thinking about risks the right way and, and managing our exposures post-investment as well. And then, we have Dwayne Chin and Julian who run our asset management function, and they’re both based in New York and they’re the ones that supervise our team of asset management folks that are staying on top of our portfolio.
JOHN QUINN: You said that your counterparties, the people, the entities, the businesses, who have the cases that you invest in tend to be as I heard you, corporations, law firms, and other funders. How do they come to you? How do you see deal flow? How do you see opportunities?
JACK NEUMARK: I think some of it is just an advantage that’s occurred from how early we got into this business. Starting in 2011 or 2012 I was a relatively young investor professional at Fortress trying to figure out what my niche was going to be. And, so I traveled [00:29:00] around the world and really built out these sourcing networks. I spent 40 or 50 business days a year in Europe, spent the rest of the time in the US meeting people, learning what’s going on in the industry, meeting law firms, meeting GCs, and really trying to build that network.
That’s become the foundation, and then it’s grown from there. The rest of the team now really does that a lot. They hit the road, they meet people, and they get introduced to people because I think our reputation with our counterparties has been great—one that people feel good recommending.
So, there’s really a lot of organic sourcing that occurs. The banker and broker market in legal assets is not very efficient or well developed. There are a lot of single brokers out there. There are a couple of banks that have tried to broker transactions, but it’s really nothing.
When you look at other asset classes and how well covered those asset [00:30:00] classes are, it’s still very nascent on the banking and broker side. Some law firms, I think yours included, have started to create capital markets, negotiate, and create a competitive process on the funding side. And I think more firms are starting to mimic that.
JOHN QUINN: I think historically law firms have been really bad at assessing funding opportunities. They’ve been dealing with funders who are far more sophisticated, and have a greater understanding of what the weak points are in deals and likely outcomes are.
And lawyers don’t typically have finance backgrounds. So that’s some expertise we’ve tried to get smarter about in-house.
JACK NEUMARK: Yeah, I think you guys definitely have, and again, I think that’s probably where it’s going. I think the space evolved where individual partners controlled who they [00:31:00] spoke to.
They maybe had one or two reps a year at best, maybe every couple of years, where they were negotiating with funders, and they gravitated towards somebody they were friends with or that they’d met at a conference or whatever else it may have been. I think the more efficient way ultimately for firms to function is to.
Have someone that’s responsible for managing those funder relationships and negotiating with the market and getting the best deal for their clients. and aggregating data and structure and doing the things that private equity firms and banks do for their own, their own capital, and financing needs.
So I think we’re seeing more of that. We’re seeing more people who are responsible for managing those funding arrangements. But yeah, the space is still very inefficient. So we source through word of mouth, we source by going out and shaking hands and speaking at conferences, and just trying to know as much of the market as possible and being viewed as an accretive source of [00:32:00] capital.
JOHN QUINN: I mean, it’s the level of interest in litigation funding, that never ceases to amaze me. I mean, you can be talking to. Fixed income bond fund and they’ll say, by the way, are there any litigation opportunities I can invest in where they have no background, any experience in it, but there’s a lot of interest in these types of investments?
JACK NEUMARK: I totally agree. I think you’re starting to see, you know, more institutional interest. I think LPs limited partners that invest in funds have certainly become very educated on the space over the three to four years, if you would’ve to. LP 10 years ago. It was very few and far between that understood the asset class.
And now I would say pretty much every LP I talked to at least has thought about the asset class and discussed it internally. Whether or not they’ve invested in a legal asset or litigation fund, is a little bit different, but they all understand it and know it exists and, you know, [00:33:00] are talking about whether they should have exposure.
Banks are starting to recognize that these are assets that are leverageable, particularly in the way, you know, we or some others in the, the market approach to legal asset space where we’re creating these diversified pools. I think we are finding real, you know, banks interested in levering those investments.
Still mostly on the regional bank side, but, there is appetite there and, then on the post-settlement side. You know, we find ourselves out there competing with banks that are pitching securitization products on things like the opioid fees or the PFAS fees that have already been settled and they’re being paid in over time.
Banks look at those as sort of a bond equivalent to the underlying defendant but with a risk premium associated with the complexity of the settlement. And so I think there is a lot more appetite across the board institutionally, as you [00:34:00] referenced.
JOHN QUINN: You know, one of the things that we’ve found really important as a party that’s engaging with funders is, is speed.
Firms that can get back to us with a proposal that we know they’ve gotta do due diligence, but at some point, you know, you have to take a position about an opportunity and put something on the table. We found some funders are much better than that than others.
JACK NEUMARK: I agree with that. I mean, I think what I try to instill in the team and Joe does as well, is that from a relationship perspective, oftentimes a quick no is almost as good as a yes.
JOHN QUINN: Yeah.
JACK NEUMARK: I think people just want to know what your view is, and I think that both speed of execution and sort of transparency about our terms and what we’re willing to do is definitely an edge for us. On the origination side, you know, we’ve deployed, as I said, six and a half billion dollars [00:35:00] into this space.
Our investment committee knows this asset class very well. If we go to a counterparty and we say we’re going to do something, and we give you terms. We’re going to do it. We’re not going to go back and retrade on the terms. We’re not going to go back and drag our feet on executing on a deal. You know, we have the confidence in our underwriting and our risk-return analysis that when we tell people something, we’re going to do it.
And I think a lot of people appreciate that and we probably get a slight premium on our deals in exchange for that certainty. but there are still a lot of people in the market. That, you know, I think want to be in the space they drag their feet on yes or no because they can’t really get comfortable with what their view is on the litigation.
They give terms and then they retrade those terms and they drag out the negotiations. And so, you know, I think as the banker or broker market develops, or as law firms develop these sorts of internal capital markets experts, hopefully the [00:36:00] space becomes a little bit more efficient and you can have. Some of this behavior that I think exists only because the market is still relatively new in the scheme of things.
But I agree with you. It’s a problem and I hear other people complain about it.
JOHN QUINN: I mean, for listeners who might be interested in finding, finance for litigations or a pool of claims…I hear you that the single one-off cases, that’s not what you do there are a lot of funders who do that. What sorts of things would be appropriate for Fortress and that you would find interesting?
JACK NEUMARK: Yeah, I think the largest case types in our book are product liability cases, and antitrust actions, both in the United States and in Europe. tax litigation we’ve done quite a bit in, [00:37:00] and then really everything else, but those tend to be the highest vole.
And I think honestly, the largest parts of the market. You know, occasionally inside our portfolio, a securities action will pop up, but the US bar for securities litigation is self-funded largely. So those cases aren’t really funded by funders in most cases. You know, there are other types of consumer actions that pop up.
Things like data breach cases or financial mis-selling, in Europe, you know, other mis-sold products in Europe can be interesting opportunities for us. I mentioned the sort of engineering, procurement and construction company claims, you know, delay claims, things of that sort related to construction projects, especially ones that have already obtained and need enforcement funding, I think are, are attractive to us. [00:38:00] So those types of claims are the ones that, you know, are really underpinning the majority of our portfolio today.
JOHN QUINN: Well, Jack, this has been a really interesting conversation. I think I agree with you. You said a couple of times that the market is still very inefficient, which means there are opportunities for investors. but I’ve never spoken with somebody in this business who speaks about it, in terms of, you know, traditional finance terms and looking at it as an investment in the same way that you’d look at any other investment. And I think this is a sign that the, that this, that this is the maturity, of this asset class that it’s become, it’s going to become more and more sophisticated and, I expect there’ll be a shakeout in the market.
JACK NEUMARK: Yeah. I think you’re seeing some of the smaller funders, potentially struggling with not being able to achieve economies of scale, on the GP side. [00:39:00] I think as, as we talked about before we hopped on here, I think evolving ownership structure of law firms, and whether or not private equity capital, whether it’s more growth capital or traditional private equity, ends up getting into law firm ownership as some of these regulations change over.
I think that all is going to have a dramatic impact on the business and, you know, really make investing in legal assets or legal services businesses become something that’s much more mainstream. So, I’m excited to see how space evolves. It could be years before we really get to that point, but in the meantime, like you said, I think this inefficiency creates opportunities and so, you know, we’re excited about the business and feel like, it’s in a good spot and, and you know, there’s still a lot of growth yet to achieve.
JOHN QUINN: Well, I won’t keep our eyes peeled Jack, for opportunities to work together from our end. And you know, by the way, we’re still accepting new business at Quin Emanuel. If you ever need some really good trial lawyers for a [00:40:00] claim, we’d love to partner up with you.
JACK NEUMARK: I think we’ve been on both sides with you.
You guys are probably the best out there from a litigation perspective. And we have a tremendous amount of respect for you and all your partners. So thanks for having me on.
JOHN QUINN: To make sure that we’re not on the wrong side of you is to make sure that we are always on the right side of you, that we’re always retained, but it’s been a pleasure.
We’ve been speaking with Jack Neumark, who’s the president and managing partner of Fortress Investment Group, and the founder and the CIO of the Legal Asset Group at Fortress.
This is John Quinn, and this has been Law, disrupted.
Thank you for listening to Law, disrupted with me, John Quinn.
If you enjoyed the show, please subscribe and leave a rating and review on your chosen podcast app to stay up to date with the latest episodes. You can sign up for email alerts at our [00:41:00] website, www.law-disrupte.fm, or follow me on X @JBQLaw or @QuinnEmanuel.
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Published: Mar 27 2025
