Kerberos Capital Management, an emerging player in the litigation-finance market, is seeking $300 million for a third private credit offering.
The target was disclosed in a recent report issued by Arkansas Teacher Retirement System. Kerberos Capital Fund III, which has a hard-cap of $400 million, was expected to hold a first closing last month, the report said.
Arkansas TRS agreed to commit $30 million. The offering’s placement agent is Elk Capital Advisors.
Litigation finance, or third-party funding of legal disputes in exchange for a portion of payouts, is a relatively new and fast-growing niche market.
Originating in Australia in the 1990s, litigation finance has more recently gained a foothold in North America and Europe. Its spread was enabled by court rulings that lifted historical bans on third-party funding, often in support of small plaintiffs battling well-heeled defendants.
Despite some lingering controversy, litigation finance is now a multibillion-dollar asset class with diverse players, among them hedge funds and private debt funds. The focus of investors has expanded to include a range of commercial and consumer disputes, backed singly or as part of portfolios.
Kerberos was founded in 2018 as a private credit manager by CEO and CIO Joe Siprut. A prominent and wealthy Chicago lawyer with a background in acting and wrestling, he was dubbed in a Chicago magazine story as the city’s Jay Gatsby.
Siprut is Fund III’s key person, the Arkansas TRS report said, as he solely accounted for much of Kerberos’ performance to date and will be essential to future investing.
How Kerberos invests
Kerberos has a unique strategy. Instead of pursuing traditional litigation-finance opportunities, it supplies direct loans to law firms, effectively underwriting a practice’s track record and the value of its collateral. The approach gives it exposure to a large and varied selection of cases.
In an e-mailed reply to a request for comment, Siprut said: “Our investors appreciate that our private credit model differentiates us in this space. We are not making binary bets on individual case outcomes like most litigation financiers.”
Fund III will maintain this strategy, making senior-secured recourse loans to law firms that generate fee-based revenue by litigating mass tort, class action and personal injury claims, the Arkansas TRS report said. It is targeting a net IRR of 18 percent.
The fund’s two predecessors are separately-managed accounts. Fund I ($54 million) was as of September 2020 earning a 28.7 percent gross IRR, the Arkansas TRS report said. Fund II ($134 million) was earning a 28.3 percent gross IRR.
Siprut oversees a team that reflects a mix of legal and private credit experience. Managing directors Tzivia Masliansky and Eric Yeager, both lawyers, joined Kerberos in early 2020.
Senior finance associate Greg Barnett, a former member of Northleaf Capital Partners’ private debt team, came onboard this year, according to his LinkedIn profile.
Kerberos was in March named No. 3 “Newcomer of the year” in the global category by Private Debt Investor’s PDI annual awards 2020.