Narghis Torres is a lawyer specialized in asset management, corporate finance and capital markets. He was General Counsel of Santander Investment Perú and Bank Boston N.A., Peru Branch. Torres is the Founder and CEO of LexFinance, a regional asset manager specialized in monetizing legal risks, and manages the LexFinance Arbitration Financing Fund, the first investment fund focused in financing arbitration costs in Iberoamerica
Leaders League. How did the Lex Finance idea come about?
Narghis Torres. In my professional life I’ve been always linked to legal risk issues but usually from the perspective of an advisor acting as a lawyer or an investment banker, and it was in these roles that I realized nobody used to monetize risk. I understood that instead of transferring the legal risk or avoiding it there was the option of assuming and monetizing it. I also saw that in Latin America there were a lot of opportunities in that field. That is how we decided to begin with our first fund for arbitration financing. For that purpose, we analyzed third-party funders’ business models and concluded that there was an unsatisfied need on the arbitration side in Latin America. Even though in the Latin-American market there are companies or persons that used to buy trials and substitute the holder of the right in the trial, a firm doing only financing of arbitration costs did not yet exist. We finance costs, we don’t buy trials or arbitral decisions, and we don’t have any participation in the process. It’s a demand that was unfilled. We structured LexFinance during 2014 and in 2015 started operations with a family office and a hedge fund as our first investors. The fund is active at an Iberoamerican level and has already done its first investments. We have provided up to US$ 100 M to invest over the next 3 years.
Leaders League. What is your positioning in the market?
N. T. Our goal is to be positioned as the asset manager specialized in monetizing legal risk. Our first funds targeting investments are arbitrations with a connection factor with Latin America, implying the asset concerning the dispute is located in Latin America, the applicable law is one of a Latin-American country, or one of the parties is Latin-American, etc. From a geographical perspective, our first investment has been done in the member countries of the Pacific Alliance (Colombia, Chile, Mexico and Peru). To date we are assessing investments in Brazil and our mandate is to cover the whole of Iberoamerica. Concerning the moment when we can intervene for financing, there is no restriction. This means that we can invest in all the steps of the procedure, such as cases in the preparation phase, already started or that are in the execution phase.
Leaders League. Is your participation in the financing of the costs confidential?
N. T. As a matter of fact it is confidential in the current cases, but we don’t have any problem disclosing to the Arbitral Tribunal that we are financing a case if they ask. There is no obligation to do this, there are only some guidelines from the International Bar Association (IBA) that suggest to do it to avoid possible conflicts of interest with one of the Tribunal members. In our case we are fully interested in avoiding the conflict of interest because a potential conflict can increase the risk of our investment and open the possibility of an action to invalidate the decision. As we are a private fund and know who our investors are, we do analysis before the decision of investing is made in order to avoid any potential conflict of interest, and if we think there’s a potential conflict we don’t invest in that case.
Leaders League. When are the first results of investment to be seen?
N. T. Even though the average term of an arbitration in Latin America is between 18 and 24 months, including possible invalidity actions, considering our strategy on case selection we hope to see first results during 2016. By the way, unlike funders operating in common law countries (UK, USA and Australia) we don’t seek to control the case from either a legal or economic perspective. Our objective, and the adaptation we’ve made of funders’ business model, as well as our understanding of the legal and business culture of the region, allows us to build trustful and mutually advantageous relationships with clients and the lawyers with whom we have a link.
Read more insight regarding the dispute resolution market in our 2015-2016 Report of Litigation and International Arbitration.