Outlook for Providing Private Credit to Plaintiffs’ Law Firms

Dan Carroll:

Thanks so much for having me.

EMS:

Absolutely. So to kick off the conversation, tell us a little about the firm and how you got to where you are today.

DC:

Yeah, so we started Calumet Capital in 2018. There was a predecessor firm that I began back in 2011, and really the original thesis was to help plaintiff's law firms with some of the financial and operational challenges that they faced. And we quickly realized that having access to capital was a real problem. So we shifted gears and we started focusing on that. The firms that we work with tend to be in what's known as the mass tort space. So these are firms that prosecute thousands of cases on behalf of victims, like in the 3M Earplug litigation that just settled. Things like California wildfires, opioids, things of that nature. So these firms need an awful lot of working capital because they work on a contingent fee basis. So we began by bridging investor and borrower together, and then we quickly pivoted to raising our own capital. So today we probably have several hundred million dollars under management directly, and we continue to grow. So it's been a real testament to our success.

EMS:

Congrats on your journey, Dan. You're in a very interesting space right now and love to hear your outlook overall.

DC:

So we have experienced really rapid growth in the space, although we do believe that there's quite a bit of untapped demand in the space. It is an incredibly attractive asset class. We've seen the non-correlation really play out with higher yields, so it's very attractive from the investor perspective, and sadly, we continue to see mismanagement and even sometimes corporate malfeasance that leads to problems. Think about the Maui wildfires as a classic example of that, just billions of dollars of loss and the really horrific toll in terms of death and injury.

EMS:

And more specifically, Dan, where do you see some of the greatest opportunities in this space and why?

DC:

So there were some early entrants in the space, in the early teens that I think didn't truly appreciate some of the risks involved, particularly duration risk. We've seen that play out. So I think that there are some real opportunities to be a bit opportunistic in some of these likely distressed assets, but the wave of litigation, I think continues to grow. We're seeing a lot of activity in the pharmaceutical space, medical device, and again, some of the toxic exposure, sadly, opportunities that exist in the space.

EMS:

On the other hand, Dan, what are some of the greatest challenges that you face and why?

DC:

So obviously, fundraising has been a challenging environment here for the past 12 to 18 months, but fortunately, we've got some really great partners who appreciate what we do and really understand and love the asset class. The day-to-day challenge is just keeping up with all these various litigations. There are scores of different actions that we need to sort of perpetually underwrite. We need to understand what's happening and how they're continuing to evolve towards resolution, and that's a really big part of what we do at Calumet.

EMS:

Dan, to shift gears a bit, ESG and DEI have been top of mind for the industry and wanted to hear your thoughts on how your firm is addressing these topics.

DC:

Yeah, it's a great question. And look, I think that ESG itself is really woven into the fabric of what we do. If you think about some of these litigations, many of them in fact are environmental in nature, wildfires, some of the groundwater contamination cases like the Forever Chemicals or Camp Lajeune. So there's a heavy environmental focus just naturally. And also the foundation of what contingent fee firms do is provide access to justice to folks who could never afford to pay for law firm representation without that. So the social component is really strong, and what we're hopeful for is that some of these litigations lead to better governance, that the executives and boards of these companies stop making decisions that end up causing such harm.

And then when it comes to DEI, that's a very important aspect for us. In fact, we're very proud to say that we're a female majority firm ourselves, and I think that diversity of thought really helps us understand better how to make good decisions. We also have been very focused as a firm in helping support women and minority owned law firms, because with the financial wherewithal, they can then access the top tier of this space. We think that's a very important aspect of what we do.

EMS:

Dan, we've covered a lot of ground today and wanted to see if you have any final thoughts you'd like to share with us.

DC:

Yeah. No, this has been a great space. We're super excited about continuing to grow in the mass tort arena. We've also spent a fair amount of time investigating a new strategy around single event plaintiff's firms, those who represent victims of auto accidents and premise liability cases. We think there's a real growth opportunity there to bring, again, some financial and operational discipline to those firms, and also providing the kind of capital to help accelerate their growth and continued success.

EMS:

Well, Dan, I want to thank you so much for sharing your perspective with our listeners.

DC:

Thank you very much. I really enjoyed it.

EMS:

And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and hosts of other topics. And join us for our next EisnerAmper podcast when we get down to business.

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