Investor-State Dispute (ICSID, ICC, etc) claimants trading at <30% of compensation expected value, often resource / energy businesses, with clear evidence of alleged breach, backing by successful legal counsel & litigation funders, aligned incentives, and a likely distributions to shareholders.

Investment Criteria

Definition: Arbitration is when two parties, after a failed private resolution, allow an 'Arbitrator' (3 constitute the 'Tribunal) to decide. You can think of them like the judge.

Investor-State Dispute Candidates:

  • Claimant position

  • Publicly listed

  • ICSID, ICC, PCA, Etc.

  • Mining / Energy companies

Heavily Discounted:

  • Market Cap / Probable Award = max.30%

  • Have seen as low as 5%

  • Vast margin of safety

Reason for Discount:

  • Avoid if: award expected value < market cap, OR, awards (regardless of amount) that don't flow through to common equity holders.

  • Common valid reasons.…

  • Shareholder turnover (old base sell down in confusion despite unchanging value, and it takes time for arbitration investors to find the stock

  • Market Ignorance: being an incredibly niche area, few are aware of these opportunities. We aim to formally introduce arbitration investing as an asset class.

Useful Levers:

  • Commodity price

  • Low implied probability (e.g. if the market decides the odds of our estimate goes from 10% to 20%, that is a 100% ROI without any case progression)

Return Driver:

  • We have no problem with reinvestment, and our criteria means all our picks have enough margin of safety for poor capital allocation anyway (unlikely considering the valuable projects being fought over in the case.) , but a distribution is simplest

Catalyst:

  • Each submission, once public, acts as a chance for the market to reassess their views on the chances of X and Y, and to price the stock accordingly. If we have chosen the right cases, this should only go positively.

  • Case Conclusion

  • Enforcement Conclusion

Aligned Incentives:

  • Management who are public market shareholders, and so benefit in the same manner as us

Backing:

  • A Legal Counsel with a great track record is essential

  • Litigation Funding from a firm with a great track record is similar to seeing an investor you respect is in the stock you're doing work on. It doesn't change your thesis, but it may give you more confidence. We often look out for Burford, LCM, and Bench-Walk.