This is where a hedge fund dedicates a portfolio or section of a portfolio towards funding litigation that the manager believe highly favors the party they are supporting. With third party litigation funding, the investors cover a portion or all of the costs of litigation in exchange for a share of awards by the court. Funds employing this strategy retain legal experts and refer to niche experts on each case before weighing in on the change of possible victory. MKM Longboat, a British hedge fund has had dedicated $100M towards a litigation funding portfolio focussed on legal cases in Europe.
This an important development because it could be yet another way for hedge funds to produce un-correlated returns to the general stock market. Cases are decided and awards appointed regardless of bear and bull markets.