Investment Recovery

Institutional investors have a fiduciary obligation to protect portfolio value. Where investment losses result from unlawful market conduct - such as securities misstatements, market manipulation, or fair value mismatches - passive acceptance may be inconsistent with prudent stewardship.

Active participation in collective actions reinforces market integrity and demonstrates that losses caused by misconduct will be pursued in a structured manner. Enforcement is not activism - it is risk management.

What does participation in a collective action mean compared to individual litigation?

Collective actions allow investors to pool claims and coordinate enforcement while maintaining their individual legal position.

Compared to standalone proceedings, collective structures typically:

• reduce duplication of costs and expert work,
• increase procedural leverage,
• strengthen negotiating power against sophisticated defendants,
• improve overall recovery efficiency.

Participation does not mean relinquishing rights. Each investor remains the holder of its own claim, while benefiting from coordinated strategy and shared resources.

No. Control over the proceedings remains with the claim holder and its legal counsel. momentum provides capital, commercial expertise and strategic support, but does not assume responsibility for the legal representation, dictate litigation strategy or make settlement decisions.

Key decisions — including whether to settle, pursue an appeal or continue the proceedings — remain with the claim holder in consultation with its legal advisers.

This allocation of roles is also consistent with the principles established by German courts. Discussions regarding the influence of litigation funders have primarily arisen in the context of collective actions and assignment-based enforcement models, where courts seek to ensure that the interests of claim holders continue to be represented independently. In traditional litigation finance arrangements, by contrast, the claim holder remains firmly in control of the proceedings.

As with any professional financing arrangement, certain safeguards are necessary to protect the funder's investment. These typically include information and consultation rights, as well as provisions relating to extraordinary costs or significant procedural developments. Such protections are designed to safeguard deployed capital without limiting the claim holder's decision-making authority.

momentum's role is to align its interests with those of the claim holder, share risk and facilitate access to justice — not to take control of the litigation.

momentum is remunerated only in the event of a successful recovery. Its compensation is structured on a non-recourse basis and typically consists of the higher of either a multiple of the capital deployed or a pre-agreed percentage of the proceeds.

Throughout the proceedings, momentum bears all litigation costs and, in the event the case is lost, also covers any adverse party costs awarded against the investor. If the case is unsuccessful, momentum absorbs the full loss—the investor owes nothing.

This model ensures full alignment of interests: momentum succeeds only when the investor succeeds.

How does legal finance fit within fund structures and lifecycle considerations?

Collective securities litigation often extends beyond standard fund cycles. Legal finance enables institutions to pursue recovery without:

• allocating additional budget,
• extending fund duration solely for litigation,
• or creating volatility through adverse cost exposure.

In addition, claims can be monetized where preferred, allowing institutions to realise value immediately while transferring duration and enforcement risk to momentum.

In short:

Claim valuation follows a disciplined, investment-style underwriting process.

We assess:

• Probability of success based on legal merits and procedural posture,
• Expected quantum using robust economic modelling and scenario analysis,
• Enforcement risk including counterparty strength and jurisdictional recoverability,
• Duration and cost risk, reflected through an appropriate risk-adjusted discount rate.

The result is a probability-weighted, discounted present value of the expected recovery – comparable to underwriting a contingent asset with defined risk and time parameters.

Monetisation structures can include an earn-out component, allowing the original claim holder to participate in additional upside if recoveries exceed base-case assumptions.

This approach combines immediate liquidity with disciplined risk transfer and retained exposure to exceptional outcomes.

More in detail:

The valuation of a claim in a monetisation structure follows a structured, capital-markets-based assessment. The objective is to determine the risk-adjusted net present value (NPV) of the expected recovery profile.

The analysis typically focuses on the following key parameters:

1. Legal merits (Probability of Success)

The starting point is an assessment of the probability of prevailing. This includes:

• liability strength and evidentiary support,
• procedural posture (e.g. follow-on action),
• jurisdictional considerations,
• anticipated defences and litigation strategy of the defendant.

These elements determine the weighted probability of success applied in the valuation model.

2. Quantum and economic modelling

The expected damages form the economic upside of the claim. This requires:

• modelling the overcharge or loss scenario,
• analysing potential pass-on effects,
• incorporating statutory or compound interest,
• running base, upside, and downside scenarios.

The robustness and defensibility of the damages model materially affect valuation.

3. Enforcement and counterparty risk

A claim only has economic value if recovery is realistically achievable. The analysis therefore considers:

• the financial strength of the defendant,
• enforceability across relevant jurisdictions,
• insolvency or restructuring risks.

These factors influence the haircut applied to the expected gross recovery.

4. Duration and cost risk

Expected timeline has a direct impact on discounting. The assessment includes:

• time to first instance judgment,
• appeal probability,
• settlement likelihood,
• projected litigation and expert costs.

The longer the anticipated duration and the greater the procedural uncertainty, the higher the discount rate applied.

Valuation Methodology

The outcome of this analysis is a probability-weighted expected recovery stream, discounted to present value using an appropriate risk-adjusted discount rate reflecting duration, enforcement, and litigation risk.

From an investment perspective, claim monetisation resembles the underwriting of a contingent asset with a defined risk and time profile – comparable to structured or opportunistic investments.

Earn-Out: Participation in Upside

Monetisation structures can include a contingent earn-out component.

This allows the original claim holder to participate in additional upside if the ultimate recovery exceeds the base-case assumptions underlying the valuation. Such structures combine:

• immediate liquidity and balance sheet clarity,
• defined IRR realisation,
• and retained exposure to exceptional outcomes.

Monetisation therefore does not necessarily imply a full economic exit. It can be structured as a disciplined risk transfer that balances certainty today with participation in unexpected upside.