Patents as an Alternative Asset Class: A Financial Sponsor Perspective

In recent years, the patent monetization market has grown to almost $10 billion annually¹, attracting interest from several major financial sponsors, such as hedge funds, private equity firms, and fund of funds managers. A confluence of technological, legislative, and macroeconomic factors, such as disruption, convergence, low interest rates, and increased merger and acquisition (M&A) activity, have significantly increased the availability and attractiveness of patents as an alternative asset class for investors looking to diversify and generate meaningful non-correlated returns.

To date, the investment landscape has been dominated by funds, such as Centerbridge Partners, Fortress, Magnetar Capital, StarBoard, and Vector Capital, which have successfully invested in licensing programs to generate outsized returns. Fortress is considered to have the largest, active patent-focused fund in the industry with $900 million under management and another $400 million being raised for its IP Fund II. In addition, several litigation funders such as Burford, GLS Capital, Omni Bridgeway, Longford, and Parabellum Capital have also turned their attention to patents by investing directly in enforcement programs or striking portfolio-funding deals with law firms that specialize in intellectual property (IP). Just last year, Parabellum Capital and GLS raised $450 million and $345 million respectively for litigation funding, a subset of which will be deployed toward patent cases.

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