Narghis Torres has over 25 years of experience in asset management, corporate finance, securities and M&A. Before founding LexFinance, he was founder and managing partner of Torres Asociados; general counsel of BankBoston Peru; and general counsel of Santander Investment Peru. He has a Master of Laws degree from the University of Chicago, where he was a Fulbright scholar; and Bachelor of Laws degree from the National University of San Marcos. He teaches securities, corporate finance and legal aspects of asset management.
Describe your career to date.
It has been, and continues to be, a fascinating learning experience in how to advise, originate deals, invest, and build relationships.
First, I trained as a lawyer while working with Fernando de Trazegnies, one of the leading legal scholars in Latin America and a true polymath. With him I had my first contact with arbitration, assisting in the research and preparation of opinions and decisions. In order to continue honing my analytical skills I got a Fulbright scholarship and went to the University of Chicago, where I learned to value a rigorous approach to ideas and arguments using an interdisciplinary perspective to solve legal problems, particularly from economics and finance.
After obtaining my master’s degree, I joined Santander Investment to work in investment banking; structuring equity and debt financings; M&A; and advising on matters related to corporate finance. After some years doing transactional work, I was appointed as general counsel of Santander Investment Peru and some years later as general counsel of BankBoston Peru, where I continued structuring investment and commercial banking operations. The experience of working as general counsel was very useful to interact with lawyers and law firms and to know how to identify the best counsel for a particular matter and how to work with them, which is quite important in my current role.
Later, I launched Torres + Asociados, my own boutique law firm, to provide advice in matters related to corporate finance, securities and M&A. There, after working for more than 10 years with asset managers and investment funds, I saw an opportunity to set up LexFinance, which I did five years ago.
What types of cases does your organisation look to provide funding for?
LexFinance specialises in arbitration financing. We do both domestic and international arbitration financing, as well as the financing of commercial and investment arbitration disputes.
We act in both the primary and secondary markets of arbitration claims. In such markets we apply three strategies: cost financing; acquisition of participations in claims; and, finally, we provide liability management solutions to settle complex and high-value disputes.
What type of return do you tend to seek on a given case?
In general, our return is conditioned by the time taken to recover our investment. After assessing the decision and collection risk of any investment, we apply a multiple for each year until we get our investment back. Usually, our investment horizon is not more than five years, with an average of three years. Considering the above, in cost financing as an average we look for a multiple of two to three times, while in the acquisition of participations in claims and liability management the multiple is usually five or more times.
You were involved in setting up and obtaining funding for the first investment vehicle devoted only to financing arbitration claims in Latin America. How is this significant and what impact has this had on the market?
After five years in the third-party funding industry I can tell you that it has led to three significant conclusions: first, that arbitration disputes – domestic, international and investment – are creating a growing and attractive market for third-party funding; second, that doing so in Latin America provides an attractive risk-return profile; and finally, that a specialised legal financing provider was needed for the legal industry and corporations doing business in Latin America.
How is it possible to best meet expectations lawyers and clients have regarding the funder?
Specialisation. Lawyers and clients are best served when they obtain not only financial capital but human capital from funders. Funders with specific areas of expertise can make the difference not only in the due diligence, financing and monitoring of a case but also in the design and implementation of the strategy to win or settle a claim.
To what extent is external regulation of third-party funding necessary? To what extent might it hinder the process?
The regulation of third-party funding in the arbitration market has been mostly focused on avoiding conflicts of interest with the decision makers – the arbitrators – which is reasonable. Any policy or regulation that reduces the decision risk or collection risk of arbitration claims is also welcome. Apart from that, third-party funding in the arbitration market does not pose any legal, financial or systemic risk that may justify any additional regulation.
What inspired you to set up LexFinance?
The challenge is to connect the arbitration market with the capital markets in the Ibero-American region and civil law countries. I believe the monetisation and distribution of legal and regulatory risks in the financial markets will promote the rule of law and reduce the cost of justice in our countries. Doing this is only possible when you have the right partners, team and advisers. In third-party funding, human capital and trusted relationships make the difference. Always.
What are your main priorities for LexFinance’s development over the next five years?
First, maintain our standing as the premier arbitration funder in Ibero-America. Second, enhance our niche focus in the secondary market and special situations strategy of the arbitration market. Finally, grow from Latin America to Europe to cover European civil law countries. For that purpose, after opening our Lima and São Paulo offices during the last five years, our next office will be in Madrid to implement such strategy next year.