Maximizing Securities Claims for Hedge Funds

Institutional investors, particularly hedge funds, often face missed opportunities in securities litigation recoveries due to misconceptions and process inefficiencies. SS&C Battea’s recent webinar, moderated by David Abel, Legal Counsel, delivered critical insights into optimizing claims processes, overcoming barriers and navigating international litigation opportunities. The panel featured Tom Elrod, Partner at Kirby McInerney LLP, and Joeri Klein, Head of Investment Recovery & General Counsel Netherlands at Deminor, who examined these challenges and shared practical solutions to help investors maximize their recoveries. Below, we explore the essential insights from this informative session.

The Landscape of Securities Litigation Recoveries

Investors often underutilize available securities claim recoveries. Our recent survey, produced with HedgeWeek, shows that only 7% of hedge funds filed securities litigation claims. That is far below what is expected, given the magnitude of recoverable losses in the market. This gap stems primarily from internal obstacles, such as process inefficiencies and misconceptions around claim filing, rather than outright ignorance or lack of awareness.

"It wasn’t so much that institutional investors, here, hedge funds, didn’t know you could file a claim after a US settlement...It was that the organizations’ internal issues seem to be preventing them from having a process that allows them to really optimize or maximize all their claim-filing opportunities."

US Securities Litigation: Importance of Structured Processes

Tom Elrod, a veteran securities litigation attorney, shared an overview of the substantial recoveries available in the US each year. It’s important to have a structured process for identifying exposure and filing claims. As seen in past settlement data, even smaller-scale securities cases offer investors meaningful recoveries, often exceeding 20¢ on the dollar for eligible damages. There have even been a few instances where settlements yielded recoveries of over 70%, and in rare circumstances, even exceeded 100% of recognized losses.

Key Takeaway: Without an automated approach that monitors exposure early, institutional investors risk forfeiting millions in recoverable assets. Funds that do not file claims effectively surrender recoveries to other participants, highlighting the importance of organized protocols.

“…if you don't file a claim, that money is going to somebody else.”

While some hedge funds remain cautious about anonymity and participation requirements, closely monitoring class definitions is essential to avoid unnecessary exclusion from settlements.

International Securities Litigation: Opportunities and Challenges

Addressing recovery opportunities outside the US, Joeri Klein explained that securities cases in Europe and APAC tend to be fewer, but can offer higher median recoveries (approximately 42% of claimed losses). Unlike US class actions, where participants are passive, international jurisdictions often require opt-in participation. This more active approach demands that investors provide evidence of ownership and transaction records and occasionally navigate complex jurisdictional requirements—at the onset of the action.

While the recovery potential is substantial, participation can still be limited by barriers such as misconceptions about personal involvement (e.g., unfounded fears of in-court appearances or depositions) and hesitation due to reputational concerns. Litigation funders like Deminor address these worries through After-the-Event (ATE) insurance or by offering arrangements to shield investors from any downside risks (e.g., adverse party costs), enabling participation without financial exposure.

"having ATE insurance means, if the case is lost, an insurer will step in to cover costs."

In Europe and APAC matters, participation has not typically resulted in the reputational or strategic fallout some investors fear. In these jurisdictions, participation details typically remain private, and risks of revealing trade strategies or sensitive data are minimal.

Practical Advice for Overcoming Barriers

It’s important to prepare and collaborate with service providers and funders to streamline participation and maximize recoveries:

• Start Early to Provide Trade Data: Custodian and prime broker documentation is a key part of the claims process. Securing statements ahead of deadlines ensures smooth participation.
• Leverage Automated Monitoring Systems: Collaboration with specialized service providers enables real-time tracking of exposure and eliminates significant administrative burdens, particularly in US claims.
• Choose Reliable Litigation Funders: In jurisdictions where adverse party cost exposure can be significant, investors should vet funders for robust risk mitigation strategies, including ATE insurance or equivalent protections. This is especially relevant in opt-in matters where an unsuccessful claimant may otherwise face exposure to the other side's costs.

“If the answer is no [ATE insurance], well, that would be, for me a reason to really hesitate to participate. If the answer is yes, you can be certain that you will be shielded from the risk as an investor..."

Closing Remarks: A Call to Optimize Participation

Strong institutional policies play a central role in maximizing claims. Organizations with well-established claim-filing protocols tend to achieve higher recoveries from securities litigation opportunities. The barriers to participation, be they related to documentation, internal processes or misconceptions, are manageable with the right partners and practices.

"...folks that have a policy that you file wherever you can and, you know, you repeat the process, frequently, they do tend to have a better experience."

Key Takeaways: Actionable Steps to Maximize Recoveries

• Establish Structured Processes for Claim Filing: Start early, monitor exposure actively and automate trade data feeds where possible.
• Work with Reliable Partners: Trusted litigation funders and service providers are essential for navigating complex claims in both domestic and international cases.
• Don’t Ignore Smaller Cases: Even settlements under $25 million can offer significant recoveries, particularly for hedge funds monitoring for claim damages.
• Mitigate Risk: Verify that litigation funders provide ATE insurance or similar arrangements to shield participants from adverse party costs in opt-in jurisdictions.
• Educate Your Team: Ensure that every stakeholder, from fund managers to operations, is aligned with a coherent claims policy for maximizing opportunities.

The webinar was a call to action for institutional investors to take a more strategic approach to securities litigation participation. With billions in recoverable loss claims made annually across the US and international markets, the insights shared by Abel, Klein, and Elrod provide a roadmap for overcoming barriers and achieving meaningful recoveries. For hedge funds and other institutional investors, the opportunity to implement these strategies could be transformative.

Watch the on-demand webinar to learn how SS&C can help institutional investors participate effectively and maximize recovery opportunities.