Direct lending has become the “default” entry point to private credit. But as the market has scaled, the most crowded parts have also become the most efficient: more capital, more competition, less pricing power. The interesting work is increasingly happening in niches - strategies that look unfamiliar, require real operational infrastructure, and can’t be underwritten with a spreadsheet and a benchmark index.
In a recent KAPITAL-hosted panel, Geoffrey Moret (Partner, Blue Lakes) sat down with Tim Zeiger (Partner, Nera Capital) and Richard Ormond (Investment Manager, Hades Group) to unpack two of those niches: litigation finance (structured as asset-backed lending to law firms) and US medical receivables (medical factoring) - where returns come from, what can go wrong, and what an allocator should actually diligence.
The Evolution: From Banks to "Mega-Funds" to Specialists
The story of private credit often begins with the Great Financial Crisis, when banks stepped back from middle-market lending. However, the private credit firms that filled that void have now become so large that they are effectively leaving the smaller, more complex deals behind.
"Historically, I’ve focused on opportunities larger than mom-and-pop but smaller than the big investors looking to deploy $50 million-plus," explained Tim Zeiger.
"There is an arbitrage where you can find an extra 5 to 15 points of yield because these deals require more heavy lifting and a specific 'machine' to process and analyze them".
As the industry's giants shift toward an "asset-gathering" mentality, managers naturally move up-market. Larger tickets, higher fees, repeastable structures, and more “institutional” processes. That shift can compress returns in traditional segments, while leaving pockets of opportunity in deals that require more work - smaller checks, more complexity, and fewer natural buyers.
That shift can compress returns in traditional segments, while leaving pockets of opportunity in ares like legal claims and medical debt that require more work - smaller checks, more complexity, and fewer natural buyers.
Strategy 1 : Litigation Finance as an "Asset-Based" Stick
When people hear "litigation finance," they often think of a binary "coin flip"- will the case win or lose?. Nera Capital takes a different approach by treating litigation as an asset-backed loan rather than a speculative bet.
Tim described Nera’s approach as asset-backed financing where the goal is to isolate “processing risk” rather than take binary legal risk. In practice, Nera lends to law firms, secured against a portfolio of claims, and focuses on situations where liability is already heavily supported (regulatory findings, admissions, established case law).
- The Focus: Nera primarily funds high-volume portfolios with a success rate of 99.9% plus, such as social housing disrepair claims and motor vehicle finance disputes in the UK.
- The Structure: Nera acts as a lender to the law firm, not the individual claimant. They fund the "disbursements"specifically third-party expert reports, like RICS surveyor inspections, that quantify damages.
- The "Double" Protection: Beyond strict eligibility criteria (e.g., no rent arrears), they utilize insurance policies that provide 100% coverage on the invested capital.
- The Low LTV: Nera lends at a conservative 10% to 25% loan-to-value (LTV) relative to the total net proceeds the law firm expects to receive.
- The Scale: Tim noted they have funded over 20,000 individual claims and resolved over 10,000 to date—generating over £100 million in repayments
Where the return comes from: The economics consist of a high coupon paid by the law firm, justified by the liquidity the capital provides. Tim cited a 28% interest rate on funded disbursements. Because the law firm typically makes a significant profit per case (e.g., £4,500 vs. £1,000 in interest), they are happy to pay a premium for the leverage. This isn’t “litigation roulette”; it is industrialized specialty finance - only if the manager’s sourcing, controls, and monitoring are genuinely industrialized.
Strategy 2: Medical receivables: turning hospital cashflow into investable credit
In the U.S. healthcare system, the "sticker price" of a procedure is rarely what is actually paid. A $200,000 heart surgery might be reimbursed at $90,000 or $110,000 depending on CPT codes, insurance providers, and the state. This complexity creates a massive liquidity gap for hospitals and labs that need working capital but lack traditional lenders with the tools to underwrite the asset.
Richard Ormond of Hades Group explained how they step in to provide working capital by acquiring these receivables at a discount, using a data-driven approach (an algorithm connected into hospital/insurer datasets) to estimate expected reimbursement based on historic payment behaviour.
- The Alpha in the Algorithm: Banks cannot analyze the true value of these portfolios. Hades Group uses a proprietary algorithm that plugs into hospital and insurance data centers to access historic payment behavior and define the precise value of each case.
- Safety First: They maintain a first-position lien on the assets (under UCC protocol) and utilize a DUA (lockbox) account. Insurance payments flow directly into this account, which Hades Group controls.
- The "Unlimited" Swap: To maintain a clean portfolio, the agreement allows them to "swap" delinquent receivables. If a claim isn't paid within a certain window, it is replaced with a fresh receivable from the hospital’s pool, ensuring the deployed capital remains covered.
- The Stability: "You can sleep every night without tension," noted Ormond, because the ultimate counterparties are A-rated insurance companies. The strategy offers a "bond-like" predictability with net returns in the 14% range
Fraud and Delays as the key risk factor
Both speakers converged on the same truth: niche private credit fails operationally before it fails financially.
Litigation Finance: Key Failure Modes
Tim highlighted several practical risks and mitigants:
- Collectability: Nera only targets "large-pocket" defendants, such as the UK government or major car manufacturers, to ensure that a win actually results in cash.
- Jurisdiction: They avoid "sinkhole" jurisdictions, where litigation can drag for 20 years, focusing instead on markets where litigation acts as an effective "stick" to force settlements.
- Borrower Fragility: Because cases take 18–24 months to resolve, they only work with profitable, well-backed law firms that can "keep the lights on" until the bullet repayment arrives.
Medical Receivables: The Messy Risks
Richard separated “easy” risks from “hard” ones:
- Manageable Risks: Hospital bankruptcy is mitigated by being the first-position creditor; insurance insolvency is mitigated via reinsurance from providers like AIG.
- The Real Headache (Fraud): This is the risk that requires the most scrutiny. Richard cited a detox center that was caught "up-coding"charging for individual therapy when they were actually performing cheaper group therapy. Detecting this requires matching medical notes from doctors directly to the billing codes through deep data access.
The key risk takeaway is if you’re allocating to either strategy, diligence needs to go deep into controls, data access, monitoring cadence, and legal seniority.
Portfolio role: uncorrelated yield is the promise, process is the price
Both strategies were positioned as uncorrelated, asset-backed return streams - less tied to equity beta or macro swings, more tied to claim resolution mechanics or insurance reimbursement behaviour. Tim described litigation returns as fundamentally detached from stock market moves because the driver is claim economics and defendant capacity.
Richard similarly pointed to stable net return expectations (~14% net ) with payer exposure sitting with rated insurers.
The allocator takeaway is not “buy because it’s uncorrelated.” It’s: treat these as operationally intensive credit sleeves, where manager selection matters more than the category label.
Looking ahead: more institutional, but not necessarily more commoditized
Tim expects litigation finance to become more institutional, while remaining claim-cycle dependent - specific claim types surge (e.g., motor vehicle finance), then fade as windows close and new categories emerge. Richard’s view on medical receivables is that the market is large, but the high-return niche remains constrained by complexity - it can scale, but with only the right process in place.
Why it Matters for a Portfolio
For family offices and institutional investors, niche private credit serves as a powerful diversifier.
- True Non-Correlation: These assets are driven by legal timelines and insurance reimbursement cycles, not economic growth or interest rate pivots.
- Structural Protection: Both strategies rely on being the "sole creditor" with fixed charges over the underlying assets.
- Predictable Yields: Whether it is the mid-teens returns of medical debt or the higher-octane yields of legal lending, these strategies offer a significant premium over traditional credit.
"This shouldn't be a bank-funded asset because it's too operationally cumbersome," Zeiger concluded. For the specialist investor, that "cumbersome" nature is exactly where the opportunity lies.
The Role of KAPITAL
KAPITAL supports asset and wealth managers by making private market allocations bankable, scalable, and operationally effortless, including:
- Structuring SPVs and feeder funds with ISIN codes
- Managing the legal, administrative, and operational process
- Enabling partners to scale private market allocations without building heavy internal infrastructure
This article is part of KAPITAL’s Private Market Perspectives event series. To learn more, contact the team at arman@kapital.inc
