Hedge funds up investments in LA wildfire claims

Hedge funds are boosting their investments in legal claims stemming from the 2025 LA wildfires, driven by a political impasse preventing California lawmakers from restricting investors from acquiring rights to insurance recoveries, according to Bloomberg. These funds are snapping up claims at significant discounts, with Palisades fire-related claims going for as low as three cents on the dollar and Eaton fire claims priced around 60 cents.

Investors stand to profit if they can recover more than their initial investment through subsequent settlements. The 2025 Eaton and Palisades fires caused an estimated $40 billion in insured losses. However, disputes over liability linger, with claims likely dragging on for years. Insurers are selling these legal rights to investors at a discount to secure immediate cash, assuming the associated risks with the hope of profiting from settled claims.

Hedge funds chasing this market aim for returns in the low-to-mid teens. The market remains largely secretive, with participants often mum about details due to political sensitivities. California Governor Gavin Newsom has tried to curb hedge fund involvement, but legislation only requires insurers to offer utilities first refusal before selling claims, not outright bans.

Willis Hon, an attorney, believes keeping subrogation claims open will keep hedge funds engaged. Insurance firms say the new law hasn't altered their strategy, maintaining they will pay claims and seek recovery from responsible parties. Despite the legislation's impact being minimal, investors show no sign of pulling back.