Key Takeaways
- • Hedge funds are increasing purchases of subrogation claims tied to the 2025 Los Angeles wildfires, with pricing ranging from about 3 cents to roughly 60 cents on the dollar, according to transaction details shared with Bloomberg.
- • Eaton fire claims are trading at 55 to 60 cents on the dollar, while Palisades claims, viewed as riskier because liability is harder to establish, trade at 3 to 5 cents, per broker Cherokee Acquisition.
- • Cherokee Acquisition recently acquired roughly $100 million of Palisades-related claims for less than 10 cents on the dollar, with such transactions typically funded within a couple of weeks.
- • A 2025 California law requires insurers to offer utilities a right of first refusal before selling claims to investors but does not ban hedge fund purchases, and Cherokee director Bradley Max says the rule has had little effect on demand.
- • The fires caused an estimated $40 billion in insured losses, and a bellwether jury trial in the Eaton fire litigation is scheduled for January 2027.
Summary
Hedge funds are increasing their purchases of legal claims tied to the 2025 Los Angeles wildfires, after a political effort to restrict these trades lost momentum, according to Bloomberg. Prices range from as little as 3 cents on the dollar for some claims to around 60 cents for the most expensive, based on transaction details shared with Bloomberg.
The trades involve subrogation rights, which allow an insurer to pursue a third party, such as a utility, for losses it has already paid out. Rather than wait years for litigation to resolve, insurers can sell these rights to investors at a discount in exchange for immediate cash. According to broker Cherokee Acquisition, Eaton fire claims are being acquired for 55 to 60 cents on the dollar, while Palisades claims, which are seen as riskier because liability is harder to establish, are trading at 3 to 5 cents.
Cherokee director Bradley Max said there is "plenty of appetite for buyers and sellers" and that most hedge funds in the market are targeting returns in the low-to-mid teens. He said Cherokee recently acquired roughly $100 million of Palisades-related claims for less than 10 cents on the dollar, and that such transactions are typically funded within a couple of weeks.
California adopted a law in 2025 requiring insurers to give utilities a right of first refusal before selling claims to investors, but the law stopped short of banning hedge fund purchases. Max said the rule has had little effect on demand. The fires caused an estimated $40 billion in insured losses, and a bellwether jury trial in the Eaton fire litigation is scheduled for January 2027.
The market illustrates how hedge funds are sourcing returns from legal and insurance outcomes rather than market direction. The spread between Eaton and Palisades pricing shows how sharply investors are discounting liability risk, and the legislative impasse has, for now, removed the threat that the opportunity would be closed off entirely.
The trades involve subrogation rights, which allow an insurer to pursue a third party, such as a utility, for losses it has already paid out. Rather than wait years for litigation to resolve, insurers can sell these rights to investors at a discount in exchange for immediate cash. According to broker Cherokee Acquisition, Eaton fire claims are being acquired for 55 to 60 cents on the dollar, while Palisades claims, which are seen as riskier because liability is harder to establish, are trading at 3 to 5 cents.
Cherokee director Bradley Max said there is "plenty of appetite for buyers and sellers" and that most hedge funds in the market are targeting returns in the low-to-mid teens. He said Cherokee recently acquired roughly $100 million of Palisades-related claims for less than 10 cents on the dollar, and that such transactions are typically funded within a couple of weeks.
California adopted a law in 2025 requiring insurers to give utilities a right of first refusal before selling claims to investors, but the law stopped short of banning hedge fund purchases. Max said the rule has had little effect on demand. The fires caused an estimated $40 billion in insured losses, and a bellwether jury trial in the Eaton fire litigation is scheduled for January 2027.
The market illustrates how hedge funds are sourcing returns from legal and insurance outcomes rather than market direction. The spread between Eaton and Palisades pricing shows how sharply investors are discounting liability risk, and the legislative impasse has, for now, removed the threat that the opportunity would be closed off entirely.
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