Litigation finance

Does your product fit here?

Litigation finance is non-recourse capital provided to plaintiffs or law firms to fund legal proceedings in exchange for a share of any recovery. If the case loses, the capital provider receives nothing. This binary outcome profile makes litigation finance fundamentally different from traditional ABF. You’re not modeling default rates and prepayment speeds. You’re modeling win probability, recovery multiples, and duration uncertainty.

Products that fit here:

Commercial litigation funding: Single-case or portfolio funding for commercial disputes such as contract, antitrust, intellectual property, and securities fraud. Typical case sizes range from $1M to $100M+. Major funders include Burford, Omni Bridgeway, Parabellum, Validity Finance, and Longford Capital.
Law firm portfolio financing: Credit facilities to law firms secured by the firm’s contingent fee receivables across multiple cases. This structure has grown significantly as firms seek working capital without diluting equity.
Mass tort / class action portfolios: Funding for aggregated personal injury claims covering product liability, environmental, and pharmaceutical cases. Different risk profile from commercial litigation due to longer duration and regulatory sensitivity.
International arbitration: Investor-state disputes, treaty claims, and commercial arbitration. Larger recoveries but longer duration and complex enforcement across jurisdictions.
Patent / IP litigation: Single-case or portfolio funding for patent infringement claims. Highly specialized with volatile outcomes driven by claim construction and validity rulings.
Insolvency litigation: Funding for trustees, liquidators, or creditors to pursue claims against former directors, fraudulent transferees, or preference recipients.

What does NOT fit here:

Consumer legal funding: Pre-settlement advances to individual plaintiffs in personal injury cases. Different regulatory framework, smaller ticket sizes (typically $5K-$50K), very different investor base. Sometimes called “lawsuit loans” though legally structured as non-recourse advances.
Legal fee insurance / ATE: After-the-event insurance is an insurance product covering adverse costs risk, not capital. Common in UK and Australia where losing parties pay winner’s costs.
Judgment enforcement: Purchasing already-won judgments for collection. The litigation risk has resolved. You’re buying collection/enforcement risk, which is a different asset class.

Edge cases

Mixed commercial/mass tort portfolios: If more than 30% is mass tort by committed value, capital providers will treat the portfolio differently due to correlation risk and regulatory exposure.

Claim monetization: The plaintiff sells a portion of the claim for immediate cash. Structured similarly to litigation funding but may be a true sale rather than non-recourse financing. The legal characterization matters for accounting and regulatory purposes.

Defense-side funding: A small but growing category. Capital to fund defense in IP or commercial disputes. Different risk profile since the defendant typically isn’t seeking a recovery, just avoiding liability.

How capital providers will classify you

Category	Characteristics	Typical Terms
Single-case commercial	High case value ($3M+ expected recovery), strong merit assessment, binary risk	25-40% of recovery or 2.5-4x multiple
Portfolio (diversified commercial)	10+ cases across defendants, jurisdictions, case types	1.6-2.2x blended MOIC target
Law firm facility	Corporate credit with contingent fee collateral	SOFR + 600-1000 bps
Mass tort portfolio	Specialized expertise required, longer duration	1.4-2.0x blended MOIC target

Market benchmarks

Performance benchmarks

Metric	Commercial (Single Case)	Commercial (Portfolio)	Mass Tort Portfolio	Law Firm Finance
Gross MOIC	2.5-4.0x (wins)	1.6-2.2x (blended)	1.4-2.0x (blended)	1.3-1.6x
Gross IRR	25-50%+ (wins)	18-30% (blended)	15-25% (blended)	12-20%
Loss ratio	10-20%	8-15%	5-10%	3-8%
Duration	2-5 years	2-4 years avg	3-7 years	1-3 years
Settlement rate	70-90%	75-90%	80-95%	N/A

Duration is unpredictable and drives IRR more than MOIC. A 2x settlement in 18 months often beats a 3.5x trial win in 5 years. Loss ratio matters enormously because losing cases return zero. Settlement timing and conversion rate are key performance indicators since early settlements at lower multiples frequently outperform trial wins on an IRR basis.

What good performance looks like

Win rate above 85% on case count basis
MOIC above 1.8x on deployed capital after accounting for losses
Average duration under 3.5 years
No single case representing more than 15% of portfolio by committed capital
Settlement conversion rate above 70% (most wins via settlement rather than trial)

Red flag benchmarks: Loss rate above 20% on case count, single case above 25% of fund, average duration exceeding 5 years, concentration above 30% in single defendant or jurisdiction.

What investors focus on

Case Merit Assessment: The core competency. Multi-stage review process, independent legal assessment, quantitative damages modeling. Low approval rates (3-5%) signal selectivity. Red flag: no lawyer on the investment committee. The diligence guide covers detailed evaluation criteria.

Law Firm Quality: Lead counsel track record in the specific practice area, firm financial stability, fee structure alignment, and resources for trial. Concentration risk exists if more than 40% of cases are with a single firm.

Defendant Ability to Pay: A judgment against an insolvent defendant is worthless. Analyze balance sheet, insurance coverage, parent guarantees, and enforcement jurisdiction. Particularly important for cross-border cases.

Portfolio Construction: Diversification across case type, jurisdiction, defendant, law firm, and expected resolution timing. Correlation analysis matters since adverse precedent can impair multiple cases simultaneously.

Duration and Liquidity: Expect 3-7+ years to resolution. NAV calculation during pendency is subjective. Secondary market exists but with 10-30% discounts. Fund lock-ups should match expected case duration.

Valuation Practices: Most funders use probability-weighted expected value or milestone-based adjustments. Always ask for realized vs. unrealized return splits. A portfolio showing 2.0x total return that is 80% unrealized is very different from one 80% realized. Methodology details are in valuation approaches.

Structures overview

Single-case funding

Non-recourse capital for a specific case where the funder receives a percentage of gross recovery (20-40%) or multiple of invested capital (2.5-4x), whichever is greater. Plaintiff controls litigation decisions while funder typically has settlement approval rights below a threshold. If the case loses, funder recovers nothing. The single-case funding deep dive covers waterfall mechanics, budget provisions, and settlement control terms.

Portfolio financing

Facility to fund multiple cases with cross-collateralization so gains from winners offset losses. Diversification requirements, portfolio-level return calculation, and 30-60% advance rates. Target MOIC of 1.6-2.2x with lower per-case returns than single-case funding due to diversification benefit. More on structure and diversification requirements in portfolio financing.

Law firm finance

Credit facilities to law firms secured by contingent fee receivables. Advance rates of 50-70% of expected fee value with recourse to the firm. Priced at SOFR + 600-1000 bps. Used for working capital, case costs, and lateral hiring. Banks rarely lend to contingent-fee practices, making this primarily a private credit product. Borrowing base mechanics and covenants are detailed in the law firm finance section.

Rated structures

Limited. Burford has investment-grade corporate bonds, but true litigation-backed ABS is rare. Binary outcomes, duration uncertainty, and limited historical data make traditional rating methodologies difficult to apply. Most litigation finance capital comes from funds or direct investment.

Where ratings exist:

Law firm finance facilities with strong firms and conservative advance rates
Portfolio vehicles with 50+ cases and strict diversification
Insurance-wrapped structures with monoline guarantees
Corporate-level ratings for publicly traded funders (Burford is investment-grade)

Active participants

The litigation finance market is dominated by a handful of dedicated funders with specialized legal expertise, supplemented by credit funds seeking uncorrelated returns and specialized lenders serving law firms.

Funder	Focus	AUM	Deal Size
Burford Capital	Full-service, global	$7B+	$5M-$100M+
Omni Bridgeway	Global, arbitration-heavy	$3B+	$3M-$50M
Harbour Litigation Funding	UK, Europe	$2B+	$5M-$75M
Longford Capital	US commercial	$1B+	$3M-$50M
Therium	Global	$1B+	$2M-$40M
Parabellum Capital	US commercial, IP	$500M+	$2M-$30M
Validity Finance	US commercial	$500M+	$2M-$25M

Credit funds like Fortress, Apollo, and Ares participate primarily through co-investment and portfolio participations, typically at $20M+ check sizes. The secondary market, led by placement agent Westfleet Advisors, facilitates liquidity at 10-30% discounts to NAV.

For detailed profiles of funders, credit fund participation patterns, law firm finance providers, and secondary market mechanics, see funders and market participants.

Red flags

Deal-level

Single case representing more than 25% of portfolio
Single defendant exposure above 30%
Defendant with questionable ability to pay or in financial distress
Duration already exceeding 3+ years with no resolution in sight
Multiple adverse rulings on record

Structural

No settlement approval rights for funder below invested capital plus return
Unlimited cost overrun obligation without dilution protection
No cross-collateralization in portfolio structure
Missing ATE coverage in adverse-cost jurisdictions

Manager

No lawyer on investment committee
Loss rate exceeding 20%
Approval rate above 15% (suggests lack of selectivity)
No independent case evaluation process
Marks that only go up without corresponding milestones

Regulatory

Champerty law uncertainty in key jurisdictions (especially Delaware)
Expanding disclosure requirements in federal and state courts
Increasing scrutiny of mass tort funding

Each of these warning signs is analyzed in detail—including specific questions to ask and potential mitigants—in red flags. For champerty law and disclosure requirements by jurisdiction, see disclosure and champerty.

Key takeaways

Binary risk is fundamental. You win or you lose. There’s no partial recovery, no restructuring, no workout. Portfolio construction is how you manage this binary exposure.

Duration is unpredictable. IRR projections are highly sensitive to duration. A case you thought would resolve in 2 years may take 5. Build duration buffers into your underwriting.

Case merit assessment is the core skill. Everything depends on picking the right cases. The investment team’s legal expertise and process rigor are what differentiate good funders from bad ones.

Law firm quality matters. The lawyers prosecuting the case are as important as the case itself. A great case with a weak firm may underperform a good case with an excellent firm.

Defendant ability to pay is non-negotiable. A judgment against a bankrupt defendant is worth zero. Validate collectability.

Regulatory environment is evolving. Disclosure requirements, champerty challenges, and regulatory scrutiny are increasing. Structures need to anticipate regulatory development.

Portfolio beats single-case for most investors. Unless you have deep legal expertise and can absorb binary outcomes, diversified portfolio exposure is the appropriate way to access litigation finance returns.

Deep dives

Single-case funding — waterfall mechanics, budget provisions, settlement control
Portfolio financing — cross-collateralization, diversification requirements, advance rates
Law firm finance — borrowing base, covenants, use of proceeds
Disclosure and champerty — disclosure requirements, champerty law by jurisdiction
Valuation approaches — cost basis, probability-weighted, milestone-based methods
Secondaries and liquidity — pricing, discounts to NAV, transaction process
Funders and market participants — funder profiles, credit fund approaches, law firm lenders
Diligence guide — case-level, portfolio-level, and manager diligence checklists
Red flags — deal, structural, manager, and regulatory warning signs

For insurance company considerations when investing in litigation finance, see Insurance Capital which covers RBC treatment and portfolio construction requirements for rated carriers seeking uncorrelated returns.