Investing in Litigation Finance: Understanding the Risks and Rewards

Litigation finance might sound like a niche strategy—but it is quickly becoming a serious alternative for sophisticated investors. By funding lawsuits in exchange for a portion of the judgment or settlement, investors can unlock strong, non-correlated returns with unique downside protections.

This blog explores how litigation finance works, why it is gaining traction, and how investors can evaluate the opportunity.

What Is Litigation Finance?

Litigation finance (also called legal funding) is the practice of providing capital to plaintiffs, law firms, or legal teams to cover legal costs in exchange for a share of any financial recovery. It functions as non-recourse financing—if the plaintiff loses, the investor loses their capital but is not owed repayment.

Litigation finance can target:

• Commercial disputes (e.g., contract breaches, fraud)

• Intellectual property or patent litigation

• Class action and mass torts

• International arbitration

• Law firm portfolios

Why Investors Are Paying Attention

1. Non-Correlated Returns: Legal outcomes are independent of market conditions.

2. High Potential Yields: Successful cases can produce 2x–5x returns over a few years.

3. Downside Risk is Known: Losses are limited to the initial investment (non-recourse).

4. Diversification: Ideal for alternative allocations within HNW and institutional portfolios.

5. Growing Access: Private funds and platforms now offer syndicated and pooled litigation investments.

Key Risks to Understand

• Binary Outcomes: Win or lose—there is often no middle ground.

• Legal Uncertainty: Outcomes depend on judges, juries, and procedural timelines.

• Lack of Liquidity: Capital is tied up for 2–5 years, sometimes longer.

• Limited Transparency: Case details are often confidential.

• Regulatory Considerations: Rules vary by jurisdiction and can impact enforceability.

Evaluating Litigation Finance Opportunities

• Case Strength: What is the legal merit and chance of success?

• Claim Size vs. Funding: What percentage of the expected outcome is the investment?

• Time to Resolution: How long is the expected duration?

• Underwriting Expertise: Is the fund managed by seasoned legal professionals?

• Diversification: Are you investing in a single case or a portfolio?

Who Offers Litigation Finance Access?

• Burford Capital – Publicly traded leader in litigation finance

• Omni Bridgeway – Global player in commercial dispute funding

• LexShares – Platform offering fractional case investing

• Law Finance Group – Offers financing to plaintiffs and firms

• Privately Structured Funds – Typically via LP structures or family office syndicates

Raziel helps investors track litigation finance exposure alongside other alternatives.

With Raziel, you can:

• Tag litigation finance investments by case type and jurisdiction

• Monitor funding amounts, expected outcomes, and IRRs

• Benchmark returns against other non-correlated assets

• Track portfolio allocation and resolution timelines

This provides structure to a complex and often opaque asset class.

Legal Risk as an Asset Class

Litigation finance turns legal risk into investable opportunity. For investors willing to understand the nuances, it offers asymmetric returns, low market correlation, and portfolio diversification.