Financing Justice: Inside the Growing Market for Litigation Investments
Over the past decade, litigation finance has steadily evolved from a legal funding mechanism into a recognized alternative asset class. Once confined to hedge funds and specialized law practices, it’s now attracting attention from institutional investors and family offices seeking returns that are truly uncorrelated with broader markets.
At its core, litigation finance allows investors to back legal claims, providing capital to plaintiffs, law firms, or corporations pursuing lawsuits, in exchange for a share of any settlement or judgment. As traditional markets remain volatile and liquidity in private assets extends, this niche is gaining appeal as a way to generate asymmetric returns without exposure to market cycles.
What Is Litigation Finance?
Litigation finance (or legal funding) involves financing the costs of legal disputes in return for a portion of the proceeds if the case succeeds. The key feature is that funding is non-recourse: if the plaintiff loses, the investor receives nothing.
This model provides critical access to justice for claimants who might not otherwise afford prolonged legal battles, while creating an asset class built on legal outcomes rather than financial market performance. Participants include individual plaintiffs, law firms seeking capital for multiple cases, and corporations looking to monetize claims tied up in litigation.
Common structures include:
- Single-case financing: funding a specific lawsuit.
- Portfolio financing: backing a group of cases, spreading risk.
- Law-firm lending: providing working capital secured by anticipated fees.
- Judgment monetization: purchasing or financing existing legal awards.
How Litigation Finance Works
Investors provide upfront capital to cover legal expenses, attorney fees, expert witnesses, discovery costs, and in return receive a negotiated share of any recovery, typically between 20% and 50%. The investment is realized only upon resolution of the case, often through settlement.
Returns can be attractive: a successful case might yield a 2× to 4× multiple on invested capital, with average durations of two to four years. Because the investment outcome depends on judicial decisions rather than markets, correlation to equities or credit is close to zero.
Investment Case: Pros, Cons, and Use Cases
Pros
Uncorrelated returns: performance driven by case outcomes, not macro conditions.
High return potential: successful cases can deliver IRRs in the mid-teens or higher.
Social impact element: funding can improve access to justice and level the playing field.
Cons
Binary risk: outcomes are unpredictable; a total loss is possible.
Illiquidity: capital is locked until the case concludes.
Complex due diligence: assessing case strength, jurisdiction, and enforceability requires expertise.
Regulatory variation: rules differ across jurisdictions, especially in the U.S., U.K., and Australia.
Use Cases
- Family offices and HNW investors seeking diversification within alternative sleeves.
- Endowments and foundations looking for long-term, uncorrelated performance.
- Private credit and opportunistic funds adding litigation portfolios as yield enhancers.
Tips for Investors
Before allocating to litigation finance, investors should:
- Work with experienced managers who have proven legal and underwriting expertise.
- Diversify across cases or portfolios to reduce binary exposure.
- Understand fee structures, some funds charge performance fees only on successful recoveries.
- Assess jurisdictional risk carefully, including enforcement of judgments.
- Treat it as a satellite allocation, complementary to core holdings, not a replacement.
A Maturing Frontier
Litigation finance sits at the intersection of law and capital, a market where time and justice become investable assets. As the sector professionalizes, data improves, and regulations clarify, more institutional investors are entering, transforming what was once an obscure niche into a structured, scalable asset class.
For those with patient capital and a tolerance for complexity, litigation finance offers something rare: a chance to earn compelling returns independent of markets themselves.
