What is litigation finance?

Litigation finance is the funding of legal claims in return for a share of the proceeds. It’s a rapidly expanding asset class historically uncorrelated with traditional markets. For investors, it provides the potential for diversification and attractive potential yields, while supporting fair access to justice.

Understanding litigation finance - How funding legal claims can translate into measurable returns and genuine social impact

Litigation finance explained

Litigation finance is a relatively new asset class that allows investors to fund legal cases in exchange for a share of any successful outcome. Projected to increase in value from $17.5bn to $67.2bn by 2037, the market is expanding fast. (Source: Research Nester)

From commercial disputes and class actions to arbitration, intellectual property and personal injury claims, litigation funding spans a broad range of legal case types.

By participating, investors gain exposure to the lucrative legal sector while supporting access to justice for individuals and organizations that might not otherwise afford it.

How it works

Investors typically participate through specialist litigation funders, who finance a single case or a diversified portfolio of cases. When a case is won or settled, proceeds are distributed according to pre-agreed terms.

As litigation finance agreements can be complex, selecting a reputable, experienced funder is vital. Robust structures – from first-charge debentures to insurance policies, performance guarantees and regulated security trustees – help mitigate risk a, while multi-sector portfolios enhance diversification.

However, while capital is subject to structured risk management protocols, it is not guaranteed and remains at risk.

Why litigation finance?

The financial landscape is evolving but traditional markets remain turbulent. With its potential for bringing diversification to sophisticated investors’ portfolios, litigation funding has emerged as a compelling alternative investment.

Offering the potential for consistent returns over flexible timeframes, litigation finance has historically been largely unaffected by market volatility. Successful cases can result in significant payouts, but thorough due diligence is crucial.

As a diversification vehicle, litigation funding can contribute to risk management, making it an attractive complement to traditional stocks and bonds. Plus, its social impact supports fair access to justice.

Learn more about our approach to sourcing alternative investments offering potential portfolio diversification and risk management benefits.

Uncorrelated returns

Historically perform independently of traditional markets, with the potential for attractive yields regardless of broader economic cycles

Portfolio diversification

Offers exposure across jurisdictions, sectors and case types, reducing concentration risk

Impact with return

Supports fair access to justice along with potential diversification and risk management benefits for qualified investors

Frequently asked questions about litigation finance

Who can invest in litigation finance?

Litigation finance opportunities are typically open to qualified investors, such as high-net-worth individuals, family offices and institutional investors. Because the underlying structures can be complex, participation is usually via specialist funders or managed vehicles with defined eligibility criteria. At DFC, for example, we only source private debt products for qualified high-net-worth investors and family offices.

How long is the typical investment period?

Investment horizons vary depending on the nature of the cases and the funding structure. Individual cases generally resolve within one to three years, while diversified portfolios can offer exposure across multiple time frames. The fixed-income products we source typically have a set timeframe of between 12 and 18 months, while other opportunities focus on the later stages of the litigation process.

What happens if a case is unsuccessful?

If a case is lost, the funder (and by extension, the investors) generally don’t receive returns on that specific claim. However, litigation finance is structured to absorb such outcomes through careful case selection, legal due diligence, portfolio diversification, and transfer of risk architecture. Losses on individual cases are therefore mitigated or secured.

How are cases selected and risks managed?

Experienced funders (such as those whose products we source) conduct extensive legal and financial analysis before committing capital. This includes reviewing case merits, enforceability, legal track record and expected recoveries. Plus, risk mitigation tools such as insurance policies, first-charge debentures and performance guarantees are often used to protect investor capital and enhance return consistency. However, returns are never guaranteed, and thorough due diligence is vital.

Is litigation finance regulated?

Regulation varies significantly by jurisdiction. While litigation funding itself may not always be directly regulated, reputable funders operate within established legal frameworks and partner with regulated entities (such as trustees and insurers) to safeguard investor interests and maintain transparency. Transparency is growing globally, with stakeholders including courts and regulatory bodies calling for clearer terms.

How are returns distributed?

When a funded case or portfolio reaches a successful outcome or settlement, proceeds are distributed according to the pre-agreed terms set out in the funding agreement. Investors typically receive their original capital plus a share of the net proceeds, reflecting the outcome of the cases and the specific fund structure. Litigation finance products often offer coupon payments at regular intervals during the investment term.

What are the main benefits for investors?

Litigation finance offers the potential for uncorrelated returns, portfolio diversification, and exposure to a growing alternative asset class. While results are never guaranteed, it can provide attractive, risk-adjusted yields and consistent performance across varying market conditions, while supporting access to justice for those unable to pursue valid legal claims without funding.

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