What Is Litigation Finance? A Comprehensive Guide for Investors
Written By: Ryan Morrison
Based on a Navigating Wealth conversation with Jason Bertoldi.
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Litigation finance is one of those alternative investment categories where the public reputation and the institutional reality share almost no overlap. The bus-stop lawyer taking 40% of a slip-and-fall case is not what institutional capital is financing. Jason Bertoldi has approached this asset class from every angle available: as a plaintiff's attorney at a commercial litigation firm, as a litigation investor at D.E. Shaw, and now as a broker of litigation insurance at Alliant. His framework for what litigation finance is, and what it means for investors evaluating it as a portfolio allocation, is built from direct participation in each of those roles.
Litigation finance is the investment of capital by a third party in litigation claims as an asset. The capital provider is paid only if the case succeeds, receiving a return structured as a multiple of invested capital or an IRR-based return. In exchange for bearing the risk that a case may produce no return, the funder receives a share of the proceeds when it does. The asset class spans single-case funding for large commercial disputes, portfolio lending to law firms, and everything in between.
Key Takeaways
Litigation finance ranges from single-case investments in commercial disputes (targeting roughly 30%+ IRR, binary outcomes) to portfolio loans to law firms (private-credit-like returns, cash-flow generating)
The asset class is structurally uncorrelated to public markets: courts proceed regardless of macro conditions, and economic downturns may increase litigation as companies pursue contingent receivables more aggressively
Adverse selection is managed through rigorous underwriting and staged capital deployment; the funder only releases additional capital as the case clears successive legal hurdles
Litigation insurance can cap duration risk and provide a downside floor, enabling shorter-dated capital to participate in an asset class that would otherwise require patient, long-term holding periods
Long Angle has allocated capital to this space; high-net-worth investors access it primarily through dedicated funds and multi-strategy managers with litigation desks
Table of Contents
What Litigation Finance Is and Why It Exists
A litigation claim is an asset. If someone owes you money and refuses to pay, the right to sue them and recover that money has real economic value, but realizing that value is expensive and takes time. Litigation finance exists to bridge the gap between the value of a claim and the resources required to pursue it.
Third-party litigation funding is the investment of outside capital in a litigation claim by a party who is not the plaintiff or the defendant. That capital covers some combination of legal fees, expert costs, and other litigation expenses. In exchange, the funder receives a contractual share of the proceeds if the case is successful. If the case produces nothing, the funder receives nothing. The arrangement is non-recourse: the plaintiff does not owe the funder anything out of their own pocket if they lose.
The contingency fee lawyer and the litigation funder share the same structural principle: both are paid only if the case wins. The difference is that the lawyer's contribution is their time and expertise; the funder's contribution is capital. Often both are involved in the same case. A plaintiff's attorney may agree to a hybrid arrangement, where they charge at a reduced hourly rate in exchange for a smaller success fee, and the litigation funder provides capital to cover those reduced rates and hard costs along the way.
The historical legal concepts that prohibited this kind of arrangement, known as champerty and maintenance, were common-law doctrines that prevented non-parties from investing in or supporting litigation. Those doctrines softened significantly in the UK, Australia, and eventually the United States over the last several decades. The UK and Australia developed more mature litigation funding industries somewhat ahead of the US, and the American market has been growing substantially for at least two decades.
The basic case for litigation funding's existence is straightforward: whether a party can pursue a valid claim should not depend entirely on whether they have the financial resources to do so. Large corporations with experienced legal departments are structurally better positioned to defend themselves than smaller parties bringing claims against them. Litigation funding helps address that imbalance.
Watch the Full Conversation
This article draws on a Navigating Wealth conversation with Jason Bertoldi, where we discuss how litigation finance works as an investment, what the different structures look like, how funders manage risk, and what the role of litigation insurance is in a maturing asset class. Watch the full episode for the broader discussion.
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Jason Bertoldi is a Managing Director at Alliant Insurance Services, where he focuses on litigation insurance. He graduated from Yale Law School, clerked for federal judges, then practiced as a plaintiff's attorney at a firm known for complex commercial litigation. He subsequently joined D.E. Shaw as an investor focused specifically on litigation assets before moving to Alliant, where he brokers the insurance products that sit alongside litigation funding transactions. His three-role career in this space gives him a view of litigation finance from the claim holder, capital provider, and insurance perspectives simultaneously.
The Three Structures of Litigation Finance
Litigation finance is not a single product. The asset class spans a spectrum from narrow single-case investments to broad portfolio loans, and the risk, return, and duration profile varies substantially across that spectrum.
Single-case funding is the structure most people imagine when they hear the term. A plaintiff has a specific commercial dispute and needs capital to fund it. A funder reviews the case, underwrites the merits, agrees to provide a defined amount of capital in stages, and receives a contractual return tied to the case outcome. The return is binary: if the case wins or settles favorably, the funder receives their return; if the case loses, the funder receives nothing. Single-case funding is non-recourse, long-dated, and equity-like in character. Target IRRs for individual investments in this segment typically run in the 30% range, reflecting the combination of binary risk, long duration, and the intensive underwriting required to select cases.
Portfolio lending to law firms is the opposite end of the spectrum. A law firm that predominantly does plaintiff's work may have a docket of hundreds or thousands of cases. That docket is valuable, but the cash flow from it is lumpy: the firm might have months with no revenue followed by a month where they settle a large case and receive tens of millions. This makes a traditional revolving credit facility structurally unsuitable for many plaintiff-side law firms. A litigation funder or a specialist law firm lender provides a loan collateralized by that portfolio of cases. As cases resolve, the firm services its debt. The return profile is more like private credit: interest accrues, cash flows come in periodically, and the target returns are meaningfully lower than single-case funding. The risk is more diversified across many cases rather than concentrated in one.
Between these two poles sits a wide range of structures: funding for defined portfolios of related cases, IP monetization, international arbitration financing, and monetization transactions where a claim holder receives capital upfront against a future litigation recovery. The common thread across all of them is that the funder's return depends in some way on litigation outcomes.
Returns, Risk, and How the Asset Class Is Priced
The headline return figures that have attracted institutional attention to litigation finance come primarily from single-case and diversified portfolio investing at the equity-like end of the spectrum. Historical data from Burford Capital's public filings and academic research, including a widely cited Harvard study on litigation funding returns, puts long-run average realized IRRs in the 30 to 40% range across diversified portfolios of cases. Jason Bertoldi notes these figures as broadly consistent with his experience observing the market, with the caveat that he now sees more of the insurance-adjacent, more credit-like structures where target returns are lower.
The high target IRR for single-case investments is not irrational given the risk profile. Funding is non-recourse: if the case loses, the funder has no claim on the plaintiff's other assets. The investment is long-dated: a typical commercial litigation case may take three to seven years or longer from filing to resolution. And the funder is making an inherently uncertain probabilistic judgment about a binary outcome that a judge or jury will ultimately determine. Those characteristics together justify a meaningful risk premium over conventional private credit returns.
Return structures are designed to create natural alignment. The funder's contractual return often escalates over time: the longer the capital is deployed, the higher the multiple or IRR to which the funder is entitled. For a plaintiff considering whether to accept a settlement offer, that escalation creates a real economic incentive to resolve the case earlier rather than continuing to fight. Not an absolute incentive (the plaintiff controls the settlement decision), but a meaningful one.
What Jason observes in his portion of the market is less a compression of returns from competition and more a diversification of the product landscape. As more sophisticated structures enter the market, including insurance overlays and credit-like portfolios, investors with lower return requirements can find a home in the asset class. The 30%+ equity-like returns remain available at the single-case end; they are simply no longer the only option.
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Why Litigation Finance Is Genuinely Uncorrelated
The correlation argument for litigation finance is one of the more intellectually rigorous in the alternatives universe, because it rests on a structural observation rather than just a statistical one.
Courts do not look at the S&P 500 when they decide cases. The pace at which litigation proceeds, the evidence rules applied, the judge's analysis of the legal issues, the jury's determination of the facts: none of these things is meaningfully influenced by whether public equity markets are up or down. This is not an empirical correlation that might break down in a stress scenario; it is a structural feature of how litigation works.
The one genuine exception is a systemic shock to the court system itself, which COVID provided. When courts moved to remote proceedings and dramatically reduced their pace of operations in 2020 and 2021, cases that were expected to resolve took significantly longer. That had real financial consequences for funders who had committed capital expecting a certain resolution timeline. Jason acknowledges this directly: COVID is the salient counterexample that any serious discussion of litigation finance's uncorrelated properties needs to account for. It is also, credibly, the definition of a black swan event rather than a systematic correlation with economic cycles.
The countercyclical argument adds another dimension. In a strong economic environment, corporate plaintiffs with healthy revenues often prefer to avoid the distraction and uncertainty of litigation even when they have legitimate claims. In a downturn, when other revenue sources are under pressure, the calculus changes. A contingent receivable that was worth pursuing but not urgent becomes more worth pursuing when the economy is contracting. This suggests that periods of economic stress may increase deal flow and the aggregate value of litigation assets, running counter to the typical direction of stress in most asset classes.
The qualification Jason offers is also worth holding clearly: if economic distress makes defendants less able to pay judgments, a win in court may not translate to actual cash. Balance sheet stress on the defendant side is a real risk, particularly in cases where the defendant is a smaller company that might face genuine solvency pressure. In practice, most institutional litigation funders focus on cases where the defendant has clear ability to pay, but it is not a risk that can be fully diversified away. For investors thinking about how litigation finance fits alongside other alternatives like hedge funds in a broader portfolio context, the correlation properties make it a genuine diversifier rather than a dressed-up version of private equity risk.
How Funders Manage Adverse Selection and Risk
The most intuitive concern about litigation finance is adverse selection: a plaintiff always knows more about their case than the funder, and they have every incentive to seek funding for cases they believe will be harder than they appear from the outside.
The litigation funding industry's response to this is intensive underwriting. Before committing capital to any single-case investment, a funder will conduct extensive document review, retain independent legal experts to assess the merits, model the range of possible outcomes, and challenge the plaintiff's own assumptions about the case's strength. The diligence process for a single investment can be more thorough than the diligence for many private equity transactions, precisely because the outcome is binary and there is no operational value to preserve in a bad scenario.
Staged capital deployment is the primary structural control on risk after initial underwriting. Rather than committing the full investment upfront, funders release capital in tranches tied to the case clearing specific legal hurdles. A case that fails on a motion to dismiss never receives further capital after the initial tranche. A case that survives summary judgment but then loses at trial has deployed more capital but still less than the full committed amount. Staging means that an investment that turns out to be weaker than it appeared at underwriting has cost the funder less than a full deployment would have.
The settlement risk is a separate dimension. The plaintiff retains the right to settle a case at any amount at any time. They could accept a settlement that leaves the funder's investment underwater, either because they are tired of fighting or because they have personal reasons to want the dispute resolved regardless of economics. This is a risk that funders accept as part of the structure. In practice, well-drafted funding agreements may include minimum settlement thresholds below which the plaintiff cannot settle without the funder's consent, but the plaintiff's ultimate control over the case is a real constraint on what the funder can protect against.
Diversification at the portfolio level is the most robust protection against individual deal-level risk. A fund with exposure to 50 or 100 cases across different jurisdictions, subject matters, and case types is substantially more protected against any single bad outcome than a concentrated position. Jason observes that sophisticated funders track concentration risk obsessively: not just geographic concentration, but subject-matter concentration (too much IP, too much construction, too much mass tort) that would make the portfolio sensitive to a ruling or regulatory change in any one area.
Litigation Insurance: Duration Cap and Downside Floor
Litigation insurance is the structural tool that has gained the most momentum in the asset class over the past several years, and it is the primary focus of Jason Bertoldi's current work at Alliant.
The fundamental challenge of litigation investing is duration. Even when a case is rigorously underwritten and appears strong on the merits, predicting how long it will take to resolve is genuinely difficult. Cases take longer than expected for reasons that have nothing to do with their merits: backlogged courts, procedural delays, appeals, the discovery process expanding in unanticipated directions. For a funder who committed capital expecting a three-year resolution, a seven-year case is a materially different investment even if it ultimately wins.
Litigation insurance addresses this in two ways. First, it establishes a sum certain that is payable if the insured party loses: a defined financial floor rather than a total loss. Second, and more distinctively, it establishes a specific date on which the insured party can make a claim against the policy regardless of case resolution. A funder who has been waiting for repayment of a law firm loan for longer than expected does not have to wait indefinitely; on the coverage date, they can make a claim and receive payment.
A practical example: a lender provides a $50 million loan to a law firm in 2022, expecting the firm's cases to generate sufficient repayment within three to four years. COVID delays push the timeline out. The lender, rather than continuing to carry uninsured duration risk, purchases an insurance policy that says: if $50 million has not been repaid by a specific date in 2027, the insurance company pays the balance. The funder's exposure is transformed from open-ended to bounded.
This structural tool has significant implications for who can invest in litigation finance. The asset class traditionally required patient capital willing to hold for seven, eight, or nine years without visibility on exactly when returns would arrive. Insurance makes the duration predictable. Capital with shorter investment horizons, including private credit funds with defined maturities, can now participate in litigation financing transactions that would previously have been structurally incompatible with their fund terms.
Long Angle has allocated capital to litigation finance. Members compare notes on operators, fund structures, and underwriting approaches in a vendor-free environment.
If you are evaluating litigation finance as a portfolio allocation, Long Angle members include people who have already done that diligence and can share what they found.
How Investors Access Litigation Finance
Litigation finance has historically been the domain of patient institutional capital. Sovereign wealth funds and large family offices with genuinely long investment horizons and no need for interim liquidity were the natural fit for single-case investments that might take a decade to resolve. The asset class simply was not structured for investors with shorter horizons or regular liquidity needs.
That is changing, in several directions simultaneously.
Dedicated litigation finance funds remain the primary access point for individual high-net-worth investors and smaller family offices. Burford Capital and Omni Bridgeway are publicly listed, providing daily liquidity with all the volatility of public market sentiment on top of the underlying portfolio economics. Private dedicated funds from managers like Parabellum, Lake Whillans, and others offer institutional-grade access without the public market overlay. For investors who want exposure to the equity-like single-case returns at full portfolio diversification, these are the most direct vehicles.
Multi-strategy alternative managers with dedicated litigation investing desks provide another access point: investors in those funds get litigation exposure as part of a broader alternatives allocation without needing to evaluate litigation-specific fund managers independently.
The secondary market is developing. Large alternative asset managers are beginning to purchase existing fund positions and individual investment interests in mature litigation portfolios. For smaller investors, this activity matters primarily because it improves the overall liquidity profile of the asset class over time, even if direct secondary access is limited.
Law firm lending, the more credit-like segment of litigation finance, is increasingly accessible to investors who want the correlation properties of the asset class with a return profile closer to private credit. As Jason describes, the combination of law firm lending and litigation insurance is producing instruments that look more like structured credit products and behave more predictably for investors accustomed to that return profile.
For investors thinking about how their overall alternatives allocation is structured and how high-net-worth investors are currently sizing these positions, the 2026 asset allocation report covers current patterns across 230+ respondents. Long Angle's private market investment offerings provide members with access to alternatives including litigation finance alongside peer diligence from members who have already evaluated the space.
Frequently Asked Questions
What is litigation finance and how does it work?
Litigation finance is the investment of capital by a third party in litigation claims as an asset. A funder provides capital to a plaintiff or law firm to cover litigation expenses, in exchange for a contractual share of the proceeds if the case succeeds. If the case produces no recovery, the funder receives nothing. The arrangement is non-recourse: the plaintiff owes the funder nothing out of pocket if they lose. Funding is typically staged over the life of a case rather than deployed all at once.
What are typical returns on litigation finance investments?
Returns vary significantly by structure. Single-case investments at the equity-like end of the spectrum have historically targeted IRRs in the 30% range, with long-run realized returns in the 30 to 40% range documented in academic research and public company filings from listed funders. Law firm portfolio loans and credit-oriented structures target meaningfully lower returns, closer to high-yield private credit. The higher equity-like returns reflect the binary, non-recourse, long-dated nature of individual case investments.
Is litigation finance correlated to the stock market?
Structurally, no. Courts proceed regardless of macro economic conditions, and the legal merits of a case are not affected by public market performance. The primary systemic risk that produced correlation was COVID, which caused court systems globally to slow substantially: a genuine black swan rather than an economic cycle correlation. Economic downturns may increase litigation activity, as companies with cash flow pressure are more motivated to pursue contingent receivables.
What is third-party litigation funding?
Third-party litigation funding refers specifically to the investment of capital by a party who is not a direct participant in the lawsuit (neither the plaintiff nor the defendant). The term distinguishes outside investor capital from the plaintiff's own resources or their lawyer's contingency fee arrangement. Third-party funders receive a contractual return from the litigation proceeds if the case is successful.
What is litigation insurance and how does it protect investors?
Litigation insurance is a policy that provides two protections: a sum certain payable if the insured party loses a case, and a specific date on which the insured party can make a claim regardless of whether the case has resolved. The second feature addresses the fundamental duration risk of litigation investing: rather than waiting indefinitely for a case to conclude, the insured party has a defined date on which coverage steps in. This makes it possible for investors with shorter investment horizons to participate in litigation finance transactions that would otherwise require open-ended patience.
How do high-net-worth investors access litigation finance?
The primary access points are dedicated litigation finance funds, both publicly listed (Burford Capital, Omni Bridgeway) and private. Multi-strategy alternative managers with litigation desks provide exposure as part of a broader alternatives allocation. Law firm lending and credit-oriented products are increasingly available through managers positioned at the intersection of private credit and litigation finance. Historically this has been an institutional and large family office asset class; newer product structures, particularly those incorporating insurance, are broadening access.
Final Thoughts
The distance between what most investors imagine when they hear "litigation finance" and what institutional capital is doing in this space is significant. Commercial disputes between large corporations, IP monetization, international arbitration, and law firm portfolio lending have little in common with the personal injury contingency work that dominates the public perception of plaintiff-side litigation. The structural properties (non-recourse, uncorrelated to public markets, diversifiable at portfolio level) are real and well-documented.
The genuine challenges are also real: duration is hard to predict, individual cases are binary, adverse selection requires intensive underwriting, and the asset class has not been stress-tested through a severe economic downturn in its current form. Investors who understand both sides of that ledger are in a better position to evaluate whether the return profile justifies the risk and illiquidity for their specific situation.
Long Angle members have allocated capital to litigation finance and compare notes on operators, fund structures, and diligence approaches in a solicitation-free environment.
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