Litigation finance · Global
Litigation finance: ten questions to ask before you consider it
A sceptic's checklist for anyone who is offered exposure to funded legal claims.
Summary
Before considering litigation finance, ask who controls the cases, how losses and costs are shared, how long cases may take, how the portfolio is diversified, and whether you can afford to lose all of it.
- Treat each case as a possible total loss.
- Ask how the funder's returns and conflicts are managed.
- Check the law and enforceability in each country involved.
What exactly are you investing in?
Find out whether it is a single claim, a portfolio, a fund or a loan, and who ranks first for repayment.
Ask how many cases there are, how they are chosen, and whether they are related. Concentration in one claim, law firm, sector or country increases risk.
Who controls the case and the settlement?
Control determines whether the funder, claimant or lawyer decides when to settle, and conflicts can arise.
Understand who can accept or refuse a settlement, who pays costs if the case fails, and how a funder is paid if a case settles early or late.
How long might it take, and what if it takes longer?
Cases often take longer than planned, and each extra year can reduce the annualised return.
Ask for the duration assumptions, how they have compared with actual results, and what happens to costs if a case is delayed or appealed.
What do the law and the track record say?
The rules on funding, disclosure and enforcement vary and change, and a funder's record should be examined with care.
Ask which law applies, whether the funding agreement is enforceable there, and whether any reform is pending. Ask for results on completed cases, including losses, and not only wins. Capital for this sector has been harder to raise in recent years, so also ask how the funder is financed and how it would cope with a long wait.
Frequently asked questions
Should I invest in litigation finance?
Only if you are an experienced investor who understands the risks, can lose the whole amount and has taken independent advice. For many investors it is not appropriate.
What is a portfolio of cases?
A group of claims funded together so that one loss matters less. It reduces single-case risk but does not remove it.
Is litigation finance regulated?
Rules vary by country and may be limited or changing. Do not assume protections exist.
What happens if the case loses?
Usually the funder loses the money advanced and any return, since funding is typically non-recourse.
This article is general information for eligible investors. It is not investment advice or an offer. Capital is at risk. See our Terms and Risk warning.
