Litigation Finance
Litigation finance transforms legal claims into investable assets. For institutional investors, it offers uncorrelated returns. For law firms and corporates, it provides balance-sheet-neutral access to justice. This guide covers everything from market fundamentals to regulatory frameworks.
What Is Litigation Finance?
Litigation finance — also referred to as litigation funding, third-party funding (TPF), or legal finance — is the investment of capital into legal disputes by specialised funders or institutional investors. It sits at the intersection of law and alternative investments, offering a unique risk-return profile that is uncorrelated to equity, bond, or real estate markets.
Unlike traditional litigation funding which focuses on the claimant experience, litigation finance takes a broader view — encompassing the capital markets, portfolio construction, regulation, and risk management frameworks that underpin the industry.
How Large Is the Litigation Finance Market?
The global litigation finance market has grown from approximately $2.4 billion in assets under management in 2018 to an estimated $15.8 billion+ in 2026. The UK remains Europe's largest market, driven by a favourable common law system, the English language advantage for cross-border disputes, and London's status as a global arbitration hub.
$15.8B+
Global AUM (2026 est.)
Illustrative only
Target net IRR figures are illustrative only, are not guaranteed, and capital is at risk
0.05
Correlation to S&P 500
For a detailed breakdown of the UK market, see our guide to litigation finance in the UK.
How Does Litigation Finance Work?
The litigation finance lifecycle follows a structured process from initial case assessment through to resolution and distribution of proceeds:
Case Origination
A law firm, corporate, or advisory (like Audley Capital) identifies a claim and presents it to potential funders.
Due Diligence
The funder's investment team and external counsel assess merits, quantum, defendant solvency, and enforcement risk.
Term Sheet & LFA
If approved, a Litigation Funding Agreement (LFA) is negotiated setting out the budget, return structure, and governance rights.
Capital Deployment
Funds are drawn down in tranches to cover legal fees, disbursements, and ATE insurance premiums.
Resolution & Waterfall
Upon settlement or judgment, proceeds are distributed per the priority of payments ('waterfall') — funder capital, funder return, then claimant.
Who Are the Key Participants in Litigation Finance?
The litigation finance ecosystem involves several interconnected participants:
Litigation Funders
Specialist firms (e.g., Burford, Harbour, Therium) that deploy capital directly into claims.
Advisory Firms
Independent intermediaries like Audley Capital that source, structure, and place claims with appropriate funders.
Institutional Investors
Pension funds, endowments, family offices, and sovereign wealth funds that allocate to litigation finance as an alternative asset.
ATE Insurers
Specialist insurers providing after-the-event cover to protect against adverse costs in funded claims.
Explore Litigation Finance Topics
Deep-dive into each aspect of litigation finance through our specialist guides:
Litigation Finance in the UK
Market size, key players, recent growth trends, and the evolving role of litigation finance in UK commercial disputes.
Read GuideLitigation Finance Returns for Investors
How returns are structured, typical IRRs, risk-adjusted performance, and why litigation finance is an uncorrelated asset class.
Read GuideLitigation Finance Regulation in the UK
The regulatory landscape governing litigation finance: ALF guidelines, PACCAR implications, and proposed reforms.
Read GuideAfter-the-Event Insurance & Litigation Finance
How ATE insurance complements litigation finance, protects against adverse costs, and strengthens funded claims.
Read GuideWhy Does Litigation Finance Matter?
Litigation finance addresses a fundamental market failure: meritorious claims go unpursued because the cost of justice is prohibitive. By providing non-recourse capital, the industry levels the playing field between well-resourced defendants and under-capitalised claimants.
Access to Justice
Enables individuals and SMEs to pursue valid claims against well-funded corporations.
Balance Sheet Protection
Allows corporates to pursue claims without impacting P&L or EBITDA — costs stay off the balance sheet.
Law Firm Growth
Enables firms to offer clients funded arrangements, expanding their book of work without financial risk.
Portfolio Diversification
Provides institutional investors with genuinely uncorrelated returns in a low-yield environment.
Learn more about how law firms are leveraging litigation finance in our guide to litigation funding for law firms, or explore litigation finance returns for investors.
How litigation finance returns are generated
Returns in litigation finance come from the proceeds of successful cases, shared according to an agreed recovery waterfall. When a funded case settles or wins, the proceeds are usually distributed in a set order: first the return of the capital the funder deployed, then the funder's agreed return (often a multiple of that capital or a percentage of the recovery), and finally the remaining balance to the claimant. The exact order and split are fixed in the funding agreement before any capital is deployed.
Because the outcome of a case turns on its legal merits rather than on interest rates or markets, returns from litigation finance have historically shown low correlation to equities and bonds. That is a historical observation, not a promise — returns are targets, never guarantees, and the return on any individual case depends entirely on whether it succeeds and whether the award can be collected.
If a case fails, the funder receives nothing and absorbs the loss on the capital it deployed. This is the core of the asset class: uncorrelated, binary outcomes at the level of the individual case, which experienced funders and investors manage by diversifying across many cases. Capital is at risk and can be lost in full.
The risks of litigation finance
Litigation finance is a high-risk asset class. No structure, diversification or insurance removes risk entirely, and investors can lose all of the capital they commit. The main risks include:
- Case outcome risk. Litigation is uncertain and outcomes are binary — a case can be lost outright, returning nothing on the capital deployed.
- Duration risk. Cases can take years to resolve, and delays reduce returns and tie up committed capital.
- Enforcement and counterparty risk. Winning is not the same as being paid; a defendant may lack the assets to satisfy an award, or those assets may be hard to reach.
- Illiquidity. Litigation finance is illiquid; capital may be committed for the life of a case with limited ability to exit early.
- Regulatory and legal change. Changes to the law or to the regulatory treatment of funding can affect the value and enforceability of funded claims.
Risk is managed — not removed — through rigorous due diligence on each case, diversification across case types and jurisdictions, and, where appropriate, After-the-Event insurance or capital protection insurance. Insurance reduces certain downside exposures but does not guarantee a return or protect an investor from loss.
Frequently Asked Questions About Litigation Finance
Explore Litigation Finance Opportunities
Whether you're a law firm seeking funding, a corporate with a meritorious claim, or an investor looking for uncorrelated returns — Audley Capital can help.
