Investors Bypass Litigation Funders to Directly Finance Legal Claims

Investors seeking returns from litigation are increasingly bypassing traditional litigation funders and putting money directly into law firms, legal claims and case portfolios, Bloomberg law reported.

By moving away from intermediaries, investors gain greater control over where their capital is deployed and can retain a larger share of potential proceeds when cases succeed. However, they also lose the specialist expertise that litigation funders provide in assessing risks, valuing claims and managing legal investments.

“Everyone is obviously trying to find ways to cut costs and reduce fees,” said Mohsin Patel, co-founder of litigation finance broker Risk Factor Management. Removing the intermediary is “one way they have found they can do that”.

 

The shift reflects growing investor confidence in the complexities of litigation finance, a market that has expanded significantly since the practice emerged in the US three decades ago. Litigation funders, which seek returns uncorrelated with traditional financial markets, committed $2.8 billion to commercial legal claims last year, compared with $2.3 billion in 2024, according to litigation finance broker Westfleet Advisors.

Although the industry does not publish detailed data on investment flows, brokers, funders and consultants say they are seeing a rise in investors choosing to finance cases directly rather than investing through litigation finance funds.

“It is one of the clearest shifts in the market over the last couple of years,” said Jim Batson, chief investment officer of Siltstone Capital’s legal finance strategy.

Recent cases highlight the trend. Court filings revealed that HPS Investment Partners, a subsidiary of BlackRock, provided an advance against a judgment in a high-profile Florida case. JPMorgan Asset Management also provided financing to two mass tort law firms based on expected legal fees.

Direct investment represents a departure from the traditional litigation finance model. Historically, investors participated as limited partners in funds, while litigation finance companies acted as managers, selecting cases and deploying capital.

However, many investors are now moving away from this structure. Kelly Daley, founder of advisory firm Celsia Capital, said institutional investors increasingly want greater involvement in selecting individual opportunities rather than allowing fund managers to make decisions across a portfolio.

“There is a shortage of capital interested” in the traditional structure, Daley said. Investors are attracted to having “front-of-market litigation assets brought directly to them for direct investment”.

Changing Capital Landscape

The traditional commercial litigation finance sector has faced challenges as some investors reduce allocations through conventional channels. According to Westfleet, a relatively small number of established participants drove a 23 per cent increase in new litigation finance commitments in 2025. However, overall investment levels remain below the peak reached in 2022.

“Many funders continue to face significant challenges in raising new capital from investors,” Westfleet said in a March report, adding that these constraints have resulted in more cautious underwriting and selective deployment of funds.

Batson said investors have become increasingly frustrated by the long timelines associated with legal investments before receiving returns.

“That has made allocators wary of blind pools and more comfortable with transactions they can evaluate on their own merits,” he said. “A direct deal allows investors to see exactly what they own.”

Some investors are also partnering with specialist litigation finance managers on individual cases. Rather than committing capital to broad funds, they approach experienced legal finance firms to evaluate specific opportunities and invest alongside them.

Growing Role of Insurance

Despite the growing appetite for direct investment, legal assets remain complex, and inexperienced investors can struggle to accurately assess the value and risks of litigation claims.

“Underwriting litigation is not the easiest thing to do and it is very different from credit underwriting,” said Charles Agee, founder of Westfleet.

To manage risks, many direct investors are increasingly turning to insurance products, said Rebecca Berrebi, a litigation finance and special situations consultant at Litigation Finance Advisors. Insurance provides a more familiar risk assessment framework compared with legal assets.

These policies can protect investors against adverse court outcomes or guarantee minimum returns. Instead of focusing only on legal issues such as the likely duration of a case, investors assess factors such as the insurer’s ability and willingness to pay.

Patel said such insurance products help address concerns over lengthy litigation timelines by guaranteeing returns after a specified period. While premiums can be costly, investors view them as a trade-off for greater stability.

“Capital preservation is kind of the name of the game for them,” Patel said. “They are willing to give up some upside if it means they have protection on the downside.”

 

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