Litigation Financing: Driving Justice & Private Equity Growth

Published on April 4, 2025 by Harshit Jain

Litigation financing refers to third-party funding that provides financial support to litigants irrespective of all the complex requirements and high costs associated with it. This is a new way for investors to support legal cases that returns to them a portion of the judgment winnings, re-aligning the legal infrastructure financially by supporting startups and large corporations.

What makes litigation financing different?

Litigation financing provides capital to law firms to cover costs associated with legal battles. This type of funding is especially valuable in scenarios where smaller companies or startups face opponents financially stronger than they are. For example, in 2023, Omni Bridgeway (an investor) provided a small tech startup with USD5m in support of an intellectual property-related dispute against a large corporation, covering USD4.5m in legal fees. The case was settled for USD50m, translating into a USD15m return (200% RoI) for Omni Bridgeway. This financial support got justice for the startup in terms of compensation for patent infringement.

Market dynamics

The litigation financing market has grown significantly, driven by increasing demand from law firms and claimants; it offers the following:

Uncorrelated returns: This asset class is not tied to the market and is, therefore, not affected by market volatility, providing stable returns to investors even during a market crash or economic downturn. The litigation funding sector has generated an average return rate of 36% annually.

Diversification: Litigation financing also brings benefits of diversification, as its performance is not linked to financial markets. Rates of return see less correlation than other areas of investment, making it an attractive alternative for portfolio diversification.

High potential returns: Winning a legal claim can offer higher returns, making litigation financing appealing for private equity investors.

The future of litigation financing

Global litigation financing was valued at USD12.2bn in 2023 and is set to cross USD25.8bn by 2030, translating into a CAGR of 8.79%. All this expansion is driven by the expanding legal sector, technological advancements and the increasing number of complex legal disputes.

Categories of litigation financing

The litigation financing market can be broadly categorised into commercial and consumer litigation funding:

Commercial litigation funding: This type of funding includes business-related legal disputes such as intellectual-property conflicts, contract disputes and class-action lawsuits.

Consumer litigation funding: This type of funding is provided to individuals for personal legal battles, such as personal injury claims and employment disputes.

Setup of the global market

The global litigation financing market is made up of several key factors such as type of service, size of organisation, application, end user and region. Types of service include funding pre-litigation, litigation and post-litigation activity. The market serves small and medium-size enterprises (SMEs) and large enterprises. Applications span commercial litigation, personal injury claims, intellectual property disputes, class-action lawsuits and international arbitration. End users range from individuals and law firms to businesses. Geographically, the market is segmented into Latin America, North America, Europe, Asia Pacific, the Middle East and Africa, each of which has different and unique characteristics and regulatory environments. This type of segmentation helps stakeholders regulate the market and plan strategies effectively.

Comparison of returns made on investments

Litigation financing offers an opportunity to earn higher returns than those from traditional asset classes.

Gross returns of such portfolios typically range between 30% and 40% annualised IRR, significantly higher than average returns from stocks, bonds and real estate. This makes litigation financing an attractive alternative for investors seeking diversified higher returns.

Key statistics and trends

Growth rate: The litigation financing market is expected to grow at an annual rate of 11.1% from 2025, with potential investment returns of 20-30% per annum, according to an article published by Frenchurch Legal, making it an attractive investment option for investors.

Consumer claimants: Specialised areas within the litigation financing landscape are picking up due to their lower individual case risk and steady returns, expected to grow 15% annually and by USD5bn individually by 2025, according to BCLP client intelligence.

Risk factors and challenges

Investors in litigation financing must remain aware of the several risks associated with it:

Financial risk: Since there is no assurance that the legal case that is funded will have a favourable outcome, this is the major risk.

Counterparty risk: The authenticity and reliability of the parties involved in the litigation process can have a significant impact on the outcome and returns.

Regulatory risk: Unstable and unpredictable regulations across jurisdictions may have an impact or result in other challenges for the investors.

Difficulties in valuation: Valuing a legal claim is often considered to be difficult, requiring specialised expertise.

Conclusion

Alternative investments in private markets now encompass an emerging asset class where support to litigants in a dispute have emerged as a serious investment in its own right, transforming the legal landscape within private equity and presenting opportunities for investors to maximise returns.

The litigation financing market has grown significantly, fuelled by higher demand and the expanding legal sector, with potential market value of USD25.8bn by 2030 and an impressive annual return rate of 36%.

However, litigation financing does carry its own challenges, such as difficulties in valuation, regulatory complexities and financial risks that require investors to conduct detailed due diligence and adopt vigorous risk-management plans.

As the litigation financing market matures, it will likely play an important role in the private equity landscape for investors in terms of driving both financial success and social good.

How Acuity Knowledge Partners can help

We offer a wide range of skillsets including data validation, modelling, research, operational support and customised solutions across investment research, capital markets, asset management and private markets, enabling clients to be more cost-efficient and save managerial time through economies of scale.

We have established dedicated teams of analysts (CAs, MBAs, and CFAs) to support our clients in activities such as the following:

Macroeconomic research
Financial analysis
Capital structure analysis
Financial modelling
Valuation

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About the Author

Harshit Jain

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Harshit has over 4 years of experience Fund Administration and accounting services. His knowledge expands to multiple asset classes analysis, Market Research and Compliance reporting.