Litigation Finance: The $22.76B Alternative Asset Class That Pays When Cases Settle

The Return Profile — and Why the Numbers Are Suspect

The headline figures are eye-catching. Litigation finance funders have cited gross IRRs of 20% to 40% on resolved cases. Burford's investor materials reference long-run returns on invested capital (ROIC) in the 85-95% range on concluded cases, meaning they roughly double invested capital, though over periods that can stretch many years.

Here is what those numbers obscure.

First, duration risk is severe. Cases resolve in 3 to 7 years on average. A case that returns 90% ROIC over 6 years translates to an IRR of roughly 11%, which is significantly less impressive once time-adjusted. Burford's FY2025 results illustrate this directly: new commitments were up 39% and the portfolio carries modeled realizations of $5.2B, but reported financial results were dampened by extended case durations. The portfolio looks better on paper than the income statement reflects in any given year, because cases sitting in the portfolio do not generate income until they resolve.

Second, selection bias in reported returns is real. Funders publicize resolved case returns. They are under no obligation to disclose unresolved cases or the proportion of total capital that has been written off. Westfleet Advisors, one of the few independent data sources on US litigation finance, tracks market-level data but does not produce a fund-level performance index. There is no Bloomberg for litigation finance returns. You are largely relying on funder-provided figures.

Third, correlation to public equities is genuinely low. Legal case outcomes do not track the S&P 500. That low correlation is the asset class's strongest portfolio diversification argument. But low correlation to equities does not mean low risk. It means a different kind of risk, one concentrated in case-specific factors: jurisdiction, judge assignment, changes in applicable law, defendant solvency at settlement time, and appellate risk after a trial win.

The binary outcome problem remains the defining feature. A single-case investment is not a bond with a yield. It is closer to a deep out-of-the-money option that pays or goes to zero. Portfolio exposure across 20-plus cases meaningfully reduces that binary risk. Single-case investments at the $2,500 minimum do not.

The 2026 Regulatory Wave

This is the section that most litigation finance marketing materials skip. The regulatory environment in 2026 is moving fast and not uniformly in the industry's favor.

In March 2026, the Institute for Legal Reform (ILR) and Lawyers for Civil Justice jointly proposed amending Federal Rule of Civil Procedure 26(a)(1)(A) to require mandatory disclosure of all third-party litigation finance (TPLF) arrangements at the outset of a case. The proposal would require plaintiffs to disclose the identity of any funder, the terms of the funding agreement, and whether the funder has approval rights over settlement decisions. This is a significant change. Currently, funding agreements are treated as confidential. Mandatory disclosure would expose funder economics to opposing counsel and potentially to the public record.

Senator Chuck Grassley introduced parallel federal legislation in early 2026 requiring TPLF disclosure in federal courts. The Senate Judiciary Committee held hearings. The legislation has not passed as of this writing, but it has bipartisan interest, which is unusual in the current Senate environment and worth taking seriously.

At the state level, more than 20 states are actively moving on TPLF disclosure bills. Georgia's law is the most aggressive. It makes operating as an unregistered litigation funder in the state a felony. Not a civil penalty. A felony. That is a meaningful deterrent for smaller, less-capitalized funders operating across multiple jurisdictions.

What does this mean for investors? Three things. First, mandatory disclosure requirements reduce the information advantage funders currently hold. Opponents cannot currently see funding terms and therefore cannot strategically exploit them. That advantage erosion could reduce settlement values over time. Second, registration and compliance costs will rise, likely consolidating the market toward larger, better-capitalized players like Burford and Augusta. Third, any federal law requiring disclosure could trigger legal challenges that create further uncertainty for multi-year case investments. Duration risk and regulatory risk are now compounding.

The ILR's position papers on TPLF and Westfleet Advisors' market data are the two most useful independent resources for tracking this regulatory environment. Neither is a litigation finance advocate.

Who Should Consider This — and Who Shouldn't

Litigation finance belongs in a specific kind of portfolio. It does not belong in most portfolios.

Consider it if: You are an accredited investor with a minimum $250,000 to $500,000 allocated to alternative assets. You want genuine non-correlation to public equity. You can tolerate 3-7 year lockups without needing liquidity. You understand that a meaningful portion of your allocation could go to zero. You are investing across a portfolio of cases, not writing a single $2,500 ticket and calling it alternative asset exposure.

That last point matters. One case is not diversification. Ten cases is minimal diversification. Twenty-plus cases across different jurisdictions, case types, and defendants begins to look like a portfolio with statistical resilience. LexShares' Marketplace Fund II, targeting $100M across multiple cases, is closer to an appropriate structure than buying a single case on their platform.

Avoid it if: You need liquidity within five years. You are allocating less than 2-3% of your liquid net worth and expecting meaningful portfolio impact. You are relying on reported IRRs without understanding selection bias in funder-reported figures. You cannot absorb a total loss on a meaningful allocation without portfolio stress.

BUR stock is a reasonable way to gain exposure to litigation finance economics without the illiquidity. It trades daily. You can exit. You accept the public market volatility layered on top of underlying case performance, but for an investor unwilling to lock up capital for years, it is the most practical entry point.

Frequently Asked Questions

Q: Is litigation finance legal in all US states?
A: Largely yes for commercial litigation, though the regulatory environment is changing rapidly. Historically, champerty and maintenance laws restricted third-party lawsuit funding in several states. Most states have carved out exceptions for commercial litigation. Consumer litigation funding operates under different rules. Georgia's 2026 felony registration requirement signals that states are moving toward stricter oversight, not less. Consult a securities attorney before investing through any platform operating across multiple jurisdictions.

Q: How does a funder decide which cases to back?
A: Underwriting is the core competency. Funders evaluate case merit, damages quantum, defendant solvency, jurisdiction and judge assignment, likely duration, and opposing counsel's resources. Top funders employ former litigators and damages economists. The vetting process for a single case can take 60-90 days. Acceptance rates at established funders run below 5% of submitted cases. The quality of underwriting is the primary variable separating strong returns from capital loss.

Q: What happens if the funder goes bankrupt during an active case?
A: This is an underappreciated risk. Funding agreements typically include provisions for case continuity, but a funder insolvency mid-case creates significant complications for the funded plaintiff and for investors in the funder's vehicles. It is one reason concentration in a single funder's platform carries structural risk beyond the case outcomes themselves. Burford's public company status and size provide more insolvency buffer than a smaller private funder. Due diligence on the funder's financial health is not optional.

Q: How are litigation finance returns taxed?
A: Generally as ordinary income in the US, though the structure matters. Returns from a Reg D fund are typically passed through as income, not capital gains, because they derive from a share of settlement proceeds rather than an equity appreciation event. Tax treatment can vary depending on the specific fund structure and how the funding agreement is characterized. This is a complex area. Get a tax opinion specific to your situation before investing.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.