Litigation Finance: The Uncorrelated Alternative Investment That Funds Lawsuits for Returns

Public market route. Burford Capital trades on the New York Stock Exchange under the ticker BUR, with a market capitalization of approximately $2.84 billion as of mid-2025 and 218.9 million ordinary shares outstanding as of February 2026. Buying BUR gives you exposure to the largest litigation finance portfolio in the world without any accreditation requirement, lock-up period, or minimum investment beyond the share price. You do pick up equity market correlation at the stock level. BUR shares move with sentiment, even when the underlying portfolio does not. That is the trade-off for liquidity.

Accredited investor route. LexShares operates an online platform that lets accredited investors participate in individual case opportunities or pooled fund structures. The mechanics: case investments are structured through single-purpose pooled vehicles managed by LawShares LLC. Sales run through WealthForge Securities LLC, a FINRA and SIPC-registered broker-dealer. LexShares launched a $100 million fully discretionary litigation finance fund in June 2020. The LexShares financing model document explains how capital is deployed across case types. The accredited-investor requirement screens out retail participants and reflects the illiquid, binary nature of the underlying assets.

The Binary Risk You Need to Understand

This is where I spend the most time with anyone considering the asset class.

30-40% of funded cases return zero. Not reduced returns. Not low returns. Zero. The plaintiff loses, the case gets dismissed, the defendant runs out of money. When that happens, the funder loses its entire invested capital in that position. There is no recovery mechanism.

That loss rate sounds alarming until you model the portfolio math. If you fund 25 cases and 10 return zero, the remaining 15 must generate enough return to cover losses and produce a target portfolio IRR. The math works if case selection is strong and recovery multiples on winners are sufficient. It requires disciplined underwriting and genuine diversification across case types, jurisdictions, and resolution timelines.

Duration risk is the second variable that catches investors off-guard. AltStreet's analysis makes this concrete: a 3.0x gross recovery on a case that resolves in two years produces a 73% IRR. The same 3.0x multiple on a case that takes seven years to resolve produces a 17% IRR. Same nominal return, dramatically different annualized performance. Most litigation finance funds carry 3-7 year illiquidity windows for exactly this reason.

This could blow up because of several factors beyond case selection: appeals that extend timelines by years, defendant insolvency after a favorable verdict, jurisdictional changes in how courts view funded litigation, or a regulatory shift that imposes costs on funders mid-case. None of these are hypothetical. They have all happened in actual portfolios.

The Regulatory Environment in 2025-2026

Two developments in 2025 defined the near-term regulatory picture, one favorable and one a near-miss.

The favorable one: a bill sponsored by Senator Thom Tillis in May 2025 would have imposed a 40.8% tax (37% plus 3.8% net investment income tax) on litigation finance profits, with anti-netting provisions that would have made the effective rate even higher on losing years. The International Legal Finance Association led the lobbying response. On June 30, 2025, the provision was defeated via the Senate Byrd Rule, which restricts what can be included in budget reconciliation. Omni Bridgeway called the outcome a win for access to justice. The industry survived, but the fight demonstrated that the asset class has real political opponents — the U.S. Chamber of Commerce and major insurers including Chubb and Liberty Mutual have actively lobbied for restrictions.

The disclosure front: the U.S. Judicial Conference Advisory Committee on Civil Rules agreed in October 2025 to continue studying mandatory federal disclosure rules for third-party litigation funding. As of the committee's November 2025 report, no rule had been adopted, with a revisit planned for April 2026. Mandatory disclosure would not kill the industry, but it would change the information environment for defendants and their insurers.

California signed its Consumer Legal Funding Act in October 2025, creating the first state-level licensing framework for consumer litigation funding. The law applies to consumer-facing products, not commercial litigation, but it signals a broader legislative appetite for industry oversight at the state level.

The direction is toward more oversight, not less. That is manageable for established funders with compliance infrastructure. It is a headwind for smaller platforms.

Who This Investment Is Appropriate For

Litigation finance is not for investors who need liquidity, cannot tolerate binary outcomes, or are building a portfolio where every position needs to carry a credit rating.

The investor for whom this makes sense has a multi-year time horizon, already holds a portfolio of traditional and alternative assets, understands that a meaningful percentage of positions will go to zero, and values genuine non-correlation enough to accept the complexity. Accredited investor status (over $200,000 annual income or $1 million net worth excluding primary residence) is the floor for private fund access. Most institutional-quality managers set higher practical minimums.

If you want exposure without the lock-up, start with Burford Capital shares. Read the 10-K. Understand what you own before you size up. If the business model makes sense to you and you want direct case-level access, then evaluate platforms like LexShares with the same diligence you would apply to any private credit manager. Look at their case selection criteria, their historical loss rates, and the fee structure on winners.

For broader context on private credit alternatives, see our coverage of private credit and direct lending for accredited investors and real estate debt investing. If you are comparing uncorrelated alternatives, our catastrophe bond and insurance-linked securities guide covers another asset class with similar structural non-correlation logic.

Frequently Asked Questions

Is litigation finance legal?

Yes, in the United States and most developed markets. The practice of third-party litigation funding is legal at the federal level and in all 50 states, though some states impose disclosure requirements or restrict consumer-facing products. The asset class operates under existing securities law frameworks, with accredited-investor platforms registered through FINRA broker-dealers. No federal legislation currently bans or significantly restricts commercial litigation finance.

How does a litigation funder make money if the case loses?

It does not. That is the point. Litigation finance is non-recourse: if the funded case produces no recovery, the funder absorbs the full loss with no claim against the plaintiff or attorney. This is what makes it genuinely risky, and genuinely uncorrelated. The funder's return depends entirely on case outcomes, not on the plaintiff's creditworthiness or ability to repay. Funders price this into their required return multiples on winning cases.

Can I invest through my IRA?

For publicly traded vehicles like Burford Capital (NYSE: BUR), yes. Standard brokerage IRAs work fine. For private fund structures, it depends on the specific fund's documentation and your IRA custodian's policies on alternative investments. Self-directed IRAs can often accommodate these, but verify with your custodian before committing. Get a tax advisor involved before you invest through a retirement account.

What is the minimum investment for accredited-only platforms?

LexShares does not publish a universal minimum; it varies by offering. Individual case investments on the platform have historically started at lower thresholds than institutional fund minimums. Large funds like Parabellum Capital's $754 million vehicle set minimums that effectively exclude individual accredited investors. LexShares and similar platforms are the practical access point for individual accredited investors. Read the offering documents before committing capital.

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.