Litigation Funding | Portfolio cases

Introduction

In litigation funding, portfolio cases involve financing a collection of multiple cases under a single agreement. This approach treats the portfolio as a single investment, allowing funders to assess the overall risk and potential returns.

Portfolio cases generally fall into three main categories, based on their underlying structure and investment strategy.

High-volume, per case funding model.

This category involves a large number of similar cases. Funders invest in each case on a standalone basis, and if it is successful, they earn a return on the capital deployed for that specific case.

Facility-based portfolio.

This model is structurally similar to the first, in that it involves a high volume of comparable cases. However, instead of funding each case individually, funders establish a facility that its partners can draw down on as cases are originated. In this case, a funder’s return is generated from the overall performance of the portfolio rather than the performance of cases on an individual level.

Highly complex or diverse

This third category consists of a small number of distinct, typically higher-value cases. These cases are often more complex or diverse and do not follow the standardized structure seen in the prior two categories.

Typically, a majority of litigation funding portfolio cases fall into the first category.

Due Diligence Considerations

Initial Legal Merits / Financial Standing

Since these are smaller, high-volume cases, there tends to be a lot of existing case law and precedent. This depth provides funders with a more reliable view of claim strength and typical court and defendant responses, which means the risk of an outright loss is generally low.

However, strong merits do not guarantee expected returns. In some situations, successful cases face enforcement hurdles or produce only partial recoveries.

Because claim values are modest, a significant share of returns may hinge on cost recovery, which can be impacted by various factors depending on the jurisdiction.

When most returns depend on claim value, funders may not know an accurate claim value until several months after the lead is generated. That makes it difficult to assess the average claim size and the potential return, early on in the process.

Litigation funders can use stress testing to model a lowest acceptable claim value, which helps to some extent. But in practice, its usefulness is limited if they cannot apply that threshold at the point of case selection or onboarding.

Track records of partner law firms and defendants’ past behaviour are useful, but they do not guarantee future returns. As with investments, past performance is not a reliable indicator of future results.

Market shifts, changes in the legal landscape, or new strategies from defendants can alter outcomes. Funders should use historical data as guidance, remain flexible, and avoid assuming that prior patterns will persist.

People vs the claim

While due diligence on the claim type itself is often easier to perform due to the standardised nature of the cases, a substantial amount of due diligence is often required on the individuals and firms that funders collaborate with for the portfolio. This can often be more challenging than conducting legal due diligence on a standard commercial litigation case.

Litigation Funders need to evaluate factors such as operational efficiency, reliability, and alignment with their objectives. This includes understanding how well process management, consistency of performance, and whether their approach supports commercial goals and risk appetite. It’s also important to assess their transparency, responsiveness, and capacity to scale as volumes increase.

Portfolio Structuring and ATE Time Commitment

Portfolio cases are complex to structure because they require layered negotiations with collaborators, finalisation of the LFA, and placement of ATE insurance. Each element adds an extra layer of time, effort, and cost that litigation funders need to consider.

This complexity also raises opportunity-cost questions: do the returns justify the investment of resources?

While the lower risk nature of portfolio cases may seem attractive, this risk often comes with lower returns, which can make it harder to justify the time and resources financiers spend in structuring them.

The true value of these cases lies in striking the right balance, ensuring that effort spent on structuring, monitoring, and managing risk is justified by the overall return.

Financials

Main Financial Changes made

A few measures can be implemented in a litigation funder’s portfolios that could be useful in limiting downside risk and exposure.

Investment Recovery Provisions

In some cases, funders are able to recover part or all of the investment made into a case, even if the outcome isn’t successful. This recovery provides downside protection, softens adverse outcomes, and strengthens portfolio resilience when some cases underperform. The approach limits risk without relying solely on strong case results.

Cross-collateralisation

Cross-collateralisation across a portfolio improves cash flow and capital efficiency. Instead of treating each case in isolation and waiting for it to conclude before realising value, funders use recoveries from earlier wins to cover both capital and return requirements across the portfolio.

This means that if a case settles early, the funder can use those funds to recover their capital and returns upfront, even while other cases remain ongoing. It creates a more efficient capital recovery process.

Funders can apply this approach in a portfolio with a limited number of cases, which makes implementation more manageable. However, it may not always be possible, depending on the clients involved and the size of the claims.

Success Fee Arrangements

Third-party funders can also negotiate success fee arrangements and discounted legal fees with the law firms involved in these portfolios. While these types of agreements aren’t unique to portfolio cases, they offer additional advantages when applied at scale. By reducing upfront legal costs and linking a portion of fees to the outcome of the case, funders are able to lower their capital exposure on a per-case basis.

This not only improves the overall risk profile but also allows us to stretch the same pool of capital across a greater number of cases. As a result, funders can diversify more effectively and potentially increase overall returns without a significant increase in capital outlay.

Duration Assumptions / Portfolio Recycling

Another characteristic that is not specific to portfolio cases are the optimistic assumptions around how long cases will take to resolve. A large part of the appeal emerges from the concept that a funder could recycle its capital by redeploying proceeds from early cases into new ones.

In theory, this allows funders to stretch capital further and manage exposure more efficiently.

However, in practice, case durations are often longer than anticipated. This can delay recoveries and reduce the funders’ ability to recycle capital within the expected timeframe,

This can lead to a higher level of deployed capital at any one time than originally planned for and potentially push a funder’s exposure above levels they would typically be comfortable with.

Taking a more refined approach - instead of focusing on net investment after potential recoveries, a funder could assess each opportunity based on the total gross capital they are likely to deploy. This could provide a clearer view of a funder’s true exposure and support better-informed decisions from the outset.

Material Adverse Changes

Within the funder’s LFAs, a section covering Material Adverse Changes (or MACs) can be included. This clause provides the funder the flexibility to stop funding if certain predefined conditions are no longer met. It is designed to protect the funder in situations where unexpected events materially affect the viability or commercial attractiveness of the investment.

The criteria set out under the MAC clause are specific and measurable. For example, a funder may require that the average claim value across the portfolio does not fall below a set threshold.

Should this occur, it may signal that the economics of the cases have changed, and the return profile is no longer acceptable. Funders typically base the criteria from information that they receive from the partners they are working with.

By having these clauses in place, funders are able to manage their risk more proactively. It also ensures that they remain aligned with the original investment thesis and gives them a structured way to respond when key metrics start to move in the wrong direction.

Ongoing Cases

Marketing

One of the challenges funders can encounter with ongoing portfolio cases is that marketing and lead generation can take longer than initially expected. This delay can impact how quickly capital is deployed and create a mismatch between the expected and actual timelines for building the portfolio.

These delays can also strain internal resources, as teams need to stay engaged over a longer period without the expected case volumes.

Regulation Changes

Portfolios can often appear to be lower-risk investments, particularly when compared to single-case funding, because the traditional binary risk, where a case either wins or loses, doesn’t apply in quite the same way.

However, this sense of reduced risk can be misleading if regulatory factors are not properly accounted for. Many portfolios are built around a single legal strategy or claim type that relies heavily on current regulatory frameworks.

As a result, any change in legislation or regulatory guidance can threaten the entire portfolio. Regulatory and legal stability is therefore a critical element of risk assessment in portfolio-based strategies.

Monitoring

Monitoring a funding portfolio effectively requires a shift from individual case tracking to a broader, trend-focused approach. Given the high volume of cases funders can potentially onboard, it is not practical to monitor each case individually.

Instead, funders may rely on aggregated data to identify patterns in performance, timelines, and outcomes.

One of the defining characteristics of a typical funding portfolio is its choppy, non-linear nature. Returns often come in clusters. The volume and timing of outcomes also fluctuate. This makes it difficult to draw meaningful conclusions from any single point in time.

Therefore, a funder would attempt to assess performance over longer horizons.

Even within per-case models, portfolios differ materially due to partner reporting practices and internal dynamics, leading to distinct risk profiles, case progressions, and cash-flow expectations.

This variability makes a single, uniform monitoring framework difficult to apply.

Conclusion

While the process of funding portfolio cases can be resource-intensive and demand careful upfront work, the risk of not recovering funding capital is generally quite low.

In most cases, the primary risk isn’t capital loss, but rather that the returns may fall short of initial expectations.

The real question often comes down to opportunity cost. These portfolios take significant time to structure and manage, so funders need to be confident that the return profile justifies the investment of time and resources. In some instances, lower risk comes at the cost of lower margins, making selectivity even more important.

Litigation funders have made meaningful improvements to how they manage these investments. Some have implemented measures like downside protection, cross-collateralisation, and fee structures that better align risk and reward.

And while every portfolio behaves differently, funders continuously refine their approach to ensure they adapt to each one’s unique characteristics.

Looking ahead, funders benefit from increased selectivity, prioritising portfolios where the balance of risk, return, and resource demands aligns clearly with their broader investment goals.