Bloomberg Law
Feb. 16, 2023, 10:30 AM

Big Law Balks at Litigation Finance Deals Seen as Too Pricey

Roy Strom
Roy Strom

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. Today, we look at the growth of litigation funding and what may be keeping Big Law firms from taking the money. Sign up to receive this column in your Inbox on Thursday mornings. Programming Note: This may be the last Big Law Business for about a month as your columnist prepares for fatherhood.

When courts reopened after the early stages of the pandemic, so did investors’ wallets.

US litigation funders committed more than $3.2 billion to lawsuits through mid-2022, a nearly 16% increase from the previous 12-month period, a survey shows.

The 44 funders have $13.5 billion in assets under management, according to the fourth annual Westfleet Advisors survey. That was also up—by 9%.

But there’s an interesting story beneath the rosy top-line results: The biggest law firms seem to have been shying away from participating in litigation finance deals.

Cases involving the 200 largest law firms accounted for 28% of the capital investors committed during the 12-month span from July 2021 to June last year. That was down from the prior year, when Big Law firms accounted for 41% of the committed capital, and closer to historical levels from the survey’s previous years.

In litigation finance, investors such as Burford Capital plop down money on lawsuits, paying for things such as lawyers’ fees and court costs. If the case results in a monetary award, the investors reap big returns. But if it’s a loser, they’re out the full investment.

So with investors plying greater amounts of cash in this space, why isn’t Big Law all in?

The answer lies in the typical structure of litigation finance deals offered to Big Law, said Charles Agee, CEO of Westfleet.

So-called portfolio deals are backed by multiple cases that are “cross-collateralized.” That means if one case generates a return, firms must pay back all invested money. So firms often end up paying two to three times the amount of capital they received at the front end.

“The problem for the law firm user community is the pricing levels just don’t make sense to that limited offloading of risk,” Agee said. “I’ve seen major funders in the last 12 months miss out on those law firm portfolio transactions that I believe they really wanted to do—because of that disconnect in pricing.”

Big Laws’ reluctance toward portfolio deals has opened the door to competitor products.

New entrants in the litigation funding space, including hedge funds and alternative asset managers, have begun offering deals structured more like typical loans, Agee said.

Those deals charge annual interest rates in the high-teens or low 20% range, he said. The structure is often “significantly” less expensive than traditional portfolio pricing, Agee said.

Still, some law firms remain uncomfortable signing agreements that look more like traditional loans.

“It’s not as if all these deals are going to hedge funds and other non-bank lenders, but some of them are,” he said.

Agee was part of a panel of experts convened by the Government Accountability Office, which recently released a report on the litigation finance market. The report relied heavily on the Westfleet survey figures while noting there were significant “data gaps” in the market, including how much money was being spent and by who.

The report didn’t identify easy ways to gather more data on the industry. The panel of experts convened by the GAO questioned what problems would be fixed by collecting more data, Agee said.

“There’s lots of data gaps in many industries, but if you don’t have a good reason to believe they’re creating a significant policy problem, what’s the government interest in closing those data gaps?” he said.

While the funding industry continues to collect more capital and put more money to work, Agee said it still represents a “tiny fraction” of the annual amount spent on US litigation.

“The idea of third-party funding is intriguing,” he said. “But how significant of an impact could it possibly be having on the overall litigation system in the US? I think the answer is clearly little to none.”

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That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.

To contact the reporter on this story: Roy Strom in Chicago at

To contact the editors responsible for this story: Chris Opfer at; John Hughes at