Litigation Finance’s New Money Fades in ‘Tight’ Capital Market

New litigation funding deals dipped last year to the lowest point in at least half a decade, thanks to a tight fundraising environment and concerns about risk.

Funders committed $2.3 billion to new litigation finance deals last year, down 16% from 2023, according to consultant Westfleet Advisors. The total was down 30% from 2022, Westfleet said in a Wednesday report.

“For a variety of reasons, funders continued to ration their limited capital, resulting in an environment in which litigation financing was much more difficult to secure compared with prior years,” Westfleet said. “These tendencies are examples of factors that are driving tight market conditions—tighter than we have observed in at least the last five years,” the report said.

Investors generally were hampered by high interest rates, inflation, and cash tied up longer than expected over the year. Some litigation funders entered harvest mode after struggling to raise capital, while others took a more cautious approach to new deals.

LexShares last year ditched its plans to launch a new fund—slashing its payroll and shifting its focus to managing its current portfolio—citing lingering effects of the pandemic on the funder’s case pipeline. New funders have been particularly concerned about avoiding risk, according to Westfleet, limiting the types of deals they seek.

Westfleet collected data from commercial litigation funders in the US. The data doesn’t include funders specializing in mass tort law firm financing or consumer litigation.

The overall size of the market stayed mostly unchanged: 42 active funders held a combined $16.1 billion in assets under management.

The average litigation finance deal size ticked up to $8 million last year up from $7.8 million in 2023. The average single-matter deal was $6.6 million, while portfolio deals averaged $16.5 million. Portfolios accounted for the majority of deals—67%—holding steady from the previous year.

Patent litigation continued to be the largest category for funded matters, increasing from 19% of all capital commitments to 32%.

“The uptick is driven basically entirely by portfolios,” Charles Agee, CEO of Westfleet, said in an interview. “It’s a very difficult market for single matter patent litigation funding.”

Fortress Investment Group, an investment manager that is a major player in the patent space, committed $2.9 billion to intellectual property as of last year. Hedge fund Davidson Kempner was revealed in court filings as the backer of a patent cases against Audible Inc.

Westfleet for the first time gathered data on the role of insurance in new funding deals. About 19% of capital commitments were either fully or partially insured, according to the report. Insurers have become a major part of the litigation finance space, with funders using policies to insure principals or as collateral for loans from capital providers.

Big Law continued to utilize litigation finance, accounting for more than a third (37%) of new commitments over the year. Large law firms’ total new commitments were down more than 11% to $850 million in 2024. The majority of those new commitments went to single matters, rather than portfolios.

The report says that industry participants feel that the tight capital conditions will loosen as soon as flows of capital increase.

“When something is down because of tight capital conditions that could be the time to buy,” Agee said.