Rising investor demand for litigation finance coincides with higher losses

Investors have been piling into the litigation funding space in search of triple-digit returns but experts have urged newcomers to be aware of the risks in the market.

Litigation funding has become a popular segment of the alternative lending sector in recent months, with litigation funding specialists attracting interest from both institutional and individual investors. Last month, litigation funding specialist Nera Capital secured a £20m investment from Fintex Capital, and AxiaFunder has seen a significant rise in its funding volumes this year.

Meanwhile, private credit fund managers have been inching into the space. Aperture Investors, the alternative investor backed by Generali Investments, recently hired Victory Park’s Luke Darkow to develop and run its first litigation finance strategy.

However, veterans of the litigation financing market have warned that investors should be made fully aware of the risk of capital loss depending on the outcome of each individual lawsuit.

Read more: Litigation funder Nera Capital hires financial services veteran as CFO

Cormac Leech, chief executive of AxiaFunder told Alternative Credit Investor that AxiaFunder’s funded volumes were up by approximately 150 per cent during the first half of 2024 year-on-year. However, the litigation finance platform has recently experienced its first losses.

To date, 17 commercial lawsuits have been fully funded on the AxiaFunder platform. Six of these are ongoing, while nine cases have been won and two have been lost. Investors have generated returns of between -96 per cent and 175 per cent to date, depending on which loans were backed.

Read more: AxiaFunder sees cases funded faster