How Private Investors Betting on Lawsuits Are Changing the Way Americans Go to Court

A $15.2 billion industry is turning American courtrooms into the new Wall Street trading floor, where hedge funds and private equity firms bet on the outcome of lawsuits they do not own. Litigation finance—the practice of outside investors paying for a lawsuit in exchange for a slice of the eventual payout—has matured into a sophisticated asset class. What began as a way for cash-strapped plaintiffs to level the playing field against deep-pocketed corporations is now a major fixture of the legal landscape, attracting sovereign wealth funds and institutional investors looking for returns that are uncorrelated with the volatile swings of the stock market.

As of early 2024, the U.S. commercial litigation finance market reached an estimated $15.2 billion in assets under management, according to Westfleet Advisors. Approximately 39 active litigation funders were identified as operating in the U.S. market. While the industry faced a brief drought in 2023 due to a tightening capital supply, it rebounded in 2025 with a 23 percent increase in new capital commitments. This shift suggests that lawsuits are increasingly being bundled into portfolios, analyzed with predictive algorithms, and traded with the same pragmatism as distressed debt or real estate.

The Business of the Gavel

The financial logic behind these investments is significant. Top-tier funders typically seek internal rates of return (IRR) between 20 percent and 30 percent. Burford Capital, a major player in the industry, reported results for the 2023 fiscal year showing total revenues reaching $1.1 billion. The firm’s 2023 annual filings cited a 28 percent IRR on its concluded investments for that year and noted that the firm anticipates further substantial levels of activity.

This is a business defined by extreme selectivity. The Government Accountability Office (GAO) reported in December 2024 that funders typically back fewer than 5 percent of the patent cases they investigate. This process ensures that the “assets” in the portfolio represent only the most promising legal claims, effectively turning the legal system into a high-yield investment vehicle for those with the capital to participate.

The move toward large-scale funding is also changing the relationship between the nation’s largest law firms and their clients. According to Westfleet Advisors, large law firms accounted for 24 percent of total funding commitments in 2025. While this was a decrease from 37 percent in 2024—as some firms moved away from large portfolio deals—it underscores how deeply third-party capital has become embedded in the corporate legal environment.

The Global Pioneer and Regulatory Shifts

While the U.S. is the world’s largest market for legal funding, international precedents are beginning to shape the domestic debate. Australia has long been a global pioneer in this space. In the state of Victoria, “Group Costs Orders” introduced in 2020 allow lawyers to take a direct percentage of a recovery, a move that forces third-party funders to compete directly with law firms for a share of the proceeds.

However, recent rulings in Australia also highlight the limits of using lawsuits as pure financial instruments. In a recent decision in Hunt Leather v. Transport for NSW, the Australian High Court ruled that litigation funding commissions are not recoverable as a separate head of damages from defendants. This means that if a funder takes a significant percentage of the win, the plaintiff—rather than the losing defendant—must bear that cost.

In the U.S., the presence of an outside investor in a courtroom has often been a closely guarded secret. This lack of transparency has led to calls for reform from various business groups. Organizations like the U.S. Chamber Institute for Legal Reform argue that treated lawsuits as assets can shift the primary goal from seeking justice to maximizing the return on investment, which can lead to longer cases and higher settlement demands.

The Hidden Cost to Households

For the average American, the rise of litigation finance might seem like an abstract battle between financial institutions. However, the U.S. Chamber of Commerce reported in 2024 that the U.S. tort system costs American households an average of more than $4,200 per year in indirect costs, such as higher insurance premiums and increased prices for consumer goods.

It is important to note that consumer advocates often dispute these figures, arguing that such “indirect costs” are difficult to calculate and often aggregate broad economic variables that may not be directly linked to litigation volume. Nevertheless, the debate over how third-party funding affects the overall cost of the legal system remains a central point of contention for policymakers.

Source: U.S. Chamber (2024) / CALA (2026)

In the consumer legal funding market—where individual plaintiffs receive advances for personal injury cases—the stakes are highly personal. A report by the advocacy group PACT highlighted cases where effective annual interest rates for these advances approached 100 percent. In these scenarios, the funder provides capital for immediate living or medical expenses, but by the time a settlement is reached, the funder’s interest and fees can consume a significant portion of the award, leaving the plaintiff with a fraction of the intended recovery.

The Transparency Debate

One of the most significant developments in the industry involves the push for mandatory disclosure. Critics of the current system argue that the lack of transparency regarding who is actually financing a case can undermine judicial integrity. The U.S. Chamber Institute for Legal Reform has expressed concerns that without disclosure, it is impossible to know if a funder has a conflict of interest or is exerting undue influence over legal strategy.

In response to these concerns, there has been a growing movement toward mandatory disclosure of third-party funders in federal class actions and multi-district litigation. Proponents of transparency argue that judges and defendants have a right to know if a third party has a financial stake in the outcome, while funders argue that such disclosures are unnecessary and could be used by defendants to outspend and exhaust plaintiffs.

While federal legislation remains a subject of debate, individual states are beginning to examine the relationship between funders and plaintiffs. Some proposed measures aim to ensure that a litigation funder’s total recovery does not exceed the amount the plaintiff receives. These rules are designed to ensure that the person who suffered the harm remains the primary beneficiary of the legal system.

The Future of the Gavel

The evolution of lawsuits into an asset class represents a significant shift in how legal disputes are resolved in the United States. By finding value in legal claims, funders have created a market that provides liquidity to law firms and capital to plaintiffs who might otherwise be unable to afford a protracted legal battle.

However, when a courtroom becomes a profit center, the metrics of success necessarily change. For an investment firm, a 28 percent return is a sign of a healthy and successful portfolio. For the public, the growth of this market raises fundamental questions about the purpose of the civil justice system. The challenge for the coming years will be to establish a regulatory framework that balances the need for legal capital with the requirement that the justice system remains a public good rather than a resource to be mined.