News and analysis dedicated to the commercial litigation funding sector including regulatory issues, case developments, funding activities, and more.

The following article was contributed by Celso Filho, Global Head of Special Projects at Market Securities, and co-founder and CEO of Rachel AI.

Life insurers and other institutional investors face a structural allocation challenge: securing sufficient volumes of rated, long-duration, yield-bearing assets to match long-tail liabilities. Public investment-grade bond markets remain large, but they do not consistently provide the spread, structure, or customization required. As a result, insurers have steadily increased allocations to private placements, asset-backed securities, and other forms of private credit.

According to Milliman’s 2026 analysis of NAIC statutory filings, private bonds now account for approximately 46% of U.S. life insurers’ bond portfolios — up from 29% a decade ago — reflecting a sustained and accelerating shift toward alternative sources of yield and duration. The trend is sharpest among PE-owned life insurers, where structured securities account for approximately 49% of total bonds — underscoring how deeply the search for rated, yield-bearing paper has become embedded in the asset allocation strategies of the most capital-active players in the sector.

Market Securities is addressing that demand by bringing to market asset-backed securities backed by legal finance receivables, including pre-settlement plaintiff advances and receivables linked to contingent fee arrangements with law firms. These assets introduce a distinct return profile driven by legal case cash flows rather than traditional corporate credit cycles, and they can be structured into rated securitizations suitable for institutional portfolios.

The opportunity is crystallizing across three investor tiers — each approaching the asset class from a different angle, but converging on the same structure and, together, driving the institutionalization of legal finance.

1. Insurers and other rated-mandate investors represent the largest pool of demand. Operating within strict capital and rating constraints, they allocate to investment-grade instruments at 125 to 200 basis points over Treasuries and can deploy hundreds of millions per transaction. Their participation defines the scale of the opportunity — and creates the demand for rated, structured exposure that legal finance ABS is uniquely positioned to meet.
2. Private credit managers, sovereign wealth funds, and large family offices occupy the senior and mezzanine tranches, targeting enhanced yield with structural protections. Unlike insurers, these investors are not dependent on ratings and underwrite assets directly, focusing on risk-adjusted returns, structure, and downside protection. They provide the capital depth required to scale transactions and anchor issuance.
3. Specialist legal finance investors sit in the junior and equity tranches, underwriting legal risk directly and targeting returns in excess of 25%. These investors take first-loss positions, pricing legal risk at the asset level — and for them, securitization offers a compelling strategic advantage: lower cost of capital and greater leverage availability than traditional fund formation, particularly relevant in today’s challenging fundraising environment.

These tiers are complementary rather than competitive. Rated investors bring scale and duration demand; private credit and sovereign capital provide flexible, non-rating-constrained liquidity; and specialist managers contribute underwriting expertise and first-loss alignment. Securitization is the architecture that aligns them — converting legal finance receivables into a format that institutional capital can size, rate, and deploy against.

Market Securities sees this convergence as structural rather than cyclical, and legal finance ABS as the mechanism through which it becomes permanent.

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Celso Filho, CFA, CAIA is Global Head of Special Projects at Market Securities, based in the Dubai International Financial Centre (DIFC). He is also co-founder and CEO of Rachel AI, a London-incorporated litigation finance technology and analytics platform. Celso began his career as a lawyer, practising for seven years before transitioning into investment banking and specialty finance, with prior roles at Citigroup and Credit Suisse. He holds an MBA from INSEAD.

Written by Ankita Mehta, founder of Lexity.ai – a platform that helps litigation funds automate deal execution and prove ROI.

In litigation finance, you can win the case and still lose money.

This is often due to duration risk – the silent, persistent killer of a fund’s IRR. It’s a primary threat to projected returns, tying up capital for months (or years) longer than planned. In a market where every delay erodes value, monitoring becomes a critical, high-stakes function.

For years, that monitoring process has relied on analysts manually scanning dockets and then logging events in a static spreadsheet. But let’s be clear: this is no longer a sustainable process. It’s a liability.

The true failure of the manual model is twofold. First, the initial diligence (often taking weeks) is too slow and key for preventing loss of deals, and second – when a new development is spotted, analysts have no way to measure its downstream financial impact. By the time a human calculates the damage of a delay, the damage is already done.

This article provides a pragmatic framework for shifting from this reactive, “dead data” model to a proactive, AI-driven workflow.

Early warning signs your team is likely missing

Your expert team is your greatest asset, but they are buried in the grunt work of diligence and shallow monitoring. Ironically, the highest-value insights are lost in this process.

Here’s what that looks like in practice:

1. A “minor” discovery motion is spotted by an analyst. They note it in an Excel file. What they can’t do is instantly model its domino effect on the summary judgment and trial dates, or see that this exact motion by this opposing counsel has historically added 90 more days.
   
2. A late expert report is received, which is logged as a single missed deadline. The team lacks a system to immediately see how this one event threatens the entire return profile by breaking a chain of dependencies.

An analyst’s “gut feel” about a jurisdiction is helpful. But a workflow that quantifies that gut-feel by comparing a new case against historical jurisdictional data is infinitely better.

The solution? An AI-powered analytical workflow

No, this isn’t me writing about a “magic” AI tool. This is more about having a disciplined AI-powered workflow that gives your team the right analysis at the right time by pulling out the relevant data for accurate decision making. Here, the value isn’t in just finding a new event, but in understanding its impact instantly.

A carefully thought out workflow delivers value on three distinct levels:

1. Automated diligence and baseline modeling: The system first ingests the initial case documents, automatically extracting critical milestones and deadlines. This alone cuts initial review and diligence time by over 70% and creates an accurate, “live” baseline model of the case before a single dollar is deployed.
   
2. Proactive impact analysis: This is the crucial step. When an analyst spots a new development (from a docket or a counsel call) and inputs it, the platform instantly analyzes its impact. It connects that “minor” motion to the entire case timeline and budget, flagging the precise IRR and duration risk. This shifts the team from a “data entry” to a “proactive risk management” role.
   
3. Portfolio-level pattern recognition: The system links procedural changes to their impact on case valuation and portfolio returns, flagging delay-patterns that a human analyst under heavy load could otherwise miss.

The ROI of proactive mitigation for your business

Here’s the business case for moving beyond outdated manual processes:

Benefit #1: Protect your projected IRR

Instead of reacting to delays or logging events in a void, you can now start measuring their impact the moment they happen. A modern workflow gives you the foresight to have critical conversations or adjust reserves before a slight delay can escalate into a crisis.

Benefit #2: Save your team the “grunt work”

The experts don’t need to spend a disproportionate amount of time to do data entry or check dockets. Think of it like cutting with a blade: the work will get done eventually, but without a sharp blade it takes far more time and effort. 

Here, having the right AI-powered workflow can sharpen that blade so routine monitoring happens instantly and your team can focus on the actual analysis that drives returns. 

Benefit #3: Create a defensible, data-driven risk model

Move your risk assessment from a subjective “gut feel” to an objective, consistent data-backed model based on facts and verification that your investment committee can rely on every time.

The impact of this shift is tangible. According to our firm’s benchmarks, a $500M litigation fund we work with cut diligence time by 70% while tripling its case throughput.

A pragmatic framework for your first AI workflow

For a non-technical leader, “adopting AI” can sound like a complex, six-month IT project. But it needn’t be this way. Allow me to share with you a clear three-step framework for a successful, low-risk adoption.

Step 1: Identify the grunt work

Start by asking “What repetitive, low-value tasks steal time from real analysis and what would be the value to the firm if we could automate these tasks using technology? Here, the goal isn’t to replace your experts’ judgment, but to empower them to take on more cases while keeping their judgement intact.

Step 2: Start from a single high-value problem

Don’t try to boil the ocean. The goal is not to merely “implement AI” and tick a box. You are doing this because you want to solve one specific business problem (e.g. preliminary case assessment). For many funds, this alone could become a 2-3 day manual bottleneck. With the right workflow, it’s possible to complete this in under half a day. Solve that one piece of the puzzle, prove the ROI, then scale up.

Step 3: Focus on your process and not the tech

When evaluating any solution ask: “How does this fit into our existing workflow?” If it requires your team to abandon current processes and learn from scratch, the adoption rate won’t exactly be high. The right solution should enhance your process – and not just add pile more tech on top of it.

Conclusion

These days, duration risk has shifted from being an unavoidable reality of doing business to yet another variable we can control. Keeping the old approach of manual monitoring could put your value, and your capital at risk. Conversely, by embracing AI in specific processes, you get a pragmatic and provable way of shielding your capital and your IRR, all while empowering your team to do what they do best. Implementing AI the right way will give you a definite boost in efficiency and returns, just depends on implementing it the right way.

But how do you build a business case for this shift? The next step is moving from the operational benefit to assessing ROI. More on this in another article.