Trending Now
  • Motor Finance Redress is a Clean-Up, a Compromise, and a Promise Not Quite Kept
Commercial Investor's Corner Slingshot Capital Special Features

‘Secondary’ Investing in Litigation Finance: Why, why now, and how to approach investing in Lit Fin Secondaries

March 1, 2022

‘Secondary’ Investing in Litigation Finance: Why, why now, and how to approach investing in Lit Fin Secondaries

The following article is part of an ongoing column titled ‘Investor Insights.’  Brought to you by Ed Truant, founder and content manager of Slingshot Capital, ‘Investor Insights’ will provide thoughtful and engaging perspectives on all aspects of investing in litigation finance.  Executive Summary
  • Evolution of Litigation Finance necessitates the need for a secondary market
  • Investing in Litigation Finance secondaries is much more difficult than other forms of private equity due to the inherent difficulty in valuing the ‘tail’
  • Experts should be utilized to assess case merits and valuation
  • Life cycle of litigation finance suggests timing is right for secondaries
Slingshot Insights:
  • Investing in the ‘tail’ of a portfolio, where most secondary transactions will take place, can be more difficult than primary investing
  • Dynamics of the ‘tail’ of a portfolio are inherently riskier than a whole portfolio, which is partially offset by enhanced information related to the underlying cases
  • Secondary portfolios are best reviewed by experts in the field and each significant investment should be reviewed extensively
  • Derive little comfort from portfolios that have been marked-to-market by the underlying manager
  • Investing in secondaries requires a discount to market value to offset the implied volatility associated with the tail
In my discussions with litigation finance institutional investors, the topic of secondary investments has been raised a number of times by those who understand the economics of the asset class and are seeking to take advantage of some of the longer duration cases and portfolios in existence.  In this article, I explore why there is interest in the secondary market, why now, and how best to approach investing in secondary investments, as well as some watch-outs. The concept of secondaries has been well established in the private equity world, specifically leveraged buy-out private equity, and, having been in existence for a couple of decades now, represents a mature strategy not only within leveraged buy-out, but also infrastructure, real estate, venture capital, growth equity, etc.  So, it is not surprising to see the concept applied to litigation finance. As David Ross, Managing Director & Head of Private Credit at Northleaf Capital Partners, notes “Having been active in private equity secondaries for close to twenty years, Northleaf has extended its secondaries expertise over the past few years to include investments in litigation finance, which is an area that provides attractive and uncorrelated returns for our investors. Executing investments in litigation finance requires dedicated expertise but can provide attractive transaction dynamics for both existing investors seeking liquidity and prospective investors capable of underwriting and structuring an attractive secondary.” To begin with, let’s first define what constitutes a “secondary” transaction.  Essentially, a secondary is any transaction where one party is acquiring the interests from the original investor (the ‘primary’ investor) in an investment opportunity.  In the case of litigation finance, this could take the form of a single case investment, portfolios or LP interests in funds, among other opportunities.  In this sense, they are the ‘second’ investor to own the investment, as they have acquired their interest from the first investor through the acquisition transaction. Types of Secondaries In order for a secondary market to make sense, at least for institutional investors, there needs to be a sufficient number of opportunities that are adequately aged to allow for one party to sell at typically, but not always, a discount to either their original cost or their current fair market value of the investment.  These opportunities can arise for a number of reasons, as outlined below. For fund managers, they may be looking to raise a new, larger fund, and in order to do so they will have to demonstrate that they are good stewards of capital and that they can produce attractive returns to investors relative to the risk they assume.  If these managers do not have a sufficient number of realizations in their predecessor portfolios, they will have to create a track record by selling off interests in single cases or entire portfolios.  In this way, they will receive arm’s length validation that their portfolio has intrinsic value, with the idea that other potential investors should take comfort in the fact that a third party has assessed the attractiveness of opportunities and decided to invest at a value that is, hopefully, in excess of their original cost, or matches their internal assessment of fair market value.  Of course, this assumes that the purchaser is a knowledgeable purchaser of litigation finance assets and an expert at valuing litigation finance investments, of which few exist in the world, as valuation is perhaps more art than science. A relatively recent public example of this is Burford’s multiple secondary sales of interests in their Petersen case, which was sold in several tranches at increasing valuations as Burford continued to de-risk their investment through positive case developments during its hold period.  According to the Petersen article hyperlinked above, Burford generated $236 million in cash from selling off interests in the claim, which significantly benefited its reported profitability and cashflow, and evidently, fueled its stock price at the time.  All in all, a smart move by Burford to hedge its bets and de-risk its investment by selling down to other investors.  However, it remains to be seen whether those who acquired the secondary interests in Peterson were as astute as the sellers, time will tell. For investors, they may be in a situation where they are in a liquidity squeeze, and could be frustrated with the duration of the litigation finance portfolio and therefore wish to exit the remainder of their investment to redeploy capital into a new fund or a new strategy. They could also have had a change in management which created a shift in strategy, or any number of other causes.  For investors in individual cases or funds, they currently face a difficult task in finding a secondary investor to acquire their interests, which can be made more difficult by the fact that the manager may not be motivated to find them a purchaser, as there is no economic incentive to do so. The fate of these investors remains in the hands of the manager.  However, if there are enough investors clamoring for liquidity, then the manager may be forced to hire an investment bank or another intermediary expert to solicit the markets’ appetite and obtain bids for the portfolio; but this will come at a cost which is typically assumed by the selling investor. But is a secondary a “realization”? The short answer is NO! While a secondary can be an indication of perceived value in the market, it is simply a point-in-time estimate of value by the new, prospective owner that makes a series of assumptions to underlie their valuation. As such, it has no bearing on whether the case is more or less likely to settle or win, whether the defendant has the resources to pay, and whether it could take two years or ten years to collect. Litigation is well known to have a binary outcome.  In the context of large cases where there are significant dollars at risk, it may be in the best interests of the defendant to take the trial risk and deal with the consequences by ultimately settling for a fraction of the damages after the court decision is handed down.  In the Petersen case referenced above, it has been felt by some in the market that an award could still be years away (in the absence of collection frustration tactics that the Argentinian government may pursue); and even then, there is some concern that the decision may allow for damages denominated in Argentine pesos, which have been significantly devalued since the case began.  In addition, the Argentine government has defaulted on its sovereign debt a few times over the last numbers of years and is currently in default on its International Monetary Fund loans, so it is difficult to assess the risk of collectability. Just because you win a case, doesn’t mean you get to collect the spoils. Collection is a whole other issue and perhaps a topic for another article.  Suffice it to say, that a case is not completely de-risked until the ‘cash is in the bank’ (your bank account, not the lawyer’s trust account). So, I personally would take very little comfort in the fact that another party has looked at a case and made a decision that it has value – you would have to have a deep understanding of that buyer’s motivations (are they merely incentivized to get money invested? Are they motivated by Litigation Finance FOMO?) and that buyer’s ability to value litigation, which is difficult to do with accuracy because of the number of variables & uncertainties involved. Why are litigation finance secondaries interesting? Perhaps the better question is, “Are litigation finance secondaries interesting?” And the answer is, “It depends”. When you look at a portfolio of litigation finance single cases, there are a number of individual investments that typically resolve early in the fund’s life, and this usually gives rise to attractive internal rates of return (“IRR”), but low multiples of  invested capital (“MOIC”); then, there are those that resolve in and around the 30 month mark, which is a fairly typical duration, which should result in stronger MOICs and perhaps somewhat lower IRRs; and then, there is the ‘tail’ of the portfolio (see chart below).  The ‘tail’ of a portfolio refers to those cases that are outside of the normalized expectation for case realizations in terms of duration that reside in the portfolio near the end of, or perhaps even outside of, the investment vehicle’s life.  These cases could be outside the normal time distribution because the cases are highly complex, the defendant has tried to procedurally frustrate & delay the litigation, the case is going through a long drawn out trial or arbitral process, or the nature of the case simply takes longer (intellectual property, international arbitration, etc.) among other explanations. Often, when an investor is provided with a secondary opportunity, they are quite likely looking at investing in the ‘tail’ of the portfolio because the early part of the portfolio has already been resolved, and the proceeds have either been paid out or used to fund the cases remaining in the tail.  Investing in the tail has many implications for expected outcomes. The potential tail outcomes, as depicted with red arrows in the chart below, indicate the uncertainty in both quantum and duration of the tail. In part 2 of this article, I will explore some of the intricacies of ‘investing in the tail’ and explore considerations for investing in secondary transactions in litigation finance investments. Slingshot Insights  For those investors interested in the litigation finance secondary market, I think it is important to approach the investment with caution and a high level of expert diligence to offset the implied volatility that the ‘tail’ of the portfolio offers.  It is also important to understand the motivations of the seller – a manager looking to create a track record will have different motivations than an investor who needs liquidity.  The seller’s motivations may also offer insight into the extent price can be negotiated. It is important not to lose sight of the typical loss rate of the industry and the fact that the tail should exhibit enhanced volatility (more losses) as compared to a whole portfolio, and so an investor should model their returns, and hence their entry price, accordingly. Should you choose to make a secondary investment, consider a variety of options to de-risk the investment by sharing risks and rewards with others (i.e. insurance providers or the vendor of the asset). Above all else, make sure your secondaries are diversified or part of a larger diversified pool of assets. As always, I welcome your comments and counter-points to those raised in this article. Edward Truant is the founder of Slingshot Capital Inc. and an investor in the consumer and commercial litigation finance industry.  Slingshot Capital inc. is involved in the origination and design of unique opportunities in legal finance markets, globally, investing with and alongside institutional investors

Commercial

View All
Commercial Special Features

Motor Finance Redress is a Clean-Up, a Compromise, and a Promise Not Quite Kept

By Kevin Prior |

The following article was contributed by Kevin Prior, Chief Commercial Officer of Seven Stars Legal Funding.

When the Financial Conduct Authority pushed back its redress consultation deadline to 12 December 2025, its reasoning sounded awfully familiar: the regulator needed more time to ‘get it right’.

What eventually landed in the FCA’s final redress scheme rules in Policy Statement 26/3 on 30 March 2026 was, depending on where you sit, the good, the bad, and the ugly all at once.

  • Good, in that an estimated £7.5 billion will move from lenders to consumers, and the regulator will clean up a historically disorderly market in the process.
  • Bad, in that the final rules are more complicated, conditional, and fairly transparently the product of a protracted negotiation between the FCA and lenders.
  • And ugly, in that the scheme ultimately falls materially short of the full remedy the FCA promised many mis-sold consumers—a point the regulator itself has effectively conceded.

For law firms, claims management companies, and funders, this is a more interesting combination than it may appear at first glance.

The rules introduced:

  • two schemes, not one—albeit there was some logic behind the regulator’s reasoning on this point; 
  • tightened eligibility;
  • a cap on compensation in roughly a third of claims;
  • an APR adjustment that the FCA itself described as a ‘bounded regulatory judgement’; and 
  • rebuttable presumptions on certain agreements.

All of this prompts a question worth asking: what do the FCA’s delays, and the scheme that eventually emerged from them, actually mean for law firms, claims management companies, the funders behind them, and, most importantly, the consumers who are waiting to get their money back?

The drumbeat that never stopped

Between the FCA commencing its investigation into historical car finance mis-selling tied to the use of discretionary commission arrangements on 11 January 2024 and the recent publication of the final rules, motor finance mis-selling has become the biggest consumer finance news in the UK. The Court of Appeal and Supreme Court rulings in the Johnson, Wrench and Hopcraft test cases gave the scandal legal weight. The regulator’s October 2025 proposals provided the redress framework. Every court ruling, extension of the complaint-handling pause, public comments by the FCA, or advice from consumer advocates ensured that motor finance mis-selling was never far from the headlines.

None of this was free publicity for the FCA’s preferred outcome of a tidy, do-it-yourself scheme. In addition to coverage of these events themselves, each development generated further news by prompting additional rounds of lender provisioning and speculation about the industry’s total liabilities.

The FCA estimates that:

  • 79% of motor finance customers know their lenders may owe them compensation;
  • 61% are aware of the redress scheme; and
  • 75% of eligible people will participate in the scheme and receive redress.

The awareness percentages, in particular, still seem lower than you might expect, given the scandal's extensive coverage. But these numbers did not come from nowhere. They came from over two years of accumulated noise.

And behind the noise—the removal of 800 misleading adverts by FCA-regulated claims management firms, the new joint taskforce to deal with law firms and CMCs failing to adhere to good practice, the regulator’s continued insistence that consumers do not need professional representation—sits the reality the regulator will not admit. 

Professional representation remains in demand and for very good reasons. If it did not, the FCA would not be spending considerable resources on campaigns dedicated to dissuading customers from using it.

Complexity favours expertise

The FCA’s scheme does not inspire confidence that the average consumer will be able to work it out on their own.

Policy Statement 26/3 divides affected agreements into two schemes based on whether the loan began before or after 1 April 2014. Within both schemes, eligibility for redress depends on whether there was a DCA, commission above certain thresholds, or an undisclosed contractual tie. Lenders will calculate consumers’ redress using either a hybrid remedy, which is the average of commission paid and an APR-based estimated loss, or full commission repayment for the estimated 90,000 cases closely aligned with Johnson. Compensatory interest, the Bank of England base rate plus one percentage point, with a 3% annual floor, applies. There are certain inclusions, exclusions, and permissible rebuttals. There are even rules for deceased customers.

The bottom line is that a consumer who took out an agreement 10 years ago and receives a redress offer full of legalese and jargon from their lender probably won’t be able to work out what any of it means over breakfast.

Of course, some people will be able to work it out, or at least receive an offer they deem acceptable, take the money, and get on with their lives. These are exactly the people the FCA has in mind, and the regulator itself even admits that the scheme is more about giving as many eligible people as possible something back rather than fully remedying what has happened.

That is an honest admission, and an uncomfortable one. Getting something back is not the same as getting back what you were owed.

It is right that the FCA has made the scheme as accessible as possible. The problem is that the scheme covers 12.1 million agreements, and our data estimates that most mis-sold consumers will have had at least 2 or 3 motor finance agreements during the relevant period. Expecting millions of people to assess whether their lender has correctly assessed their eligibility or calculated their redress offer is not a realistic view of how consumers engage with financial services. It also paints a picture of an out-of-touch regulator—one that has, separately, decided to let lenders assess the scale of their own wrongdoing. And one whose scheme is now itself the subject of a confirmed legal challenge, which is hardly a vote of confidence in the regulator’s promise of an orderly, do-it-yourself route to compensation. Especially as the challenge is that the FCA’s final rules come down too heavily in favour of lenders. The regulator’s response? To call the challenge ‘disappointing,’ focus on the delay it may cause, and call on those bringing it to explain themselves to their clients. Consumer Voice, which is bringing the challenge with Courmacs Legal, says that the scheme need not be delayed at all, as only specific elements are in dispute.

The FCA wants to kill the category, but it will actually weed out the bad actors

The FCA’s joint taskforce with the Solicitors Regulation Authority, the Information Commissioner’s Office and the Advertising Standards Authority is, on the face of it, a warning shot to professional representatives. Exit fees are under scrutiny. Seven law firms have been closed down by the SRA, with some facing multiple ongoing investigations into their practices, and others have agreed to stop signing up new clients until they can demonstrate compliance with FCA rules. 

This, however, is not going to kill the category. Nor will it discourage consumers who have experienced harm. Many are simply not prepared to take lenders’ word that they’re doing right by them this time. Nor do they want to listen to or unquestioningly trust a regulator that allowed this misconduct to happen on its watch in the first place. Instead, it will ensure that what remains is a disciplined, well-run consumer claims market. The firms that can prove to the various regulatory bodies that they are operating fairly and correctly will be left standing and continue to demonstrate and deliver genuine value over and above the outcome of simply waiting for your lender to tell you what they think is a fair redress offer.

For funders, this is a welcome tidying of the sector. The surviving market will be smaller. It will also be more investable.

Where does this all leave law firms and funders?

Delays have given well-run firms time, something they rarely get. Time to refine their onboarding procedures. Time to build a case-vetting methodology worth the name. Time to prepare for a scheme whose final shape only recently became clear. Time to prime their clients for what’s coming. And time to watch the FCA’s own messaging evolve from confident proclamations that consumers do not need representation to an awareness campaign that implicitly concedes that it knows many will seek it anyway.

The scheme that has emerged is more complex and favourable to lenders than the one initially floated. The public awareness that has built up in the meantime has outgrown the neat category of ‘people who will just claim directly’. And the FCA and SRA’s regulatory housekeeping is doing what it should have been doing all along—removing the bad actors responsible for an entire sector being tarred with the same brush, raising the floor for good practice and operational standards, and giving the industry the credibility it needs to grow.

The FCA wanted to take the time to get things right. But it got some things right, some things wrong, and left others visibly short of the mark.

And in delivering its final motor finance redress scheme rules, it has arguably made the case for professional representation more clearly than any law firm could have.

Commercial

Legalist Closes $415 Million Fund IV, Doubles Firm AUM to $2 Billion

By John Freund |

Legalist has closed a $415 million litigation finance fund — its fourth — bringing the San Francisco-based, tech-driven funder's total assets under management to roughly $2 billion and nearly doubling its capital base over the past year. The new vehicle reinforces Legalist's commitment to small-ticket commercial litigation finance in a market where many large peers continue to pursue ever-bigger cases.

As reported by Bloomberg Law, the new fund will continue Legalist's core strategy of investing $50,000 to $5 million per case across both single-case and portfolio structures, with portfolio investments now representing approximately half of the book — up from a smaller share in the firm's prior $300 million fund. Legalist's prior fund deployed across more than 250 positions, a level of dispersion that few commercial funders match.

The firm has also shifted away from patent infringement litigation toward class action investments, a strategic pivot that places it more squarely in the path of mass tort, consumer, and competition claims that have come to dominate the U.S. funded-litigation pipeline. Legalist's investor base — described as repeat-investing endowments, foundations, hospitals, and universities — appears to have followed the firm specifically rather than treating the allocation as generic litigation finance exposure.

CEO Eva Shang, who co-founded Legalist in 2016 with a $100,000 grant from Peter Thiel's foundation and built the firm around a software-driven origination model, framed the close as a continuation of the firm's founding thesis. "We are very true and consistent to our mission," she told Bloomberg Law, citing a decade-long focus on small commercial litigation finance and a deliberate decision not to pursue alternative business structures or trendier capital formats.

The close lands in a market characterized by both rapid institutionalization and visible stress at peer firms — including a series of high-profile fund closures, restructurings, and intervention proceedings on both sides of the Atlantic. Against that backdrop, Legalist's Fund IV is a notable signal that LP appetite for disciplined, vintage-consistent commercial litigation finance remains intact among institutional investors who treat the asset class as a long-duration allocation rather than a tactical play.

Commercial

U.S. Treasury Reverses Course, Permits Venezuela to Fund Maduro’s Legal Defense

By John Freund |

The U.S. Treasury has amended an OFAC sanctions license to permit the Venezuelan government to finance the legal representation of Nicolás Maduro and his wife Cilia Flores, reversing an earlier position that had blocked such payments and threatened to derail the federal narcoterrorism case against them in New York.

As reported by Latin Times, the amended license, disclosed in a joint letter submitted to U.S. District Judge Alvin Hellerstein on April 25, allows Maduro's defense team, led by Barry Pollack, to receive payment from Venezuelan state funds, subject to strict conditions including a requirement that the funds originate from sources available after March 5, 2026. The reversal comes after OFAC briefly authorized the same payments in January, only to revoke that license within hours, prompting Pollack to argue that the restriction effectively denied Maduro his Sixth Amendment right to counsel.

The development is a notable update to the story LFJ covered in February, when the Treasury's initial blocking position raised novel questions at the intersection of sanctions law, third-party defense funding, and constitutional rights. The new license effectively resolves the dispute, removing what prosecutors had attributed to an "administrative error" and clearing the way for the case to proceed without further litigation over funding access.

For the litigation finance community, the reversal underscores how sanctions law can intersect with the practical realities of who pays for litigation — particularly in cases involving sovereigns, sanctioned entities, or politically exposed individuals. While the Maduro matter sits well outside the commercial litigation funding mainstream, the OFAC framework that governs these payments is the same regime funders must navigate when financing claims involving sanctioned counterparties, foreign state defendants, or assets subject to enforcement holds.

Maduro and Flores remain in federal custody at the Metropolitan Detention Center in Brooklyn and have pleaded not guilty to charges including narcoterrorism conspiracy, drug trafficking, and weapons offenses.