When it comes to looking at litigation funds as an investment, there are a variety of things to consider. Whether it’s how large of an investment should be allocated, which litigation funds are investment options, how litigation fund investments affect investment portfolio metrics such as beta, dividend history, historical performance, and other common investment metrics.
I’ll highlight a few publicly traded litigation funds to show the potential returns, keep in mind there are several private litigation funds in the market as well and they have the option to keep all of their investment performances confidential so investment results may vary as claim selection between funds vary between said funds. Claim and litigation confidentiality must also be considered as the nature of the legal system (unless criminal) will keep things behind shut doors so there still is limited information on the actual claims being invested in even though the fund is publicly traded.
When it comes to publicly traded firms there are 4 that exist. The mass majority of litigation funds being held privately. In terms of investment description, litigation funds are considered uncorrelated with the market as legal systems are generally not correlated with markets unless something illegal has been committed by a company in which it is considered idiosyncratic and shouldn't affect the market as a whole. When looking at financial statements the publicly traded litigation funds some industry specific terminology include their revenue categorized as litigation services or “revenue with contracts with customers” in which the litigation for the claim is complete and proceeds are collected according to the funding agreement. Litigation funds do pay dividends but, generally prefer to keep retained earnings high to reinvest into more claims making them more of a growth security than a cash generating one. As for privately owned litigation funds, they’re legally required to report similar financial information to their investors and will likely give a pitch deck to prospective investors as well. From there, you can assess the litigation fund from there.
Generally speaking most litigation fund investment opportunities will require the investor to be accredited to directly invest into the fund. Otherwise, investors can invest in litigation funds through 3rd party funders that the litigation funds coordinate with (Private Equity, Hedge Funds, ETFs encompassing said companies, or other specific financial services companies).