The retreat of high-profile dedicated litigation funders such as Therium may not signal a moderation of the industry, but rather a transfer of influence from smaller players to far larger and better-resourced investors capable of entrenching or escalating the very practices that have drawn criticism for years. Source: Pexels

What was once considered a specialized corner of legal finance is now attracting major financial institutions seeking opportunities as dedicated litigation funders come under mounting pressure from the compounding pressures of regulatory scrutiny, prolonged case timelines, and weakening investor appetite.

According to Bloomberg, firms including Davidson Kempner and Attestor are joining investors such as Fortress Investment Group in the third-party litigation funding market. The shift suggests the industry may not be entering decline so much as evolving into something potentially larger and more financially entrenched. Reports that litigation portfolios are being acquired for as little as 10 cents on the dollar underline both the stress facing specialist funders and the appetite among distressed-asset investors to move into the space.

“Reports that litigation portfolios are being acquired for as little as 10 cents on the dollar underline both the stress facing specialist funders and the appetite among distressed-asset investors to move into the space.”

Among the clearest examples of this changing landscape is Therium, which has repositioned itself as a litigation finance adviser rather than a direct litigation funder. The shift followed a difficult period marked by disappointing returns and high-profile risk exposure and even political controversy. The firm reportedly struggled to generate meaningful profits from backing the UK subpostmasters litigation despite the case’s enormous public significance and eventual success.

Therium also became exposed in the lengthy and controversial Sulu arbitration, a case widely viewed as a high-risk gamble with potentially enormous returns—a case in which it likely faced a total loss with a no-win-no-pay agreement common in the TPLF sector.

Consequently, in 2025, Therium underwent widely reported layoffs before announcing the transfer of its portfolio of cases to Fortress. Therium’s retreat has become emblematic of the pressures facing specialist litigation funders that built their business models around long-running and often unpredictable legal disputes. What is emerging in their place appears to be a more institutionalized market increasingly shaped by substantially larger global investment firms like Fortress with broader financial objectives.

“Therium’s retreat has become emblematic of the pressures facing specialist litigation funders that built their business models around long-running and often unpredictable legal disputes.”

More recently in 2026, the sector has also been shaken by setbacks at Burford Capital, one of the largest and most prominent litigation finance companies in the world. In March, the 2nd U.S. Circuit Court of Appeals overturned a September 2023 judgment that had grown to roughly $18 billion with interest. The award had been expected to deliver a substantial return to Burford, which financed the case. The reversal triggered a steep collapse in Burford’s share price, wiping out roughly half its market value. On May 11, 2026, Deutsche Bank downgraded the company from Buy to Hold, further underscoring investor concerns surrounding the volatility of litigation-backed assets.

“On May 11, 2026, Deutsche Bank downgraded the company from Buy to Hold, further underscoring investor concerns surrounding the volatility of litigation-backed assets.”

With firms like Therium and Burford in decline, the growing involvement of hedge funds could reshape or even escalate the financial incentives that drive litigation funding. Specialist funders have traditionally structured themselves around long-term legal risk, often maintaining close relationships with law firms and claimants over many years. Their business depended on patience and legal specialization. Hedge funds, by contrast, are generally more opportunistic and responsive to changing market conditions. Capital may flow aggressively into litigation finance during favorable periods and retreat just as quickly during times of stress.

That dynamic could make the industry more cyclical and potentially more unstable for law firms and claimants dependent on external financing. At the same time, it may alter the kinds of cases that attract backing. While prolonged and highly speculative disputes such as the Sulu arbitration may become less attractive if investors prioritize faster returns, critics argue the increasing financialization of the sector could also encourage a greater number of weak, aggressive, or opportunistic lawsuits if litigation itself becomes viewed primarily as another tradable asset class.

“While prolonged and highly speculative disputes such as the Sulu arbitration may become less attractive if investors prioritize faster returns, critics argue the increasing financialization of the sector could also encourage a greater number of weak, aggressive, or opportunistic lawsuits.”

A hedge-fund-led market may also intensify concerns over conflicts of interest. Large investment firms are deeply intertwined with broader financial markets and may simultaneously hold positions connected to defendants, industries, or economic outcomes tied to the cases they finance. A fund backing litigation against a corporation while also trading securities linked to that company or sector could create perceived or actual conflicts that regulators and courts may find difficult to ignore.

Another point gaining more political attention is the role foreign investors, declared or otherwise. Fortress Investment, for example, is backed by an Abu Dhabi sovereign wealth fund.

Such concerns are fueling calls for tighter oversight in the US with bills like H.R.2675 - Protecting Our Courts from Foreign Manipulation Act of 2025. Litigation finance currently operates within a fragmented regulatory environment, where funding agreements and investors are typically not made public.

“Litigation finance currently operates within a fragmented regulatory environment, where funding agreements and investors are typically not made public.”

The implications for access to justice are also uncertain. Supporters of litigation finance have long argued that the industry allows individuals and smaller claimants to challenge powerful corporations that might otherwise overwhelm them financially. Yet larger hedge funds may continue a practice of enabling large-scale, highly profitable disputes while avoiding smaller or less commercially attractive claims, even where those cases carry significant public importance.

The sub-postmaster's litigation in Britain highlights that tension. The case ultimately delivered justice for hundreds of wrongfully accused individuals and became one of the most significant legal scandals in recent British history. Yet reports that Therium generated little financial return from the sub-postmaster’s case raise difficult questions about whether increasingly profit-driven investors would support similar litigation in the future. Cases that produce major public outcomes do not always align with the return expectations of large financial institutions.

“Yet reports that Therium generated little financial return from the sub-postmaster’s case raise difficult questions about whether increasingly profit-driven investors would support similar litigation in the future.”

Ultimately, what appears to be underway is not the disappearance of litigation finance but a transfer of power within it. As specialist funders retreat under financial pressure, hedge funds and institutional investors are moving to occupy the space they leave behind. The result may be an industry that is larger, more deeply connected to global financial markets, and potentially even more capable of sustaining litigation in the interests of profit.

REFERENCES

Dickerson, C. (2026, January 21). Report: Third-party litigation funding affects affordability. Florida Justice Reform Institute. https://www.fljustice.org

Hedgeweek. (2026, May 11). Hedge funds target distressed litigation finance assets amid industry slowdown. https://www.hedgeweek.com

KnowSulu (27 February 2025). Sulu Heirs Face Legal Defeat as Spanish Court Rejects Appeal. https://www.know-sulu.ph

Investing.com. (2026, May 11). Deutsche Bank cuts Burford Capital stock rating on realization timing. https://www.investing.com

Malaysia Sulu Case (n.d.). Timeline. https://www.malaysia-sulucase.gov.my

Reuters (10 December 2025). French court annuls cash bid by late sultan’s heirs in Malaysia land dispute. https://www.reuters.com

Reuters (6 November 2024). Late sultan’s heirs fail in bid to challenge French ruling on dispute with Malaysia. https://www.reuters.com

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https://www.reuters.com

The Edge Malaysia (27 July 2022). Explaining the Sulu claim

https://theedgemalaysia.com