Why this matters now
Litigation finance has shifted from niche to mainstream within private credit. The appeal is clear. Yield targets are defined at the instrument level. Performance is largely uncorrelated to equity markets. Capital protection features can be built into the structure. That mix attracts professional investors, family offices, and institutions.
But the spread of opportunities brings uneven quality. Many investors focus on headline rates and miss the hard questions that decide outcomes. Due diligence is the edge. It separates engineered, risk-managed structures from shortcuts that expose capital.
This article sets out a practical framework for due diligence in litigation finance, shows how WIUS evaluates opportunities, and explains why a disciplined process protects investors.
The pillars of due diligence in litigation finance
- Legal strength
Everything starts with the legal merits of the underlying claims and the enforceability of the investment structure.
What to verify:
- Merit and causation. Is there a credible legal basis and evidential support for liability and loss.
- Jurisdiction. Are cases brought in established courts with clear rules and a reliable enforcement track record.
- Counsel and oversight. Are law firms regulated and experienced in the claim type. Do they use standard case management and record-keeping.
- Insurance. Is After the Event (ATE) insurance in place at case level or portfolio level. What is covered, what is excluded, and who is the insurer.
- Security rights. Do investment documents provide assignment over case files and related rights so investors can step in if the firm fails.
Why it matters:
Legal strength turns individual case risk into a portfolio of repeatable outcomes. Weak cases or loose documentation raise loss severity. Tight drafting and insurance reduce it.
- Diversification
Classic litigation funds used to stake big sums on a small number of cases. That can work, but volatility is high. Newer models diversify across thousands of smaller, shorter duration claims with standardised workflows.
What to verify:
- Number of cases and exposure per case. Limit concentration.
- Claim type mix. Blend categories to avoid systematic shocks to one claim type.
- Vintage diversification. Stagger origination so cash flows are steady.
- Duration profile. Prefer shorter turnarounds for faster recycling and visibility.
Why it matters:
Diversification smooths returns. A poor outcome in one claim has a limited effect at portfolio level when exposure per case is small and insured features are in place.
- Collateral, cash controls and reporting
Litigation finance can be engineered with strong protections. Those protections only work if cash, security and data are controlled.
What to verify:
- Security package. Assignment over case files, recoveries and insurance proceeds.
- Cash handling. Use segregated client accounts and controlled payment waterfalls.
- Valuation and verification. Independent audits or third-party checks on case counts, recoveries and arrears.
- Covenants and triggers. Clear parameters that pause new lending or distributions if performance drops.
- Transparency. Regular reporting with hard numbers, not projections.
Why it matters:
Structures fail at the weakest control point. Strong security rights, disciplined cash handling and independent checks reduce operational and counterparty risk.
WIUS Capital’s step-by-step diligence process
WIUS exists to give investors access to private market opportunities that are hard to reach and hard to evaluate. We focus on litigation-backed and asset-backed private credit. Our process is designed to filter aggressively and monitor continuously.
Step 1. Origination and pre-screen
We source only from counterparties with proven track records and institutional workflows. Then review regulatory status, key personnel, and historic outcomes. If the counterparty fails the pre-screen, the process stops.
Step 2. Structure first, returns second
We test the investment structure before discussing yield. Then review legal opinions, assignment mechanics, security interests, insurance terms, cash waterfalls and enforcement routes. The aim is simple. Capital protection features and control rights must be clear on day one.
Step 3. Case and portfolio methodology
We assess how cases are selected, verified, insured and advanced. Then look at claim types, average ticket size, expected duration, and expected success rates based on documented history. We evaluate whether systems can handle case volume without quality drift.
Step 4. Risk modelling and stress tests
We build downside models. Then test slower recoveries, lower win rates, higher costs and partner failure. We review what happens to investor cash flows when adverse scenarios hit at the same time. If the structure cannot absorb stress with a reasonable margin, we walk away.
Step 5. Documentation and investor alignment
We require documents that state investor protections in plain terms. Then align interests by participating alongside investors where appropriate and by tying fees to delivery milestones, not volume alone. Alignment reduces incentives to push weak deals.
Step 6. Committee approval
No offer proceeds without committee sign-off. The committee reviews the full pack: legal, operational, financial and insurance. Open questions must be closed before launch.
Step 7. Ongoing monitoring
Post-close, we require regular performance packs. We track new case flow, settlements, recoveries, arrears, insurance claims, cash balances and covenant tests. Next, we retain rights to pause allocations if metrics move outside agreed ranges. Monitoring is continuous, not quarterly.
What investors should ask before allocating
Use these questions to pressure-test any litigation finance proposal.
Legal and insurance
- What claim types are funded and why.
- Who is the insurer, what is covered, what are exclusions, and what is the claim process.
- Are assignment rights over case files and proceeds granted to the issuer or security trustee.
- What happens if a law firm fails or is wound up. Who steps in and how fast.
Portfolio construction
- How many cases, average ticket size, and maximum exposure per case and per firm.
- Expected duration by claim type and the proportion already seasoned.
- Historical performance data for similar portfolios. What is independently verified.
- How performance varies across vintages and claim categories.
Cash controls and reporting
- Where investor funds are held and who controls payment flows.
- Which third parties audit or verify case counts and recoveries.
- Reporting frequency and content. Are reports reconciled to bank statements.
- Triggers that halt new origination or distributions.
Terms and alignment
- Priority of payments and seniority in the stack.
- Fees, costs and performance participation.
- Sponsor co-investment and skin in the game.
- Rights to replace the servicer or reassign portfolios if KPIs slip.
Why this protects investor capital
Better downside math
Litigation outcomes can be binary at case level. With diversification, insurance, and assignment rights, the distribution of outcomes at portfolio level becomes tighter and more predictable. The goal is capital preservation first, income second.
Faster feedback loops
Shorter-duration claims recycle cash more quickly. That gives more real data, earlier. Real-time feedback allows allocation to follow what works and scale back what does not.
Control when it matters
Enforceable security rights and pre-agreed step-in mechanics are decisive during stress. When a partner underperforms, investors need the right to redirect cash, replace the servicer, or liquidate a sub-portfolio in an orderly way. These are legal rights, not courtesy.
The WIUS Advantage
Access with control
We do not list broad marketplaces. Instead, we pursue a small number of mandates where we can negotiate terms, control information flow, and build reporting that meets professional standards.
Engineering first
We prioritise structure quality over speed to market. This is because we would rather pass on an attractive headline rate than compromise on security, insurance terms or cash control.
Alignment
We prefer models where our economics align with investors over the life of the product. That includes co-investment by principals where appropriate and economics tied to delivery, not distribution.
Transparency
Investors deserve plain-English documents and data-led reporting. We push for standardised packs that show counts, recoveries, arrears, cash and covenants. If it cannot be measured and reported, it is not ready.
Practical checklist for your investment committee
- Term sheet with a clear security package and step-in rights.
- Legal opinions that address enforceability and the security chain.
- Insurance binders and schedules with clear coverage and exclusions.
- Data room with historic outcomes and independent verification.
- Covenant set, KPIs and event triggers.
- Cash waterfall map and account control confirmations.
- Monitoring timetable, report templates and auditor scope.
- Summary of alignment: co-investment, fees, priority, and governance.
FAQs
Is litigation finance market-correlated?
Not in a direct sense. Outcomes depend on legal processes and recoveries, not equity indices. That said, macro conditions can affect counterparties and timelines. Good structures address this with diversification and cash control.
Where does the return come from?
From interest and fees paid by law firms or case managers, funded by recoveries and insurance outcomes at portfolio level. Returns should be grounded in real cash flows, not mark-to-model gains.
What about insurance risk?
Insurance is a key layer, not a cure-all. Diligence should cover the insurer’s standing, policy terms, exclusions, claims process and historic pay-out behaviour. Portfolios should not rely on a single binary insurance outcome.
How important is servicer quality?
Critical. Case administration drives recoveries and timing. Assess workflow tools, staffing, capacity, quality control and escalation paths. If the servicer fails, step-in rights and transition plans should be ready.
Disclaimer:
This content is for general information only and does not constitute investment advice or a recommendation. All investments involve risk, and your capital is at risk. Opportunities discussed are intended for professional, high net worth, sophisticated and institutional investors only. Private market investments can be illiquid and complex, and you could lose all invested capital.
Written by Ben Gilbert
Co-Founder, WIUS Capital
Ben is a serial entrepreneur with more than 20 years of experience founding and scaling companies across telecoms, energy, and agritech. He has raised over $500 million for projects spanning five continents and developed innovative technology to solve challenges in renewable energy and agriculture. At WIUS Capital, Ben brings his global business development expertise and hands-on approach to structuring exclusive private credit opportunities and supporting companies in accessing strategic growth capital. Recognised for his integrity and innovation, Ben continues to build long-term relationships that deliver meaningful results for investors and businesses alike.
Meet the Founders: https://wiuscapital.com/meet-the-founders/
