Litigation Finance and Biglaw: A Growing Partnership
Litigation finance, once a niche corner of the legal industry, has grown into a $16 billion market, measured by assets under management. Today, the sector is increasingly intertwined with Biglaw, as large firms accounted for 37% of new capital commitments in 2024, according to Westfleet Advisors. With this growing entwinement, developments in the Biglaw world have direct implications for litigation finance.
Christopher Bogart, CEO of Burford Capital, one of the largest players in litigation funding, recently hosted a briefing in New York where he discussed four major trends in Biglaw likely to shape the future of legal finance. Here’s a deeper look at each of these dynamics.
1. Rising Billing Rates Are Driving Demand
In 2024, Am Law 100 firms experienced a 13.3% increase in total revenue and a 12.3% rise in profits per equity partner. These gains were largely driven by significant rate hikes. Billing rates continue to climb well above inflation, which currently stands at around 3% in the U.S.
This escalation is placing increasing pressure on corporate legal departments, which are often expected to manage more work with shrinking budgets. As Bogart explained, “If you’re a general counsel, you’re wondering how to fulfill your responsibilities when your company doesn’t want to keep increasing your budget.”
Litigation funders step in here. If a company has a strong legal claim but lacks the resources to pursue it, a litigation finance firm can provide the necessary capital. This enables the business to focus its financial resources on operations rather than costly legal battles. As Bogart pointed out, “Shareholders don’t give credit for legal wins—it’s expected.”
2. Corporations Are More Open to Legal Action
For years, large companies were hesitant to act as plaintiffs. But that mindset is evolving. Bogart noted that litigation is no longer seen as an act of hostility but rather as a practical dispute resolution tool. This shift has led to the rise of affirmative-recovery programs, where legal departments work to recover funds owed to their companies.
Europe provides a compelling example. After the European Commission uncovered price-fixing among diesel truck manufacturers, affected companies did not hesitate to pursue compensation. This change in attitude has created more opportunities for litigation finance firms, as more companies are willing to initiate legal actions.
3. The Rise of Managed Services Organizations (MSOs)
Managed Services Organizations (MSOs) are transforming how law firms manage their operations. Under this model, law firms spin off administrative functions like billing, IT, and marketing into separate entities. These MSOs, funded by outside investors, handle the back-office work, allowing law firms to concentrate on practicing law.
Trisha Rich of Holland & Knight describes MSOs as a way to modernize legal practice. They are already common in other industries, such as healthcare and accounting, and are gaining traction in the legal sector. For law firms, MSOs offer efficiency and focus. For investors like Burford Capital, they offer stable, recurring revenue streams.
Chris Bogart noted that while Biglaw has been slow to embrace the MSO model, many boutique firms are already organizing themselves in ways that facilitate collaboration with MSOs. This structure is attractive not just for its operational benefits but also as a reliable investment channel for litigation finance firms.
4. Evolving Legal Ethics Rules and New Investment Opportunities
Historically, ethics rules have prohibited non-lawyers from owning law firms or sharing in legal fees. However, several U.S. states are now rethinking these restrictions. At least 10 states are exploring rule changes that would allow outside investment in law firms, according to Bloomberg Law.
Arizona has already implemented such reforms through its Alternative Business Structure (ABS) program, allowing non-lawyers to invest directly in legal practices. Burford is actively exploring this opportunity. The U.K., where Burford already holds a minority stake in a litigation firm, has long allowed outside ownership.
Why would law firms seek outside investment? Two main reasons: the rising cost of acquiring legal talent and the need for investment in technology, particularly AI. Hiring lateral partners is increasingly expensive, with some packages reaching eight-figure guarantees. At the same time, technology has become the second-largest expense for many firms, surpassing even real estate.
Moreover, outside investment provides law firm partners with a chance to benefit financially from the value they help create. Unlike other professional services firms, law firms have traditionally lacked mechanisms for partners to “cash out.” With a more investor-friendly structure, law firms could attract capital while rewarding their key contributors.
Looking Forward
As Biglaw continues to evolve, so too will its relationship with litigation finance. Firms willing to innovate—whether through pricing, structure, or ownership—will find litigation funders ready to support them. Bogart remains optimistic, asserting that economic innovation in the legal sector is just as vital as technological advancement.
This article is inspired by content from Original Source. It has been rephrased for originality. Images are credited to the original source.