This article grew out of a lively panel at Dubai Arbitration Week 2025, where I discussed how the surge of private credit is reshaping the litigation funding market.
It distils the themes that surfaced in that conversation such as the promise of speed and scale, the discipline (and demands) of lender covenants, the changing role of insurance, and the evolving place of the traditional limited partner/general partner (LP/GP) fund.
What follows sets those insights in context, weighing opportunity against risk and sketching a practical path that embraces new capital without losing the judgment and patience that make good funding possible.
An essay for a changing marketplace — November 2025
The ground beneath litigation funding is shifting. For most of the past decade, fund managers collected commitments from Limited Partners (LPs) and managed those commitments under a General Partner (GP) structure: equity in, patient risk borne, and upside returned in due course. That model rewarded careful selection and long attention spans. Now, a new force has arrived at scale: private credit. It comes with its own grammar and disciplines – faster money, measurable covenants, and a desire for repeatable, rules‑based portfolios. To many funders it feels like opportunity; to others it feels like a test. In truth, it is both.
At first glance the appeal is obvious. Private credit can reduce a manager’s weighted average cost of capital – often shortened to Weighted Average Cost of Capital (WACC) and help smooth the lumpy cashflows of a case portfolio. Instead of raising only equity, a fund may borrow against the value of its portfolio through a Net Asset Value (NAV) facility. Think of it as a revolving loan to the fund itself, sized by a conservative appraisal of eligible matters. When values rise and cases progress, the available headroom grows; when valuations dip or a setback occurs, the line tightens. Alongside this, a dose of preferred equity – capital that receives a fixed, priority return before ordinary equity – can extend the runway without surrendering control. Together, these instruments can deliver something precious to any litigation platform namely, the ability to plan budgets with confidence while preserving the possibility of genuine upside.
Private credit also encourages a shift from artisanal deal craft to something closer to product. A lender will usually ask for clear eligibility criteria, disciplined budgeting, and regular reporting. That can sound bureaucratic until one notices the side‑effects: cleaner data, better spend control, and a habit of explaining, in plain terms, why each matter deserves its place in the pool. For law firms, there is comfort in a standing line that funds qualifying matters without renegotiating terms for every instruction. For funders, there is the ability to warehouse risk, recycle capital, and once track record and data density have matured, to refinance on better terms or syndicate exposure. In a world where institutional investors crave non‑correlated returns, this is a persuasive story.
Yet private credit is not a neutral substance. It is leverage, and leverage has memory. What LP/GP equity absorbs quietly over years, maybe a delayed judgment, or an appeal that takes an unexpected turn can become urgent when translated into a facility test. A lender may measure Loan‑to‑Value (LTV) – debt as a percentage of eligible asset value, or insist on a Debt Service Coverage Ratio (DSCR), which compares available cash to upcoming interest and principal. Should marks fall or recoveries drift, the same mechanism that once smoothed liquidity can demand it back. The fund then confronts a choice of either to inject equity, sell exposure, or shrink the portfolio precisely when patience would otherwise be rewarded.
There are subtler pressures too. Cheap senior money can tempt any platform to loosen the screens that once defined its edge. Concentration can creep in as one large matter anchors the borrowing base; a jurisdiction that looked comfortably predictable in the investment committee pack can reveal its quirks when enforcement begins. Insurance – so often the unsung hero of our market – does heavy lifting here. Policies that cover adverse costs, fee shortfall, or enforcement risk can narrow volatility and keep borrowing costs in check. But insurance also carries its own dependencies. Wordings matter, claims conduct matters, and capacity, a function of broader reinsurance cycles, cannot be assumed. If insurance is required by covenant and pricing moves against you, the entire capital stack can feel it.
The comparison with the traditional LP/GP model is instructive. Equity is slower and scarcer today, particularly for specialised strategies, but it is also forgiving. A fully equity‑funded portfolio can sit out seasons of noise without breaching a single ratio. The countervailing cost is the cost of that equity, which dilutes the manager’s economics and can leave excellent opportunities unfunded. Private credit, by contrast, is abundant and swift, yet it asks for evidence in the form of eligibility rules, concentration limits, monthly reports and it reserves the right to change the conversation if facts change. Neither approach is intrinsically moral or immoral. Each has a temperament. The art is to match temperament to pipeline.
So what might a sensible path look like? Begin with honesty about the portfolio. If your pipeline is genuinely repeatable, if you can articulate, before a lender asks, which jurisdictions you favour, what budgets you impose, how you model duration and quantum and how you cap exposure to a single defendant, then private credit can be a disciplined ally. A NAV facility set at cautious advance rates, paired with preferred equity and supported by fit‑for‑purpose insurance, can lower WACC without muting the fund’s character. Crucially, the documents should recognise the reality of litigation: pre‑agreed cure periods after a wobble; the ability to substitute matters; and reporting that explains, rather than merely records, the shape of risk. Treat early borrowings as warehouse capital, not a permanent crutch; build optionality for refinancing, forward‑flowing mature receivables, or reducing gearing when the wind turns.
If, however, your opportunity set is concentrated, say two or three binary matters that will make or break a vintage, then debt deserves caution. Leverage magnifies both judgment and error. A mark‑to‑model that proves optimistic, an appeal that adds a quiet six months to your timeline, or an insurer who reads a clause differently to your own counsel can move a covenant from academic to immediate. In those circumstances, the older virtues of equity, its patience, its willingness to wait for the world to catch up, may be worth their price. A smaller equity close, augmented by aligned sidecars or by preferred equity from existing investors, can still build a credible platform without importing the reflexes of a credit desk.
Is private credit the only choice? No. But in the near term it may be the largest river in which to fish. The practical question is not whether to accept or refuse it, but how to shape it: to ensure that the terms honour the rhythm of litigation rather than imposing the calendar of a trading book. That means sober advance rates; covenants that measure what truly matters; and insurance that is a tool, not a talisman. It means documenting a refinancing path before you need it, and keeping relationships with more than one lender so that optionality is real and not rhetorical.
Viewed in this light, private credit is neither saviour nor siren. It is a powerful instrument which in careful hands amplifies a funder’s genuine strengths namely, origination, underwriting discipline, and the craft of enforcement by delivering timely, fairly‑priced liquidity. Used casually, it can nudge decisions away from patience and towards velocity, inviting the very volatility it was meant to tame. The decision is therefore not binary but curatorial. What belongs on this capital stack? What does not? Which covenants measure substance rather than noise? Which insurance policies transfer the risks you actually face? These are managerial questions, not merely legal ones.
The conclusion is simple, though not easy. Private credit can be a sensible approach when it is designed to respect the peculiar time signatures of law which are slow, procedural, occasionally dramatic and often stubbornly incremental. It becomes dangerous when it mistakes those rhythms for the tempo of quarterly charts. For funders who can hold both ideas in their hands, embracing credit’s discipline without surrendering the patience that equity taught then this market offers the best of both worlds. It is capital that arrives when needed and leaves when appropriate, leaving behind not a trail of covenants breached but a record of cases well chosen, respected by lenders, and fairly resolved for clients.
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