Litigation funders face pressure as fair-value accounting amplifies case losses

Traders Union
All News
Financial News
Litigation funders face fair-value losses

Highlights

Burford Capital suffered a Paris ICC tribunal loss on a $680 million Nigeria claim, adding doubts over Sunrise Power's recoverability due to minimal assets and cost penalties.
Burford's $16.1 billion YPF judgment reversal and $2.4 billion write-down, plus LCM’s High Court loss and 99 per cent share decline, highlight public-market litigation funder strains.
Fair-value accounting under IFRS 9 and ASC 820 forces funders to recognize model-based, unrealised gains or losses directly in earnings, linking marks to share prices, bonuses, and debt capacity.

Case setbacks expose valuation model strains

As reported by Financial Times, the latest pressure point comes after a Paris-based ICC tribunal dismissed a $680 million claim against Nigeria that Burford Capital had funded. The claim was brought by Sunrise Power on a 2020 settlement that the tribunal found had been signed by ministers without authority to bind the state without presidential approval. Nigeria’s attorney-general also says the arbitrators found a decades-long pattern of payments by Sunrise’s founder to officials linked to the project. Sunrise must now pay 75 per cent of Nigeria’s $11.8 million in costs, adding to doubts over recoverability because the company reportedly had less than $2,000 in assets when Burford backed the case in 2022. That outcome follows the March reversal of Burford’s $16.1 billion YPF judgment against Argentina, a decision that roughly halved the company’s share price and forced a $2.4 billion write-down of gains that had not been realised in cash. Other listed peers have also come under strain, with Litigation Capital Management losing a High Court case last October, its shares falling 60 per cent in one day and 99 per cent from the previous year’s high. In April, LCM reported an A$112 million half-year loss, net debt of A$123 million and A$5 million of cash from concluded cases. On September 30, the company said it would enter an orderly run-off, manage its existing portfolio to conclusion, stop making new investments and use cash realised from the portfolio to repay debt.

Public-market incentives deepen industry risk

The article argues that the core problem is fair-value accounting, which classifies lawsuits as Level 3 financial assets valued by management models rather than by market prices. When an interim legal ruling appears favourable, the model can raise the probability of success and produce an accounting gain that flows through the income statement in the same way as cash earnings. That approach helps listed funders present smoother quarterly profit growth even though legal cases can take many years to resolve. Burford, which raised $130 million on AIM in 2009 and moved to the NYSE in 2020, is cited as an example of the sector’s search for permanent capital to fund long-duration claims that private investors may be reluctant to hold. The pressure to produce regular earnings has also pushed more firms toward fair-value treatment. Omni Bridgeway, formerly IMF Bentham, had earlier said it carried cases at cost and did not record unrealised gains, but later reclassified most of its portfolio to fair value, while LCM made the same switch in July 2023 to align with industry peers. Accounting standards provide part of the explanation. Under IFRS 9, litigation funding contracts fail the test for treatment as basic lending instruments and must be carried at fair value through profit or loss, while under U.S. GAAP, ASC 820 governs valuation and specialist firms provide probability-weighted models tied to legal milestones. The broader implication is that disclosed marks may reflect expectations more than distributable outcomes. In listed litigation finance groups, those marks feed directly into earnings per share, executive bonuses, share prices and debt capacity, creating stronger incentives to recognise value early than in private funds, where investors are ultimately paid on cash realisations.

General Atlantic is preparing for a potential IPO as soon as spring 2027, a move our publication previously noted is aimed at funding expansion and diversifying beyond traditional private equity. The earlier article highlighted how market timing, investor appetite, and competition with large listed alternative-asset managers could shape the firm’s strategy and positioning in a consolidating private markets sector.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.