Mark-to-Model Valuation

The practice of valuing illiquid legal-asset interests using an internally or independently developed probability-weighted model of expected recovery, discounted for time and risk, rather than relying on an observable market price, since litigation and funding claims generally do not trade in a liquid secondary market with regular price discovery. Mark-to-model valuations typically incorporate case-specific inputs — procedural stage, jurisdiction, comparable historical outcomes for similar claims, and any interim rulings — combined with portfolio-level assumptions about correlation and duration, and are updated periodically as cases progress or new information emerges. Because these models are inherently more judgment-dependent than mark-to-market valuation of liquid securities, investors and auditors scrutinize model governance closely, including how frequently assumptions are updated, who has authority to override model outputs, and whether the model has been independently validated against actual historical resolution outcomes.

Because there is no external market price to validate a legal-asset portfolio's stated value, the credibility of a fund's or SPV's mark-to-model process is itself a primary underwriting factor for investors, who scrutinize model governance and historical back-testing accuracy as closely as they scrutinize the underlying case quality. Disputes between investors and sponsors over portfolio valuation — particularly around redemption pricing or borrowing base calculations — are almost always disputes about model assumptions and inputs, not about the raw facts of any individual case.