Duration Risk as the Dominant Return Driver

Why how long a case takes matters more to a funder's return than almost any other variable, and how that shapes underwriting.

Two cases with identical liability strength, identical damages, and identical expected settlement value can produce very different returns for a funder if one resolves in eighteen months and the other in five years. Duration — not liability, not damages, not even the ultimate recovery amount — is often the single variable that most determines whether a litigation finance investment meets its target return, because capital tied up in an unresolved case earns nothing until resolution, regardless of how strong the case looks on paper.

Litigation finance returns are typically structured as a multiple of invested capital or an internal rate of return target, and duration acts directly on both. A case funded for one dollar that returns two dollars in eighteen months produces a materially higher annualized return than the same two-dollar return realized after five years, even though the multiple of invested capital is identical in both scenarios. This is why funders model expected duration with the same rigor applied to liability and damages, and why two cases with the same projected multiple can be priced very differently once expected time-to-resolution is factored in — the case expected to resolve faster can support a lower multiple for the same annualized return, while the slower case requires a higher multiple to compensate for the extended capital lock-up.

Duration risk comes from sources largely outside anyone's control at the time of underwriting: discovery disputes and motion practice that extend the pretrial timeline beyond what a standard case of that type would take; interlocutory appeals that can pause proceedings for a year or more while a threshold legal question is resolved; in mass tort and MDL matters, the sequencing of bellwether trials, which can delay any individual plaintiff's resolution until the broader litigation's trajectory becomes clear; and simple court backlog, which varies significantly by jurisdiction and can extend timelines independent of anything about the case's merits. Settlement negotiations themselves can also stall for reasons unrelated to case strength — a defendant's own liquidity constraints, changes in defense counsel, or a broader corporate decision to litigate rather than settle.

Underwriting responds to duration risk by modeling expected time-to-resolution based on case type, jurisdiction, and procedural posture at the time of investment, drawing on the historical resolution timelines of comparable matters rather than the parties' own optimistic estimates. Staged capital deployment — advancing funds in tranches tied to procedural milestones rather than all at once — limits exposure to duration risk on cases that stall early. Pricing itself is often duration-linked, with the funder's required multiple calibrated to the case's expected timeline rather than applied as a flat rate across every matter regardless of how long it is expected to take.

At the portfolio level, funds manage duration risk through diversification and vintage laddering rather than relying on any single case's timeline holding to projection. A fund that deploys capital across cases originated in different years, rather than concentrating deployment in a single vintage, avoids the scenario where a systemic slowdown — a court backlog affecting an entire jurisdiction, or a procedural ruling delaying an entire category of cases — hits the fund's whole book at once rather than a portion of it. Diversifying across case types with structurally different duration profiles serves a similar function: a portfolio blending faster-resolving personal injury matters with slower-resolving commercial or mass tort claims produces more predictable aggregate cash flow than a portfolio concentrated in a single case type with a single duration distribution. Some funds explicitly model portfolio-level duration as a distribution rather than a point estimate, sizing capital calls and expected distributions to limited partners around a range of plausible aggregate resolution timelines rather than a single expected date, which better reflects the actual uncertainty involved in predicting when any given pool of litigation will resolve.

Criterica Capital models expected duration using outcome data drawn from court records — historical time-to-resolution by case type, jurisdiction, and procedural stage — rather than relying on case participants' own timeline estimates, which routinely run optimistic. This lets us price duration risk explicitly rather than treating it as a residual assumption. Funders and claimants evaluating how duration affects a matter's financing terms can contact our institutional team to discuss underwriting.

Discuss your matter with our institutional team.