Diversification as a Key Driver of Risk Management in Litigation Funding
Fenchurch Legal’s small-ticket litigation-funding model is built on a structured diversification strategy that forms the foundation of both risk management and capital protection. In this article, we explore how diversification acts as a key driver in safeguarding investor returns.
Diversification: A Core Risk Control
Protecting investor capital sits at the core of Fenchurch Legal’s small-ticket litigation funding business. We achieve this by embedding multiple layers of protection – from rigorous borrower vetting and external risk screening to monthly monitoring and third-party audits – so that no single weakness can endanger the portfolio.
One of the most powerful defences is diversification itself. By deploying funds across thousands of ATE-insured claims, multiple claim types, and several vetted borrowers, we avoid the concentration risk that can undermine single-asset deals.
No single borrower, case, or claim type carries enough weight to threaten overall performance. Individual settlements return cash to the facility on a rolling basis. In practice, diversification is a first line of defence, ensuring that even if an isolated claim underperforms, the broader portfolio remains intact.
Concentration Risk in Single-Asset Investments
In contrast to small-ticket litigation funding, other investments, such as property development deals or large-ticket funding, often lack diversification.
Property-development loans typically rely on one asset and a single liquidity event (a sale or refinance). If markets soften or financing dries up, delays and cost overruns can turn an otherwise sound project into a capital loss because there are no interim cash flows to cushion the setback.
A similar concentration problem exists at the large-ticket end of litigation finance. Deploying millions into just a handful of headline cases means performance relies on large, concentrated investments in individual cases, so one adverse judgement can drag the entire portfolio.
In short, when exposure is concentrated in a single asset or deal, liquidity and capital preservation depend on factors outside the investor’s control, precisely the vulnerability that Fenchurch’s diversified small-ticket model is designed to eliminate.
Diversification in Action
Fenchurch Legals’ high-volume, small-ticket approach contrasts with traditional models that concentrate capital in a few high-value cases or deals.
Instead, we lend across a high-volume portfolio of ATE-insured consumer claims. To date, we have deployed over £46 million across 16,000+ claims.
Our diversification works on three levels:
- Borrowers – revolving credit facilities are spread across several rigorously vetted law firms and claims management companies, each subject to ongoing monitoring and audits.
- Claim types – funding spans various protocol-driven claim types with strong legal precedent, such as housing disrepair, PCP and financial mis-selling, so setbacks in one area cannot distort overall results.
- Claim count – thousands of individual claims progress on separate timelines, ensuring no single win or loss can meaningfully sway portfolio performance.
Rolling Repayments
Diversification does more than spread risk; it turns thousands of case outcomes into a continuous inflow of cash. Because claims settle at different times, repayments occur week after week rather than waiting for a single exit event, providing steady liquidity to the business.
We therefore align our loan note maturities with the portfolio’s average case duration (circa 15 months). Two- and three-year note terms give the portfolio time to amortise naturally and shield investors from the premature refinancing risk that can affect shorter-dated products.
Additional Risk Management Layers
Diversification is not a standalone feature – it sits within a broader control framework. Every loan is secured by ATE insurance, first-charge debentures over borrower assets and personal guarantees from shareholder-principals, ensuring defined recovery routes.
And it does not end at deployment. Fenchurch maintains a robust monitoring and auditing process, delivering early warnings and rapid intervention when required.
Together, these controls reinforce the protective power of diversification, ensuring multiple recovery routes even if an individual claim underperforms.
In essence, Fenchurch Legal’s small-ticket litigation-funding model turns diversification into a strategic safeguard.
By funding a diversified mix of claims, borrowers, and claim types, we deliver a litigation funding solution that prioritises security, resilience, and long-term value.
Continuous settlements generate dependable cash flow, while ATE cover, first-charge debentures and personal guarantees provide defined recovery routes.
The result is a portfolio that amortises naturally, limits concentration risk, and offers investors a clearer line of sight on capital preservation and reliable returns.
