Litigation Funding In 2025: Key Trends and Outlook

As we start 2025, the litigation funding industry is set for another strong year, driven by growing awareness of litigation funding as an investment option and we will see increased clarity on regulation and legal frameworks. In this article, Fenchurch Legal explores the key trends shaping the industry in 2025. Read on for our insights.

1.     Growing Interest for Litigation Funding Investments

Investor confidence in private debt remains strong, with litigation funding emerging as an attractive option due to its non-correlation with traditional markets and potential for predictable returns.

Once a niche corner of private debt, litigation funding is now an established investment strategy, with more investors learning about its benefits, including diversification, stable returns and security.The global litigation funding investment market, valued at USD 18.2 billion in 2023, is expected to grow to USD 37.5 billion by 2028. (Research and Markets)

Specialised areas within litigation funding, such as small-ticket funding, are gaining traction. These smaller, high-volume consumer claims offer lower individual case risk while providing steady returns, making them appealing compared to high-stakes, single-case funding, which often carries a higher risk exposure.

In 2025, litigation funding will remain a popular investment strategy, attracting interest from both institutional and high-net-worth investors who want to hedge against economic downturns and market uncertainty.

2. The Path to Regulation

Litigation Funding has come into the spotlight, driven by high-profile cases like the Post Office scandal, which highlighted the importance of third-party funding.

While the industry is currently self-regulated, there is growing recognition that litigation funders operate commercial businesses and require economically sustainable solutions to remain viable.

The Supreme Court’s PACCAR decision (2023) prompted the Civil Justice Council to launch a review of litigation funding, with recommendations expected in 2025. Meanwhile, the Solicitors Regulation Authority (SRA) is enhancing oversight on high-volume claims, focusing on risk management, onboarding, and consumer protection to address issues in bulk litigation practices.

Regulation seems inevitable, and industry stakeholders must prepare for a more structured, transparent, and accountable regulatory environment. This new framework will need to balance investor protection, claimant access to justice, and the commercial realities of litigation funding.firm their eligibility for borrowing.

3. Enhanced Due Diligence and Risk Management

In 2025, litigation funders are set to proactively enhance their due diligence and risk management practices to prevent potential issues with borrowers, ensuring stability within the industry while safeguarding investments and maintaining investor confidence. Greater transparency and detailed reporting will be demanded, , ensuring accountability at every stage of the funding lifecycle.

Financial oversight will become more rigorous, with increased scrutiny of law firm’s financial health, operational stability, and case pipelines. More frequent monitoring and ongoing checks, will be aided by advanced technology tools designed to track case progress, identify financial warning signs, and flag issues early.

Additionally, there is likely to be an increase in information-sharing between funders, fostering a more collaborative approach to identifying risks and preventing exposure to poorly managed firms or portfolios.

4. Increased AI Adoption

In 2025, the adoption of AI across the litigation funding and legal sectors will continue to rise. We are already seeing industry-specific language models tailored to the legal industry’s unique requirements.

In funding, AI tools will analyse high volumes of claims, identify patterns, flag issues like duplicated cases, and prioritise the most viable cases. This will enable funders to allocate resources more strategically and reduce the time spent on manual processes.

For law firms, AI will streamline areas such as document analysis and case management, freeing up lawyers to focus on strategic decisions rather than repetitive tasks.

The consensus remains that AI should not replace human expertise but complement it, making it an invaluable tool for efficiency and accuracy.

5. Clarity on PCP Motor Finance Claims

The UK motor finance sector is currently navigating regulatory uncertainty. Recent developments such as the Court of Appeal ruling in Johnson, have raised awareness and driven significant interest in these claims. The potential for PCP claims to become the next “PPI scandal”, given their scale, is driving investor appetite to participate in the mass claims market.

In 2025, we will see greater clarity emerge around PCP claims, with a clearer legal and regulatory framework, giving funders more confidence. As the uncertainty lifts, significant capital inflows are expected into this claim type, making PCP claims a key growth area in litigation funding.

6. Investing in Justice and Impact

In 2025, ESG considerations will continue to influence litigation funding investment strategies. Investors are interested in this sector not only for its financial returns but also for its social impact and justice-driven results.

Litigation funding naturally fits with ESG principles, as many funded cases address issues such as environmental damage and consumer protection. For example, housing disrepair claims are a growing focus, providing individuals who may lack the financial means to pursue legal action with access to justice and the ability to hold landlords accountable for unsafe living conditions.

Funders are also facing growing pressure to demonstrate clear alignment with ESG compliance standards, ensuring transparency, ethical decision-making, and accountability across their operations.

In conclusion, the litigation funding industry is starting 2025 on a strong note, driven by growing investor interest, regulatory changes and advancements in technology.

With greater clarity expected around key claim types such as PCP motor finance, and growing recognition of its potential for stable returns, litigation funding is set to become an even more compelling investment option.