Litigation finance has moved beyond international arbitration tables and landed firmly on the radar of Brazilian institutional investors.
And it is not hard to see why: Brazil has more than 80 million lawsuits in progress, according to CNJ data, creating a stock of assets with significant potential value, but one that depends on external capital to move forward.
This is the starting point for understanding why funds, asset managers and family offices are paying increasing attention to this asset class.
In this article, you will understand what this structure is, how it works in practice, what risks are involved and what separates an institutional operation from a poorly structured bet.
BLOCKBR’s asset tokenization infrastructure for the regulated financial market appears here not as a product, but as what it really is: the layer that makes this type of operation possible with governance, traceability and regulatory compliance.
What is litigation finance and why has the topic gained relevance in Brazil?
Litigation finance (financiamento de litígios, in Portuguese) is a model in which a third party, usually a specialized fund, finances the costs of a court or arbitration proceeding in exchange for a share of the outcome if the funded party wins. Simple in logic, complex in execution.
In Brazil, the topic has gained traction for structural reasons, not as a trend. The volume of litigation in Brazil is a permanent piece of context: the country has one of the largest stocks of court cases in the world.
In practice, this creates a market with an abundant supply of assets, cases with a technical probability of success, but with pent-up demand for the capital needed to pursue them.
Asset managers, family offices and alternative asset platforms have identified in this gap a return opportunity with a distinctive profile: low correlation with fixed income and equities, and high return potential when the operation is well structured.
The challenge, as always with alternative assets, lies in the structure, not the promise.
How did the litigation finance market emerge and what is its structural logic?
The litigation finance market as a structured asset class has its roots in the Australian and British markets, but it reached global scale as specialized funds matured in the United States.
The structural logic is straightforward: the funder takes on the risk of the case in exchange for a share of the amount recovered, typically between 20% and 40% of the amount obtained, depending on the assessed risk.
In Brazil, the model is starting to operate more formally, driven by the growing maturity of the alternative asset market and by structurers’ interest in creating vehicles that organize this flow with governance and transparency.
The structural logic rests on three pillars:
- Careful selection: only cases with strong legal grounds and a reasonable probability of success enter the portfolio.
- Diversification: risk is spread across multiple cases, reducing dependence on a single outcome.
- Active management: the fund actively monitors the funded cases, without interfering in the funded party’s legal strategy.
This is the difference between a litigation finance fund and a bet on a lawsuit: structure, diversification and governance.
How does litigation finance work in practice?
Understanding the operational workings of a litigation finance structure requires moving beyond concepts and describing who does what, how capital flows and how risk is priced.
This is the layer that separates quality content from a superficial explanation, and it is exactly what the market needs to understand before evaluating this type of asset.
Who are the participants in a litigation finance operation?
A typical operation involves at least four participants with distinct roles:
- Funder (fund or vehicle): provides the capital needed to cover the costs of the case, including legal fees, court costs, expert reports and other expenses. It bears the risk of losing all invested capital if the case is lost.
- Funded party: a company or individual with a valid legal claim, but without the capital or willingness to bear the costs of the case. It assigns a portion of any positive outcome to the funder.
- Fund manager: responsible for legal and financial due diligence, case selection, monitoring and portfolio management. It is the central technical piece of the operation.
- Legal service providers: law firms and lawyers who carry out the litigation strategy, usually with fees partly tied to the outcome (success fee), aligning incentives.
In larger operations, custody agents, auditors and, where applicable, BLOCKBR Station also come in. Station connects these regulated agents to the operation’s technology infrastructure, ensuring that custody, registration and compliance are integrated within a structured environment.
How does the flow work between the funder, the funded party and the return on the operation?
The operational flow of a litigation finance operation can be described in stages:
- 1. Origination: identifying an eligible case, through the manager’s active sourcing, referrals from partner law firms or direct submission by the interested party.
- 2. Due diligence: legal analysis of the merits, probability of success, estimated recoverable value, expected timeline and the profile of the debtor (or opposing party).
- 3. Structuring: defining the terms of the funding agreement, the amount contributed, the percentage share of the outcome, and control and monitoring clauses.
- 4. Disbursement: capital is released according to the case’s schedule of needs, not in a single installment but in stages, reducing unnecessary exposure.
- 5. Monitoring: the manager follows the progress of the case without interfering in the legal strategy, but with access to periodic reports from the lawyers.
- 6. Resolution and distribution: if successful, the recovered amount is distributed according to the agreement: first the invested capital is reimbursed, then the funder receives its agreed share, and the balance goes to the funded party.
Simulated example: a fund finances R$ 500,000 in legal costs for a commercial arbitration with R$ 8 million in dispute. The agreement provides for a 25% share of the amount recovered.
In the event of full success, the fund receives R$ 2 million, a gross return of 4x on the invested capital. Average timeline: 24 to 48 months, depending on the complexity of the case.
How is risk assessed and priced in a litigation finance operation?
Risk pricing in litigation finance is one of the most demanding stages of the operation, and also the one that most separates sophisticated managers from amateurs.
The main criteria assessed include:
- Legal merits: the quality of the legal grounds, the consistency of the evidence and the track record of applicable case law.
- Probability of success: a technical estimate made by specialist lawyers, usually expressed in percentage ranges.
- Recoverable value: an estimate of the amount that can actually be recovered, not just the nominal value of the claim.
- Solvency of the opposing party: the debtor’s financial ability to pay any award.
- Expected timeline: the estimated time until resolution, which directly affects the operation’s annualized return.
- Systemic legal risk: legislative or case-law changes that could affect the outcome of the case.
Based on these factors, the percentage share is calibrated: high-risk or long-running cases require a larger share to compensate for the risk-adjusted return.
This dynamic is similar to credit pricing, but with a different kind of collateral: the legal claim.
What types of disputes can be funded?
Not every lawsuit is eligible for funding. Selection is rigorous, and the risk profile varies significantly between categories.
The main types that can be funded in structured operations in Brazil include:
- Commercial arbitrations: preferred by institutional managers for their more predictable timelines, less volatile environment and generally high average claim value. They are the most mature segment of the litigation finance market in Brazil.
- Complex civil cases: contractual, corporate and civil liability disputes with significant value and solid legal grounds. The timeline is less certain, which requires a higher risk premium.
- Asset recovery: cases aimed at locating and recovering diverted or concealed assets, a segment growing significantly, driven by corporate restructurings.
- Tax disputes: tax claims with favorable precedents in the higher courts have attracted growing interest from specialized funds, given the relative predictability of the outcome.
- Highly complex labor cases: still at an early stage of structured funding in Brazil, but with significant potential given the volume of labor liabilities at companies undergoing restructuring.
The common criterion across all eligible types: a minimum claim value that justifies the cost of due diligence, solid legal grounds and a counterparty with the ability to pay.
Cases worth less than R$ 1 million are rarely eligible for institutional funding, as the cost of analysis does not pay off.
Why is litigation finance attracting funds and institutional investors?
The combination of high return potential, low correlation with traditional assets and a structurally favorable Brazilian market explains the growing institutional interest.
But it is important to go beyond the marketing pitch and understand what really supports this thesis, and where its limits lie.
The main arguments in favor include:
- Real decorrelation: the outcome of a lawsuit does not depend on the Selic rate, the exchange rate or the performance of the Ibovespa. This makes the asset genuinely uncorrelated, a valuable differentiator in institutional portfolios.
- Significant return potential: well-structured operations have return potential well above fixed income, with multiples that vary according to the risk and timeline of the operation.
- A market with structural supply: the volume of lawsuits in Brazil will not run out in the short term, which ensures a continuous flow of opportunities for specialized funds.
- Aligned incentives: the structure of success fees for lawyers and a share of the outcome for the fund creates an environment in which all participants have an interest in the success of the operation.
The risks that cannot be ignored:
- Illiquidity: the investment is locked up until the case is resolved, with no developed secondary market for an early exit.
- Uncertain timeline: even with technical estimates, the actual time until resolution can vary significantly.
- Binary risk: in many operations the outcome is all or nothing, and losing means losing all the capital invested in the case.
- Due diligence complexity: assessing the legal merits of a case requires specialized expertise that is not easily scalable.
For those who want to understand how to invest better today in alternative assets with a real structure, it is essential to separate the return argument from the risk analysis.
The idea of how to invest better today necessarily involves understanding what supports the return, and what can wipe it out.
What is the regulatory framework for litigation finance in Brazil?
This is the point that requires the most attention from those who intend to operate in this market to an institutional standard.
Litigation finance in Brazil still operates in an environment where specific regulation is in its infancy, which creates both room for creative structuring and areas of concern that cannot be ignored.
What exists today:
- Litigation finance is not prohibited in Brazil. There is no express legal ban on the model.
- The Code of Civil Procedure does not explicitly regulate third-party funding, but it does not prohibit it either.
- The ban on the pactum de quota litis, which prevents lawyers from receiving a fee consisting exclusively of a share of the outcome, does not apply to external funders.
- The CVM has no specific rules for litigation finance funds, which means that operations structured as closed-end funds follow the general rules for credit rights investment funds (FIDCs) or private equity investment funds (FIPs), depending on the structure adopted.
What is under discussion:
- In 2026, the CNJ began a consultation process on regulating litigation finance in the judicial system, with a particular focus on transparency and disclosure of funding relationships.
- The CVM is monitoring the market, and specific guidance is expected as the volume of operations structured as securities increases.
The lack of specific regulation does not mean total freedom. It means regulatory risk is real and needs to be managed as part of the operation’s structure.
For those working with regulation of receivables tokenization and other alternative assets, this scenario is familiar: the regulatory framework will mature, and those already operating with governance and transparency will get ahead.
What is needed to structure and operate litigation finance to an institutional standard?
The question asset managers and structurers ask in practice is not “what is litigation finance”, but “what do I need to operate this seriously”. The answer involves four layers that need to work together:
- Specialized legal capability: a team or partners with expertise in analyzing the merits of cases, assessing the probability of success and monitoring a portfolio of cases. Without this, due diligence does not work.
- A regulated vehicle structure: the operation needs a suitable vehicle, such as a FIDC, FIP or another structure compatible with the nature of the asset and the investor profile. Improvising the legal structure is the shortest path to regulatory trouble.
- Governance and traceability: clear contracts, periodic reporting to investors, control over disbursements and monitoring mechanisms that do not depend on blind trust in the manager.
- Integrated technology infrastructure: this is where BLOCKBR’s infrastructure plays a truly central technical role.
BLOCKBR acts as the operating system that enables alternative assets such as litigation finance to be structured and operated within the regulated environment. This includes:
- Integration with regulated agents through BLOCKBR Station, which connects custody, registration and other participants in the structure within a traceable compliance environment.
- The BLOCKBR Whitelabel platform for asset managers and funds that want to operate with their own platform and an integrated legal and technological foundation, without building each layer from scratch. Especially relevant for structures that intend to scale alternative asset operations with their own brand and governance.
Those who want to understand how this connects to FIDC tokenization and other structured vehicles will find a common logic: what separates an institutional operation from a fragile structure is not the asset, it is the governance that supports the operation.
Litigation finance is not a bet, it is structure.
This is the central argument that defines the difference between what the market promises and what practice requires. The return potential of litigation finance is real, but it does not come from the lawsuit itself. It comes from the quality of the structure surrounding the operation.
Rigorous due diligence, a suitable regulated vehicle, transparent governance, traceable disbursements and active monitoring are the elements that turn a legal claim into an asset with an institutional profile. Without these elements, what exists is exposure to an uncontrolled binary outcome, which, by definition, is a bet.
The future of the capital market in Brazil depends on the ability to structure alternative asset classes with the same rigor applied to traditional assets. Litigation finance is one of the clearest examples of this evolution, and also one of the most demanding.
For funds, asset managers and family offices that want to evaluate this asset class seriously, the starting point is not the promise of returns.
It is the question about structure: who does the due diligence? What is the vehicle? How is the capital disbursed? How do investors receive information? How is risk monitored?
If these questions have clear answers, the asset deserves evaluation. If they do not, the risk is not priced, it is hidden.
Explore BLOCKBR’s infrastructure and see how alternative asset operations gain the structure the institutional market demands.
Frequently asked questions about litigation finance in Brazil
What is litigation finance?
Litigation finance is a model in which a third party, usually a specialized fund, finances the costs of a court or arbitration proceeding in exchange for a share of the outcome if the funded party wins.
The funder bears the risk of losing all its capital if the case is lost, with no right to reimbursement.
Is litigation finance legal in Brazil?
Yes. Third-party litigation funding is not prohibited by Brazilian law. The Code of Civil Procedure does not ban the model, and the ban on the pactum de quota litis applies to lawyers, not to external funders.
There is still no specific regulation for the segment, which means that operations structured as securities follow the general rules applicable to the vehicle adopted (FIDC, FIP, etc.).
What is the expected return on litigation finance operations?
The return varies significantly according to the risk and timeline of the operation. Broadly speaking, specialized international funds work with multiples of 2x to 5x on the invested capital, with average timelines of 2 to 5 years.
In the Brazilian market, operations are still developing and do not yet provide a robust historical benchmark, which reinforces the importance of due diligence and portfolio diversification.
What are the main risks of litigation finance?
The main risks include: total loss of capital if the case is lost; an uncertain timeline until resolution; illiquidity of the investment while the case is ongoing; the risk that the opposing party becomes insolvent even after a favorable decision; and regulatory risk arising from the lack of a specific framework for the segment in Brazil.
How does a litigation finance fund select the cases it will fund?
Selection is done through specialized due diligence that assesses: the legal merits of the case, the technical probability of success, the estimated recoverable value, the solvency of the opposing party, the expected timeline and systemic legal risks. Cases below a certain minimum value, usually R$ 1 million, are rarely eligible for institutional funding, as the cost of analysis does not pay off relative to the potential return.
Can individual investors access litigation finance?
Direct access to individual litigation finance operations is limited to the institutional market.
Individuals can have indirect exposure through structured investment funds that include this type of asset in their portfolio, provided they meet the qualified or professional investor criteria required by CVM regulation.
Asset tokenization may, in the future, enable more fractional forms of access to litigation portfolios, but this depends on specific regulatory maturity for the segment.
