How are unresolved legal claims valued in a fund's NAV?

By estimating expected proceeds, adjusting them for the chance of losing and for the case's stage, and discounting them for the expected time to payment. Burford's policy applies prescribed risk adjustments by case type, geography and milestone, so when 'there is an objective event in the underlying litigation,' the value changes. Omni Bridgeway has valued its portfolio since December 2023 at 'the discounted, loss-adjusted expected cash flows at 12%,' per AltStreet's review.

What moves a fair value?

Milestones, time and discount rates. A favorable ruling raises the probability-weighted cash flows; an adverse one lowers them; time passing reduces discounting; and rate changes move the present value. Burford's 2025 10-K says the weighted average discount rate fell to 6.1% at December 31, 2025 from 6.9%, and at 2024's rates its fair value would have been about $106.8 million lower.

How uncertain are these values?

Highly. Burford's 10-K says 'there is inherent valuation uncertainty' and its methods 'require us to make significant and complex judgments about legal and other matters that are intrinsically difficult to predict,' with the risk that a case 'could experience a negative event even after a positive event.' Burford also disclosed a material weakness in controls over certain fair value assumptions at December 31, 2023 and 2024, which it reports as remediated as of December 31, 2025.

Do funders' assumptions match their history?

Not necessarily, and the comparison is informative. AltStreet's Omni Bridgeway review notes the company's own June 2026 comparison: its fair value portfolio assumes a 6.5-year life and a 33% loss rate, against a 3.5-year duration and a 21% loss rate in its track record. More conservative assumptions than history can still produce gains as cases progress.

Why does fair value matter to fund investors?

It sets NAV, which drives reported returns, fees in some structures, secondary sale prices and the timing of carried interest. A fund whose NAV is mostly marked-up pending cases has reported value that can move sharply on one ruling, as Burford's capital provision assets fell from $5.61 billion to $3.34 billion over the nine months to September 30, 2026.

What should an investor ask about valuation?

Who values the cases (internal team, independent valuer, auditor review), what discount rate and probabilities are used, how marks move at each milestone, how concentrated the marked value is, and how marks have compared with realizations on concluded cases.

Fair Value of Legal Assets

Litigation Finance & Legal Claims

Definition

The fair value of a legal asset is an estimate of what a pending claim, or a funder's entitlement to its proceeds, is worth at a reporting date, measured with unobservable inputs (Level 3 in the US GAAP hierarchy). Burford uses 'a discounted cash flow model' and assigns 'an updated risk adjustment in prescribed percentages to the forecasted cash inflows based on the type of case (e.g., commercial litigation or patent), geography and case milestone.' Almost all of its capital provision assets, $5.60 billion of $5.61 billion at December 31, 2025, were Level 3.

Why it matters

Fair value is how litigation portfolios report anything before cases end, and it rests on judgments about probability, timing and discount rates that no market tests. Used well, it reflects real progress at milestones; used carelessly, it front-loads gains that can vanish, as Burford's YPF assets showed. Funders' own disclosures emphasize the uncertainty: Burford's control weakness over fair value assumptions took two years to remediate. For an investor, NAV in a litigation fund is a model output, not a price. Ask for the valuation policy, the key inputs, the concentration of marked value, and the record of marks against cash outcomes.

Common misconceptions

•Fair value is not a market price, because pending claims are valued with unobservable Level 3 inputs.
•A mark-up is not evidence of cash, because it reflects modeled probability and timing, not a payment.
•Conservative assumptions do not prevent gains, because Omni Bridgeway's harsher-than-history inputs still produced a A$61.9 million gain in FY2026.
•Discount rate changes are not trivial, because Burford's rate decline alone added about $106.8 million of value in 2025.
•A positive milestone does not lock in value, because a later adverse event can reverse it.

Technical details

Worked example (illustrative): a milestone mark-up

Expected proceeds if successful: $40.0 million, in three years; discount rate 12%.

Before summary judgment, probability of success 55%: fair value = 0.55 x $40.0 million / 1.12^3 = about $15.7 million.

Claimant survives summary judgment; probability rises to 70%: fair value = about $19.9 million.

Unrealized gain of about $4.3 million, with no cash received.

If the case then loses at trial, the value goes to zero and the cumulative unrealized gain reverses.

Inputs to a fair value model

Expected proceeds: damages, the funder's entitlement and collection.

Probability: by case type, geography and stage.

Timing: expected date of cash.

Discount rate: and how it moves with market rates.

Adjustments: for concentration, sovereign risk or specific events.

What AltStreet's reviews and filings show

Burford 2025 10-K: discounted cash flow with prescribed risk adjustments by case type, geography and milestone; Level 3 capital provision assets of $5,604.3 million of $5,609.9 million at December 31, 2025; material weakness over fair value assumptions remediated as of December 31, 2025.

Burford's 2025 10-K reports a net change in unrealized gain of $185.6 million for 2025 and a weighted average discount rate of 6.1% at December 31, 2025, down from 6.9%; at 2024's rates, fair value would have been about $106.8 million lower. Its 10-Q for September 30, 2026 reports fair value adjustments of $98.0 million in the third quarter and a loss of $1.5 billion for the nine months, driven by the YPF reversal.

AltStreet's Omni Bridgeway review: fair value at a 12% discount since December 2023; fair value assumptions of a 6.5-year life and 33% loss rate against a 3.5-year, 21% track record.

Burford's YPF-related assets rested on a $16.1 billion judgment against Argentina entered September 15, 2023; the Second Circuit reversed it on March 27, 2026, and the assets' consolidated fair value fell from $2.6 billion at December 31, 2025 to $145.9 million at September 30, 2026.

Questions about valuation

What is the valuation policy, and who applies it?

What discount rate, probabilities and timing are used?

How much value sits in the largest few cases?

How have marks compared with realizations?

Has the auditor raised any control findings on valuation?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

How are unresolved legal claims valued in a fund's NAV?: By estimating expected proceeds, adjusting them for the chance of losing and for the case's stage, and discounting them for the expected time to payment. Burford's policy applies prescribed risk adjustments by case type, geography and milestone, so when 'there is an objective event in the underlying litigation,' the value changes. Omni Bridgeway has valued its portfolio since December 2023 at 'the discounted, loss-adjusted expected cash flows at 12%,' per AltStreet's review.
What moves a fair value?: Milestones, time and discount rates. A favorable ruling raises the probability-weighted cash flows; an adverse one lowers them; time passing reduces discounting; and rate changes move the present value. Burford's 2025 10-K says the weighted average discount rate fell to 6.1% at December 31, 2025 from 6.9%, and at 2024's rates its fair value would have been about $106.8 million lower.
How uncertain are these values?: Highly. Burford's 10-K says 'there is inherent valuation uncertainty' and its methods 'require us to make significant and complex judgments about legal and other matters that are intrinsically difficult to predict,' with the risk that a case 'could experience a negative event even after a positive event.' Burford also disclosed a material weakness in controls over certain fair value assumptions at December 31, 2023 and 2024, which it reports as remediated as of December 31, 2025.
Do funders' assumptions match their history?: Not necessarily, and the comparison is informative. AltStreet's Omni Bridgeway review notes the company's own June 2026 comparison: its fair value portfolio assumes a 6.5-year life and a 33% loss rate, against a 3.5-year duration and a 21% loss rate in its track record. More conservative assumptions than history can still produce gains as cases progress.
Why does fair value matter to fund investors?: It sets NAV, which drives reported returns, fees in some structures, secondary sale prices and the timing of carried interest. A fund whose NAV is mostly marked-up pending cases has reported value that can move sharply on one ruling, as Burford's capital provision assets fell from $5.61 billion to $3.34 billion over the nine months to September 30, 2026.
What should an investor ask about valuation?: Who values the cases (internal team, independent valuer, auditor review), what discount rate and probabilities are used, how marks move at each milestone, how concentrated the marked value is, and how marks have compared with realizations on concluded cases.