Has a litigation fund earned cash when it reports a valuation gain?

No. A valuation gain is an estimate that a pending case is worth more than before, usually after a favorable milestone or because time has passed. Cash arrives only on realization. Burford's 10-Q warns that fair value accounting 'may result in us recognizing non-cash income that may never be realized,' which is what happened to the YPF assets' unrealized gains after the March 2026 reversal.

How large can the gap be?

Very large. Burford's YPF-related assets carried unrealized gains of about $2.4 billion at December 31, 2025 on a cost basis of $193.6 million; after the reversal, they showed an unrealized loss of $57.1 million at September 30, 2026. For the nine months, Burford's fair value adjustments on capital provision assets were a loss of $1.5 billion, while gross realized gains were $141.5 million.

Why can a realized gain show up as a loss?

Because the previous unrealized gain is reversed when the case realizes. If a case cost $10 million, was marked at $25 million, and then pays $18 million, the realized gain is $8 million, but the income statement in the year of payment shows a $7 million decrease from the last mark. Burford reports fair value adjustments 'net of previously recognized unrealized gains/(losses) transferred to realized gains.'

Can reported profit come mainly from marks?

Yes. AltStreet's Omni Bridgeway review notes FY2026 profit before tax of A$48.2 million included a A$61.9 million fair value gain on litigation investments, so 'without it the year would have been a loss before tax.' Burford's 2025 results included a net change in unrealized gain of $185.6 million, largely from the passage of time and lower discount rates.

Which figures show cash?

Realizations and distributions. Burford reported $710.5 million of realizations in 2025 against $907.0 million in 2024, and $344.6 million in the nine months to September 30, 2026. For a fund investor, distributions paid (DPI) are the cash measure; residual value (RVPI) is the marked part.

How should an investor read a fund's results?

Separate cash from marks at every level: realized gains, unrealized gains, cash distributions and the remaining fair value. Ask what share of reported value is unrealized, how much of it rests on a few cases, and how often marks have been reversed when cases concluded.

Realizations vs Valuation Gains

Litigation Finance & Legal Claims

Definition

A realization is cash (or a firm right to cash) received when a funded case concludes. A valuation gain, or unrealized gain, is an increase in the carrying value of a pending case under fair value accounting, with no cash received. Burford defines a realization as occurring 'when the asset is concluded (i.e., when litigation risk has been resolved),' and realized gain as 'realized proceeds less deployed cost, without regard for any previously recognized fair value adjustment.'

Why it matters

Fair value accounting makes litigation portfolios report results long before cases pay, which can be informative but can also turn a single favorable ruling into a large reported gain that later disappears. Burford's YPF assets are the clearest case: billions of unrealized gain on a cost of under $200 million, reversed by one appellate decision. Realizations are the test of whether marks were right. For an investor, the question in any period is how much of the reported result is cash. Ask for realizations, realized gains and fair value changes separately, and for the history of marks against eventual outcomes.

Common misconceptions

•A valuation gain is not cash, because it is an estimate on a pending case that can be reversed.
•A realized gain is not the year's reported income from that case, because previous unrealized gains are reversed when it pays.
•Profit is not the same as distributions, because profit can come mainly from fair value changes.
•Unrealized gains are not spread evenly, because one or two large cases can account for most of them.
•A write-down is not always a realized loss, because the case may still be pending, as the YPF assets are.

Technical details

Worked example (illustrative): bridging one case from cost to cash

Year 1: deployed cost $10.0 million; carried at cost.

Year 2: favorable ruling; marked to $25.0 million: unrealized gain $15.0 million, no cash.

Year 3: settles for $18.0 million: realized gain $8.0 million ($18.0 million - $10.0 million).

Year 3 reported result for the case: -$7.0 million ($18.0 million - $25.0 million), because $15.0 million of unrealized gain is reversed and $8.0 million recognized as realized.

Over three years the total is +$8.0 million, the cash profit; the timing of reported gains was not.

Reading a funder's results

Realizations: cash and firm entitlements from concluded cases.

Realized gains and losses: realizations less deployed cost.

Fair value adjustments: changes in marks on pending cases, net of reversals.

Remaining fair value and its cost basis.

Distributions to investors: what actually left the fund.

What AltStreet's reviews and filings show

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.

Burford 10-Q (September 30, 2026): YPF cost $202.9 million, fair value $145.9 million, from unrealized gains of $2.4 billion at December 31, 2025; nine-month gross realized gains $141.5 million and losses $59.4 million.

AltStreet's Omni Bridgeway review: FY2026 profit before tax A$48.2 million including a A$61.9 million fair value gain; fair value since December 2023 at a 12% discount.

Burford 2025 10-K: realizations of $710.5 million in 2025 against $907.0 million in 2024.

Questions about realized and unrealized results

What share of reported value is unrealized, and at what cost basis?

How concentrated are unrealized gains?

How have marks compared with final outcomes on concluded cases?

What were cash distributions to investors, not just profits?

What would a reversal on the largest pending case do?

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

Has a litigation fund earned cash when it reports a valuation gain?: No. A valuation gain is an estimate that a pending case is worth more than before, usually after a favorable milestone or because time has passed. Cash arrives only on realization. Burford's 10-Q warns that fair value accounting 'may result in us recognizing non-cash income that may never be realized,' which is what happened to the YPF assets' unrealized gains after the March 2026 reversal.
How large can the gap be?: Very large. Burford's YPF-related assets carried unrealized gains of about $2.4 billion at December 31, 2025 on a cost basis of $193.6 million; after the reversal, they showed an unrealized loss of $57.1 million at September 30, 2026. For the nine months, Burford's fair value adjustments on capital provision assets were a loss of $1.5 billion, while gross realized gains were $141.5 million.
Why can a realized gain show up as a loss?: Because the previous unrealized gain is reversed when the case realizes. If a case cost $10 million, was marked at $25 million, and then pays $18 million, the realized gain is $8 million, but the income statement in the year of payment shows a $7 million decrease from the last mark. Burford reports fair value adjustments 'net of previously recognized unrealized gains/(losses) transferred to realized gains.'
Can reported profit come mainly from marks?: Yes. AltStreet's Omni Bridgeway review notes FY2026 profit before tax of A$48.2 million included a A$61.9 million fair value gain on litigation investments, so 'without it the year would have been a loss before tax.' Burford's 2025 results included a net change in unrealized gain of $185.6 million, largely from the passage of time and lower discount rates.
Which figures show cash?: Realizations and distributions. Burford reported $710.5 million of realizations in 2025 against $907.0 million in 2024, and $344.6 million in the nine months to September 30, 2026. For a fund investor, distributions paid (DPI) are the cash measure; residual value (RVPI) is the marked part.
How should an investor read a fund's results?: Separate cash from marks at every level: realized gains, unrealized gains, cash distributions and the remaining fair value. Ask what share of reported value is unrealized, how much of it rests on a few cases, and how often marks have been reversed when cases concluded.