The decision by Katch Fund Solutions to place its litigation fund into liquidation has been widely reported as a reaction to delayed motor finance claims. But the implications go far beyond one fund or one category of cases.
Katch has reportedly decided to wind down its consumer litigation fund due to prolonged delays in motor finance claims.
These extended timelines have created liquidity pressure and reduced the fund’s near-term recovery potential.
On the surface, this appears to be a tactical adjustment. In reality, it is a structural warning to the entire consumer claims funding ecosystem.
Principales conclusiones:
- The liquidation is a fund wind-down, not a failure of Katch as a business.
- Delayed consumer claims are undermining liquidity and investor returns.
- Regulatory intervention is now a major valuation risk in mass litigation.
- Capital is shifting toward higher-control, commercial litigation strategies.
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La información contenida en este artículo es meramente orientativa. No constituye asesoramiento financiero, jurídico o fiscal, ni una recomendación o solicitud de inversión. Algunos hechos pueden haber cambiado desde el momento de su redacción.
Why Katch Matters
Although Luxembourg-based, Katch has become a major player in UK consumer litigation funding through its support of large claims and law firms.
Over the past several years, it funded significant high-volume portfolios, including motor finance and mortgage prisoner claims worth hundreds of millions of pounds.
Beyond motor finance, Katch is currently funding a substantial Plevin action involving undisclosed commissions on payment protection insurance.
The Katch Litigation Fund targeted annualized investor returns of 8–16%, positioning it squarely within the institutional alternative investment space.
Liquidation of Katch Fund
One point that has been widely misunderstood in commentary around the Katch decision is the nature of the liquidation itself.
As reported by Legal Futures, what is being wound down is the Katch Litigation Fund vehicle, not Katch Fund Solutions as a business.
This is not an equity or shares liquidation, nor is it an insolvency of the fund manager.
Instead, it is a structured realization of the fund’s underlying assets, designed to:
- monetize claims and receivables,
- manage investor redemptions,
- return capital on a fair, pro-rata basis, and
- redeploy resources into more commercially predictable investment strategies.
In effect, Katch is not collapsing — it is repricing risk and reallocating capital.
Liquidity Challenges in Consumer Litigation Funding
Consumer litigation finance is critically dependent on predictable timelines. When settlements drag, even strong claims can tie up capital and reduce investor appeal.
Katch reportedly anticipated motor finance settlements in 2025. Following Supreme Court and FCA interventions, first recoveries are uncertain even within 2026.
For a fund targeting annualized returns of 8–16%, this type of delay is not a rounding error. Instead, it destroys the internal rate of return.
This is the core issue. The legal merits of the claims may remain strong, but capital that cannot be recycled becomes expensive, illiquid, and increasingly unattractive for investments.
Regulatory Impact on Fund Valuations
Regulatory decisions can materially impact the value of consumer litigation portfolios. Katch’s reported valuation revisions illustrate this.
The fund’s market value reportedly fell from £422 million to £358 million after the FCA’s updated approach to motor finance redress reduced both expected average damages and the total number of eligible claims.
This shows that consumer claims are highly sensitive to regulatory shifts. When the regulator acts, it can sharply reduce the anticipated returns on previously valuable claims.
For investors, this is a reminder that legal merit alone does not guarantee financial outcomes.
Why Funders are Shifting to Commercial Litigation
High-volume consumer claims are becoming harder to fund effectively, prompting major investors to refocus.
Katch’s response has not been to exit litigation funding altogether, but to refocus on commercial claims through its Legal Lending Fund, reportedly targeting annualized returns of 20% or more.
Commercial litigation offers:
- Higher-value cases
- Fewer counterparties
- Greater contractual control over timelines and strategy
- Less exposure to consumer-protection regulation
- More stable deployment and recovery profiles
In contrast, mass consumer litigation is increasingly characterized by:
- Long and unpredictable resolution timelines
- Extensive regulatory oversight and intervention
- Marketing-driven customer acquisition and compliance risks
- Uncertain group or class settlement mechanisms
- Reduced liquidity and capital efficiency for investors
Funders are pivoting toward commercial strategies where timing, control, and capital efficiency are more manageable.
Investor Preferences in Litigation Finance: Then vs Now
| Dimension | Earlier Market Focus | Current Investor Preference |
| Claim Type | High-volume consumer claims | Select commercial litigation |
| Return Assumptions | Optimistic damages projections | Realistic, contract-driven returns |
| Timeline Tolerance | Long, regulatory-dependent | Defined and controllable timelines |
| Liquidity Expectations | Deferred and uncertain | Predictable deployment and recovery |
| Risk Appetite | Regulatory and reputational exposure | Operational and contractual risk |
| Capital Allocation | Marketing-led case acquisition | Disciplined, selective deployment |
| Investor Profile | Retail and opportunistic capital | Institutional and credit-oriented capital |
How Investor Expectations are Changing Litigation Finance
The Katch liquidation should not be read as a collapse of litigation funding. It is better understood as a sign of market maturation, where capital is becoming more selective.
Strategies that depend on:
- High-volume retail claims
- Long regulatory timetables
- Optimistic damages assumptions
- Continuous marketing-driven case acquisition
are now materially harder to finance.
Those who adapt to this reality will continue to attract funding. Funds that cannot deliver liquidity predictability will struggle to maintain institutional backing, regardless of headline claim values.
Preguntas frecuentes
What is the meaning of Litigation funding?
Litigation funding, also dubbed litigation finance or third-party funding, is when an external investor pays some or all of the legal costs of a claim in exchange for a share of any recovery.
If the case is unsuccessful, the funder typically loses its investment.
Can you invest in a lawsuit?
Yes. Through litigation funding, investors can gain exposure to the outcome of legal claims by providing capital to fund legal costs.
Returns depend on the success and timing of the case, making lawsuits a form of alternative investment rather than a traditional financial asset.
What is the average return on litigation finance?
Returns are determined by strategy and case type. Consumer litigation funds have historically targeted annualized returns in the range of 8% to 16%.
Meanwhile, commercial litigation and legal lending strategies often target 20% or more, reflecting different risk and duration profiles.
What are the risks of litigation funding?
Key risks include:
• Case outcome risk – the claim may fail
• Duration risk – settlements take longer than expected
• Regulatory and legal change risk
• Counterparty risk – law firm or claimant failure
• Liquidity risk, as capital is typically locked in until resolution
These risks make litigation finance a complex, illiquid alternative investment.
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Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
