How Portfolio Diversification Builds Stronger Plaintiff Firms

By Mathew Keshav Lewis, COO, Darrow.

The best financial investors don’t win every bet. They don’t need to. Instead, they win by managing risk, timing, and liquidity across their portfolio. Well-managed portfolios can weather suboptimal investments and unanticipated market shifts.

That’s true for plaintiff firms, too. Yet for decades, many contingency-fee firms have operated by betting heavily on a few high profile cases, only to suffer financially when that approach backfires. Thinking like an investor can help plaintiff lawyers run more sustainable businesses — and thanks to technology, it’s becoming easier to do so.

While the data has always been there, the arrival of AI in the legal field is enabling firms to derive insights from millions of previously unconnected data points, from case type and duration to outcome and settlement size. This deeper, predictive approach empowers firms to be more strategic about the cases they take on.

This new capability comes as litigation costs rise and litigation itself becomes an asset class. Legal funding markets, AI-driven sourcing, and data-backed valuation models are transforming legal claims into financial investments. In this environment, the winning firms will not only be ones that litigate well, but also those who manage risk like investors.

Doing so requires adopting principles of modern portfolio theory to diversify caseloads and use data-driven tools to forecast outcomes, cash flows, and optimize operations.

The result? Highly resilient firms able to achieve the best for their clients (and stay in business).

What Is Portfolio Theory for Plaintiff Law Firms?

Investors have portfolios of financial assets. Plaintiff firms have dockets of cases. Both require strategic management to be successful. For plaintiff firms, each case represents a singular investment, defined by cost, risk, and expected return. Some matters have smaller payouts but quick and more predictable resolutions. Other cases (e.g. antitrust) have larger payouts but longer, less predictable resolutions.

Plaintiff firms tend to build case portfolios instinctively rather than strategically, which often leads to overconcentration in a single case type or practice area. This can make cash flows challenging and can trigger liquidity crunches or even bankruptcy filings when settlements stall.

Investors, meanwhile, manage their portfolios with diversification, with investments spread across asset classes, industries, and regions to reduce the risk that an adverse impact on one factor will tank the entire portfolio’s value.

Plaintiff lawyers should strive to achieve diversification across a similarly balanced portfolio. Pairing quick-turn cases with longer running ones alongside case type and venue diversification keeps cash flow consistent and ensures financial stability through litigation cycles.

4 Ways To Diversify Your Caseload

Plaintiff firms can apply the diversification principle in 4 strategic ways:

1. Timing (duration risk): Cases resolve on different timelines. A docket of only long-duration cases creates liquidity pressure because the firm must pay costs associated with a case long before a payout arrives.
2. To manage duration risk, leverage legal intelligence data to guide you to specific durations by case type, creating a predictable waterfall of expected cash flows.
3. Settlement Value (return distribution): High-value cases are usually a proxy for expensive and longer litigation cycles. A mix of high-, mid-, and low-value cases balances stability and scalability. Having too many small cases limits revenue growth, while having too many “moonshots” almost guarantees a drought between payouts. 
4. To manage return distribution risk, use predictive analytics to model expected-value curves for each case type and identify likely payouts.
5. Practice Area (sector allocation): Investors rarely allocate all assets to a single sector. Yet plaintiff firms typically focus heavily on just one practice area, meaning an adverse ruling or regulatory change can destroy a firm or specific practice area.
6. To manage sector allocation, build referral and business development partnerships to expand beyond core practice areas and create the right mix of case type diversification.
7. Confidence Level (conviction weighting): Intuition should not be the sole factor in deciding whether to take on a case. Quantifying confidence can guide decision making.
8. To manage conviction weighting, huge datasets can help underwrite cases using probability-adjusted outcomes based on fact strength, jurisdiction, defendant solvency, and historical settlement data, allowing the allocation of resources in line with anticipated outcomes.

How Diversification Increases Revenue Potential

Forecasting cash flow has long been more art than science for plaintiff firms. By applying portfolio theory, plaintiff firms have a solid foundation on which to layer predictive analytics built on large data sets, turning case portfolios into measurable, forecastable cash flows. To do this, firms need to develop robust metrics-driven models leveraging data such as:

• Average time-to-resolution
• Win rate and expected settlement value (firm and industry-wide)
• Acquisition cost
• Cost to carry (staffing, experts, court fees)
• Timing of fee realization

Firms can use this data to make a caseload level forward-looking cash flow curve. This curve helps partners see their firm’s financial health now and in the future, and pinpoint periods when cash reserves won’t be sufficient to cover operational costs.

When firms routinely conduct this type of forecasting, they can direct resources to underweighted high-return areas, plan hiring, share costs with co-counsels, raise new financing, and adjust caseloads to balance exposure.

AI Unlocks Smarter Plaintiff Firm Management

Plaintiff firms can develop stronger financial models when they combine portfolio theory with AI-driven predictive analytics, gaining a clearer understanding of their financial position and resilience.

Imagine a modern dashboard with:

• Portfolio composition by practice area, value, and timing
• Quarterly forecasted cash flow curves
• Settlement trends across jurisdictions
• Optimal claimant counts for mass arbitrations
• Simulated portfolio outcomes under different case mix scenarios

This new area of legal intelligence putspredictive litigation analytics directly into the hands of plaintiff firms, helping them identify the highest-return cases, increase settlement values, and optimize risk and reward to drive more predictable, higher-margin cash flow.

Darrow equips plaintiff firms with this data, providing the analytics and legal insights needed to manage their case loads with the discipline of an investment portfolio.

Plaintiff firms that adopt portfolio theory will operate more stable businesses that attract capital partners who understand the value of data-driven management. Just as disciplined investors use these strategies to compound their returns, the best plaintiff firms will use them to compound justice and achieve better outcomes for their clients.

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About the Author:

Mathew Keshav Lewis is COO at Darrow, the legal intelligence company that detects emerging legal risk and transforms public data into actionable opportunities. He brings over 20 years of experience driving revenue and scaling growth for leading firms, having previously served as CRO at Dealpath and Yieldstreet, where he oversaw the deployment of over $3 billion into private markets and legal finance. 

Learn more at www.darrow.ai.

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[ This is a sponsored thought leadership article by Darrow, for Artificial Lawyer. ]