Concentration Risk

Concentration risk in legal-asset portfolios runs through axes specific to how litigation actually works, beyond the counterparty and sector diversification a conventional credit portfolio review checks. Judge and venue concentration exposes multiple positions to a single decision-maker's tendencies and a single court's pace. Legal-theory concentration exposes multiple positions to a single appellate ruling that can move every position resting on that theory in the same direction on the same day. Defendant-relationship concentration exposes positions held against the same defendant, or defendants sharing counsel or insurance coverage, to a single litigation strategy. Duration correlation exposes positions to a shared court system's pace even where their outcome probabilities are genuinely independent. A portfolio that looks diversified on case type and jurisdiction, the two axes a borrowed credit framework typically checks, can still be concentrated along any of these four legal-specific axes, and proper concentration modeling requires mapping every position along all four simultaneously and checking for clustering continuously as new positions are added, rather than only at origination or only along the conventional axes a summary table happens to display, since the axes that actually govern this asset class rarely show up on that table at all, which is precisely why a review that stops there tends to feel complete without actually being so.