Duration risk is the risk that a matter takes longer than the time for which capital was priced, reducing the annualized return and tying up capital that could have been redeployed. It sits mostly in the tail of the distribution, not the median.
A position can be right on the merits and still underperform because the capital stayed deployed longer than expected. Duration changes annualized return at a fixed multiple, increases carry cost and delays the point at which capital can be recycled.
Managing it starts with measurement: a distribution of time to resolution, the 90th percentile as a first-class figure and the gap between that figure and the median. The gap is the span a reserve or facility has to carry.
Duration risk is not only a court's pace. Counsel behavior, settlement posture, appeal and enforcement sequencing and the funder's own recognition speed all contribute, and some of them can be influenced.
Working a file that turns on this term?
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Institutional partners evaluating a position against this platform's outcome and duration models are welcome to reach out directly.