Tail risk is the risk concentrated in the extreme end of a distribution: the matters that take far longer, cost far more or recover far less than the typical case. It is invisible in averages and decisive for reserves and borrowing capacity.
Capital structures are broken by tails, not by medians. A facility, a reserve or a fund's term is sized for the typical case, and the tail is what tests the margin.
Measuring it means reporting upper percentiles and the gap to the median, and testing the portfolio under stress that reflects the shared drivers of extreme outcomes.
Tail risk is not rare in a legal portfolio. A meaningful share of matters sit out in the tail, and a portfolio that ignores them is mispriced.
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