I suppose that you open the Favorite Files dialog window by hotkey assigned by yourself to command Favorite files or clicking in menu/tab File on item Favorite files with UltraEdit for Windows v27.00. This dialog window is resizable in width and height with the window position and the window dimensions stored and reloaded by UltraEdit. So it is possible to increase the height of this floating window height to maximum according to screen height. The files and folders in Favorite Files dialog window are always displayed in a flat list.

But the list of favorite files is also available in window File View which can be opened (or closed), for example, by pressing Ctrl+U. The hotkey can be customized in key mapping configuration dialog window. The File View window can be a floating window or a docked window. The window mode can be changed by double clicking on title bar File View. In docked window mode the window can be configured to be visible all the time or hides itself on mouse pointer not positioned over the docked window or the tab of this window on the side of the main application window on which this window is docked at the moment. The auto-hide mode of this view on being a docked window can be toggled with a click on pin symbol on title bar.

The File View has the tab Lists with two predefined lists: Favorites and Recently opened files. The Favorites list is the same files/folders list shown in Favorite Files dialog window. The favorite files/folders are listed alphabetically sorted by name showing by default only file/folder name with full path displayed as tooltip below mouse pointer on hovering the mouse pointer over a list  item.

Files can be added by to Favorites list on tab Lists of File View by dragging the tab of an opened file on the list. But that's not all. A context menu opens by clicking with secondary (right) mouse button on Favorites with several commands. It is possible to add one more top level group which means one more list in addition to Favorites and Recently opened files. Such an additional top level group is not listed in Favorite Files dialog window. For each group including predefined Favorites it is possible to add a subgroup with Add group.... And it is also possible to add a group to a group. So a hierarchical favorites list can be quickly setup with each group containing the files and folders you need to often access. Files and folders can be moved between the groups by drag and drop. The context menu has also the option to show the files and folders with full path instead of only their names.

The Favorite Files dialog window displays always all files/folders at top level and of all subgroups in a flat list on using subgroups on predefined Favorites. I could see that Favorite Files dialog window shows ** and *Subgroup and *Subgroup*Subsubgroup on having added a group with name Subgroup and added to this subgroup one more subgroup with name Subsubgroup. That does not look pretty and I will send an enhancement request to IDM support by email for this use case of a hierarchical Favorite Files list.
Update: The Favorite Files dialog window was enhanced in UltraEdit for Windows v27.10 and UEStudio v20.10. The groups are filtered out before showing the list of favorite folders and files in a flat list.

There is also a context menu for files and for folders in a list, just right click on a file or folder in a list to see these context menus.

By the way: Do you know how to use projects/workspaces to work with a specific set of files?