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Burford brings investment adviser in-house as survey detects strong funding potential in US


Bogart: integrated into Burford Capital

Leading third-party funder Burford Capital has announced a restructuring for tax reasons that will bring Burford Group – its investment adviser – in-house in a cashless acquisition.

In future Burford Group will no longer be free to advise the AIM-listed company’s competitors.

Meanwhile, a survey commissioned by Burford Group has found that more than half of US litigators have cases suitable for third-party funding but fewer than one in ten of top-200 US law firms have themselves used it.

In a performance update, Guernsey-based Burford Capital also reported it had received a $6.5m (£4m) settlement in one case and a further $4m, to date, of the total $20m proceeds of an investment in another case. That case gave the company an internal rate of return (IRR) of 75%. A further three cases are expected to produce an IRR or at least 50%.

The company boasted that, since becoming publicly listed on the AIM market three years ago, it has generated more than $50m in revenue, committed over $300m in investment capital and up to June 2012 had achieved net returns on litigation investments averaging 70%.

Explaining its restructuring plans, Burford Capital said the company has grown faster than expected and innovative practices – such as investing in portfolios of litigation in order to spread risk – were being constrained by US tax rules.

“As a general proposition, it is difficult to effect many of these newer innovative transactions within the company’s existing US tax structures, and indeed the company has closed certain attractive investments this year outside the US that it simply would not have been able to do in the US for tax reasons…

“Burford Capital will proceed to implement a group structure using various wholly-owned subsidiaries that will enable it to expand the investment structures it can use in the [US] and benefit from the greater flexibility achievable by structuring its operations in a way that can benefit from income tax treaties that reduce levels of taxation (and tax risk).”

As part of the restructuring, Burford Group will be acquired in a “cashless merger”. Chief executive Christopher Bogart and his colleagues will be integrated into the company, resulting in a considerable saving in performance fees. “The entire cash leakage of performance fees is extinguished,” said the statement.

Another benefit of the restructure is that Burford Group “is currently not exclusive to Burford Capital and is free to raise funds and enter into business ventures that could compete with or lessen the market force of Burford”. As a subsidiary, this freedom would end.

Burford Group’s 2012 Litigation financing survey contacted 462 AmLaw 200 litigation partners, non-AmLaw commercial litigators, and general counsel and chief financial officers (CFOs) of large and mid-sized companies. It found that among the first three groups, awareness of external litigation financing was over 90%, but for CFOs it was 62%.

Generally, views of litigation financing among litigators were favourable, with non-AmLaw 200 lawyers particularly enthusiastic. More than three-quarters said they believe it will lead to good cases being brought that otherwise will not and 85% said it usefully levels the playing field between unequal parties.

More than two-thirds of all the people surveyed expected third-party funding to increase over the next 18 months, with 51% of AmLaw 200 litigators and 69% of other litigators saying they have had a suitable case in the past. Further, around one in five said they currently had an active case that could benefit from external finance.