Burford on march but warns that “preoccuption” with adverse costs makes London less attractive

City of London: Commercial litigation less attractive to fund

The world’s biggest litigation funder, AIM-listed Burford Capital, yesterday unveiled spectacular results for 2017, with net profit after tax up 130% to £190m and new investments totalling nearly £1bn.

It predicted that Brexit would be positive for the company, and also warned that the “English preoccupation” with adverse costs was making this jurisdiction less appealing anyway.

Income more than doubled to £245m and the company recorded a 37.4% return on equity (up from 21.1% in 2016).

The results were generated by a combination of a couple of large cases and a “significant number” of more moderate successes, with 20 investments reporting realised gains.

The new investments last year mean that Burford now has £2.4bn in litigation. This is made of up 82 separate investments and 877 underlying claims. The average commitment size continued to rise, from £13m in 2016 to £17m last year.

It remained a “highly selective” process, however – Buford agreed to just 59 of 1,561 requests for capital.

The company’s annual report showed just how dramatically the company’s model has changed: when it was set up in 2009, all of its investment was in single cases; last year, just 5% was spent this way (12% in 2016).

The report said: “The largest trend in our business is the move to investment transactions that reduce the risk of binary loss associated with litigation investing. Today, the considerable majority of our new investments are in structures where the loss of a single litigation matter will not cause the complete loss of our invested capital.”

The loss rate in multi-case portfolio investments was just 3%, compared to 19% for single case losses.

Burford put its after-the-event insurance business, FirstAssist, into run-off at the end of 2016, but it continues to deliver cash, albeit at a reduced level – a profile of £4m on income of £5.4m.

“The business has some distance still to go; for example, we still have 19 cases in the £250,000+ category (2016: 41),” the report said.

Thus far, the insurance business has generated £68m in income and £51m in operating profit since the acquisition of FirstAssist in 2012, for which Burford paid £13m.

The report said the company did not anticipate any “negative impact” from Brexit, in whatever form it were to take.

“Indeed, Brexit creates uncertainty, and uncertainty is generally good for the legal sector as it drives demand for services and creates disputes, so from that perspective Brexit is probably positive for Burford.”

Any threat to London’s prominence as a global litigation centre was of no concern, the company added, “as we are perfectly happy doing transnational litigation and arbitration all over the world and already do so in Europe and elsewhere.

“In fact, moving some dispute resolution from London to Europe is arguably also good for us as adverse costs are less of an issue in Europe than in England; even without Brexit, the English preoccupation with adverse costs is increasingly making England an unfavorable jurisdiction for commercial litigation.”

Burford chief executive Christopher Bogart said: “The past year saw an explosion of demand for Burford’s capital from clients around the world, including from our expansions into Asia and Europe.

“We met that demand by raising incremental capital on our balance sheet and by making robust use of our new investment management business.

“We grew our team by 23 people so that we now field a team of more than 90, including more than 40 experienced lawyers, and we have by far the largest capital base in the business. We are excited to continue to lead the legal finance industry into the future.”

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