Leading third-party funder Burford Capital has announced nearly $1bn (£790m) in new funding, which it will support with $633m of its own capital, to facilitate its investments for up to four years.
Burford told investors today that it has entered a “strategic relationship” with an unnamed sovereign wealth fund to provide capital for its litigation finance investments along with potential further capital for “other opportunities”.
The funder’s share price shot up 18% today as a result.
The commitment is for a $1bn pool of capital to be invested on a 2:1 basis, with the investor deploying $667m and Burford providing the remaining $333m.
Half of each new litigation finance investment will come from this pool of capital for the next four years or until the pool is fully committed, whichever occurs first.
After the recovery of the capital invested, Burford will receive 60% of investment profits.
“Distributions will be made on an investment-by-investment basis so that Burford will receive cash flows considerably faster than in a traditional private fund structure,” the announcement said.
“Burford will also receive a priority distribution in an expected amount of approximately $7m annually to defray Burford’s running costs.”
The company said that, with its current investment fund now fully committed ahead of schedule, it has also raised a new private fund, the Burford Opportunities Fund (BOF), which it has limited to $300m in light of the new strategic capital relationship.
Burford is not making an investment in the fund, but more than 40 of its employees have invested a total of $5.7m.
A quarter of each new litigation finance investment will come from BOF during the fund’s three-year investment period or until the fund is fully committed, whichever occurs first.
BOF investors will pay Burford a 2% annual management fee on investor commitments and a performance fee of 20% of fund profits, subject to an 8% per annum priority return to investors, after which the Burford performance fee will receive a full general partner catch-up.
Finally, Burford’s balance sheet will participate “directly and significantly in each new litigation finance investment”.
“Burford believes it has sufficient capital resources to finance its direct investments, although it may continue to make use of the long-term credit markets when desirable and appropriate,” the announcement said.
Elizabeth O’Connell, Burford’s chief financial officer, said: “We intend to continue to use multiple capital sources to finance Burford’s growth and we think doing so is the best way to balance producing desirable returns for public shareholders without assuming excessive leverage or undue balance sheet risk.”
She added that, in aggregate, Burford would be providing 42% of the capital but earn 60% of the returns.
“These new arrangements also show the need for – and the expected use of – the equity capital we raised in October.”