Litigation funder Burford Capital has unveiled a big rise in income and profit for 2015, even though its after-the-event (ATE) insurance business saw its turnover halve as other insurers undercut it.
The AIM-listed business also revealed that it has provided £71m ($100m) in capital for an unnamed global law firm, in its largest transaction ever.
Buford saw income rise 26% to £73m, mainly thanks to several litigation investments maturing, along with a 27% increase in operating profit to £54m.
Last year also saw Burford commit a record £145m in new investments, and its current portfolio stands at £442m in commitments, across 54 different litigation investments. It is operating in 40 countries and US states, and working with more than 40 law firms.
Sir Peter Middleton, chairman of Burford, said: “We have experienced rapid growth over our six year history and 2015 was no exception. Our results continue to demonstrate the fundamentally uncorrelated nature of Burford’s business and our ability to generate cash from litigation finance investments without regard to economic or market conditions.”
The company’s annual report explained how it was evolving in line with the legal market’s changing attitude towards outside capital. From having originally just funded individual cases, only 13% of its new investments in 2015 were single matters, with the rest “a variety of other forms of capital provision to the legal market”.
“This transmutation is very significant, as it expands our potential market dramatically while enabling us to reduce volatility and retain our historical return profile,” it said.
Last year Burford provided US class action firm Hausfeld with at least £21m of financing to fund competition claims in Germany through a new office in Berlin, and £30m in litigation financing for an unnamed FTSE 20 company.
The annual report said it has since also provided £71m in capital to a “major global law firm early in 2016 in our largest transaction ever, arrayed against a wide variety of legal assets”.
Such is the demand for capital, it continued, that Burford is now investigating a second bond offering so as to expand its balance sheet
In 2015, ATE income nearly halved to £9m as fewer existing cases concluded than expected. “It was just a pretty quiet year – and in the insurance business, given that our premium potential rises as lawyers spend money in the absence of a resolution, a quiet year is not a bad thing even though it caused a drop in income.”
The report said: “What is happening today is that legacy insurance providers have seen, as we have, a decline in their business volumes post-Jackson. Some of those providers do not have Burford’s diversified sources of income and thus they are desperate to write new insurance business, even if they do so at premium levels we consider uneconomic.
“We are thus today ceding business to those providers by declining to match their prices, although we do not believe that is sustainable for them in the long term (at least at margins we find interesting)… We do not yet know if this year’s decline in new business reflects us maintaining market share in a still smaller market or if we have lost market share to other players who have further discounted their prices (and if the latter, there will at some point presumably be a correction).
“Nonetheless, as we have said before, we should be clear that we do not think we are likely to see a return to the halcyon pre-Jackson days and, it is in our view unlikely to provide anything approaching the level of contribution it did in the past.”
Burford acquired its ATE business, FirstAssist, in 2012 and said it was “nevertheless thrilled with having entered the insurance business”. It paid an effective cash price of £13m and has since generated £52m in income and £38m in profit, “with tens of millions more to come”.
The company has also recently been granted an alternative business structure licence but has been coy about what it will do with this. The report said: “Through this vehicle, Burford can both operate its own law firm and take equity interests in other law firms. This is an early step for Burford to expand the ways in which it can provide capital to law firms and the benefits of external capital to clients. We expect to have more to say about these initiatives in 2016.”