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Listed funder reports 235% rise in applications

Moloney: Committed to disclosure and transparency

AIM-listed litigation funder LCM received 419 applications for funding in its last financial year, an increase of 235% – but only agreed to fund 3% of them – its annual results have shown.

The company also revealed that it has entered the insolvency litigation market.

In the year to 30 June 2019, LCM saw revenue increase 17% to A$35m (£19m), with gross profit up 23% to A$20m increased by 23%. But adjusted profit before tax of A$12m was broadly flat compared to the previous year.

Its cumulative return on invested capital since 2012 is 135%.

LCM’s shares debuted last December at 52p and reached 116p in April. In early trading this morning, they were down nearly 10% to 78p. The price has not noticeably suffered any collateral damage from the travails of Burford Capital over the past month.

It told the market that, as at 30 June 2019, it had a portfolio of 29 projects under management, compared to 20 the same time last year. It has 64 “pre-qualified” pipeline projects with estimated investment of A$394m. These are a mix of commercial, international arbitration, insolvency and class actions in the main.

“During FY19 both the number and quality of applications received by LCM increased significantly. A total of 419 applications were received representing an increase of 235%, compared with 125 applications received in FY18.

“This application increase was largely due to our expansion into new jurisdictions [it has opened new offices in London and Singapore during the year], but also from LCM realising a higher profile consequent upon its listing on AIM…

“Statistically, LCM has operated largely in line with industry peers at approximately 4% of applications converting into an investment. During FY19, our disciplined focus and considered approach saw 3% of applications being converted into investments…

“It is worth noting that LCM is observing an increase in both the quality and size of its investment opportunities into the disputes space.”

Nick Rowles-Davies, a figure well known in the litigation funding market, joined LCM last year to help set up its London operation, and he has been instrumental in developing a portfolio offering for corporates.

LCM received more than 15 applications for corporate portfolio funding during the year, accepting two of them. “While two might seem a small number, it is a figure that represents more than any other funder globally and also represents a large number of underlying claims.

“The board is encouraged by our achievements in the early stages of what we recognise is an emerging market sector.”

In March, LCM also agreed to make available “significant funding” for disputes being run by City firm Clyde & Co regardless of geography or jurisdiction.

Meanwhile, the funder has identified “an opportunity to take advantage of changes to the relevant insolvency laws in both the jurisdictions of Australia and the United Kingdom, which allow insolvency practitioners to assign statutory causes of action”.

A pilot programme has led to 56 applications for funding in the UK and 30 in Australia.

“Smaller claims arising out of insolvency typically require a less significant funding commitment and have a shorter duration period, which in turn will see potential returns being realised at a faster and more consistent rate.”

These insolvency claims are expected to have an investment period of approximately 12-18 months, compared to bigger cases that last for 25 months on average.

LCM told investors that awareness of funding continued to grow, and that “the use of litigation finance through choice rather than necessity is a far greater addressable market for the industry and is one that remains almost entirely unaddressed”.

With an apparent eye of the recent criticisms of Burford, LCM chief executive Patrick Moloney said the results “represent realised revenue and demonstrate our true performance”.

He added: “We remain committed to providing our investors with the disclosure and transparency they need to assess the underlying performance of the business and the basis of our returns.”