Litigation funder Burford Capital made a record investment of $1.6bn (£1.2bn) in new cases last year, it said in a bullish trading update as it continues to work on clawing back its reputation from last year’s Muddy Waters attack.
This represents a 24% increase on 2018’s investment levels, which it told investors “shows the persistent demand for Burford’s capital in the legal market”. Cash proceeds rose 23% to $997m.
The stock market responded positively, with shares in the AIM-listed company jumping nearly 10% to 690p this week following the announcement.
Having been 121p at the end of 2014, Burford’s shares hit a high of 2040p during 2018 but 2019 ended with the price at 708.5p, having slumped to 605p immediately following the short-selling attack.
More than half of the new commitments ($854m) were in Burford’s core litigation finance business, an increase of 30% from the previous year. It particularly noted growth in ‘corporate monetisation’ transactions.
Burford’s post-settlement financing business grew 78% to $299m of commitments, while the asset recovery business was up 43% to $89m.
The complex strategies business saw a decrease in new investments to $330m, however, because the relevant fund was largely fully committed for much of the year.
This work relates to assets that Burford believes are mispriced and where value can be realised through recourse to litigation and regulatory processes. As such, the company generally acts as a principal as opposed to financier.
Returns from the core litigation finance portfolio were strong too; in all, over 100 investments have fully or partially concluded since Burford began operating, generating $1.2bn of realisations and $576m of profit.
The return on invested capital since the portfolio’s inception stood of 93% at the end of 2019, compared with 85% at the end of 2018. The portfolio’s internal rate of return was 31%, up slightly on 12 months earlier.
Burford said it recorded the lowest level of balance sheet investment losses in its history, “confirming” the strength of its portfolio.
While balance sheet net realised and unrealised gains for 2019 were expected to be lower than in 2018, impacting net income and profit, the company said this and similar volatility in cash proceeds were merely a matter of timing.
Cases concluded last month that, if ultimately affirmed and paid, will generate more than $150m in cash profits.
“Had January’s events occurred in December, Burford’s 2019 results would have been materially higher as Burford would have been obliged to take a meaningful portion of those future expected profits into income immediately,” it explained.
Burford added that it was making greater use of its multiple capital resources, meaning that only 49% of core litigation finance spend in 2019 came from its own balance sheet, compared to 63% in 2018.
It told investors: “We were pleased with the progress during 2019 of a number of our cases and look forward to favourable results as the portfolio continues to mature. Significantly, 2019 also saw Burford’s lowest-ever level of losses [less than $6m on cases concluded in the year], further confirming that it was a quiet instead of a problematic year…
“As we have long made clear, we can neither predict nor control the timing of the generation of litigation returns. Burford is not a business for those focused on short-term profits or for those who eschew volatility and seek predictability.
“We finance large, complex commercial claims. Our cash flows come from their resolution. There is no ‘normal’ for such claims; they are inherently idiosyncratic. We have had cases resolve in less than a week, and we have matters from 2010 still going strong.
“That is the opportunity in our business and it is why we are able to generate the returns we have historically delivered. If litigation were predictable as to outcome and duration, banks could finance it; there would be no need for Burford.”