Morning, ladies and gentlemen, and welcome to the Litigation Capital Management Limited half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Just please simply type in your question at any time and press send. The company has received a number of pre-submitted questions, and we will hope to attach and address most of those questions throughout today's presentation. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation.
I'd now like to hand over to Patrick Moloney, CEO. Good morning.
Good morning. Good morning to those investors in the United Kingdom, and good evening to those investors in Australia. For those who haven't met me, Patrick Moloney. I'm the Chief Executive Officer. I'm joined by Mary Gangemi, Chief Financial Officer. We welcome you to LCM's interim results for the period ending 31 December 2023. I wanted to take a step back, in terms of the presentation and the content of our presentation today and look at a couple of things, rather than simply focus upon financial results, which obviously we will. Really, the market opportunity for us and the transition of LCM's business from a purely direct investment vehicle using our own balance sheet capital to a blended funds management model. I hope to demonstrate the really significant advantages that we bring to our balance sheet through that model.
So, first of all, stepping back and looking at LCM, in its entirety, we're a litigation financier. We've been in this business for 25 years. We've been in the business since its inception, so we're one of the pioneers of this industry. Over that period, we've completed 270-odd investments, and our win rate in respect to those is 93%. If we look at the financial performance of those investments, we take as a good proxy the last 12 and a half years as being most reflective of what we think we can achieve moving forward. And if we look at all those investments, and disputes which we've funded and completed and got the capital in for over that period, that's generated a return on invested capital of 180%. That's inclusive of losses during that 12 and a half year period.
And that has been generated from $368 million worth of cash realizations. Moving now next to, you know, the market size, we get asked by investors quite a bit, you know, "Is the market getting crowded? Is competition increasing?" And I think it's important to think about the size of the market in the context of answering that question. If we look at the cost of legal services globally, it's somewhere in the order of $700 billion. And if we look at then, you know, what proportion of that has our industry penetrated into the market? And I think we can sort of land on less than 1%. So we'll move more into the market opportunity, but there is a really vast market out there which is very much under-penetrated by our industry currently.
Moving next to LCM's business model it's been developing, as you know, over the last three years, which is a blend of investing our balance sheet capital, alongside capital that we manage for third parties. We've raised two funds so far. We've got AUD 650 million under management, so about $450 million US. And that generates some really buoyant performance fees which we're now starting to see sort of travel through and turn up in our revenue line. Next thing I wanna focus on is really LCM's balance sheet. You know, we think that we operate a very conservative balance sheet. You know, we're operating at the end of the period with GBP 70 million of cash on hand.
And when we look at the way that we value our portfolio, prior to resolution, we're doing that at a relatively significant discount to our historic run rate of a return on invested capital of 180%. If we look at, you know, growth generally, LCM, you know, over the past sort of three years has been sort of tracking at a growth rate of about 18%, net assets per share. And we think, you know, with the introduction of our funds management model and the revenue starting to flow through from that, we'll be able to increase that to 20% kind of CAGR or, or above that. So let's move on now and just look at the market size.
So if we look at the legal services sector in the United Kingdom and in Australia as being the sort of two bookends of the markets that we face, in the U.K., you've got about GBP 35 billion spend per annum currently, with growth forecasts going forward. In Australia, we're looking at sort of a bit over around 30 or a bit over AUD 30 billion spent in legal services. If we look at the growth in respect of the disputes part of that market, in the United Kingdom here in terms of the 50 top U.K. law firms, they're seeing annual growth of about 7.5% in that disputes part of the market. And that sits in stark contrast to the growth generally across the sector of legal services which runs at about 4%.
If we just roll forward, let's use the U.S. market as a bit of a proxy in terms of market penetration. So if we look at what the estimates are in respect of our industry and its investment into the U.S. market, it's about $3.2 billion we're committed to fund a portfolio of about 350 commercial disputes in the U.S. And if we take that and measure that against what the legal spend is generally on disputes, we see that we again get market penetration of less than 1%. If we think about that in terms of the market size and the market opportunity, it's an enormous market in which to operate in.
I wanna next talk about LCM, what makes us different, and puts us in a really good position where we can really take advantage of that market opportunity. There's really three aspects to this. The first one is insight, experience. You know, we've been operating a litigation finance business now for 25 years. As I mentioned, we were there at the very start of this industry. The 25 years experience is really important when you think about this, and this is reflected in our track record. You know, we've had an opportunity to test what sort of disputes make good investments and what don't over a prolonged period of time. We've created, you know, systems and methodologies to measure those disputes as investments. Over a period of time, we've got very good at that.
If you look at our 12-year track record in terms of performance, that suggests that we're very good at that and, you know, we are operating really at the top of the market in terms of performance. The next ingredient that one needs if they're going to take advantage of this vast opportunity is a proper capital source. In 2020, we diversified our capital structure to introduce a funds management business. We started originally with a fund of $150 million. We then did a second fund of just under $300 million, which gives us our funds under management currently. But the access to that additional capital over and above what we've got on our balance sheet as a public company really gives us the opportunity to do a number of things. First, scale this business.
And secondly, it allows us to build portfolios of disputes, which are large enough such that they're not suffering from concentration risk, and they're nice and diversified. So as with any sort of manager of any asset class, we're looking for diversity across our portfolio. And it's really the capital that we have access to through our funds management business which allow us to diversify our risk. And that also allows us to diversify the risk of our balance sheet capital. Whereas once when we first started, we were using only balance sheet capital to fund into these claims, we're now funding a blended model where 25% of the capital commitment comes from our balance sheet, 75% comes from our funds management. So it allows every dollar of LCM's balance sheet capital to be much more diversified across the portfolio.
Then finally, if we look at the third ingredient here, it's really getting access to the best disputes globally such that we can use the skill set that we've developed over the 25 years and the capital that we've attracted through our funds management business and put that to work. So we really need to get access to the best possible opportunities globally. That's where building out our origination function. We are partway through a process of that. We have built out our Singapore team over the last quarter, and we've built out our London team over the last period as well. So we really are expanding our reach in terms of those opportunities. We are constantly looking in a disciplined way at new territories in which we can do this. We're getting a lot of inquiry coming in from the U.S.
We're also getting a lot of inquiry coming in from the Canadian markets. So we're constantly doing that. If we just think about the sheer size of the market available to us, this market has the capacity to sustain, you know, probably a multiple of 5-10 of the largest litigation financiers in our market given its sheer size. I wanna talk about next, disputes and why they're an attractive asset class. There's three aspects to this. The first one is that our asset class tends to be very buoyant on a countercyclical basis. So it tends to operate in markets which are unsettled, which are unpredictable, which tend to be on a recessionary cycle as distinct from, you know, a very buoyant economic climate. So when we look at those types of markets, it kind of does two things.
The first thing it does is it drives demand for our capital because people and corporations would much rather manage the risk of their dispute spend by using a third-party source of capital rather than their own. So if you think about a corporate, a corporate would really in uncertain markets such as we're experiencing now wanna utilize their capital for their core business as distinct from risky parts of their business being the funding of disputes. And the second aspect of this is that in times such as we're experiencing now there tend to be increased numbers of insolvency and bankruptcies. Now, if we're looking at the numbers, here in the U.K., we're at somewhere between a 65- and 75-year high in terms of those numbers. If we look at Australia, they're also tracking above what they were pre-COVID.
So what we're seeing is a lot of insolvency events happening. And insolvency and that part of the market is where this industry started. It was the very essence of this industry came out of insolvency events and insolvency disputes. So we're really getting a lot of that type of activity in the unpredictable markets that we're experiencing globally. The second aspects of disputes as an asset class is that they are uncorrelated to the wider market and the drivers of other investments. So if we just think about that at its core, many other asset classes have claimed to be uncorrelated with the markets. And, you know, when the markets have changed, they've turned out to be perhaps not as uncorrelated as they could have been.
But if we think about a dispute and how a dispute is resolved and it's the resolution of that dispute which really unlocks the liquidity event for us as a manager or as a litigation financier, it's the resolution of that dispute. Now, disputes are resolved in one of two ways. Either through commercial negotiation of the two parties to that dispute. I'll move on in this presentation to how many of our disputes resolve in that way. The second way, an important way, is that they're adjudicated by a judge. Now, that judge undertakes an exercise of taking a given set of facts, applying the legal principles, and coming up with a decision. Now, that judge does not care whether we have a conservative government or Labor government. Does not care whether we're in a recessionary cycle or whether we're in a bull market.
Does not care whether we have high interest rates or high inflation or any of those factors or whether our supply lines are being disrupted horribly because of geopolitical risk. All of those things are utterly irrelevant to the judge who's adjudicating this dispute. So at its core, the outcome of these investments are not impacted by what's going on in the wider market. If we take it down a level and think about the entire portfolio of disputes which LCM is managing at any one time, every single one of those disputes relies upon a different substratum of facts and a different application of the law. So not only is the asset class uncorrelated, but each individual investment comprising the portfolio is uncorrelated to the next investment.
So a really important aspect of this asset class and really relevant to what's happening generally in the unpredictable markets in which we operate. And the final aspect that I wanna touch upon in terms of disputes as an asset class is the asymmetrical nature of the returns that we generate. Now, if you look at LCM historically and our track record, what it shows you is there's much more upside in terms of the returns which ultimately end up as a multiple of our invested capital compared to the downside. So it has very attractive asymmetrical characteristics. And this is shown in the next slide, which tracks every single investment that we have made in the resolution of that investment per profit and per multiple invested capital over the last 12.5 years.
What we can really see there is the upside that is generated from these investments, upon realization is very much larger and indeed a multiple of the downside. So we get this, really buoyant and really attractive asymmetric characteristic of these investments. And now I wanna move to LCM's business model. And this is a business model that we have been evolving since about 2020. But we can actually now see some of the revenue that's coming through in terms of performance fees. So I just wanna step through this business model to make sure it's pretty clear to people. So we run a model which has two sources of capital. The first source of capital is from our balance sheet, and the second source of capital is from our funds management business. And those two sources of capital are blended together and co-funded.
So every single investment that we manage through our portfolio of disputes, 25% of that capital comes directly from LCM's balance sheet, and 75% of that capital commitment comes from our funds management business, and we're responsible for managing those funds. And that investment activity then creates two sources of revenue for LCM. The first source of revenue is very similar to what it was traditionally, which is the economic upside that we generate from the direct investment. So when a dispute resolves, 25% of that has been directly invested or funded by LCM's balance sheet. We enjoy all the economic upside in respect of that 25%. In respect of the 75% capital commitment which we have managed as a fund manager, we're entitled to performance fees. And those performance fees are really buoyant.
So we're entitled to 25% of that profit up to a profit of 20%, an IRR of 20% in respect to the realization. And beyond the 20% IRR, we get our performance of 35%. So when one looks at our revenue line moving forward, we look at those two different sources of revenue in terms of our performance. So at the end of the period, we were funding an overall portfolio of 53 separate investments which obviously continues to grow. This is a slide which really sort of unpacks what the performance fee looks like. And so this is very much the model moving forward. So in terms of we've had some resolutions from Fund 1. So we've had about 5.5 separate disputes resolved, and that has represented just under 20% of the capital committed and invested in that Fund 1.
So GBP 12.4 million has been invested from LCM's balance sheet into that as a co-funding with our funds management business. And the revenue from those direct investments that has been generated, GBP 44.8 million. So that's our traditional investment style. And that has generated a multiple of invested capital, 3.6x in an IRR of 170%. We then move across and we look at the revenue which has been generated from managing third-party funds. A further GBP 32 million has been generated and paid to LCM and come into its revenue line as performance fees. So a really significant contribution towards LCM's revenue line, in relation to less than 20% realization in respect of the Fund 1 investments. Just a reminder, Fund 1, $150 million, and we're into committing Fund 2 which is just shy of $300 million .
So as a total, in respect of that, LCM's generated revenue of $76.8 million. And if we look at the financial performance of that, and this is the financial performance of utilizing third-party money, it's actually converted to a 6.2x multiple of our invested capital and an IRR of 184%. So hopefully that really demonstrates to investors that the new model that we've employed here of co-funding and managing third-party funds is a really buoyant source of revenue for LCM, and it really is going to improve the performance of this business. I wanna look now at LCM's 12.5-year record. So we have continually updated the market in terms of our financial metrics and our financial performance in respect of that 12.5 years. But I wanna break that down and give a bit more granular detail.
So over that 12.5 years, we've committed GBP 181 million. Of that GBP 181 million, GBP 130 million was actually invested, up until the time that we had a liquidity event. And the outcome predictably sort of fits into three categories. We've got adjudicated wins. So that is a dispute that's been adjudicated by a third party, a judge or an arbitrator. And the realizations which have been generated from that is GBP 119 million. That was over an average life of 32 months. And that generated a multiple invested capital of 5.4x and an internal rate of return of 147%. Then we've got losses, inevitable, running a strategy like this. Interestingly, we had GBP 12.8 million in terms of losses. But notwithstanding that we lost, we had recoveries nonetheless of GBP 5.2 million from a variety of sources.
And then finally, the largest proportion of these disputes that we invest in actually resolve themselves through commercial negotiation. What we can see here is the financial returns and the metrics in respect of a settlement are less than an adjudication, but of course they're attended with much less risk as well. So we're talking about, you know, generating GBP 244 million of realisations, and the financial metrics are multiple invested capital 2.7x and an internal rate of return of 2.3x. So if we look at that, a total over that period of GBP 368 million in terms of realisations, and that brings us to our 12-year running track record, obviously inclusive of losses, of a multiple invested capital of 2.82x and an IRR of 78%. Now, these that really gives investors quite a lot more detail in respect of how we've achieved those results.
That, though, that return on invested capital is really important because it it's very instructive in terms of thinking about LCM's book moving forward and what sort of returns we might be able to generate in the future in respect of existing commitments. This is our 12.5-year track record, broken out into 3-year rolling periods. The reason why we measure it in 3-year rolling periods is we're encouraging investors to think about the life of these investments of being about 3 years. So when we look at it, there's a number of factors here.
So the first one is the internal rate of return which is generated on 3-year rolling basis is remarkably tight and sits within a really, you know, it's quite a tight band when you think about the myriad of outcomes that one can get from the resolution of a dispute. The second interesting fact and metric to take account of here is that, you know, over about the last sort of 5-6 years, our performance in terms of a multiple of invested capital has actually increased above our historic run rate of 2.8x, and it's tracking sort of just above a 3x multiple. So we actually are performing better in sort of the last sort of 5 or so years than we have done historically.
And then we're seeing, in addition to that, the time for the conclusion of these investments tracking up a bit, which is entirely expected for two reasons. One, the impact of COVID and the embedded, delays that are present throughout all of those investments which covered that period. But secondly, with the increased pool of capital that we are managing now through the funds management business, where we can fund larger and more complex disputes which have the benefit of having higher returns, but because you're fighting about a larger sum of money, they tend to elongate in terms of time. And just drawing all of those things together, some observations about how we're tracking in terms of growth.
So if we look at consolidated new commitments, you know, in this interim period, we've busted through half a billion of, as of, assets under management or commitments under management to at GBP 561 million. In terms of capital invested, we're seeing strong growth, year-on-year in terms of the amount of capital that we're investing, which is a combination of our balance sheet capital and obviously our funds management business. And then cash from concluded investments, we're also seeing, you know, really strong, upward trends in terms of the cash realized from the, the resolution of these disputes. As most investors will appreciate, there's very little correlation between, one interim period and perhaps another. If we take sort of, you know, our last financial year's performance, most of our revenue was realized in the second half. There's no real trend for that.
But what's important is we are tracking up year-on-year. And then finally, net assets per share, again, really encouragingly, and growing, you know, period by period. I'm gonna hand over to Mary to talk about, you know, the financial performance in this, at the end of the 31 December period.
Thank you, Patrick. I will start with looking at new investments, which, one of our KPIs as the number of applications we see, and then the number of applications we then convert obviously contribute to revenue in the future. So an increase of 50%, we saw 242 applications during the six-month period. That translated to five new commitments and a contribution of GBP 90 million of new investments. We had three investments conclude in the period generating GBP 28.4 million of revenue. This includes GBP 10.2 million of performance fees.
Patrick did touch upon about the funds management model and the significance of those performance fees on our overall results. We continue to see high performing Fund 1 investments, generating strong returns for LCM. We recognize a 3.3 multiple on those concluded investments on capital invested of GBP 8.7 million. If we move forward to our ongoing portfolio, we have 53 live matters, inclusive of the five that we signed on during the year. That GBP 561 million of assets under management, which Patrick touched upon in his previous slide, is broken out into GBP 230 million being LCM commitments, GBP 168 million being Fund 1 commitments, and GBP 162 million being Fund 2 commitments. Total invested capital for LCM is GBP 107 million, and we obviously have the remainder of the 230 to continue to invest in, likewise for Fund 1 and Fund 2. Moving forward.
Touching upon our financial highlights for the year, we touched upon the total realizations in the period and just how meaningful those performance fees that we're starting to see come through actually are to our business model moving forward. They generated GBP 28.4 million of realizations in the period, which is up 846% on the prior half-year period at GBP 3 million. Realized gross profits were GBP 19.6 million. Unrealized fair value gains was a net of GBP 1.9 million. Just to sort of clarify that point, that is a combination of the fair value that we've recognized in the period on the ongoing portfolio of investments, but also we then de-recognize the fair value on the matters that have now shifted into the realizations. That is just the net movement in the period making total income GBP 21.6 million versus GBP 7.1 million in the prior period.
After costs and finance charges and FX gains, we delivered a profit before tax of GBP 8.9 million and a profit after tax of GBP 7.3 million in comparison to a loss in the same prior period. Moving on to the balance sheet, our cash remains strong, and I'll go into more detail on the cash when we come to the cash flow waterfall. Our investments at fair value are GBP 173.8 million, and just again, that's against a cost of GBP 107 million. I'll touch upon that a little bit further down. Investments held at cost, these are the cases that are still being held under our old, IFRS 15. It really is just an interpretation of the accounting standard.
Those cases, we still have very high conviction in them, and as you can see from one period to the next, we have continued to deploy into those investments, and we expect to see realisations in those matters across the short to medium term. They will fall away, and then all of our investments moving forward will be captured under the fair value model. If we come down to net assets, we have had a very marginal increase in net assets. We did deliver a profit this year, but the net assets were suppressed by the dividend payment that we made in period as well as the share buyback. So it's net assets of GBP 185 versus GBP 183, and that translates to net assets per share of GBP 0.90.
If we touch upon the fair value model and the conservative approach to valuing our ongoing investments, as mentioned, our cumulative cash invested into ongoing cases was GBP 107 million at the period end. I've already covered the GBP 173 million of assets that are fair valued versus the GBP 39.4 million held at cost. What that translates to is GBP 213 million on our balance sheet as at the period end. Now, if we look at that in terms of historical performance, that's a 2x on our cash invested. Comparing that to our long term track record, that's versus 2.8 means there's another 0.8 of intrinsic value which has not been captured in our balance sheet at the period end.
But overlaying on that, if we actually use that $2.8 million, what that translates into under the funds management model, with the overlay of the performance fees is that $1 of LCM's invested capital will generate roughly 4x MOIC. You'll see that to date we've actually generated 6.1x MOIC. So there is still quite a bit of intrinsic value that is not captured in our balance sheet, and we, we'll continue to see as we deploy into matters, that fair value obviously and the net assets increasing. A lot of you will be familiar with the cash flow waterfall. Probably the only things really to focus on here is that we've had three resolutions that have generated $33.8 million. One of those were a resolution that was recorded in the prior period, and the cash for that has now come through. We invested $17.5 million in investments.
OpEx remains in line. Borrowings remain in line, but I did want to draw attention to the fact that we did pay down GBP 8.1 million of our borrowings during the period, and we also had dividend payments of GBP 5 million and a share buyback as at the period end of GBP 0.8 million. That leaves us with a cash position of GBP 70.3 million as at the period end.
So just moving on to Outlook, what are we looking at? So specifically, a number of aspects that we're looking at closely. First of all, the market conditions generally which are driving considerable demand for capital into the disputes market. So we think about where we are in the economic cycle, think about how much uncertainty there is around many things, including, you know, soft or hard landings, you know, inflation and whether when, if and when that's gonna be brought under control. We've got geopolitical risk, and we've got a high interest rate environment which will ease at some point.
All of those factors really push people towards wanting to use a third-party source of capital to fund their disputes rather than taking that risk on themselves. Secondly, in respect of getting access to disputes in many of the markets that we operate in such that we can add those to our portfolio of investments, we're really well positioned because we're seeing some improvement in the competitive landscape.
So we're seeing a consolidation of some of our competitors in the marketplace which is translating through to us, to two things. One, a source of talent that's spilling into the marketplace looking for a new position. And secondly, it's a less competitive environment when we're looking at pitching for particular investments. Next thing is where are we at in terms of our fund management business? So, Fund 1 is fully committed, and as we've demonstrated here, starting to really show some tremendous performance in terms of those realizations which is translating through to performance fees, in our revenue line. Our expectation is that Fund 2 will be fully committed within the next 12 months, and in addition, we will launch Fund 3.
We have the tremendous benefit, consequent upon our track record and our experience in the industry, to have the very best financial investors and supporters in respect to our funds management business, many of which have contractual entitlements to participate in Funds 3 and 4. In respect of our modest debt and leverage on our balance sheet, we are exploring a number of options with respect to refinancing that debt. Part of it is in the private markets, and part of it is in the public markets, through a bond issue. I think as most investors will recognize, there is a certain degree of speculation about where interest rates will travel from here. I think the consensus is that interest rates will ease. The real question is the timing in respect of that.
I think, LCM and its Board are looking pretty carefully and doing giving some careful thought to, whether we would lock in a bond, at a point where we expect interest rates to ease or whether we refinance in the private markets. We're in pretty advanced discussions with a number of options there, and we have an expectation that we will be able to bring down, our cost of capital. We have had a degree of uncertainty, brought into, the litigation funding sector here in the United Kingdom as a consequence, of a decision of the Supreme Court in PACCAR. That is a decision which hasn't really affected LCM's business directly, but it has been quite challenging from some of our, competitors.
Now, I think what has been really encouraging for us in recent months is that the government have proactively said that they are gonna pass legislation at the first available opportunity to correct the Supreme Court judgment such that there's certainty associated with that market. Now, while that won't have any direct impact upon LCM's portfolio or the way we run our business, it is a really strong endorsement of the recognition of governments, and the U.K. government in particular that litigation finance is a really necessary part of the system and access to justice. We've seen this in other jurisdictions, and legislation passed in both Hong Kong and in Singapore to entrench litigation finance and to allow it to be used in the marketplace.
And finally, you know, given the market conditions, our access to capital, we're really confident that we are in a position, from here really taking into account, the revenue that we can generate from our funds management business to drive long-term shareholder growth. And I wanna just move from here into the bigger picture and see really what the opportunity is for LCM off the platform that we've got to at this point in time. We've talked about, you know, some estimates about the size of the business. So in terms of global legal spend, $700 billion, an enormous amount of capital going into the legal sector. In terms of the markets in which we operate, you know, 200+, 200,000 lawyers plus.
If we look at the U.S. market just by way of comparison, you know, more than 1 million lawyers operating in the U.S. Then if we translate that into market penetration, it's less than 1% market penetration in respect of the litigation funding industry. So a real opportunity there for growth without really having to take market share from any of our competitors. Now I wanna just move to, you know, is LCM really well placed to take advantage of that? And we just touch upon some of the factors which we started with which is LCM's breadth of experience. We are fortunate enough to be having been around since the inception of this industry. No other litigation financier can really point to greater and longer experience than LCM in the market.
And that places us in a very good position in terms of being able to underwrite the risk of these investments and take advantage of the tremendous opportunity. You know, our performance is really a reflection of the skill set that we've developed over that period of time, a win-loss ratio of 93% across more than 270 investments or disputes which have been funded through to completion. In terms of, you know, the last 12 and a half years, you know, we've generated a return on invested capital of 180%. You've seen how that's made up in greater detail, but really buoyant returns. And then finally, you know, bringing that track record and the skill that we've developed over time, and bringing that and putting that to work, we need capital.
Our third party funds model that we really kicked off in 2020 is a really significant step forward in terms of LCM's access to capital. And it's also gonna really drive returns for the future. We've seen how the performance fee and introducing that into our revenue line is really gonna really enhance the returns for equity investors moving forward. Now I think at that point we're gonna move on to questions.
That's great. Thank you very much to Patrick, Mary, for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right hand corner of your screen. But just while I can take a few minutes to review your questions submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A will be available post today's meeting. As I mentioned at the outset, we did have a number of questions. And Patrick, Mary, thank you very much indeed. I know you've touched on a number of those during your presentation. But Tim, if I may just hand back to you now, to moderate us through today's Q&A, and I'll pick up from you at the end.
Thanks, Mark. Couple of questions on some individual cases, on just for an update on Queensland Power Class Action and the GreenX Metals case.
Yeah. Look, look, we get. I know investors are really keen to, to try and drill down into individual investments, and very happy to answer that. But I really do want to step back and say we think about our investments in terms of a portfolio. So it's really important to think about diversifying risk across a portfolio. And, you know, we strive and we work very hard to ensure that the portfolios of disputes that we manage are not suffering from concentration risk in any individual investment. That said, in terms of GreenX, GreenX went to a hearing about 12 months ago now. We're still waiting on a determination of the tribunal in respect of that. You know, in terms of treaty disputes, they can take 12 months or beyond 12 months before a determination.
We would be hopeful to receive a determination of that in the near future. If we look at the electricity class action in the state of Queensland and Australia, we are going to a hearing very shortly in respect of that. So during this year. And that will be a hearing in relation to some early issues in terms of liability. And then ultimately, if we're successful in respect of that, we will go on to an adjudication of what the damage is that's being suffered by the consumers of electricity in that state.
Thanks. Next question. Ultimately, when the company is of sufficient size, the payment of dividend rewards investors for their commitment and patience as well as potentially strengthening the shareholder base. However, until then, is it not more cost-effective for the company from a tax perspective to purchase back its own shares as it currently is doing?
Look, I think, LCM's Board really spends some time thinking about the payment of dividends. You know, in different markets and different investors have very different views in respect of how we should approach this. I think our position is that we've certainly got an open mind in terms of of dividends. We would like to move towards establishing a dividend policy. But if you think about LCM's position and we're in a position where we're growing strongly and we have a lot of investments available to us which, as we can all see, are really high yielding, most of our focus really is in growing the platform and also investing the, you know, the organically generated capital from the business model back into investments at this point in time.
But as I say, you know, we, we do spend as a Board a lot of time thinking about this, but that's our position currently.
Thanks. Next question. Is there any and I think we've sort of covered this. Is there any inbuilt conservatism in the fair value framework? For example, do we value items in multiple of invested capital or the contractually contracting we might be in touch with a higher percentage award of multiple invested capital?
Yes, we did touch upon this in the presentation. Again, if you have a look at our invested capital, at the period end, we had invested GBP 107 million, and that compares to fair value markup of GBP 213 million as at the period end. That really translates into an implied MOIC of 2x, and we've been running on an average of 2.8x. There's 0.8 of tracked value that still hasn't been recognised, on our books. But I'd say overlay on that, that the performance fees of the funds management business to date have actually generated higher returns. And the multiple so far, this has actually been 6.1x. But if you actually translate our 2.8x historical multiple, into what the performance fees would look like under the funds management business, it's $1 invested will generate a MOIC of 4x. Thanks.
Next question. LCM are taking on bigger claims such as a class action against mobile phone contract selling. Can you explain why you will fund such large cases only on the basis of a multiple of invested capital?
Yeah. I mean, this is a good question. In terms of the, so when we're talking about the mobile phone class action, we're talking about a claim which has been brought here in the United Kingdom in the Competition Appeal Tribunal. So at present, the tribunal has only approved class actions and certified class actions based upon the funder receiving a multiple of invested capital. So unlike the class action regime in Australia where we typically get remunerated as a percentage of the gross pool of capital that we create, the law has developed in the United Kingdom in respect of competition claims which is the only true part of the market which can operate as a class action. They have been approved only in terms of a multiple of invested capital.
Thanks. How do management expect to handle the maturing of existing debt next year?
So I think we may have touched upon this during the presentation. We're in pretty advanced discussions both in the private markets and the public markets. We would be in a position to without a problem refinance our current facility. What we're trying to do is really sort of extract our lowest cost of capital that we possibly can.
Next question. How can LCM optimize their capital? Many cases have positive judgments with a high chance of recovery, yet we have a long wait to obtain the final settlement. Is there a solution to this such as selling on to another party, for example, insurance company?
Yeah. I suppose there's a number of aspects to this question. I think, if I think about this in terms of historical data, there's been very few cases historically where we have enjoyed a positive outcome in terms of an award and then had to wait any length of time. So, as you can see in terms of the last 12.5 years and even dating back before that, the vast majority of the disputes that we invest in actually resolve themselves through a commercial negotiation.
There have from time to time been isolated incidents where we have obtained an award and we then have to enforce that award in terms of getting our return. Now typically, those types of investments, indeed all of our investments are on a rising multiple over time. So our returns are really not only protected but in many ways enhanced by the elongation of time in respect of that. So that's one aspect of the question. The second aspect of the question is, you know, are we considering or have we interacted with a secondary market in respect of disputes? And we're always giving consideration to whether we can avail ourselves of the secondary markets. It's really just, you know, a matter of weighing up the returns and what is it gonna optimise the returns given our estimates in respect of time.
So so far, we have not participated in the secondary markets. We would certainly not rule that out, and it's something that we really do consider in respect of, you know, each investment as it progresses through the system.
Thanks. A question on the Panthera Resources case. Can you explain does the $1 billion value quoted in Indian in the Indian press help support the valuation? And once you enter arbitration, is there still an opportunity for an early negotiated settlement?
Yeah. So I, I think, there's always sort of room between, you know, w-what a litigant's perception of what they might, achieve at the end of the day and, and what happens in reality. And there's normally a bit of, delta in between those two positions. So I think the starting point is when we give consideration to whether we're gonna fund a particular dispute, one of the really important factors that we look at is proportionality. It's the proportionality between how much do we need to invest in this dispute to bring about a liquidity event. We want to make sure that there's a nice balance between that such that everyone's interests remain aligned.
Second proposition is that if we were to look at a claim like that, we would get independent advice with respect to quantum. So we would go to an independent expert and have them make an assessment as to what they think the ultimate value of this business which has been appropriated is, and then we sort of work off that. So I think it's fair to say that we take a pretty considered, cautious approach when we are considering the quantum of damages. And, you know, it's important, I think, that we don't get seduced by really big numbers.
Thanks. Question on fair value and how you can explain fair value. Do you bucket cases stage by stage?
Maybe just give me a second. Sure. So we can touch upon this, and there's probably a more helpful slide in the presentation at the last year ends. But typically, when we're looking at our portfolio of investments, each and every matter is valued on a discounted cash flow basis. There is a risk premium associated with each case. There will be the time cost of capital, and sorry, there'll be the time cost of money as well as the cost of capital.
Then as each of those matters progress, we and that we see the observable milestones progressing along the line, we recalibrate the value accordingly. Again, I would say, you know, the best way to have a look at, you know, the conservatism of how we apply our fair value is to have a look at the capital invested at the period end and to compare that to the fair value on balance sheet of GBP 213 million, and then to compare that to our running track record of 2.8x multiple. So at the period end, it was a 2x multiple. Our historical track record is a 2.8x multiple. So there's intrinsic value of about 0.8. And then you need to overlay on that the fair value of the performance fees under the funds management model moving forward.
Thanks. That's good. Present, Gabriel Resources Ltd lost its ICSID arbitration case this March. Does LCM intend to reassess its portfolio taking into account this ruling?
This is a pretty detailed and specific question. In relation to the Gabriel Resources, a Canadian mining company that made a claim under the Bilateral Investment Treaty, it is true that they're unsuccessful. We didn't know the complete reason for that because the judgment is yet to be published or the award is yet to be published, so we can't really dig into that. There's a bit of commentary around that. What I can say is that based upon the commentary and not having yet had an opportunity to review the award, it seems to turn very much upon the facts of that particular case rather than giving us any guidances to sort of a change in wider in terms of wider principles.
So very happy to update the market in respect of that, but I do not anticipate that this is going to have any wider implications in respect of legal principles than is confined to that one particular dispute.
Next question: stat NAV per share. I think we've done that in the presentation.
Oh, I will cover that one. Yeah.
And can you confirm if buybacks will continue and why you think they have value versus spot NAV?
Sure. So we stated in our presentation that the current NAV per share is GBP 0.90. Again, if I touch upon what I've said previously, this is conservative versus our historical track record. So currently, we're sitting at an implied MOIC of 2x versus 2.8x. This is based on the cash invested to date of GBP 107 million. We obviously have commitments of GBP 220 million. So as we continue to deploy the remainder of the $220 million, we will naturally see that drive growth in our NAV per share. Again, we need to have a look at the meaningful returns that the funds management business can deliver in terms of performance fees.
If we have a look at the funds that we've raised to date, that's $450 million, and the potential performance fees off the back of that are quite meaningful. That is not captured in our balance sheet at present. So if we believe that we will generate the returns in line with our historical returns which we believe we can, there's quite a lot of value there that is not recognized at our year-end position. So again, the current share price is well below the intrinsic value of the business and the portfolio even just based on commitments to date.
And again, if you have a look at the performance fee element of that, a dollar today translates into $4 based on the 2.8 historical. So it makes perfect sense to be buying back the shares at the current share price because they are undervalued.
Thanks. There has been reduced news flow in the last six months. Was this deliberate or a consequence of less case outcomes?
No. I think we have had case outcomes. It's a vex question in terms of news flow. We're obviously very conscious that we need to update the market. But in terms of news flow, in terms of issuing RNSs, it's obviously a balancing act and it needs to be measured against materiality. So we as our portfolio gets larger and, you know, as our revenues starts to increase, the materiality threshold tends to be lower.
You know, we're thinking about a number of ways that we can address, you know, giving more information to the market. One of those is we're contemplating actually providing a podcast. That podcast will not be simply about LCM but really about insights into what's happening in the market. But it will allow us to sort of more regularly communicate with investors really about what's happening in the industry more widely and from time to time what's happening in LCM.
Thank you. Under the fair value framework, when are performance fees recognized?
So, performance fees are recognized as part of the overall fair value that's captured. To sort of put a number to that, the current fair value at GBP 213 million comprises an element of performance fees, which really is just a calculation, you know, based on the fair value that's been recognized to date. That is circa GBP 40 million in the current position for LCM.
How does the multiple on invested capital get calculated? Does it increase on an annual basis or is the method used usually accrue monthly?
When we think about what LCM's return is with respect to investing or funding these disputes, the first observation to make is they are embodied in a litigation funding agreement. Each individual litigation funding agreement is separately negotiated as a bespoke funding arrangement and will have different metrics in it. But as a general proposition, we get remunerated on the higher of a multiple of invested capital rising over time or a percentage of the end of the pool of capital that we create. And there's certain individual models such as what we can charge in the Competition Appeal Tribunal which is based upon a multiple.
And in the Australian market in terms of class actions, it's typically a percentage of the gross pool of capital that we create. In terms of calculating a multiple, it will typically rise on six-monthly intervals, and then cap out at a particular rate, and then will go on to a compounding interest.
I think this was covered in the presentation, but an update on the percentage of cases which have concluded successfully since inception. You mentioned over 270 cases.
Yeah. So I think, in terms of, you know, our win rate is 93%, over just I think it's a little more than 270 separate disputes which have resolved. And if you wanna take a subset of that, you can take the performance of our 12 and a half year track record which is one of the slides in this presentation deck.
And an update on the average time a case takes to go through the courts and if there's been a significant change in the reasons for this?
Yeah. So I think the best way to look at that is if we look at the average over the last 12 and a half years, it's just shy of 30 months. Another place to look there is in the three-year rolling performance metrics. So that'll show you that the time is trending up. I touched upon this during the presentation. There's really two reasons for that. You know, over the last sort of, you know, 3, 4, 5 years. And that is twofold.
First of all, it's a consequence of COVID. And what I mean by that is not simply the delays that were caused because courts were closed during, during various periods during COVID, but the interruption to those cases was much more widespread than that. So it was availability of witnesses. It was availability of experts. And it was a whole series of things that prevented the case from progressing through its normal path.
Any investment that we had entered into probably about 18 months prior to the onset of COVID in early 2020 right through to the end of COVID will have some measure of disruption as a consequence of those factors. The second aspect which is elongating time is the fact that with access to greater pools of capital for us to manage, we're able to fund without causing concentration risk much larger disputes. You know, if we think about this logically and simply, if you're fighting about $10 million or $20 million as compared to fighting about $1 billion, you're gonna fight much longer and harder about $1 billion in the out for a smaller sum.
So you really expect that there's going to be a lot more fighting, a lot more skirmishing, whether we're in the court system or the arbitral process when we're talking about larger sums of money. So I think those two factors are elongating time. But it's important to remember that, you know, we protect the returns that we're able to generate by having a rising multiple of our invested capital over time. So that tends to shift the risk in terms of time onto the funded party as distinct from us as the investor.
I've probably got any time for a couple more questions. During the last period from 50% more applications, new commitments contributed less capital. Should we expect more applications needed to commit less capital in future?
No. We shouldn't. It's really just a matter of timing. So, you know, when an application comes in, that application is typically not complete for our purposes. So, it's the consideration of an application to work out whether it is actually converted into an investment or not is a very iterative process. So it may take anything from sort of 1 month, through to, you know, 6, 8 to 10 months. So, you can't really draw any conclusions from period to period because there's a lot of these applications which will traverse the end of the interim period.
Are there any considerations regarding changing pricing policy because of extending duration of the cases beyond 4-5 years?
Look, we actually look at the expected life of these investments. There's very few, if any, investments that we're entering into where we have an expectation that they're gonna have a life of more than five years. What we do do in terms of protecting the value of our returns is having a rising multiple over time. And once that caps out, it goes into a compounding interest rate. So I think we've, you know, thought long and hard at the front end of this about what our returns are gonna be. And we build in terms of what our returns are, a model that really protects our position.
Probably the last question. What mix of fund versus balance sheet investments do you envisage getting to when any bond funding is approved? Do you envisage heading back towards balance sheet only?
Look, I think the answer to that is, I would hope that, you know, investors are as enthusiastic as we are as executives about the type of leverage that we can really generate from using third-party funds. I think at the moment in terms of LCM's evolution, we've struck a really comfortable balance between investing 25% of our balance sheet capital and managing 75% of the capital commitments through a funds management business. And you can really see, you know, the generation of returns. That is not only gonna allow us to fund much larger portfolios so they're not attended with the same risk, but it's also allowing us to leverage our returns. So I think at this stage, we're really comfortable with this sort of blended model, and we intend to continue, you know, raising third-party capital.
I think we've hit 12 o'clock.
That's great. That's great, Tim. Thank you, Brent. And thank you for your time this afternoon, this morning. I know investor feedback, Patrick, will be particularly important to you and Mary. And I'll shortly redirect those on the call to give you their thoughts and their expectations. But I wonder before doing so, if I may, Patrick, just come back to you for a couple of closing comments and then I'll send investors to give you their feedback.
Yeah. Look, I think, you know, from an executive perspective, we're feeling really positive about the way forward. I think we've touched on this presentation in the sheer size of the market and the opportunity that's before us. You know, we've touched upon the fact that, you know, LCM comes to that market with tremendous historical experience and, you know, access to more capital than we've ever had in the past. So we are looking forward, you know, to really sort of maximizing shareholder value as we move forward.
That's great. Patrick, Mary, thank you once again for updating investors. Got to please ask investors not to close this session as we will now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of the Litigation Capital Management Limited, I'd like to thank you for attending today's presentation. Good afternoon to all.