Thank you for standing by, and welcome to the Omni Bridgeway Limited Half Year Results 20 21 Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer I would now like to hand the conference over to Mr. Andrew Sacre, Managing Director and CEO. Please go ahead.
Thank you, Ashley. Good morning, ladies and gentlemen. My name is Andrew Saker. I'm the Managing Director and CEO of Omni Bridgeway. The purpose of today's call is to present our results for the period ended 31 December 2020.
Joining me on today's call Stuart Mitchell, our Group CFO and Jeremy Sandbrook, our Group GC and Company Secretary. To some extent, this half's performance is typical of litigation funding as a business. There will be periods when measured in 6 months increments where there are completions or where there are some unexpected losses, whereas in this case, where there are both. These are short term phenomena and not reflective There is no doubt COVID has affected our business. Whilst we've seen some positives for the business With the accelerated growth of our portfolio, including 11% jump over the last half to $17,600,000,000 in EPV, We've also seen some negatives with delays in completions, particularly in the U.
S. This is something that our peers have also experienced. And for those with the least diversified portfolio, this will create enhanced risk. However, as you will see later in this presentation, our portfolio is highly We've significant growth outside of the U. S.
As you will note, this half has generated a loss after tax in the NCI of $150,000,000 This loss is attributable to the provisions for impairment on 2 material investments, Foreign exchange adjustments, both of which are non cash expenses, a loss in Fund 2, 3 coupled with few completions. The provisions for impairments are discussed later in this presentation. The foreign exchange adjustment relates to temporary movements in the exchange rate predominantly affected by the strengthening of the Australian dollar against the U. S. Dollar.
This is also a non cash expense. The one material loss in Fund II III as a consolidated entity, Which is on the European waterfall, translates into the loss being attributable to the manager. The adverse cost expense is paid by the fund And exhausts the deductible, such that all future losses in Fund IIIII up to $30,000,000 will be paid by our insurers In relation to adverse costs. With respect to completions, we have seen a continued slowdown in U. S.
Completions this half, Reflecting the effective cessation of jury trials in most U. S. States. Without the stick of a trial, Coupled with the defendant's desire to retain cash, we've seen a market slowdown in settlements and completions in the U. S.
Given the current status of the U. S. Legal system with a significant backlog of cases, we expect that the next 6 to 12 months will also have few completions. However, with most cycles when the pendulum swings back, there is likely to be a flurry of activity and an acceleration of completions. As such, the long term cycle will resume its normal operation.
We generated a cash surplus from operations during this from a combination of completions and collections of receivables. Our liquid position at 31 December 2020 remains very strong With a clear line of sight to completions in the short term that will enhance our liquidity. During this half, our costs were relatively flat, Notwithstanding an increase in headcount, we are focused on controlling costs to the extent possible without compromising our operational effectiveness All plans set out in our new 5 year strategy. Consistent with our new 5 year strategy, we launched new operations in New Zealand and our Latin America initiatives. The New Zealand business is already starting to bear fruit with a number of new funding opportunities being identified Building on those that we already had in train.
We've now moved into our 2nd year post merger. The Omni Bridgeway European business has exceeded our expectations in terms of new work generated, contribution to our co funding opportunities and integration targets. The EMEA business exceeded its target for new business by 80% And assisted with the acceleration of investments in Fund 5. As you'll be aware from some late breaking news, A portion of the Wyden Home matter has now settled. The claims against the state and Sunwater, representing 50% of the total claim, We settled for an amount of $440,000,000 This is a fantastic result for our clients and for our shareholders.
The balance of the Weidenhope claim being the remaining 50% against the Q3 continues to be progressed on a dual track process, Preparing for the appeal in May, whilst at the same time seeking to progress opportunities for settlement. The interlocutory decisions that have been handed down since First instance decision in November 2019 have generally supported our positive views on this investment. Our estimates of revenue that may be derived from this matter are conservative and although subject to various uncertainties are likely to be at the higher end of the range that we have previously advised to market. We have obtained our AFSL, being the 1st litigation funder in We've also launched 2 MIS compliant class actions, again being the 1st funder in Australia to do so. We have 5 class actions announced or in the pipeline, including an environmental class action, shareholder class actions and negligence class actions.
This will lead to an increase in multiparty actions as a proportion of our APV and confirm Omni Bridgeway as the leading class action funder in Australia. Turning to Slide 3 and those impairments. As you'll be aware from our announcements over the period, we experienced setbacks in relation to 2 investments being WestGen and an investment in Fund 4. In both instances, we've appealed the 1st instance decisions and remain confident in the outcome of those appeals. However, following discussions with the auditors and in line with our historical treatment of first instance losses, pending an appeal, the intangible asset balances Each investment was fully impaired and an adverse cost provision raised for the uninsured portion of the estimated adverse cost exposure in WestGen.
For the Fund 4 investment, 100% of the impairment provision was reflected in the group's consolidated accounts With 80% attributed to the external fund for investors and 20% to the shareholders of Omni Bridgeway with the funds ownership structure. This approach is consistent with our reputation for transparency and conservatism. If we succeed in our appeals, these impairments will be reversed and the intangible reinstated. Turning to Slide 4. As noted in my opening, we experienced a net loss of $150,000,000 which was attributable to four factors, Including a small number of completions resulting in revenue of $44,000,000 in the half and impairment expense of $107,000,000 And expense for the recognition of the material lost investment in Fund 2, 3 and FX losses.
Most of these expenses are non cash in nature and expected to reverse in time. The strengthening of the Australian dollar against the U. S. Dollar has the collateral benefit Reducing our Aussie dollar costs to contributions to make our funding commitments. However, I note there is more downside risk than upside risk to the exchange rate Relative to the U.
S. Dollar and as such, this benefit may not be in the for the long term. As you will note, our liquid assets remain strong at around $250,000,000 This position will be enhanced by anticipated short term completions We have written down the carrying value of our intangibles to reflect the impairments to Westgem in our Fund IV investment And we expect these write downs to be reversed on successful completion of our appeals. We have not written down our EPG associated with these impairments, Which is a non balance sheet measure, and we remain confident in the diversification of our portfolio. Turning to Slide 5.
During the half, we had strong collections of receivables, both on our balance sheet And within our funds, which coupled with cash generated from completions enabled a small cash surplus from operations on a consolidated basis. Measuring cash generation in 6 months increments can be skewed by the timing of completions and collection of receivables. If math is complete as we currently anticipate in our quarterly portfolio update, we will expect to see a strong cash generation in the second half. Turning to Slide 6. Cash costs during the period were reasonably flat compared to those in the last period.
The increase in cash costs is attributable to a small discretionary bonus paid to support staff for the last financial year, The timing of collection of an NCI contribution in Fund 6, which occurs in the second half of the year and an increase in headcount by 5%. We're not anticipating any material change to the cash expenses during the second half. Turning to Slide 7. As you'll note from this slide, our cash and receivables position remained strong at around $250,000,000 We had strong collections of receivables, which was used to fund operations, contributions to our funds and investments on our balance sheet. From a balance sheet and EPV perspective, but from the impairments, we've seen a net growth in investments in EPV, which underpins Future profit generation capacity.
The net asset position has been affected largely by the impairments to our intangible balance, which as previously noted Turning to Slide 8. The negative movement in intangibles is attributable to the impairments of 2 investments, the derecognition of completed matters and FX adjustments. The FX adjustment is expensed through the P and L, which was the bulk of the noncash FX movement. As previously mentioned, this is noncash and more likely subject reversal given the relative strength of the AUD against the USD. From an operational perspective, you will note investments in new and existing matters Exceed those that would be recognized from completions, which in part explains the growth in our APP.
Turning to Slide 9. This slide shows our long term conversion rate and aggregate EPD conversion for the period from FY 2016 to H 1/21. Our LTCR cannot be assessed in 6 month increments but needs to be assessed over multiple periods to avoid the impact that occurs in the short term. Over the past 5.5 years, our LTCR has been reasonably consistent around 18% And above our 20 year historical long term conversion rate of 15%. Turning to Slide 10.
In terms of anticipated completions, you will recall from our quarterly portfolio update at 31 December 2020. We anticipate that approximately $1,300,000,000 of EPV will be completed in the second half of the financial year, some of which have been identified in various judgments and settlements achieved to date. The most significant contribution to revenue in the second half is derived from the completion of the White and Home matter. Whilst we've obtained a successful first instant decision And a series of decisions that are supportive of the positive outcome, the first instance decision is subject to an appeal, which likely to be heard in May 2021. With the settlement that's now being achieved with the state and second quarter That has reduced the amount that will be the subject of the appeal, which will progress with respect to only the portion attributable to the sec water claim.
Turning to Slide 11. As many of you know, we measure EPV diversification by geography and investment type. Historically, we had a concentration of investments in one jurisdiction or another with the attendant risks of being exposed to regulatory intervention or Competition. As such, we sought to diversify our portfolio to the extent possible. From a geographic perspective, we've largely achieved our diversification goals with a split of investments between EMEA, U.
S. And other jurisdictions. With respect to investment type, whilst we've also achieved a high degree of diversification into investments, including arbitration, litigation and post judgment enforcement, we continue to have significant exposure to class actions, which still represent approximately 30% of the book. These class actions include securities class actions, securities claims, environmental product liability and other class actions in a variety of jurisdictions including Australia, EMEA and Canada. With the regulatory developments in Australia, we Continuing to have a significant exposure to class actions with several new opportunities in the pipeline.
Turning to Slide 12. As you'll note, our 1st generation funds are practically fully committed. And as such, we now Invest entirely from our 2nd generation and acquired funds. Given the capacity limits in Fund 6, we are exploring opportunities with our LP invested Restructure Fund 6 to create additional capacity whilst we go to market to raise a new fund for global enforcement investments, EMEA merits opportunities in distressed debt investments. We expect this new capacity will be required before the end of this financial year.
We have scaled back expected completions in Fund 1 this financial year, reflecting the continued delays we and others are experiencing in the U. S. Court system. Turning to Slide 13. Further to the analysis of our 1st generation funds, as you will note, Notwithstanding the slowdown in completions, particularly in Fund 1 and the BOSSS in Fund 2, 3, there remains a substantial number of investments in each fund With significant EPV, we should provide sufficient capacity to seek distributions of preferred capital and returns, a return of capital and fees to OBL It appears that subject to the anticipated completions being achieved, distributions We'll likely be achieved from funds 2, 3 around the same time as fund 1, both during financial year 'twenty two.
Turning to Slide 14. Our focus during the next half will be on the continued execution of our 5 year strategy With continued geographic and product expansion, we anticipate seeking to raise new capital for our next fund to replace Fund 6 as a potential follow on fund or new fund. And finally, the continued consideration of the potential change for our listing value. As I previously mentioned, I intend to relocate to the U. S.
And it's possible that that may occur in April Thank you. That completes the presentation, and I'll hand back
Your first question comes from Michael Peat with Goldman Sachs. Please go ahead.
Hi, Andrew, Stuart and Jeremy. Can you hear me okay?
Yes. Thank you, Michael.
Thanks. Look, just wanted a little bit more clarity on the last point you made there, the relocation to the U. S. At this point, are you looking To read on the listing side for the stock, is that still under consideration for the UK? I'm just wondering if you can provide us a little more detail on that.
Well, the whole issue is still under consideration in terms of the change of venue of the listing. At this stage, no decision is being made. I was talking about my physical location, Michael. I'm planning to move to the U. S.
As part of the execution of the next Okay. Business time.
Okay. Understood. Just on the cash and receivables. I think it's pretty obvious, but I think the Wavenhoe, there's nothing in there in terms of receivable on cash there, so that will slot in obviously given today's announcement?
Yes, that's correct, Michael. It literally was late breaking news. I think the The settlement was achieved subject to documentation and court approval Literally 50 minutes before this call. So no, none of those receivables or receipts Have been factored into the balance of 31 December.
Every case is different, I guess. But what's your expectation on timing of receiving cash on that one?
Look, I think It's subject to court approval. I would expect the court approval is going to be happen before the appeal, I would hope so. I expect it to be before the end of this financial year.
Okay. You mentioned New capacity to replace Fund 6, but is that was there any other new capacity? Just interested in any update on Upsizing Series 2 for Funds 45 or any overflow fund in the other parts of the business?
At this stage, the upsizing of funds 45 are on track for our expectations for that to occur During the 3rd year of the life of those funds, at the moment, we're at about 25%, 26% capacity on Fund 4 And about 3536 capacity on Fund 5. So there's still plenty of headroom in those funds For the current year and next, we anticipate to be probably closer to around 50% in each of those funds by the End of the financial year and then up to about 75%, 85% by the end of the 3rd year.
Understood. Just Slide 9, that conversion rate that you mentioned around 18% over the last 5 years or so. Is that like for like apples to apples with the 15% that you've talked about? Or does the 15% include losses?
No. The 15% and the 18% include losses. It's just a different time period. So the 15% is a measure over 20 years And that 18% is just over the last 5 years or 5.5%.
Excellent. Thanks, Andrew. That's all I have for now.
Thanks, Michael.
Your next question comes from Peter Michaelbrook with Select Equities. Please go ahead.
Hi, guys. Can you hear me okay? Yes. Thanks, Peter. Yes.
Just firstly, just in terms of the delay in releasing the result, it was originally due to come out yesterday and it's It's coming out this morning. Any reason for that?
Well, it wasn't anticipated to come out until this morning.
Right. Okay. I just said yesterday on your website. Look, if I just move on to 1st generation funds, specifically Fund 1, I'm just trying to work out the return over the rest of the life of the fund. I mean if I go back to the The December portfolio report that came out last month.
You gave Some statements there around the confidence that you had around the return of the capital, etcetera. I'm just trying to once again in the presentation today. What's the ROIC that you're using on the remaining cases To be able to achieve that position where all the capital is returned?
We're using the long term conversion rate of 15% as a proxy for what we would generate out of that EPV.
So in terms of like, Sorry?
We're using the APT percentage, Peter, which is our long term conversion
rate. Okay. Because if I look back to there were a couple of presentations that came out last year towards the end of last year in September, October, where It was a similar page to this one. And you referred to the ROIC, the quoted ROIC of 20% and the capital remaining. If I use 20%, Maybe if you can just help me where I'm making an error here.
But if I look at the total fund Commitments of the U. S. Of that Fund 1, it's $165,000,000 total committed capital. So I assume a 20% ROIC on that over life of the fund. I only end up with US33 million dollars Yes.
When I look at the total preferred return, that's already US40 $1,000,000 and rising and then there's Your management fee of $5,000,000 and another special distribution of $1,800,000 So I'm just trying to work out how if the previously quoted ROIC or the Current run rate, which is now actually about 15%. How that actually covers everything? Am I missing something here? Or
No. I think you're looking at what's been completed to date and applying that to the future. And if you do that with the 15% ROIC Or a 20% ROIC thing. There's no doubt your calculations are probably going to be correct, But that's not the numbers that we're using for our views on the performance of those funds. We anticipate to generate 15% Long term conversion rate of NPV of those funds, and that generates sufficient capacity to The preferred returns, the preferred capital and also on the Bridgeway's investment And our management fees can still have sufficient headwind to pay out the
Yes. I appreciate that you're focusing now on the EPV, the 15%. If I look back at those presentations towards last year, you also used the you also referred to the 20% ROIC.
No, I don't think that's correct, Peter. I think what we referred to is the which is in Slide 12, the actual ROIC that had been achieved on historical performance. So you can as I said, you're more than welcome to make whatever assumptions you wish about those funds and future performance. We make our own. You can make yours.
What we reported for historical performance.
Right. So okay. So Willing to sort of to share what that 15% EPV would be on in terms of ROIC for the remaining cases at this point?
Well, you can do your own calculations on that, Peter. What we've done is 15% of APV is what our estimate Of the revenue generation of these funds, which is the way it's performed historically.
Okay. Look, I'll move on. Just in terms of costs, obviously, costs have been rising for a number of years, both sort of expense and capitalized costs. And you did speak about sort of Focusing on sort of controlling costs where possible. And this is, I guess, an environment where Revenue has disappointed in recent times and also being diluted by the fact that you're wearing 100% of the cost, but only getting sort of 20% of the revenue in effect.
I'm just wondering what you're looking at in terms of trying to control those control the cost base. Sure. Is there anything else that you're actually doing?
Sure, Peter. I think there's a number of errors in your statement. The cost Increasing in terms of expense and capitalized costs. In fact, our capitalization rate decreased from 15% to 14% this And you'll see that in terms of total capitalized costs, that dropped from 11.4% in the last half to 9 In terms of employee costs, that dropped from 32.6 28.5%. So putting aside some of those misstatements, we are looking at focusing on cost control, Notwithstanding our headcount has increased from 37 to 175 over the last 5 years And increased offices from 7 to 18.
So costs are being controlled Through the usual mitigations of managing marketing costs, managing Our overheads with property costs and managing staff growth costs.
Right. Okay. Just on returns. I guess when I look across the business, I sort of look at it in sort of 3 buckets in a way. One is the U.
S. Side of the business, which has been going out for a number of years and Apologies for focusing on ROIC, but the ROIC of the U. S. Business is sort of roughly 15% pre Capitalized overheads and obviously less if you include the overheads. And the U.
S. Business obviously been going now for a number of years. And in my opinion, the returns there have been pretty disappointing. Then when I look at the other 2 sort of groups, the way that I sort of tend to look at it is they've had non class actions or class actions and non class actions and Sort of on the research that we've done, the non class actions, the ROICs have trended down there for a number of years and significantly lower than where they were. So it's So that's not looking, in my opinion, not looking great.
And then the third area is class actions, given the sort of regulatory Possible regulatory and competitive headwinds you're seeing there. I guess my question is 2 parts. 1 is, Why do you think the returns in terms of like, why do you think they have been trending down? And what's caused that? And the second part, Where do you see them actually improving going forward?
Again, Peter, I'm not entirely sure I accept Many of the comments that you're making other than I can say we look at our business on it as a diversified portfolio. That is the whole purpose I'll expand into the U. S. And into other jurisdictions. So focusing on ROIC in individual jurisdictions misses The picture of what we're trying to achieve is a long term goal, which is to have a diversified portfolio.
The diversified portfolio historically to date is still in the high 2.6 thereabouts, Which isn't materially different from what it has been from 5 years ago, again, on a diversified portfolio basis. There's no doubt the completions in the U. S. To date have been Not to the same standard that we had achieved in other jurisdictions. But that, I think, again, needs to be put into the context In terms of where we think it's going to stay, We anticipate that ROICs on a historical basis will continue to be around those high twos.
And sorry, that's MOICs, And that's what we don't see any reason for that to materially change. Okay.
Can I just ask on class actions and the changes So we know that you've launched the 1st class action, we'll now have a second after this morning? With the Freedom Foods funding in particular, I just wanted to ask, Obviously, it's the 2nd action that Freedom Services is facing here with Slaters obviously putting forward It appears to me when I look through both sort of documents that the Return for the freedom for shareholders if they were successful, it appears to me that the returns will be More favorable could be more favorable under the Slaters action compared to the omni Bridgeway action. I'm just trying to work out having sort of if that's the case, if they're more attractive under the sliders and the sliders one is being done first. How do you see your class action being competitive in that environment?
Look, Peter, again, we've got 300 over 300 investments. And to talk to the specifics of each of those, I think, Going to be challenged. But specifically on Freedom Foods, the difference between a slate of its class action and The Omnidridgeway class action is one is being run as a GCO and the other one is being run as an MIS. And we anticipate that the GCO is going to struggle as a consequence of it not complying with the MIS Right, Jean. And therefore, that may not proceed.
So we've got a view that ours Provides an opportunity for investors to actually get to the end goal, which is to achieve a settlement or Victory at trial against 33 in the audiences.
Sorry, Andrew, are they subject to the Am I asking why you didn't think they were the contingency the lawyers with contingency actions? Is that am I incorrect there or? We think yes. Right. Okay.
And when I look at I'll move on from that. Just finally, just on the 2 impairments. The company It's quite a bit you've got confidence in successful appeals, etcetera, on that. Would either or both of those cases, Was that decision based on an independent external review of those? Or is this the opinion of The counsel that's employed by you guys?
We don't engage the lawyers to act for us. It's they act for the clients in those cases. And they're members of the independent bar. And They are based on independent advice, not just the company advice.
Sorry. Sorry, probably misstride. What I meant was the review of those was either one of those cases reviewed by another external Barrister or whatever? Or was it the Barrister that's been involved in the case at this point?
Well, again, we have over 300 investments. So descending into the detail of each one of those is going to be a challenge. But Specifically on this, to engage an independent lawyer, I think is what you're suggesting, To review, for example, 10 years worth of court documents, interlocutory information, the evidence, the trial data To come up with an opinion about merit would be a significant waste of time and shareholder money. The advice that we have is from the independent barrister that's involved with the case, They've been involved with it for a number of years and understands the case intimately. And they're a member of the independent bar.
Okay. Look, I'm mindful Of time, just one last one, just in terms of sort of the presentation. I think on Page 7, where you've put The various history of the net assets, etcetera. I'm just wondering In terms of the impairment, well, the impairments, the impairments are still in the EPV And also presented in the field with the exclusive in the lead assets and investments, etcetera. I'm just wondering why The numbers have I mean impairment is not an accounting term, but In terms of like net assets and investments, etcetera, why it was decided to present that Inclusive of the impairment for sure.
If someone's been impaired, it's been impaired.
Peter, impairment is actually an accounting term.
Yes. That's what I'm saying. Yes. I'm wondering why net assets are presented on a pre impairment basis effectively.
Well, you can see it's clearly identified, and it's there so that investors have the full picture of all of the information that they need to Form their own views about the impairments and the impact that has on the funding of the statement. The statutory accounts Obviously, don't include them. This graphical representation over 5 or 6 years is not part of the statutory accounts. This is our explanation to the market as to What the financial statements say and the other information that's available outside of the financial statements. You're more than welcome to ignore the clearly identified impend in any part of that presentation.
So it just leads me finally to the ATV. The total EPV not that I use EPV, but the total EPV You've got a 17.6 percent, but 1.6 percent or 9% of it is impaired. Does that mean, just in terms of your presentation going forward on the quarterly Portfolio reports. Will that EPV be done on a post impairment basis? Because I thought it usually was.
So this is I think it's your 5th attempt at the last question, but I'll answer this last question. Our audio EPV is will be shown on a pre impairment basis with the impairments identified so that people can Make their own assessment about the impact of those intended on their views. The statutory accounts will continue to comply with Statutory obligations of not having not including impairments in the investments were intangible.
Okay. Thanks, Andrew. Look, I've got a whole lot of other questions, but I'll leave it for now and hopefully we can catch up after the reporting period this time. Thanks a lot.
Thanks, Peter.
Your next question comes from Nick MacLean with Surrey Asset Management. Please go ahead.
Hi, good morning guys. Thanks for the accounting lesson. That was very interesting. It's really good to hear. My question was in terms of Wavenhoe, the right results for you guys, what do you intend to do with the Inflow of that cash as it comes in?
Yes, that's my main question.
Sure. No, it's Not yet being decided. Clearly, this is something that only happened literally a couple of hours ago. We'll consider when the cash is received, what the best use of that will be, whether it's distributed back to shareholders, whether it's Reinvested into the company. A final position hasn't been made, Michael.
And it'd be very premature for me to suggest anything other than that.
Yes. Sorry. What I meant was in terms of for your longer term strategy, so not when we first special dividends or anything like that. It's more How does that play out for your building out of the funds management business?
Look, it definitely Could be used to finance our commitments to those fund management to those funds going forward. But that's one of many uses. As I think we've tried to explain, we do have views about how Cash should be coming off from funds 1, 2 and 3 over the next 12 months, and that will also play into how much cash is actually necessary. But look, it will go into working capital and will work out whether or not it's surplus to our needs. And if so, it will be distributed If that's where the board would like to take it.
Great, great. And one more for me. When I spoke to you last, obviously, with corona, there was a slowdown With regards to court cases and whatnot, has that started to ease up offshore, I mean, in terms of Europe and, in particular, America? The court case is starting to flow a bit more freely?
Look, it's probably too early To say, in Europe, it's been less of an impact. It's been significantly more impactful in the U. S. But in Europe, what we've seen is reasonably steady, but not significantly influenced impactful Consequence of the slowdown. But look, it's we suspect FY 'twenty two is going to be More meaningful in terms of an acceleration of completions.
But it's there is a backlog. And as a consequence, it's not going to be as free flowing as it once was. But when Pendulum does swing, we do expect it to open completely.
Okay. And then sorry, one more for me. In 3 years, and I know you can't give forecast or whatnot, but Where do you think you guys will be in 3 years in terms of the funds business geographically? And I assume in 3 years, all Balance sheet items will be off balance sheet. So where do you think the fund will be positioned geographically Order funds, 2 questions.
Sure. We haven't addressed that in this presentation, obviously, Michael. But in the previous presentation, When we presented our 5 year business plan, we had given indications of what our plans are. So we will be fully Balance Sheet Investing will be fully migrated into Funds Management. That Funds Management business will be growing.
And we've got aspirations of building that up so that we have $5,000,000,000 in funds under management and a steady in 3 or 4 years, a steady lockup of $3,000,000,000 to $4,000,000,000 at that stage. It's revolving commitments.
Okay. Fantastic. And sorry, I keep saying last one. But The media reports recently about what's happening with the slackening of directors not obligations, Yes, or slightening of obligations. What do you think about that?
And I know it's a small part of your business now, but Your thoughts on that?
Sorry, can you just repeat that?
So the recent media article About the listening of directors' transparency or obligations or whatever you call it, what do you make of that?
We've been asked to comment on that at the next parliamentary joint committee. Our views are that we think it's a bit premature for those changes to be made, and there should be full consultation with The market to understand the impact on the capital market. But from a pure business operations perspective, We generally don't commence shareholder class action unless there is an element that we think is clear It's breached an intentional aspect of the law. So we don't think this is going to impact on our business too greatly.
Okay, fantastic. Thank you very much for your time.
Thank you.
Your next question comes from Alex Yao with Kebalta. Please go ahead.
Hi, Andrew. This is Alex. Can you hear me okay?
Yes. Thanks, Alex.
Hi. First of all, welcome to move to the U. S. Just I didn't catch the part where which city we'll be located in? And Yes.
That's the first question.
Sure. Thanks, Alex. I will be moving there, I expect, April And it will be in New York.
Okay. Got it. Great. And the second question, Kind of in the similar line and the last question is like, I know you're there lean years and they're like kind of Harvesting years and in 5 years, I understand right now is kind of like a little bit difficult time with no peak due to COVID, but in 5 years, once the fund structure is up to kind of full speed with cash out deployed, Is it reasonable to assume that you will every kind of reporting half, you will have kind of steady stream of management income To kind of pass away and you wouldn't be hit hard by like kind of delay in case completions?
Yes. That's the overall objective, Alex. The move away on balance sheet and funding was to open up alternative comes sources, both through management fees and performance fees as well as an investor in those funds. These funds, I think we should remember, are only launched 3 odd years ago. The average duration of our investment, not in normal circumstances, It's been over 3 years.
And
in a
COVID environment, it's obviously going to be a little bit longer. So it's I don't think it should come as much of a surprise that there's a little bit of a delay in ramping up To fully diversified incomes. But in finding time, assuming all things We anticipate to move forward to what was our plan, has Significant amount of capital deployed, generating management fees that is going to produce income from management fees, And with the continued diversification of the book, That should reduce the risk to geographic issues that we're bearing in different markets at different times for different reasons. There was A couple of years ago, a risk that Brexit was going to be impactful on completions in Europe. But I think that is largely proven to be a non issue.
But the diversity one thing we can control in terms of Risk is the diversification of our investment portfolio. And at 3 hundred investments, we're starting to achieve that One thing we can't control is duration. That's the biggest issue in the industry. We can only control Our side of the equation and can't make these matters complete more quickly. It is unfortunate that duration is one area that is just literally outside of our control.
Got it. And one last question is, was the case delays in the U. S, I assume that kind of hurt everyone in the litigation finance field. So Do you see M and A opportunities there or maybe the partnerships, the ones that are competing in the U. S, the ones that are in private structure Because they don't have to report every half year, they could operate longer Is that kind of added pressure?
Or do you see M and A opportunities out there?
We've certainly seen co funding opportunities where funders Looking to mitigate the cash impact of making new investments. We We haven't actively explored any kind of M and A opportunity in the U. S. So obviously, we'd certainly be open To explore opportunities that presented, but at this stage, we're primarily focused on bedding down our existing The merger with Omni Bridgeway in Europe is largely complete, making sure that works and is effective That's fully taken in more big bites.
Got it. Got it. Got it. Thank you so much.
Thanks, Alex.
Your next question comes from Jeff Kye with Citi. Please go ahead.
Hi, guys. Just some quick questions. Just so firstly, in terms of costs, I was just trying to clarify in terms of cash costs for second half. Did you say that you're sort of expecting this to stay around stable around $63,000,000 next half? And then more broadly, how should we think about Cash OpEx maybe in 3 to 5 years' time, particularly given your 5 year growth plans?
Sure. So our cash costs We're at 40%. That's on Slide 6. And it's Probably a little bit high because we weren't able to drag in an MCI recovery out of Fund 6, which doesn't happen until the second half. I think it's probably reasonable to assume it's going to be between $37,000,000,000 $40,000,000,000 In terms of cash costs.
Okay. So it's probably like 80,000,000 And how should we expect that maybe in 3 to 5 years' time as you sort of expand on your 5 year growth plans?
Well, even though we've got expansion And from a geographic perspective, it's the reasonably modest expansion plans in terms of headcount. And as a consequence, we're not expecting any material increase in cost. I would anticipate that increase, But in very low single digits on an annual basis.
Okay, great. And then just a second question. Can you talk about how the demand for litigation funding applications are sort of tracking recently? And how you're going in terms of deploying the capital versus your target of $440,000,000 for this year?
Sure. So at 31 December, we were very much on track to meet the target. So we were, I think, almost exactly at half at 31 December For commitments, both on a conditional and unconditional basis. In terms of funding applications, They are consistent with last year on an annual basis. So there has been a slight increase in some jurisdictions, Particularly in EMEA, we've seen a slight dip in some jurisdictions like Canada and the U.
S, Particularly in November, December January, just as they were going through, I think, the peak of their Political as well as social turmoil and COVID was pretty much at its peak, but they seem to have fixed themselves Thank you. So we're very much on track on both of those.
All right. Thank you.
Your next question comes from Alex Yao with Kebalta. Please go ahead.
Sorry, one last question is on the Fund IV case. Since it's a fund case, I understand why a balance sheet case will be impaired since the fund case. Should I assume that it's just a co investment piece or Omni Bridgeway into the fund debt piece is impaired? Because My understanding, maybe I'm wrong, is that if there were a fund case for other cases in the fund, even if there were You know, rulings that are unfavorable, which has turned out to be more returns on the front, but the Omnipridgeway itself wouldn't see impairment.
Sure. Look, I'll ask Stuart to jump in if I misstate this. But the Unfor is consolidated into our balance Because we control those funds. As a consequence, when we impair, we impair for the full amount. But the portion that's attributable to external investors is reversed out through the NCI adjustment.
So that the net impact is 120
Got it. That's super helpful. Thank you.
There are no further questions at this time. I'll now hand back to Mr. Saika for closing remarks.
Thanks very much, Ashley. Thanks, everyone, for your attendance today. Appreciate your interest in our company and look forward to speaking with you over the next couple of weeks. Thank you and have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.