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Yes. I would like to connect to Burford Capital Markets event webcast.
Okay. What's your name, please?
First name, Tiffany. Last name, Cruz.
Okay. And this is the webcast. Is this the main or the backup?
I'm sorry?
Okay. Which company are you with?
S&T
Global.
Okay. I'm gonna connect you to calls now.
Ladies and gentlemen, welcome to the Burford Capital Capital Markets Day. My name is may hear silence or background noise until the call begins.
Are we good?
Perfect. So welcome everyone and thank you very much for taking some time today to come and join us for Burford Capital Markets Day. This is the second one of these that we have done. The first one was 2 and a bit years ago, and my goodness, the business has changed quite a lot. And so too has the setting
in which we're doing this and not the least
of which the number of people that I'm looking out at. Moreover, in addition to all of the people who have kindly agreed to spend their afternoon with us today, this is also being webcast and we had a quite striking number of people sign up to view this online. So to those of you on webcast, welcome as well. Good morning, good afternoon, good evening, because we have people both from North America and even from Asia watching us today. We've designed this obviously to give you the kind of exposure to the team and to the business that we can't in a classic 1 hour investment meeting.
And so what you're going to hear from and see are a number of the people who make Burford what it is today.
In this, I'm just going to give
you just a quick overview of what we're going to do today, then I'll sit down, and Sir Peter will come up and speak for a little bit, and then I'll come back and talk, give a more substantive presentation. You'll also hear in the first half of the day from John Naloe, Burford's Chief Investment Officer, who's joining us by video link from Washington and from Elizabeth O'Connell, our CFO. We'll then have a short period of Q and A on the things that you've heard about in the first half of the morning. We'll take a coffee break and then we'll come back. When we come back, you'll hear from David Perla, who is whose flight was canceled, to be here earlier and so literally just walked into London after flying across the Atlantic.
So forgive him if he stumbles around at the podium, Aviva Will and Craig Arnott. And then we'll take some more time for Q and A, and then we'd be delighted to have any of you who have not had enough of by then to join us for cocktails, where not only all of those people will be available to talk with you, but some other people as well. Dan Hall and Mike Redman, who run our Asset Recovery, our judgment enforcement business Ross Clark, our Chief Risk Officer and Philip Liebfried, our European Corporate Counsel, who also has a fair bit of responsibility for our operations in Germany. During the Q and A period, we will take questions not only from you here physically at the London Stock Exchange, but also from people who are on the webcast. And to the extent that we don't reach your webcast questions, we'll do our best if you submit them to answer them in writing in the week or so ahead.
The other thing that we're doing, which we didn't do last time, is we are bringing to you short vignettes from a number of the other people at Burford by prerecorded video. And so those are going to be interspersed throughout the presentation. On your seats was a package of biographies, And they are in the order in which people are speaking. And we've given you those, frankly, so that we don't take a lot of your time and a lot of our presentation time introducing people and giving you the backgrounds of them. I would really encourage you to look at those bios because one of Burford's key attributes is really the underlying quality of our people.
And I think when you walk through those bios, you'll be quite taken with the kind of people that we have joining our team. And finally, because of course, we're lawyers, you have this disclaimer in your slide pack. And most of you see this in every slide pack and just pass right on through them. But I would call your attention for just 15 seconds to it here. 1, because I think generally they're important, but 2, because I really wanted to remind you of our fundamental approach to predicting and projecting this business.
This business has grown a lot, and we're going to take you through a lot of our thoughts about where
the business is today and
where it's growing. But that doesn't change the fact that we don't believe we can predict the future. We don't give guidance, as most or all of you know. And so whatever you're going to hear from us today isn't a prediction of the future or guidance. And with that, please let me welcome Sir Peter Middleton, Burford's Chairman.
Thank you, Chris, and thank you all for coming. I thought it would be useful to start by giving you a bit of a Chairman's eye view of the way the company is developed, how it's governed and to a lesser extent, how it's managed. And the big the headline is really the rapid development of the company over the last decade. It's widened, it's deepened, it's changed. It's nothing like the company today that we started with a decade or so ago or less than, when we had, I think, at most 6 employees and no business.
So it has developed extremely well. But the other big piece of background is that none of us knew what the market was exactly. We knew it was legal finance. We knew it was litigation. We didn't know how big the market was.
We thought it was the largest untapped market yet available entirely because of the way that law firms finance their own business. But we did not know the extent of that and how much money we could make in it, if at all. We thought we could, we wouldn't have done it if we couldn't, but we did. So we set out with the Board and senior management, which has not basically changed. The Board, very well, has been the same since day 1.
Carefully chosen, the early 4 of us, it's a non executive board, but chosen because I think we had the skill set, which we wanted to develop the business wherever it was going to go in this legal market. So I've been chairman since the start. I've got a pretty wide financial background of one sort or another, but I've also got more than a little acquaintance with the law. I did a review of civil justice and I was Chairman of a mediation organization for rather a long time, quite apart from being involved in it as a participant. The Deputy Chairman, who's a crucial appointment, Steve Wilson, is American.
He's an American distinguished lawyer, but he is also an investment banker, CEO of Tanenbaum. And given that our initial target, simply because of its size with the U. S. Market, it's absolutely crucial to have someone with a deep knowledge of the U. S.
System. We had then 2 Gurns of Directors, Charles Parkinson, who is on the right there, is an accountant, he chairs our audit committee. But he's also had extensive financial experience in the Guernsey government, the name which I now forget, probably a daily week from their mother. And David Lowe is another distinguished Gonsi person, who has done well, senior legislative positions throughout being a lawyer in Guernsey. So we reckon that covered the basis basically, finance, law, Guernsey, shareholders, business, anything you like to think of.
And it's actually worked out rather well. I think having the same structure has been a huge strength for the company, because we've developed this strategy together. We get on remarkably well. But that's not to say we agree with each other the whole time. So we do our bit at keeping control of the executive.
But we have managed to develop really, I think, quite well with the business. The management has also been stable, built up by Chris Bogart and John Malo, who will be on in a minute. They're still there, I'm glad to say. Elizabeth has been doing the finance for a long while now.
And we've taken this business to a lot of changes.
It started off as a sort of fund type structure. We moved it to a corporate structure, which gave the board a good deal more control and it was much easier to raise the sort of finance for the sort of things we wanted. But of course, since we did the last presentation, we've taken over a dozen color, and we're back in the fund business in a substantial way. So the business is growing. It's growing geographically and it is growing in the way it operates.
In our UK, which is which Craig will talk about, Europe, Singapore, Australia. So the job of everybody has changed, Chris' job has changed. He's now spending a huge amount of his time developing business in different parts of the world. And I hope John is still presiding over investments that make us a new a lot of money. The style of the business has been one of regular consultation.
Because there are only 4 of us, we could easily get together on the phone. At the start, we were involved in all the decisions because 111 could have brought the business down. That is no longer possible. So the businesses both got more profitable and certainly in a portfolio sense, less risky. We meet 4 times a year for a 2 day meeting.
And most of the time at those meetings has been spent discussing strategy because the business has evolved so quickly. We like to spend most of our time at board meetings trying to get that right. But we as I said, we have regular phone calls. We get weekly information, not only about the company, but about the market in which we operate, which certainly isn't straightforward and is full of little obstacles with people not thinking most of its legitimate activity at all, which is really strongly disagree with. So we follow the same sort of principles and we're not likely to change those from the outset.
The company is economical. We don't waste money or we try not to and we try to be extremely mean. Risk and compliance, which the Board and yourself have always taken a strong interest in, We've always tried to be ahead of where we need to be. I think that's very important in a world where it is now so easy to slip up with complicated sanctions in all sorts of parts of the world, particularly in markets where we operate. We just try to keep ahead of the game.
So an economical, well managed business, which Chris will now tell you all about.
Thank you very much, Sotir. So I am now going to take you through a number of slides, and I'm going to focus on an overview of where the business is today and where we're going. And I'm also going to spend some time answering in advance a number of the questions that we get most frequently from investors. So Burford, as Sir Peter said, has come a very long way in a very short period of time. And really the purpose of today is to talk about the future.
And that future for us is being a significant financial part in the continuing transformation
of the legal industry.
You have questions about growth and sustainability that we are happy to address. But at the same time, as Sir Peter also said, we are in
a growth mode in this business.
And the reason that we're in a growth mode is because we believe that there is a very significant level of opportunity in the legal industry. But the legal industry is being transformed by the combination of pressure being brought to bear on it by clients and the absence of capital that law firms have. And so we are a key player in the transformation of the global legal industry. We see an enormous opportunity in that largely untapped and growing market. We lead the legal finance market today.
We intend to maintain that market leadership position and to continue to grow along with the market. The reason that I have a stock price chart up here and the reason that I'm starting with the stock price is because we are fundamentally focused on shareholder return. Like many companies in this market, we have given up some returns this year, but the fact of matter remains that we are well ahead on any timescale of any of the major indices. When you think about the historical performance of Burford and what you can expect in the future, we put this chart together to show what has happened since the inception of the business. And what you can see there is slow growth for a while, including even a dip in 2013 because we were lacking capital.
We were capital constrained at that point in our development. But what is noteworthy is if you look at that top line, which is the new commitments that we make to new business, that has increased very significantly in velocity since 2014. And what you also see is a lag in income, in profits and in cash generation from that growth in commitments. And when you think about that, that's perfectly logical. We're engaged in the medium duration asset class.
And when we first put money out the door, there's going to be some meaningful period of time while that investment matures, while it goes through the cycle in the process before we get that back. And so while commitments are not a perfect leading indicator, because there are a number of deal structures that we use in this business, but we'll talk about it. And some of them do not encourage us to put commitment dollars out the door. In some cases, we are better off in our investments by having a low volume of commitments. So it's not a perfect leading indicator.
But nevertheless, it can't be ignored as a suggestion of what the future may hold. Because if the volume of commitments continues to rise on that kind of slope or frankly, even if it rises at a much lower slope, that's nevertheless suggestive of a lag in the subsequent generation of income and profits. So while those commitment figures really tell their own story, market research tells a story that goes alongside and reinforces them. And this market research is striking. There's a copy of it on your care as we every year for a number of years have conducted independent market research surveys.
And the results of this year, as I said, are particularly striking. 77% of respondents say that litigation finance is growing. 100% are familiar or have heard of it. Three quarters are very or somewhat likely to use it in the next 2 years. Those numbers are night and day from even where we were a few years ago, where this was still much more of an educational prospect with clients.
Today, corporate clients and lawyers know about the existence of this capital. They may not know how to use it yet. They may not be using it a lot yet. But the fundamental change that we've seen, the shift in the market reaction to where we are is striking and foretells, we believe, significant future opportunity in this market. And why do we think that's happening?
We think it's happening because corporate clients are in crisis. Businesses are simply not willing to spend more on legal costs, no matter how compelling the rationale may be behind one of those underlying investments. There are cash reasons for them not to do so, and there are accounting reasons for them not to do so. The direct participation in affirmative litigation by corporations is not a desirable accounting approach, and it is not desirable from the perspective of managing internal cash. And these numbers from the research are also striking.
70%, 70% of corporate clients have foregone claims because of the P and L impact associated with bringing them. Almost 60% have engaged in affirmative litigation, won, secured attractive judgments or arbitration awards and have not gone on to collect them. These are enormous voids in the market and Burford exists to fill those voids. That's exactly what we're doing today. Burford has built the premier platform over the last decade in reputation as well as scale.
And these numbers are the last teaser that I'll give you from the market research. But again, striking numbers, 63%, think of us first or solely. Only 10% of respondents named any other legal finance firm and half of those named us as well. So we have today a position of dramatic market leadership. And the question is now what we're going to do with that position, how we're going to grow the business and how we're going to continue to maintain it.
This is a look at our principal competitors.
It is
noteworthy that all of them are at least 5 years old and many are older. That suggests that Burford is not the 1st mover here. We have simply outcompeted the competition over the last decade since we have been in existence. And it's also significant to note the longevity of those competitors. I'll come on in a little bit and talk about entry and competition and barriers to entry.
But the simple fact of the matter is that there is not very much credible entry happening in the market today, despite there being noise around entry. And the expectation that people will try to pile into that market. The reality is when we look at where the capital is flowing and we look at who we see in the marketplace, these are the people that we're competing against. They are pure play litigation finance providers, and they've been our competitors in many cases for our entire existence. So what does Burford do?
We have evolved a long way, as Sir Peter said, from that small litigation case funding business that we started almost a decade ago. We are today the premier capital provider to the legal sector, And we go far beyond the litigation funding business. We're still the largest player in that space, in the space of litigation funding, and that's an important business because it's the entry level product for our business. But fundamentally, what we're doing today is we are looking at the underlying asset value of claims and we're providing capital against them. We have grown into a broad specialty finance firm that is focused on the legal sector.
Our core expertise, which runs through all of the investment activity in which we're engaged, is the evaluation of legal and regulatory risk. But today, we're investing across the legal capital sector. And that has resulted in the creation of a widely diversified portfolio with disparate risk, duration and returns, all of which we have taken together to produce a collection of blended returns. Make no mistake, the legal industry, as I said before, is being substantially disrupted by corporate clients. And that disruption is causing it to be further transformed by the presence of capital.
To put it very simply, clients are no longer willing to put up with the business model used by law firms, that traditional billing by the hour model. That model is under siege. Microsoft, for example, announced earlier this year, they no longer wanted to buy any legal services anywhere by the hour. So corporate clients are coming along based with significant regulatory compliance costs, significant litigation costs and other business demands for capital, and they are declining to continue to allocate ever growing pools of capital to their legal functions. They are instead insisting that those legal functions go and find financial alternatives with their suppliers, the law firms.
In the same way, the corporate clients insist on that kind of alternative seeking and cost control in every other aspect of their business. Law has been immune from that for a long time because of the business structure of law firms. And I think the answer is no longer. There is going to be a decade of significant evolution in the legal industry, we believe, and we intend to be a key player in that evolution, particularly as it relates to the capital basis changing in the legal industry. So now I'm going to spend the remainder of my time on 6 questions that we are often asked by investors.
In that process, I'm going to provide a little bit of new data and information for context in how we go about answering. The first question relates to our addressable market. People always want to start with what our addressable market is. And I think the answer that we have historically given is that it doesn't matter right now. But the addressable market here is difficult to define.
But however you define it, it's very, very large. And we and our competitors today are comparatively very, very small. So let's have a look at some numbers. We're going to talk about 3 different parts to the addressable market. The first is legal fees.
So when we think about legal fees, the sheer money that is being paid by clients to law firms, What we know is that there is an enormous volume of global legal spending. Different research reports peg the number differently, but that number clearly is in the starting in the $600,000,000,000 of dollars a year going up about $800,000,000,000 a year. That's an annual number, dollars 800,000,000,000 a year spent on legal fees. So Thomson Reuters, for example, says that the U. S.
Legal spending proposition alone is $436,000,000,000 a year. We know that the largest 200 U. S. Law firms, and that's out of more than 40,000, by the way. The largest 200 U.
S. Law firms had more than $110,000,000,000 of revenue last year. So and you are you know this from just looking around the City of London. You look at how many lawyers there are and how many office buildings, and it's pretty obvious that law is a very large business. But putting some numbers around it illustrates just how large the legal industry on its own actually is.
The second piece of our addressable market is the value of litigation outcomes, because of course, we're investing in the underlying litigation, but we're being paid from those litigation outcomes. This is another enormous number and frankly, nobody actually knows how big this is. It's worth just reflecting on the fact though that this is a market that is measured as a percentage of GDP. This is another enormous matter. We talk a lot about arbitration, for example.
And arbitration because arbitration is considerably less visible than public court proceedings, you may not have all that good a sense of it. So just look at that one number there. The ICC in Paris is just one of a number of the world arbitration institution. They administer arbitration brought by clients. And they alone have a pending caseload of $216,000,000,000 So the second slice of this 3 part addressable market is also very, very large indeed.
Finally, the 3rd component is the asset values that are affected by litigation and regulatory outcomes. And the examples on this page really just scratch the surface, and they're put here just to show you the orders of magnitude that are possible. The overall point though of this whole message with the rest of the market is that we have just showed you with those three components more than $1,000,000,000,000 of annual economic activity. And we've also showed you when we looked at the competitors about $11,000,000,000 of lifetime capital activity in the litigation finance sector. If you annualize that $11,000,000,000 let's round it to $1,000,000,000 a year.
So what you have at the moment is about $1,000,000,000 a year against a more than $1,000,000,000,000 a year market. I don't pretend for a moment that, that entire $1,000,000,000,000 is addressable for Burford or ever will be. But given that we are sitting today at less than oneten of 1% of that market, you can perhaps see why we don't spend a lot of time inside the business worrying about precise definition of the addressable market. We also are often asked about barriers to entry. Burford has a unique position in this market and there are significant barriers to entry, both to coming into litigation finance generally into legal finance and also to attempting to displace us.
We enjoy a market leading position and we're protected by some significant advantages. Scale is a key dynamic here. We feel the largest and the most experienced team. We have the largest proprietary data set. Those things enable us to make high quality investment decisions.
We have a widely diversified portfolio and we have the lowest cost of capital in the industry. By the fact that we have more people, many more people than anyone else, that also lets us have considerably more of those sticky relationships that yield ongoing business for us. And we also have the capacity to engage in more marketing and origination spending, which will result in more brand awareness, more first calls to us than anyone else. And you saw the numbers before, 63% of respondents identify us first or only, only 10% call out somebody else. So there are meaningful barriers to entry to coming along and trying to displace the position that we hold today.
When you think about entry into the litigation finance space, there are significant barriers to entry, not just to our position, but to the market in general. The business is simply harder to enter today than it was when we started. Investments are larger and more complex. And we also today have a decade long head start on brand names, relationships, data and the investment process. For new entrants to enter this market, you need real scale and you need scale of capital and you need scale of team.
Otherwise, you won't get adequate portfolio diversification and you are at risk of not having a sound and investment decision making process. This is not a business that you can enter as a first time $25,000,000 first fund to sort of get some seed capital and see what happens. There are people who have tried that and it hasn't gone well for them. To enter and be a credible player here, you need to be able to attract a meaningful amount of capital and to build to put a significant team on the field immediately. And the question then becomes, you're all investors, why would investors favor a new entrant with no track record and no credible claim to be able to produce better investment returns than the incumbents?
Why would you favor that player, a high risk proposition for the same returns over 1 of the incumbents? And that I think explains why it is that over the last few years as this market has been growing considerably, the bulk of the capital flows have been flowing into the incumbents to Burford and its competitors, but flowing into the incumbents. The other dynamics, of course, are that many traditional analyst firms, the global finance players that you think might be attractive to this market because of the profile of its returns, many of those players are not going to enter the litigation finance space because of the combination of the lack of liquidity and risk profile of the assets and the stigma of litigation being brought, being enabled against their clients. It's not an accident that most litigation finance players are pure play providers. So sustainability of returns is also a key topic for investors.
And I'm not going to say very much on this topic because John is going to cover it at some length. But these are this is an unusual chart to put up in front of you in an investor presentation because the lines are flat. But what those flat lines say to us in law is very good news because those lines represent price sensitivity and competition in the legal industry. The chart on the left shows law firm profit margins. They are flat to up over years despite ferocious client pressure.
The chart on the right shows the percentage of outcomes paid in success fees in a particular kind of litigation, just as an example over the course of that, really indicating in the Magic 33% contingency fee number that stubbornly entrenches for litigation done on risk. In other words, in law itself, with the opportunity to engage in price competition, you simply haven't seen it. It's simply not that price sensitive an
industry. And we also want to
make a headline point about returns that this is an operating business. It's not an investment trust. We are fundamentally about earnings, not necessarily just our per case investment returns. We value earnings growth, earnings quality and return on equity. The investment returns that we generate are an ingredient to getting to those earnings and returns, but they are not an end in and of itself.
The published returns that you see from us are composed of many different parts, not just of individual high return litigation funding cases, but instead individual investment decisions would vary widely by risk, by duration and by outcome. Fundamentally, our long term
goal is to
be the Goldman, the Morgan Stanley, the JPMorgan of the legal finance sector. And the way that you arrive at that market proposition is not by doing just one thing. We generate desirable returns on equity by
doing many things and we'll continue to do
that as we continue to broaden the scope of this business. We're also asked about competition. And the question about competition for us is not whether there is competition, of course there is, but what its impact is. We've always faced competition. We've always faced price pressure.
And in fact, our largest competitor is often the client itself. The client doesn't want to pay less for capital. However, what we've shown over time is not only our own discipline on that front, but on structural factors that protect against naked cutthroat race to the bottom pricing. That's not what we experience in this industry. And the reason for it includes the fact that when you consider how we make investments, there is a significant effort that is put into the diligence associated with our investments.
We require access to protected information that just does not make this market a classic auction style market. The reality is that there is also risk of buying a loss in these investments, which means that even aggressive competitors when they want to try and enter this market, are looking for high returns. So for all of those things taken into account, we absolutely face competition. We invest that competition and we'll continue to face it. But it is not the case that we believe that we are engaged in that immediate race to the bottom competition.
Many of us are going to talk about the Burford team, and I'm not going to belabor the team here. We are asked often about retention and compensation. And the simple answer to those questions is that we have a tremendous team. It's growing all the time. You see some of the biographies in your packs.
We're able to both hire and retain those people because what we're providing is a really interesting place to be. The things that we do appeal to the people who work with us. The things that we do as lawyers, this is an exciting business to be in. And if you are a lawyer comparing the opportunity to be at Grifford with the opportunity to be an in house litigator at a corporation, This is going to win hands down 99 times out
of 100. And with all
of that, we have very low turnover as the slide points out, and it enables us to have compensation packages that both align the incentives of our employees with those of our investors, but also to have compensation levels that don't need to reach the sometimes stratospheric level of law firm partners to be able to field an absolutely superb team. Regulation is another question that I'm frequently asked about. And the simple answer on regulation is that we're not worried about significant changes coming in regulation. It's important to think about this business from a perspective of law instead of from Financial Services. Financial Services, you're accustomed to regulation coming from the SEC and the FCA, sort of an alphabet soup of regulators who promulgate rules and then deal with compliance against those rules.
What you have here instead is a law business. And in law businesses, the regulation is coming from the courts, not from a financial services agency. We have a natural regulator in our business who appears in every single investment that we make, and that is called the judge. The regulations that that judge is imposing come from case law and precedent, not from agency rules. It's a different way of thinking about regulation.
You probably don't have any other investments would fall into that category because we're probably your only legal investment. But regulation for us is very different than the conventional approach to regulation. And finally, we're asked a lot about capital structure. And the honest answer to the capital structure is that we don't yet know the optimal structure. We've done lots of thinking.
We've spent time with lots of sophisticated advisors. You could certainly make an argument that we should be we should make much more use of debt, that our returns are high and that the use of debt would cause the greatest retention of those returns for the benefit of equity holders. At the same time, we have uncertain and unpredictable cash flows. And as you raise the level of leverage, you increase, in our view, the risk associated with taking on that leverage to say nothing of the fact that we're also subject to foreign exchange rate and refinancing risk. And that makes us conservative.
We use leverage. We've raised leverage a number of times since 2014, but it also makes us uncomfortable to have too much leverage in the business. You could also argue at the other end of the spectrum for heavy focus on being a development fund manager, high returns on capital, very little principal risk. But at the same time, we see the retention of returns for equity holders being sufficiently desirable, so as not to want us to be too reliant on investment fund capital. So our current path is to have flexibility and to rely on multiple sources of capital.
We've raised debt regularly since 2014 and are open to doing so again. We had a modest equity raise last month, the first time we raised equity since 2010. We thought it was appropriate to add some further equity cushion given the growth that we've had, but we don't intend to be a serial equity issuer either. I can't comment more on private funds right at the moment because of regulatory constraints, but we're certainly considering a broad range of capital options and we always have been, including strategic capital partners and also the continued development of the secondary market.
So I'm going to leave you with 4 big picture trends.
The first is that we do much more than basic litigation funding. That's really a central theme of our presentation today. That business is the tip of the iceberg in legal finance. It's a good business and we certainly participate in it, but it's the entry level for Burford as opposed to the main event. The second is the level of market adoption that we're seeing.
We have moved from early adopters into the mainstream, and that provides us with expansion opportunities across our markets in the United States and in the rest of the world. It also requires additional investments, which we are enthusiastic to make today because of the potential that we see in the market with our usual keen eye on the operating expense load that we're taking on. 3rd is we continue to explore the flexible and multifaceted capital structure that I discussed only just a moment ago. And 4 is the continued need for us to expand and build our infrastructure, notwithstanding the fact we get good operating leverage over some of our changes, as we continue to grow and continue to be able to show the legal industry a path to incremental capital. And now before I turn you over to John Malo, our Chief Investment Officer, we're going to show you the first of our video vignettes of a couple of people who engage in interesting kinds of investment opportunities for Warford.
Our IP team is a group of very experienced patent litigators. We all have technical engineering degrees before we went to law school. We've come out of the big law practices and many of us also were in house. Some on
the scientific side of the
world, some of the defense other world, it's because we are so well known, people often will think of us as someone that they should at least have a conversation with. They know that we've got a lot of capital. They know that we've got a very experienced team. So we're going to be a very good partner, be able to add a lot of value and see that second objective set of eyes in what's going to be likely to be very high stakes litigation. So that's the thing.
One of the things that really attracts the IT market to us, is that we've been doing this for a number of years. It's been our 1st rodeo.
Day to day, I manage the strategic value fund, which is a $500,000,000 principal investing fund. Traditionally, we've been a financier of litigation, Complex strategies, we actually take a principal stance in terms of being the principal investor. So it is certainly different than what we've done in the past. And we look at a lot of the same things, meaning that the expertise that we have in our traditional business, looking at the regulatory climate, understanding the nuances of prospective litigation tactics and strategies are applicable here because we are trying to create value and buy undervalued assets that we can bring to fair value through our expertise in regulatory and litigation related fields. Having the availability and the expertise of others within the firm who have every conceivable skill set if we are looking at regulatory or litigation related hurdles to realizing fair value is that differentiating factor.
Ladies and gentlemen, our apologies. This presentation running right now will be available on the archived web cast. Please hold the line for us to be continued.
Good afternoon. I'm Elizabeth O'Connell. I'm Burford's CFO. And as many of you know, I've been with Burford since its inception. It's great to have been sitting here and looking out at the audience and see so many familiar faces.
Equally, I'm delighted to have the opportunity to put a face to the name of some of you that I've spoken to often over the telephone. And I look forward to chatting with you, at our reception at the conclusion of our formal remarks. This first slide gives you an overview of the finance group. I've got a great highly qualified team. There are 14 of us in our 3 principal offices, New York, London and Chicago.
And the finance team is fully embedded in the business and provides a level of control and rigor to the investment activity. And we've done this for two reasons. 1, so that the finance team is able to add real value to the investment process. And 2, because we believe this provides a strong set of internal controls. We've grown the team alongside the growth in Burford so that the average tenure of our team is now just shy of 3 years.
And I'm pleased to introduce to you via video 2 of our senior finance team members, Charles Utley, our Chief Accounting Officer and Phil Braverman, our Global Head of Tax.
I'm Charles Dudley, and my role at Burford is Chief Accounting Officer. Before I joined Burford, I qualified as the Chartered Accountant in England, Then I spent about 20 years working in the financial services sector, 10 years at PwC Public Accounting and 10 years at Barclays, specialized and focused on accounting for financial instruments under IFRS and U. S. GAAP. Particularly at Barclays, I was focused on their legacy assets arising out of the credit crisis, which included all of the litigation related matters that were impacted, particularly as part of the Lehman acquisition.
So the valuation process at Burford is quite a complex process. We deal primarily with litigation related assets, which are quite difficult to value. They're very liquid by their nature. However, we have a very well thought out policy and framework to apply to that. Valuation process is largely event driven.
And by that, I mean, we don't rely on sentiment, what we feel about the assets. We look for underlying evidence that a market participant would also consider. I think my prior experience from my other roles really helps me add value to Burford in a few different ways, particularly when it comes to structuring new transactions, how we account for those, how that fits into our control environment. I'm also used to managing control functions in a few different areas. And also my experience with accounting policy and being able to deal with transactions under a number of different accounting frameworks and jurisdictions.
I like to think that tax planning is critical to Burford's business, but the key factor is that it has to follow the business transaction. Good tax planning, good tax strategies are very much tied to executing what the business deal is and not standing by themselves. So one of the great things about Burford is that all of the business people here and all of the transaction people here are very attuned to what the tax consequences are and making sure to bring me into things early on throughout the process. The other part that's kind of very exciting is that you have access to everybody. You speak to the CEO, CFO, any and all the time, and there's no barriers, no walls, and that makes it a really dynamic place to work.
And on the next several slides, what I've tried to do is provide some clarity around the questions you most frequently ask. And although I'm not going to share any new financial results data, the way I've cut some of the data is new. The fundamental message on this slide is that Burford has a conservatively managed balance sheet. We've historically made use of a number of different capital sources to finance our growth, the public capital markets, the private funds market, the recycling of cash from our successfully concluded investments and cash from the burgeoning secondary market, the likes of Petersen and Tenveer. And it's because of the inability for us to predict both quantum and timing of our investment cash flows with any precision that Burford has maintained a low level of leverage.
We deliberately raised longer dated debt maturities well in excess of the duration of our assets. And as you can see in the debt maturity ladder on the right hand side of this chart, we've successfully staggered the maturities over a number of years at desirable fixed interest rates. In fact, our financing costs are by far the lowest in the litigation finance industry And our first bond does not come due for another 4 years, more than twice as long as the duration of our investments. We capped the equity market in October. It was the first time we did so since 2010.
We raised $250,000,000 by selling an additional 5% of ordinary share capital. And as Chris has already said, we did this to bolster our balance sheet with some permanent capital, but we still look to tap debt in the future to fuel our growth. And it's this fueling of our growth that resulted in the creation of this next slide. This is a cash bridge showing cash moves from the inception of Burford through to this past June. And what this cash bridge is showing you is that more than 65% of our deployments and other cash uses since inception have been financed with recycled capital from cash from our operations.
And it's the growth in deployments. It's the growth in the deployments that have been running at 100% CAGR over the last 3 years. It's that growth that has resulted in us tapping external capital to fuel growth. Looking at it another way, if we were growing our deployments at, say, a 50% annual growth rate, we could self finance. And to walk you quickly through this bridge, the black bars on the left are cash inflows.
We've raised $300,000,000 of equity capital through the end of this past June. This is through June, so it doesn't include the equity capital we just raised in October. We've raised $700,000,000 of debt capital. And importantly, dollars 1,300,000,000 in cash has been generated from our operations. The maroon bars in the middle of this graphic sum to $1,700,000,000 $1,450,000,000 is in total deployments and there's $288,000,000 of cash available for future deployments and the red bars on the right are our expenses.
But again, the main message from this slide is that we are we could self finance if we were growing at a more modest rate. This is a slide you've seen before. It shows our total portfolio of investments, both concluded and ongoing by vintage. And there are 2 things I want you to focus on, on this slide. The first is, if we included TENVIR and the further Petersen activity in our concluded portfolio, then the return on invested capital would grow to 99% and our IRR would be 33%, not accounting for any other activity in the portfolio year to date.
The second thing to draw from this graphic is there about. Why are they taking so long to conclude? And what does it mean for returns? Are they ever going to conclude? And do they have the ability to return capital?
And the answer is that litigation can take a long time to conclude. Tenveer is a perfect case in point. We invested in Tenveer in 2010 and that case did not settle until March 2018. If there are ongoing investments in the older vintages, it most likely means that those cases have not settled, they've gone all the way to trials and perhaps are now in the appeal process. So what does that mean?
There is more risk, but it also means that we have opportunities for outsized returns, a message you just heard from John. So what I've done in this next slide is taken the data from the previous table that you just looked at and displayed that data by a bar graphic by vintages. The concluded investments are the black bars on top. This shows total recovered capital. And the ongoing matters are the maroon bars below, which shows invested capital.
In response to your questions, we looked at the older end of our portfolio, investments made up to 2015. I've left out 2016 2017 investments because they haven't had time to mature or conclude. But when you look at the shaded portfolio, what emerges is a pretty extraordinary result. If we draw the line at January 1, 2016 and assume that every outstanding investment before that date, so all those maroon bars are total and complete loss, the portfolio will still have generated a 39% cash on cash return and an IRR of 13%. And while we certainly do not expect to lose every ongoing investment, the returns if we did still would be attractive relative to a number of other asset classes.
Let me walk through that math again. The portfolio through the end of 2015, the shaded portfolio on the slide has generated gross proceeds of $742,000,000 on $332,000,000 of invested capital, which means that the concluded portfolio through 2015 has generated a 123% ROIC. But the portfolio through 2015 still has $202,000,000 deployed in ongoing investments. So if we assume we lose all 35 of those ongoing investments, all $202,000,000 deployed in those ongoing investments, the portfolio will still generate a 39% return on invested capital and an IRR of 13%. And although you've seen the cumulative data on this slide, the way we've sliced the data is new.
The figures at the top of the bars on the left shows total invested capital and total recovered capital across the concluded portfolio. But within the bars, we slice the data slightly differently by cases that have settled and by those that have gone through adjudication. And by adjudication, we mean trials, appeals, tribunal decisions, etcetera. And what the first bar shows you is about 2 thirds, 2 thirds of our investments by value settle rather than go through adjudication. This isn't surprising given the nature of the litigation process, which favors settlement.
And it's confirmed by the fact that the duration of our investments, our concluded portfolio, pardon me, has remained around or under 2 years. And while investments that go to adjudication make up about 1 third of our invested capital, those investments contribute closer to 50% of our total recovered capital. Again, this isn't surprising. If a case settles, both parties compromise and agree to lower damages. If a case goes to adjudication and we win, that's when we can get outsized returns.
If you look at the gray column on the right hand side of the slide, it shows the total concluded portfolio generated a 99% ROIC and a 33% IRR as reported at year end 2017 plus TENVIR and the further Petersen activity. Matters that went to adjudication instead generated a 201% ROIC and an IRR of 27%. They take longer to conclude, but they make a lot more money. These data do not affect how we run the business. We only invest in matters that we are happy to go all the way into adjudication, and we cannot predict which matters ultimately settle.
But what the data do indicate is that the outsized returns from investments that don't settle are a core part of our business and not an anomaly. Now that we've looked at our concluded investments and the cash they've generated, I'll spend a couple of slides looking at our ongoing investments and specifically looking at fair value adjustments to those assets. You've seen both these graphics in our recent financial reports. The graphic on the left shows how much of the investment portfolio on the balance sheet is carried at cost versus fair value adjustments. At the end of 2017, the total investment portfolio was just shy of $1,000,000,000 64% of that is deployed capital held at cost and 36% of the value is from fair value changes.
And I'll show you the accounting behind the recording of the investment assets and income in a couple of case studies on the next slide. But before I do that, it's worth stating, we've used the same fair value accounting principles and the same philosophy for many years. We only adjust the investment value when there is something objective in the litigation process like a judgment or a significant motion. And in our 2018 interim results, we also included the chart that's on the right hand side that shows the timing and the amount of valuation changes over the life of litigation investments. The chart looks at our total portfolio from our concluded investments to date and shows what portion of that profit was recognized each year prior to conclusion.
So what does that really mean? It means that when we do have fair value changes, the significant majority of them do not occur until the year the investment the year before the investment concludes. This is not at all straight line fair value reporting. So while in the year before our investments conclude, we've recognized 35% of profits ultimately generated. 2 years before conclusion, we've only recognized 12% of ultimate profits.
Notably, 65% of our investment profit has never been taken before investment conclusion and that's through our June 2018 interim results. In a world of mandatory fair value accounting, it says this approach is as conservative as we can make it. So we've laid out two examples of actual investments, both a positive and a negative result and show how they were carried on our balance sheet and in our P and L during the life of the investment. I'm just going to run through the top example, which is from the 2012 vintage. We made a commitment of $5,000,000 which was the investment we anticipated needing to make if the case ran all the way through trial.
The terms of this deal had us deploying capital throughout the litigation process. We made an initial funding of $2,900,000 in 2012 and the investment was carried on our balance sheet at year end 2012 at $2,900,000 the actual cash cost. There was no activity in 2013, so the investment was held at the same $2,900,000 We invested a further $1,000,000 in 2014, so our cost is now $3,900,000 Then in 2014, the litigation had a positive event, an affirmance of liability. This was a significant objective event in the litigation and the investment was written up by $1,800,000 So at the end of 2014, we were carrying the investment on our balance sheet at $5,700,000 $3,900,000 in deployed cost and $1,800,000 in fair value write up. Because of this fair value write up, also in 2014, we recognized $1,800,000 in unrealized income on our P and L.
The litigation settled in 2015. Burford received gross proceeds of $10,000,000 for a net profit of 6,100,000 dollars So at conclusion, we recognized 4,300,000 recognized $1,800,000 in unrealized income the year before. And the corresponding balance sheet entry was increasing cash by $10,000,000 and decreasing the investment portfolio by $5,700,000 And the second example on this slide just shows an investment loss and it follows the same process. To conclude, my goal in the last several slides was both to address some of your more frequent questions and to demonstrate that Burford is well positioned for growth. We have a capital structure that can support leverage, but we also have access to a number of other capital sources to fuel our growth.
And before we open it up to questions, we have a short video that introduces you to Mark Klein, our General Counsel and Annie Duffy, our Chief Compliance Officer.
The scope of legal activity that
I oversee is broad and gets broader on a very regular basis. As the business grows, as the business gets more complex, as we try to do more things and as we explore other and different things, it can range from a non disclosure agreement to a simple financing agreement to something slightly more complex like a bespoke structure that we're working on for a potential client that has a special very specific need that we're trying to address. We're trying to make sure that we do it in the way that works for the client, that works for Burford, works for Burford's investors and is legally compliant and fits within all the regulation and the ethics rules to which we are subject. Never been part of a team that is working so hard together, trying to do the right thing, sometimes creating new law because we're in this nascent asset class doing things that have never been done before, but always insisting on doing it in the right ethical, moral way for investors, for clients, for the public and for us to ensure compliance with whatever regulations and laws we are subject to. My role as General Counsel at Burford differs from my prior in house roles primarily because of the excitement and the newness of what we're doing here.
I've never worked with a smarter, more energetic, more motivated group of people who, without a doubt, without a question, are the trailblazers and the leaders in this sector.
I think Burford is in a really unique position in that. We have we really operate in 4 different regulatory environments. One is direct agency regulation, starting with the SEC. And the SEC rules are very comprehensive, they're active, they're rules based and they apply across our global organization. In addition, we have the Financial Conduct Authority in the U.
K. And the FCA regulates our insurance intermediary business. We also are regulated by the Guernsey Financial Services Commission, which regulates our direct insurance business. We're also regulated by the solicitor's regulatory authority of England and Wales. And the SRA sets the employee conduct standards and code of conduct for our ABS law firm, Buford Law.
As a publicly traded company, there are public securities rules that we need to abide by. There's also industry specific code of conduct rules, as well as sort of general industry laws and regulations. This is just sort of the catch all category that applies across businesses. And this is everything from data privacy and GDPR to conflicts of interest, anti money laundering, global sanctions, and a whole host of other registration requirements that Burford is in step with. I think for the Burford compliance program to be successful, I think the program is and continually has to be as dynamic as the business.
So as Burford's global footprint continues to expand, so does the compliance program. I think what we do here and I have so much support from our management and our directors is the tone from the top and really foster a culture of compliance so that employees are encouraged to comply with both the substance and the spirit of our rules.
And with that, before we let you escape to some coffee, we'd be happy to take a few questions now if people have them and then we'll have a longer Q and A session at the end of the afternoon's programs.
And John, yes, John should be coming.
Anyone? Sir. And if you wouldn't mind, especially since we've got the webcast going on, please give us
the mics and also tell us
who you are and where you're from.
Yes. Hello, Martin Perry, a private investor, longest standing investor in the company. Can you say something about the arrangement you have with your external funds and the company's balance sheet? And I know that you have a formula for allocating capital. Is this likely to be a constraint on your ability to deploy capital if you have the opportunities available?
In other words, if you start seeing the size of the market expanding rapidly, is that going to hold you back?
No. I think contrary to being constrained, I think it's an opportunity actually. The reason that we went into the private funds business in the first place is because we felt that we did not have enough access to capital just on the balance sheet. If you went back to one of the very first slides in my presentation, we showed you that in 2013, our commitment dipped because we felt capital constrained. And so what we started to do then in 2014 is we started issuing public debt, and we continued to do that on a regular basis.
But by the time we got to 2016, it was clear to us that we were seeing growth that was well beyond the capacity of just our public balance sheet capital availability. And that's when we ran into the investment fund business. So to your more specific question, the way that we do this today, so we operate a family of investment funds and then we have our balance sheet investments in a number of different areas. There are some overlapping areas and core litigation finance is one of them. So we have a fund today called Partners III that is investing in core litigation finance and we also invest from the balance sheet.
There is a formulaic allocation approach. So we effectively split those deals 50% of the balance sheet and 50% to Partners 3, and we would continue to have a concept like that with future funds. We also, however, have areas where we're just doing funds. So for example, we don't do post settlement investing on the balance sheet. We only do it in a fund.
We don't do asset recovery in a fund. We only do it on the balance sheet and so forth. But all of those investments are governed by objective formulaic approaches. And I think that having access to that fund capital is an incredibly important addition to the business because it's enabled us to do deals, frankly, that we wouldn't otherwise have been able to do.
Jonathan Rodgers from Aberdeen Partners. You've talked a lot in your presentation, Chris, about growth and avenues of opportunity for the business going forward. And one of the things you said was that litigation finance really is just the entry level service and actually have far broader ambitions about the range of services that you're going to be able to offer clients going forward. On an arbitrary time period going forward, it's been at 5 years or whatever, how large a proportion of the business that you're writing would you expect to come from litigation finance? As we know, it's Dave versus the other kind of services that you offer?
And how do you think about the relative risk and return attractiveness of those other business lines?
Thanks. I think
it's a spectrum is the short answer to that question, as opposed to a collection of absolute. Both John and I talked a little bit about this and David will talk some more about it after the break. It isn't these aren't entirely separate markets. They're evolutionary steps for the users of the capital. And so what you're likely to see, as John said, it's a very you wouldn't have somebody who today just is an hourly billing lawyer who shows up and says, oh, I'd like to do $100,000,000 portfolio deal with you.
Instead, the first thing that person is going to do with us is a single case portfolio, is a single case investment. And then over time, we'll see what that relationship matures into, which may go in a number of different directions. So I don't have a good answer to the question, to be perfectly honest with you. If you had I think Sir Peter was absolutely right. When we started this, we didn't quite know where it was all going to go.
If you had taken me 5 years ago today and asked me to predict where Burford would be in 2018, in addition to my general disinclination to predict the future, I would have if I'd been willing to do it, I would have given you a prediction that I'm sure would have been very different than where we ended today. We would not have had this quite this level of growth that we've seen. And I don't think that we would have seen the evolution of the legal market happen quite so rapidly. Because what is actually going on, as we were trying to convey to you, is that you had this hidebound industry, this legal industry that has had no capital in it, no balance sheet, no capital for decades. And all of a sudden, in a relatively short period of time, largely because of substantial client pressure on that industry, you're seeing that industry have to take on capital, and that's transforming how it does business.
And I think the thing that is so interesting to us, and this is really what John was talking about, is watching where that goes. We're in this remarkably unique position that if you're a lawyer sitting in a law firm today and you think capital, the thing that is next going to spring into your mind is Burford. And we get calls from people who want to talk to us about all sorts of things. We give financial advice to law firm managing partners about their compensation plans, about their debt raises, anything that you can imagine. And so that's, I think, what's going on here, that kind of transformation.
John, do you want to chime in there?
Charles Wilson from Overbikes Asset Management. Just on competition, could you describe how the competitive environment changed over the last 4 or 5 years maybe to now and how you might expect it to evolve in the next 5 years, please?
So when you go back to that slide that I had up that showed the 10 or so firms that we regard as the principal competitors in the space, all of those firms existed 5 years ago. So what has happened is the capital has flowed into the industry and a number of those firms have grown along with Burford having grown. And so you're seeing that kind of evolutionary dynamic. We're not the only person attracting fresh capital. We're not the only person engaged.
We're not the only firm engaged in geographic growth. But the fundamental shape of the industry, if you will, has not changed that dramatically. The way that competition happens here is different than in lots of industries because if you bring us today a significant litigation matter or a pool of litigation matters to look at, that's going to require us to engage in a very significant amount of effort. So we're going to do a lot of our own diligence. We're going to need access to the protected information, the confidential privileged information from your lawyers, And we're going to take a bunch of your lawyers' time.
And so those factors together mean that you don't have what you have in some other industry dynamics where if I want some capital, I'll go and hire a banker who will write a book and send it out to 50 potential capital providers and try to solicit some competitive tension and have bids. You don't see that dynamic here because you can't write the book because you'll lose protection and you'll lose the privilege protection by sending it out broadly like that. And neither we nor your lawyers, who are, by the way, generally not being paid for the time that they're spending trying to solicit capital for you, neither we nor your lawyers are going to be prepared to engage in that extensive undertaking simply for the privilege of being able to put in a price bid at the end of the project. And so what you have is something that is a little different, a little more bespoke where you tend to start working with a capital provider earlier on in the process. And so the competitive dynamic hasn't changed dramatically over the last few years.
And would you expect that to continue to be the case?
Well, I think that as you saw, the it's relatively difficult to enter this business today. It was certainly easier some years ago when deal sizes were smaller and less complex. You could enter with a smaller pool of capital and a smaller team. Today, entry is quite difficult. And so you see because there's some because we've obviously generated desirable returns, that has increased the public profile of this industry.
And as a result, you see, as you always do in such situations, you've seen a degree of froth with people saying that they're entering or putting up press releases claiming to be in this business. But the reality is when you look because this is a capital business, we have the benefit of being able to look at regulatory filings. So you don't see the regulatory filings about having raised capital following those press releases, number 1. And number 2, we really don't see a lot of market activity around those players. Now anything is possible.
And as I said, there's obviously competition and we have high returns. So I'm sure that you will see continued efforts to enter, but the moats and the barriers that I described earlier, I think are fairly significant here.
Sure. No, I'm not going to give you a second question. Just somebody has yes, sir.
It's Markus Barnard from Numis Securities. On your Slide 42, you've shown the investment results by vintage, which is a chart you also can give. And you helpfully break them down between concluded partial and ongoing. But of course, as you get more of your individual investments are in multi case portfolio and type investments, I'm guessing a lot more of those will show up as either ongoing or partially concluded. Are you planning to give more granularity to on the underlying cases in future?
Or are you going to continue to show them in this way? Or are you going to give us more detail as to how your performance is coming through?
So I think what you've seen from us in general in Burford's life and especially in the last few years as the business has grown both larger and more complex is that we have continued to enhance our disclosure. And I think we do that in a couple of different ways. We think about what's going on in the business and how we try to figure out the best ways to present it to you. But we also receive input from lots of analysts and investors about what kind of incremental disclosure would be helpful to them. And so if you track the incremental things that we've given, you've seen a lot change in the business.
And I think we'll continue to be responsive to requests like that. So last year, for example, we started refining the way that we talked about new commitments. We put them into what we call buckets. I think we'll continue to do things like that. And obviously, as the business becomes yet more complex, we'll need to give more visibility into what the component parts of that are doing, all within the challenge that we face of the fact that all of the confidentiality of this information ultimately belongs to the client and not to us.
And sadly, clients are hardly ever willing to waive that confidentiality. But yes, as the business continues to evolve, you'll certainly be able to follow its evolution.
Mario Fontini from LG Asset Management. You mentioned in during the video and then the talk some cases on patent situation. Is just could you give some color of how relevant are in your balance sheet? Is it something you started to invest recently? And also how to differ from more I assume they are all in single cases.
How they differ from arbitration cases? Can you have settlement? You cannot have settlement. And also, how does it work when you have patent data filing multiple jurisdiction and do you have kind of yes?
Sure. John, do you want to? And just before we let you go to coffee, I'll take a webcast question from Eloy Lucas, which is how has the secondary market evolved? And the answer is we have as we've said for a couple of years now, we have been attempting to develop what we still say is a burgeoning secondary market for litigation risk. And the reason that we're doing this is a combination of risk management and liquidity.
But the fundamental challenge today with the development of that secondary market is that to sell an investment or a portion of our investment of ours into the secondary market, as we've done with Petersen, as we've done with Tenvira, as we've done with a couple of other things, there has to be enough publicly available information about the underlying investment for a buyer or a subsequent buyer to be able to make an investment decision. So if you need access to confidential to privileged legal material to be able to make an investment decision, then it's really very difficult to sell that particular investment alone into the secondary market because there's just we can't yield bust the privilege if you give the information that we simply can't do that. So that creates an inherent limitation on what we can today offer on a single on a piecemeal basis into the secondary market. That being said, we continue to be enthusiastic about developing it. We've made more and more use of it.
We obviously made more than $100,000,000 of use of it earlier this year with TENVIR. And so I think you'll continue to see us try to do that. And in one of my slides, I snuck in a reference to what might come well down the road, which is the possibility that as this business becomes yet larger with an even more diversified portfolio that you could well see, 1st of all, the potential of having cash flows at a stable enough level to have a desirable bond rating and maybe even one generation past that, you could start to see some pool based securitization of these assets. But today, we're still very much in the single case secondary market zone. And as a result, we're inherently limited to only those matters that have enough publicly available information, which lots of our investments simply do not.
And with that, I would invite you to stretch your legs, take 10 minutes or so for a cup of coffee and we will start back here promptly in 10 minutes or so,
so that we can see the second half of our presentation.
So we are going to come back to life because the last thing I want to be in is the position of the company that has all of its presentations going on a really long time and we are standing between you and drinks. So without any further ado, we're going to kick off the second half of our program. As I said before, you're going to hear in fairly quick succession from David, then AVEVA and Craig, and we're going to intersperse what they have to say with a number more of those video vignettes. And then we're going to come back on and do some more Q and A. Thank you, Chris.
Good afternoon and good morning and good evening to our friends participating via webcast. I'm David Perlm, the Global Head of Origination and Marketing. As I'm new to most of you, let me give you a brief introduction. I began my career nearly 25 years ago as a corporate lawyer in New York City at Cat and Mutian, an AmLaw 100 law firm, moving in house to monster.com 5 years later. In 2004, I co founded Pangaea 3, a company that outsourced legal work to India on behalf of global corporations and law firms.
Backed by Sequoia Capital, we grew Pangaea 3 rapidly and Thomson Reuters acquired the business in 2010 for just under $100,000,000 Following 2 years at Thomson Reuters and another two and a half years at Bloomberg as President of their legal products group, I was thrilled to join Burford earlier this spring. Our go to market mission, put simply, is to create ubiquity, preference and loyalty on a global basis. Using an integrated marketing and business development program, we see the underwriting pipeline by doing 3 things. Number 1, we build awareness of legal finance as an industry and Burford as the industry leader. Number 2, we drive demand for legal capital and for Burford as the global capital provider of choice.
And finally, we create preference and loyalty for Burford as users' 1st and only capital provider. In short, we want every lawyer and every company to know about us and to come to us for our capital. We view business development through the lens of our clients, segmenting them between law firms and corporations. Now law firms remain the mainstay of our business. All our research indicates that law firm's top two priorities remain bringing in new business and appearing innovative for their clients.
So we're a natural business enabler for law firms. To make our efforts both efficient and effective, we've built programs and teams that utilize data analytics and customized internal processes to focus us on the firms and the people most likely to use our capital. And we target the practice groups most amenable to financing, including things like competition, intellectual property, commercial disputes, arbitration and insolvency. Going forward, direct outreach to large well capitalized corporations is a compelling opportunity. Our research shows us that 61% of law firm respondents use litigation finance, but a mere 5% of large corporate respondents are direct users and the opportunity size is enormous.
As Chris noted earlier, our research shows that 70% of large companies forgo claims or leave judgments unenforced every year. 68% of them leave that money on the table because of the impact on the bottom line of pursuing those claims. And as he said, a staggering 59% of all respondents report having uncollected recoveries and unenforced judgments valued at over US10 $1,000,000 As with law firms, we use data analytics and segmentation to determine where to focus, targeting likely industries, practice areas, historical litigation posture and legal departments with a propensity to innovate. And we've expanded our business development team with a bench of professionals seasoned in developing business, specifically with in house legal departments. The depth and breadth of our business development program is best understood through 4 elements: structure, guiding principles, metrics and team.
Structure is simple. We hire people in geographies with the best talent to business ratio and we attack and service adjacent areas from those hubs. This allows us to train and manage people in central locations rather than having solo operators with little guidance in many cities. We supplement those business developers with internal experts in high value, high demand practices such as securities, arbitration and intellectual property. Our guiding principle is that activity drives leads and that those leads drive capital commitment.
A key learning though is that cold leads, that is those without a human touch, moving to our underwriting pipeline about 12% of the time, whereas warm leads, those precipitated by a human touch, move to underwriting about 42% of the time, 3.5 times the conversion rate of a cold lead. You'll see Aviva present her pipeline next. Our goal is to feed that pipeline by increasing both types of leads, increasing the ratio of warm leads to cold leads and increasing the quality and size of those warm leads. As you can see in the upper right, we have key metrics to measure our success, including things like total leads, the percentage of warm and higher quality leads, leads from high value targets and the capital value of each lead. And as a best practice, we of course measure all business development activity and all marketing activity.
And finally, our team. Law remains a profession focused on pedigree. And so we hire only former lawyers and other professionals from the best firms and corporations and people who've successfully generated business and grown business in the past. Our people have trained at places you know, places like Cravast, Arnold and Porter, Wilke Farr, Skadden Arps, JPMorgan Chase, just to name a few. With our focus on quality, we are not obsessed with the size of our team.
That said, we've onboarded 13 net new business development executives just since 2017 to drive continued growth across the globe. I'm thrilled to be able to introduce you to 3 of our U. S.-based executives. And in Craig's presentation, you'll meet a few more of our executives from outside the United States.
I'm Greg McCullen. I'm the Managing Director here in Burford's New York office. I've got responsibility for the U. S.-based Business Development function. I practice law at Howie in their antitrust practice group and I worked for 2 different legal startups.
Both of these companies sort of helped lawyers transform their practices and gave them innovative tools to add value to their practices and to their clients. We are really proud of the business development team here at Burford. It's an amazing team of deeply experienced and diverse
attorneys
that have really sort of walked in the shoes of our clients and our prospective clients. Many of them have also made a transition from the practice of law to the business of law. So they also deeply understand the business development process. They understand how to work a pipeline of opportunities and they really understand how to connect to our clients and our prospects and how to build relationships with them.
I'm Emily Slater. I've been with Burford since late 2010. Prior to joining Burford, I was a litigator at Dubois and Plimpton for almost 10 years. Law firms are so important to Burford's long term growth strategy. We have really evolved relationships with law firms from small single case deals into many $1,000,000 tens of 1,000,000, 100 of 1,000,000 deals with firms.
And we continue to really lead the field in helping firms using litigation finance as a tool to manage their cash flow and manage risk for the firms as they continue to manage their business issues around their litigation practice. 90 of the MLAW 100 firms work with us and that's because of our high quality team. Our team is made up of lawyers who all practiced at top firms and have had very, very sophisticated commercial litigation practices. Law firms are looking for a partner over a long period of time over the course of a litigation, which could be 3 to 5 years, they want to know that their partner is going to be there. They want to know that they have a high quality team that they can come to for advice that isn't going to get nervous when there are ups inevitable ups and downs in a case.
They want to know that we are not going to walk away from an investment. And that is why they choose Burford because we have a track record and staying power and they know that when we do something when we commit to do an investment, we are going to be there.
I came from the asset management business. So I came to Burford really with the intent of trying to develop and offer litigation financing solutions designed specifically for the needs of the asset management industry. An asset management firm may want to use the litigation claims of funds that it's overseeing to reduce the impact of fund expenses and make their funds cheaper to shareholders. At Burford, we have decades of accumulated expertise managing big ticket litigation. Many of us, like myself, have served as in house counsel at corporations.
And any counterparty we deal with gets the benefit of that expertise. I think what sets Burford apart is our willingness to dive into the discussion with a client to make sure we are delivering the best possible solution for their needs.
So earlier, I explained our mission to drive awareness, demand and preference. Let me share a little bit how marketing does that. Primary drivers of awareness are public relations, advertising and thought leadership. We use all three to make users and potential users aware of the litigation finance category and of Burford's unique role in leading the industry, so that our brand is synonymous with the category and positioned as a capital provider of choice. Obviously, we target our messaging and our resources by geography because the markets differ around the world.
One example is our recent 2,008 litigation finance survey, which brings attention to us by offering much needed insight on the category. A copy is on each of your chairs. We hope you enjoy reading it and learning from it. And it's available for those of you remotely on both the webcast and on our website. One note, we also learn from the unpublished elements of that research as well.
And we adapt our messaging and our branding as needed based on what we learn. Marketing also enables demand creation through numerous push marketing elements in media, creating opportunities to connect with existing and future clients. This includes things like advertising, email marketing, blogs and social media, plus event marketing, which provides our business development teams the opportunity to engage in one to many origination activity on a targeted basis. By way of one simple example, the LinkedIn image that you see on the upper right side of the screen shows that over 4,400 people viewed one of our team members posts of an article about our recently launched equity project. Multiply those views by the dozens of other Burford teammates who posted that article and our many industry friends who reposted it And you quickly see how we reached tens and hundreds of thousands of people in the legal community with just the push of a few buttons.
And because our network is concentrated in the legal and corporate world, this creates viral demand and a network effect. Most importantly, we want every client to be loyal to Burford. Simply put, we want sticky relationships. So we use marketing to reinforce the perception of Burford as the clear category killer and to provide reason for clients to continue engaging with Burford, ideally on an exclusive basis. Among other elements, we create preference and loyalty through events, push marketing campaigns and marketing collateral.
Our main client publication is developed quarterly and provides substantive articles on key client interests. And because marketing and business development are integrated, we can anticipate what the market needs and tailor our materials to resonate most with high value clients and prospects. For example, just 2 weeks ago, I had breakfast with the Chairman of 1 of the world's highest grossing law firms. I handed him our autumn quarterly publication as we sat down, not knowing the exact purpose of our breakfast. When asked, could we finance a very large portfolio of future contingency cases known in our parlance as a going forward portfolio, explained that not only could we do so, but that our quarterly publication contained an article on precisely that product.
We quickly moved into discussing a proposal, which we delivered in writing last week. And it's working as the statistics on the right side of the slide indicate. Of course, as the global market leader, broad access to markets is important to us. As Chris noted, we don't anticipate any adverse changes in public policy or an increase in regulatory risk. Nonetheless, as the industry grows, we are being proactive.
So later this month, we will announce that a seasoned U. S. Department of Justice veteran will be joining our team, who we believe will have a real impact on public policy, both in the United States and across the world. Finally, I'm delighted to close by sharing an initiative that has already ignited enormous enthusiasm, the Equity Project. Launched just last month, the project commits at least $50,000,000 to women led cases.
We employ the same underwriting standards as always, but with an added goal of closing the gender gap in law. To qualify as being women led, a case must meet criteria developed by us in conjunction with some of the top female litigators in the world. All of this is supported by a high profile promotional campaign, including the Equity Project Champions you see on the right, extensive news coverage and launch events in New York City, London and Sydney. And the results have been overwhelming so far. Since our announcement less than a month ago, we've received dozens of emails about the project, leading to dozens of business development conversations so far.
More importantly, we've received 22 qualifying leads into our business development pipeline, 6 of which have been converted into the underwriting pipeline already. Put simply, this is impactful for women litigators, transformative for the legal industry and good for Burford and you as our investors. So let me close by saying thank you. I hope I've demonstrated clearly how business development and marketing are creating accelerated and larger demand for Burford's capital and how we're feeding the pipeline. And now I'd like to hand it over to Aviva to talk about that pipeline.
Good afternoon, and thanks, David, and good afternoon to all of you. I'm Aviva Will. I'm a Senior Managing Director at Burford. I joined Burford almost 9 years ago, just after inception. My background is as a litigator.
Before Burford, I spent almost a decade at Time Warner running the Global Antitrust Group. And before that, I practiced law at Crevasse, Made in More with Chris and Craig. At Burford, I run the underwriting and portfolio management function across the entire Americas, and that's both North and South. And it also includes international arbitrations around the world. I run the New York office and oversee our Chicago office, and we collaborate closely across all five of our offices along with our colleagues based in other U.
S. Cities. So this afternoon, I want to focus on 2 things, the investment process and portfolio management. And for those of you who attended our last Capital Markets Day in May of 2016, and I see some familiar faces, I'll highlight some of the changes since then resulting from the tremendous growth we continue to experience. So turning to the first slide.
Whenever I talk about Burford, I always start with the team, because they are truly the engine of the business. We often count as a distinct advantage over our competitors that we've built an internal team of underwriters. And by underwriters, I mean lawyers and finance folks who bring their years of expertise to bear on each and every investment we make. Since I spoke to you at this event 2 years ago, we've more than doubled the size of our underwriting team across the business. And you can see the organization of the team on this slide.
I oversee the Americas team and Craig oversees the Rest of World team, which I'll talk about in a little bit, with very strong collaboration across the groups. This team has essentially 2 functions, as I mentioned, to underwrite new investments and optimize returns on our existing investments. So you're going to hear now from John Lazar, who manages the pipeline in the U. S. And Chris Catalano, who helps to oversee the investment portfolio.
You're also going to hear from one of our finance specialists, Max Egan, who works alongside the lawyers in assessing opportunities, modeling risk and managing our investments.
I'm John Lazar. I'm a Director in Burford's Underwriting Group here. And my main function is overseeing the U. S. Underwriting pipeline.
Before I see a matter, it's usually been judged to have the basic investment criteria. So that would mean merits are or seem to be solid, that the damages are sufficient for investment, that the budget is something that we think is reasonable. But that's all done at a very high level. Once it gets to me, once it gets to underwriting, that's when we do the deep dive on the case. So I'll assign usually 2 or sometimes 1 underwriter to a case.
They'll review everything they can get their hands on. They'll talk to the lawyers. They'll talk to the clients in the case. We'll discuss the case usually weekly, internally with the entire U. S.
Underwriting team. If everyone likes the case and thinks it's worth going forward, that's when we bring it to investment committee. It actually has to go to investment committee twice before it's finally approved. But during that process, more and more diligence is done by the underwriters and I oversee that function. The biggest difference between Burford and its competitors is that we do all our diligence in house.
It's important for a few different reasons. 1, it allows us to move quickly. 2, it actually gives the potential client a better view of the investability of their case. Most of their funders use outside lawyers to judge whether or not investment should be made in a case and outside lawyers are just notoriously bad at seeing litigation as investments.
I'm a director in our underwriting group and my job is to manage the portfolio of investments that is originated out of the United States other than patent cases. Before I joined Burford, I worked for about 15, 16 years in 3 large law firms as a litigator. After that, I worked in house at JPMorgan Chase for about 3 years. And there, I handled class actions and investigations involving the mortgage bank, and I was responsible for managing a large docket of those cases. Burford's process for managing the investments includes being experts in the cases that we are watching, remaining in close touch with our counterparty, knowing everything we can about the developments in the cases, consulting with our counterparties on strategic issues, knowing where the spend is against the commitment that we have made to the case and generally making sure that our interests and our counterparts' interests are aligned and that we're all rolling in the same direction.
BRFR's investment process is unique because of how rigorous and disciplined it is. From the very first moment that we get an inquiry until the very last day after we've invested in a case and several years later the case is resolved, we remain on top of all of the important details of the case. We move nimbly. We move as fast as our clients want us to move. And we remain as up to speed as possible without actually being lawyers on the case.
My name is Max Egan. After business school, I joined Morgan Stanley Investment Management. At Morgan Stanley, we purchased illiquid assets from other hedge fund investors, which sometimes the source of that illiquidity was a legal claim. In addition, we allocated capital to litigation finance investors pursuing both direct fund investments as well as co investments. At Burford, I analyze investments through quantitative and financial analysis as a member
of the underwriting team. My role
is to develop investment models that use probabilistic scenario analysis to try to figure out the different ways that investments can resolve. Since Burford launched in 2,009, we've developed a wealth of proprietary data. And with the acquisition of in 2016, we brought even more of that data under our roof. Data is very important to Burford's investment process. We it's ubiquitous in the investment universe and we use both public and proprietary data in order to make better investment
You're probably familiar with this slide. We've used it in our investor presentation before, but I'm going to focus on some additional detail here. So this slide shows the number of investments we saw in 2017, 1561 at the top of the funnel and how those were whittled down to 59 investments. David has described what happens in that first box at the intake stage. And from there, you see a steep drop off, and that's the result of an effective and efficient screening process so that our underwriting team isn't spending valuable time on matters that we won't ultimately fund.
And you heard from John Lazar just a few moments ago about how we diligence matters in the pipeline in that next box. The key to managing an ever expanding pipeline is to scale our processes so that we can facilitate that growth, again, without sacrificing substance. So for example, we now have 3 weekly pipeline calls where we bring all the matters that pass through initial diligence. 2 years ago, that number was 1. Given the growth and specialization of the team, we split the calls into 3, U.
S. Commercial and arbitration, patent and rest of world. John and I participate in all three and Craig participates in the U. S. Call providing an important link across the entire company wide pipeline.
In terms of the investment committee in that 3rd box, you may know our investment committee is made up of 9 senior lawyers and non lawyers. Just to give you a sense of the level of review, we consider as many as 5 to 6 investments per week. There's a substantial amount of work for us to review and digest each matter. So there are substantive memos written by the underwriters, financial models, briefs and other diligence. And there's often rigorous debate among us even before our Monday morning meetings.
This is no rubber stamp process.
As you
can see in the last box, the underwriting process resulted in 59 investments from 2017. That includes a variety of single case and portfolio investments. And what that means is that we manage a much greater number of cases on a day to day basis than the number of investments we actually have. So I'm going to walk you through in the next slide a couple of simple examples of single cases, single investments where we've considered
just to give you
a better sense of the kinds of decisions that get made at the various stages of the funnel. So this first case study, and by the way, these are actual opportunities that we've seen over the course of our underwriting process. So this is a potential $8,000,000 investment in a breach of contract claim with estimated damages of between $40,000,000 $70,000,000 The law firm partner who approached us had taken the case on full risk in exchange for 31% of any proceeds, not the typical 33%, this one is 31, And he wanted us to cover a significant portion of his fees and expenses. So just looking at the numbers here, we can tell very quickly that this investment is going to work. Assuming for a moment that the damages are at the low end of that range, the case is likely to settle for something less than that.
But even if the case settles for $40,000,000 the lawyer will receive $12,400,000 in contingency fees, the 31%. Now if the firm has spent the budget, Burford will get back its $8,000,000 investment, but very little return, about half an x. And that's not enough to justify our investment. Worse, our returns will eat up the entirety of the contingency, leaving the firm with no additional upside. So we rejected this case very quickly at an early stage in the process and we explained the economics why the economics don't work.
So we use the investment opportunity as an educational one and we include a client manager from the origination team to continue to develop that relationship. The second case study sort of moves down the pipeline to the investment community stage. This is a $160,000,000 securities case with an $8,000,000 budget, and again, dollars 160,000,000 potential damages. The economics can fit, so we dig deeper. We did substantial work on the merits and on damages with the economists.
We discussed the matter on our weekly pipeline and the case was written up for intake to our investment committee. But following additional diligence, we concluded that the provable damages here were considerably lower than the estimated damages, which is not uncommon in these big cases, and in fact, not large enough for us to proceed. This is a good example of how our in house expertise really serves us well. The case looked good from the outside and until we dug more deeply into the damages theory and found really significant flaws. Outsourcing the diligence can get a thunder into trouble in areas like this, which require a deep understanding of the quantum analysis that just can't be achieved by a cursory legal review.
This last case study is a $400,000,000 arbitration claim with a $7,000,000 fee budget. The economics again seem like they could work easily and the initial review of the legal merits was strong. So we continued our diligence, interviewing the client, testing the legal claims, working through the damages models and analyzing the arbitrators history. And here we have a very distinctive advantage, in the form of detailed data from all of the arbitrations we've seen, frankly, more than any single law firm. So we have a really unique window into things like arbitrator appointments.
And in this case, we knew counsel well. Since we don't control cases, it's critical that we have confidence that counsel is of the highest quality and has a clear strategy to get to resolution on the agreed budget. As the business has matured, more of our business comes from repeat clients and that's because we build a high level of confidence and trust. So in this case, that speed up the process considerably because we knew counsel and we understood their strategy. So this case made it through 2 rounds of investment committee, we negotiated pricing and we closed the investment.
I want to talk for a moment about our investment modeling because this is an area of much progress over the last 2 years as we further developed standardized methods to assess risk in a way that's comparable across all of our investments. And as our investments become more diverse, that's an important factor for us. It allows us to choose investments that have different combinations of risk and duration as John discussed, but are nonetheless complementary to the existing portfolio. So focusing on the inputs on the left side, we diligence these core issues for each case as well as a host of others that are specific to each opportunity. On the right side is the applicable 3rd party data.
For example, the average time to get to trial in a particular court, the average rate of reversal in a particular appeals court or for example, the defendant's track record of settling complex matters to the extent that type of data is available. The oval at the top is our proprietary data. Burford has amassed the largest database of litigation finance related data in the industry. It includes data from every investment since inception back in 2,009. So what do we do with these?
We bring all of these inputs to bear in a single financial model that leverages our in house expertise and the knowledge we can draw from both proprietary and third party data. As Max noted, we won probabilistic scenario analysis to get the best sense of possible outcomes. And for portfolio investments, we use Monte Carlo simulation techniques to capture a range of possible investment outcomes.
The key takeaway here is that
this systematic and scalable approach allows us to continue to refine our risk assessment and pricing based on our experience, which means it should keep getting better. It's important to note though that this process sits alongside our team's experience and judgment in pricing and managing risk. It doesn't tell us what to invest in and it doesn't tell us at what price. It informs our collective judgment, but it's not a substitute for it. Switching over to portfolio management, what happens after we sign a deal?
You heard from Chris Catalano about how we manage each investment on an individual basis. This slide shows you again how we've expanded our internal processes to scale for a larger portfolio, so we can continue to apply the same rigor and discipline to maximize returns. A couple I'll mention, in the quarterly risk review, we update those investment models based on case of developments that allows us to compare risk across investments again to balance the portfolio to achieve desirable risk adjusted returns on a portfolio wide basis. And we've added quarterly postmortems where we review key wins and losses every quarter. We disseminate those lessons to the team and again recycle them back into the database.
In many of our cases, litigation goes as expected and cases resolve as anticipated. But litigation is unpredictable and many cases don't go exactly as planned. And that I think is where you see the Burford difference. So I'm
going to take a relatively simple case that
we invested in after a win on liability in the trial court. The case was on appeal with relatively few appeal issues and we were quite comfortable with the risks. So here's what happened. We invested $2,500,000 The court took almost 2 years to resolve the appeal, longer than is typical, but not unheard of. The appeals court reversed our clients win on an issue that was not directly before it.
Again, highly unusual, though not impossible. Most funders would quit at this point. They write off the case as a loss because there were no further appeals and no clear path forward. But Burford isn't like any other funder. We came up with a strategy and invested a small additional amount of capital for a new case against a third party on the theory that it was responsible for the loss.
That case eventually resolved and Burford received its investment back plus 2 times its investment and still maintained a healthy IRR notwithstanding 5 years to resolution. Now not every case requires that kind of creativity and tenacity and we're very glad of that. But we also think it matters that when the chips are down, Burford is uniquely capable of finding ways to maximize returns even in the toughest investments. So what I hope I've shown you is the value of our team, our processes and our risk management to demonstrate the overall strength of the business model and how we're continuing to scale for growth. And with that, I will turn it over to Craig.
Thanks, Aviva. I'm going to close today's session on international opportunities and expansion. Thanks for staying till the end. Markets outside the USA represent significant potential for growth. And in this presentation, I'm going to tell you where and why we see that.
Who am I to tell you this? I'm the Managing Director for Burford for the UK, Europe and Australasia. My name is Craig Arnott. I've practiced as a barrister in Australia. I've been a partner at Wall Street Law Firm here practicing in London with Frank Harris, Shriver and Jacobsen.
And I started my career at Cravat Sway and Moore in New York. I've worked with Chris since 1995. I'll let you do the math about how long that is or the math, as he would say. And he brought me over here in the Managing Director role in August 20 16. My very specific charge was to spearhead our international growth and coordinate that from our London office, which Berthoud had set up, many of you will know in the city in 2015.
I can tell you that concentrating that effort via London hub, we call it, has produced immediate results that are summarized here in this slide and in this presentation. We have funded litigation in just the past year in the U. K, of course, but in Germany and the Netherlands and in a growing number of other jurisdictions that I'll mention in the presentation. To give you a sense of the type of deals these are, over half by value were portfolio style arrangements. Most single cases were competition cases in the £10,000,000 to £30,000,000 value range.
That's of our commitment to fund. And in addition, from this office, we've expanded our offerings. We've launched a new product, which is our Guernsey backed captive insurance product offered via Bertha Worldwide Insurance that offers a reinsurer backed adverse cost solution that many of our clients seek and that we can wrap up for them in one funding package. I will note that a lot of you will have the impact of Brexit on your mind. If anyone ever glances at newspapers, you certainly will.
And you'll wonder about the impact that might have on Burford. The English courts, it's fair enough to say, are already suffering a competitive disadvantage over high costs, and Brexit may, in fact, exacerbate that. But our business thrives on change and uncertainty and indeed on the disputes and litigation that will arise from Brexit. And that will be good for us and it will be good for lawyers. That will be good for you if you're an investor in Burford.
We are, in any event, expanding into Germany and the Netherlands where we're seeing some of the caseload go already so that we can be jurisdiction agnostic and follow the work. Our growth is underpinned by our team. This old chart shows you the breadth of functions and talent and geographies that we cover from the London Hub. It gives a real insight into our structure. I won't go through it in detail.
Simply to point out, it covers underwriting, corporate functions, business development, adverse cost solutions and asset recovery supported by Burford Law. Instead of me describing the people, I'll let you hear directly from some members of the team now.
I'm based in the Zincro office, and I'm the Director of Response Group for the business development efforts in Asia. In Asia, the industry is still very much at a nascent stage, so there's tremendous opportunity for Burford to take a lead and grow the market there. So the immediate opportunities would be in arbitration and in insolvency work in both Hong Kong and Singapore. I'm very excited by the opportunity in Asia for Burford. So while the region is new to legal finance and Burford is also new to the region, Burford already has a lot of experience working in Asia with Asian legal practitioners and with policymakers.
So if you look at our management, we have people who are qualified in Australia, we have Hong Kong qualified lawyers and now with people on the ground, I'm very confident that Asia will present a very exciting opportunity for Burford.
My name is Monique Cronin. I'm Vice President of Business Development for Burford Capital in Australia. Prior to joining Burford, I worked for 2 of the largest plaintiff firms in Australia, Morris Blackburn and Slater and Gordon. Their asset size and scale is a clear advantage over its competitors in Australia. It's being 10x the market capitalization of its nearest competitor.
Being a listed entity on the London Stock Exchange also provides a level of comfort to investors and claimants. We know at the end of the day, Burford will be there and be able to meet any adverse cost orders or claims.
I'm Philip Liebfried. I did law at UCL before coming to Burford, and I worked at Freshfields for a number of years before coming to Burford. I think the main opportunity is to crack the corporate nut, as it were to work on a large scale with some of the biggest corporate clients, which presents an enormous opportunity given the scale of the economy. What sets Burford apart from the competition in Germany is, first of all, its scale and quality of capital that it can provide to clients in Germany. And secondly, associated with that is the underwriting capability in house consisting of German lawyers and Swiss lawyers as necessary.
I'm Eshmand. I went to King's College London. And before I joined Bradford, I was a senior associate at Herbert Smith Freehills in Hong Kong. And now I'm a Vice President in Buffett's underwriting team taking care of Germany. I think our opportunity in Germany really is to take part in a massively growing market and play a role there and help grow realize the enormous potential that Germany offers as a market, mainly in the area of international arbitration, commercial and treaty, but also in the competition law space and German domestic litigation eventually as well.
Our main potential in Germany really lies with corporations, both the DAX listed companies, but also 1 or 2 levels underneath. And I think the best and most important thing to do is to really be visible in the market and make sure our message is heard. Germany has known litigation finance for quite some time, but the scale and firepower that Burford can bring to the table as well as our bespoke litigation finance solutions are unique and really set us apart from everyone else in Germany. Due to our firepower, there's pretty much nothing that we cannot do in the litigation finance space.
The thing you've seen and heard expressed there is optimism drawn from our scale and results and reputation. And that is because that's what we hear from our clients about what attracts them to Burford. People have asked about what we're seeing in the competitive space. The market is separating actually between quite a number of firms operating at the small value end and very few at the high value end of which Burford is preeminent. So picking up on this, our growth strategy divides into 3 broad areas.
The first is the UK, mentioned there, the slide. 2nd, common law countries and 3rd, civil law countries. In the UK, we'll continue to grow our large value competition and arbitration matters, but we see opportunity also in taking a portfolio of product direct to corporates who can be attracted to taking books of business off their balance sheet. In other common law jurisdictions, especially in Australia, we see opportunities in large shareholder matters, insolvency portfolios and also our corporate off the balance sheet product. In civil law jurisdictions, there are especially large opportunities in competition law, but also a developing securities practice in the Netherlands and in Germany.
This next slide is what I like a lot. It's about the growth cycle that I've seen in the past 2 years that comes from our scale and success and access to capital. Large firms and corporates think of Burford first in high stakes matters that require large commitments and large deployments. What we're seeing in my view is the development of a virtuous circle. We are perceived as a go to trusted partner in high value claims, which brings in more of those claims and which reinforces the perception and so on.
There is an inevitable market logic to this and from leadership. Large law firms primarily do larger scale, high value matters and are affected by peer firms in size and reputation to whom they can introduce their clients with confidence because we reflect their working practices and their quality and their skill set. We came from those firms. But ultimately, and I don't need to tell this audience this, it's the numbers that talk. Simply put, our capitalization puts us in a class of our own.
That's what we hear time and time again. Law firm clients in high value litigation want a partner whose accounts are transparent and is large and will be able to last the distance. Or perhaps more importantly, be perceived to be able to last the distance because that will maximize the chances of early settlement. To give you a sense of this, we even have claimants who reach out to us and say,
we actually have enough cash. We don't really need
your funding, but we'd just like to use your name so that the other side see that we're serious. It's our repeated results and the reputation that burnishes that cuts through in every market. In the following slides, I'll show you more specifically what the opportunities are in each of the regions in which we're expanding. This slide focuses on Europe. I want to give you a sense of what work we're seeing and doing.
In the UK, common law in Continental Europe, civil law, there are 4 main areas where we are seeing growth across both. 1st, follow on competition claims. Now these are so called because they are actions where the European Commission has already found liability for cartel behavior and injured claimants sue on the basis of that liability. The liability is established and the claimants just have to prove the quantum of damage that they have suffered. These are very efficient to run-in EU jurisdictions because the law is the same and especially in Germany and the Netherlands because English is widely used and we have confidence in the Dutch in German courts.
On the back of those claims, we've expanded our relationship with firms you know, Hausfeld, Gwinemannl and other prominent city firms who are expanding on the continent and in those jurisdictions in particular. There are differences with the U. K. On the continent. We can purchase claims.
And those jurisdictions often don't come with some of the traditional restrictions of the common law world on funding. I will note that the purchase of claims often comes with significant costs from the start. We can do this, but it does operate as a barrier to entry to others. Secondly, international arbitrations. These are focused on investor treaty claims and involve high commitments or even high deployments because we can monetize claims upfront before there's been a final award.
3rd, matters arising from insolvencies where a liquidator is mandated to seek external funding to run what may often be multiple claims arising within the one estate. And we have portfolios with major insolvency practitioners that are running today. 4th, securities litigation. There is a rise in shareholder claims in the UK, Germany and the Netherlands, often from U. S.
Investors who have also been involved in high value disputes in the U. S. And who see that their European operations have suffered loss from corporate misconduct as well. Just by way of note, Eastern Europe. Eastern Europe presents most opportunities really for our asset recovery business because payments may be located there, although we will only be interested when assets are located elsewhere in jurisdictions where we know the courts.
To this point, I'm now going to introduce a little vignette from Dan Hall, one of the directors of our Asset Recovery Business.
I'm Dan Hall. I'm one of the co heads of the Asset Recovery Business. And I studied law at Oxford University. And before Burford, I ran my own asset recovery consultancy, which was acquired by Burford at the start of 2015. Burford's asset recovery team is about 20 people based out of London.
We operate globally and we are working for clients chasing assets in many of the jurisdictions around the globe. We benefit hugely from working with Burford's traditional merits financing side of the business. Many of our cases involve creative legal solutions in certain jurisdictions and drawing on the underwriting and experience of our colleagues is pretty crucial to our success. The Asset Recovery team gives Burford a competitive advantage because not only are we helping clients at the end of the litigation lifecycle and servicing a different part of the market and my colleagues in the traditional core business, But I think also where questions about enforceability and collection are raised by our colleagues, we can help them understand those risks and price them accordingly. One of our cases that's garnered a fair amount of public attention this year is the impounding of a large yacht in Dubai.
I think most of our work happens outside of the glare of the world's media. And we are as used to taking yacht as bank accounts and stocks and shares and all other kind of imaginable assets that people will sometimes own. I think the important thing to note is for us this is bread and butter judgment enforcement work. And once a judgment
is handed down, irrespective of
the dispute behind the scenes, we'll work with our clients to help them recover as much as they physically can.
This next slide focuses on Australasia, the Middle East and Far East. I'll give 2 specific case studies in the subsequent slides about Australia and Singapore. But just on this one momentarily, you may be surprised that we see opportunities from claimants based in the PRC, India and the Middle East. These, again, are largely from claimants in asset recovery matters or international arbitrations where assets are located elsewhere. In Turkey, though, I will say there is a very specific opportunity from Turkish construction companies involved in international arbitrations generally seated in London or Paris.
In this penultimate slide, Australia, I want to give you a flavor of the opportunity we're seeing in Australia by way of a specific case study, the AMP matter. We've invested in the biggest shareholder action in Australian legal history to date, the AMP matter. AMP is one of Australia's leading financial institutions, as many of you will know. Before a Royal Commission earlier this year into banking practices, a number of now ex executives admitted to misleading the regulator in filings and about practices like charging dead customers for services they didn't perform. In the fallout, loss of CEO, loss of Chairwoman, about $2,000,000,000 in value was wiped off pretty much straight away.
We were the first to file using a law firm with whom we do business all around the globe, Quid Emmanuel. We've opened offices in Sydney now. And we've already grabbed many headlines from our entry. There is a competitive process in Australia in the court awarding carriage to 1 funded group. We're in the middle of that process.
There are 4 other competing funders. Our offer is very competitive. There is still all to play for. On the back of this, we have opened an office in Sydney with a Business Development Vice President, and we're already fielding many matters. Finally, in Singapore, Berthoud has secured a significant first mover advantage.
Singapore is becoming a major hub for international dispute resolution, especially in the arbitration field. This slide covers some of the timeline of critical events this year. In March, Singapore introduced regulations permitting third party funding for international arbitrations. In June, just a couple of months later, Burford backed the 1st ever funded Singapore arbitration. And in November, we opened an office there.
On the back of that first ever funded matter in Singapore, we received considerable deal of favorable publicity and Singapore is now our bridgehead into Asia. Hong Kong is expected to follow suit. It is already legislated to allow for 3rd party funding. Regulations are expected in 2019 to bring this to execution. Insolvencies are already committed in Singapore and Hong Kong, and we are actively looking at those matters.
So Asia has been, in this past year, a series of firsts for us. Our Singapore office will be a platform to lead the region. Hopefully, in this short presentation, I've demonstrated not only where we expect growth to come from, but also how we will drive it and the great team that we have to do that. Now I'll pass you back to Chris and look forward to your questions.
Thank you very much. And why don't we open the floor right now for a few questions. And after we have a moment or 2 of these, we'll retire for some cocktails. And as I said before, the team will be broadly available to talk to you individually as well. Sir?
It's Emmanuel de Figueredo from LVNV Asset Management.
Can you just provide a little bit
of color on your capital rates, the timing? And I think in the press release, you mentioned geographical expansion. So can you perhaps help us and tell us
a little bit
where geographically we should see more of that capital going? Thank you.
So the capital raise that we did a month ago was the first time that we've raised equity since 2010. But what we said at the time was that this was part of our strategy. It's the strategy that I went through before, in my slides before the break about not being entirely certain what the best capital structure for this business was yet and therefore retaining flexibility and pulling capital from a variety of sources. And that continues to be our intention. So because we expect to be continued users of debt financing on the balance sheet, we decided that it was appropriate to add a little more equity cushion underneath that debt given that we hadn't raised equity for 8 years.
But at the same time, we also have made it clear that we intend to continue to use things like the private funds market. So that really was the dynamic around that capital. We didn't raise that capital with one specific purpose in mind. We raised it to continue the general expansion of the businesses. And so that capital could just as easily find its way into a brand new investment that we are making in the United States or one of the activities that Craig described.
There's not a particular earmark around it and it's from our perspective, it's fungible capital.
There
was a question back there.
Thank you. Good evening, Chris. Melwin Mehta from Sterling Investments. What a lovely lineup of your bench trend there. And as Craig himself said that the numbers do the talking.
I'll just have one quick housekeeping question. Given that 2018 is nearly over, there are 6 years to go between now 2025. And given where our market cap is, what stops us or what are the 3 2, 3 things that stop us from being a £25,000,000,000 company?
Well, from your lips, well, the answer I think lies fundamentally in what happens with not what happens with the legal industry more broadly and what happens with Burford's position as a capital provider to that legal industry. I think we all believe that the legal industry is on a path of irrevocable transformation, that it can no longer exist in the pure billable hour balance sheet free model. And I think you've seen us address that industry in a number of different ways. And John, for example, is well known inside the legal industry for advocating not only the application of capital, but for fundamental changes in the structure of how that how law businesses operate. So I think that's sort of opportunity level number 1.
And opportunity level number 2 is how it is that Burford addresses the many opportunities that we see in that market. So your particular question was what stands in the way of that. And I think the answer, of course, fundamentally lies around execution. There is no question that we are going to need as we continue to grow to execute well. We've had considerable success over the past 9 years, but past success, as they always say, is no guarantee of future performance.
And so there is no the business is evolving into something that is larger and different than it was 3 or 5 or 7 years ago. And I think the pace of that evolution is something that we all have to pay careful attention to as we continue to have an ever larger growing global business. Yes. It is depressing that while the mic is going to this gentleman, I'll just comment. It is depressing that, to some extent that litigation is about the misery of the human condition.
So everything bad is good for us. Craig called out Brexit. Brexit is something that's positive. Any sort of economic downturn is absolutely great for our mill. But candidly, even toppy frothy markets are good for us as well because as you've seen, lots of companies tend to do naughty things in frothy topping market to try and keep their numbers going and keep so you don't even need a crash to have lots of opportunity when things like that are happening.
Anyway, that was it.
Michael Bank from Left Day Capital Management. I have three questions, if I may. As a follow-up to the question the gentleman's question about the growth of your business to a $25,000,000,000 or pound market cap. When as you grow and you're almost now bordering on Footsie or at least you were with your share price a little bit higher, when what will make you consider moving from AIM, which is considered to be a small cap, lower quality market to the LSE to the main market?
So it's a question that we it's not a static issue for us. It's something that we examine on a regular basis. We wrote extensively about those examinations fairly recently actually in the 2017 annual report. And what we concluded at the time, we being the Board and we being a series of outside advisors, was that we wouldn't achieve any particular benefit from that kind of move. And by the way, we examined not only the question of a move from AIM to the main market, but we also examined other possibilities such as a cross listing in the United States and so on.
I think it's important to bear in mind that we are that the equity trades on AIM, as it always has, but that all of our bonds trade on the main market. So we are we have main market prospectuses. We have a level of main market governance around the publicly traded debt. So I don't think that we find, I suppose that I disagree with the characterization of AIM as it is applied to us and some other large cap players on AIM. We are not the largest AIM stock out there.
So, I don't think that today it's a conclusion that we would reach that, that kind of move given the cost and disruption associated with it would be a net benefit to shareholders, but it's something that we'll continue to evaluate.
Chris, I
am sorry, I am reminded that I am obliged to take webcast questions as well. So my webcast question from Robin Canty is whether the size of the investment committee is a constraint on business growth. And I think the answer that we would give to that is clearly not because this business remains, as Vivek pointed out, very much a business of judgment and experience alongside the other quantitative things that we do to make investment decisions. And so having an investment committee with 250 years of commercial litigation experience is an enormous asset to the business. And bear in mind that even though this business today is quite large in dollar terms, it's not that large in investment terms.
We only, last year closed less than 60 new investments. So it's not as though the investment committee is seeing 100 investments a week or some such thing. I'm also conscious of where we are in terms of time, and that we are standing between you and drinks. And so why don't I take one other question if there is one and then we will walk outside. And before I
take a second question from you, if somebody else has one question, I'm going
to give them the opportunity. And I'll be happy to talk to you later. Sir? Yes. I know a number of you, but because of the webcast, we are under very bright lights here.
And so I actually can't see you very well.
Markus Barnard from Numis again. In AVEVA's chart, you showed the funnel of your cases coming down from 1560 to 59. I just wondered if you were running that process this year with the additional capital. Do you think any of those cases would have been accepted because you had more capital rather than because
of any other reason? Just interested. No. We did not that funnel is for investment quality, not for capital constraints. So we did not turn away any investments last year that we wanted to do because we didn't feel like we had enough capital with which to do them.
So no, absolutely not. And with that, let me slightly over time thank you all very, very much for your kind attention. Please join us for a drink outside and all of us will be delighted to have some further discussion with you.