Thank you very much and hello everybody. Thank you all for joining us on quite short notice. We appreciate it. John and I are going to make some introductory remarks, and then we're going to leave a significant amount of time for your questions. Just to begin, I want to be clear that John and I have great confidence in Burford.
And we have shown that confidence by just going into the market today and purchasing almost $4,000,000 in Burford stock to add to what were already significant holdings for us. So we hope that, that along with the other purchasing that our fellow employees are doing at this moment and that our directors have signaled gives you a sense of where Burford's people are when considering what has happened over the last few days. Obviously, the reason that we're together today is to discuss a classic short attack on Burford's business. We've made clear our views about this kind of value destroying manipulation already, and we're not going to repeat those views here on the call, nor are we going to talk about what further action Burford may well take with respect to those conduct. Rather, we're going to focus instead on the falsehoods and simple errors in the report that you've seen.
And as I said, we've allowed extensive time for questions. We've published a detailed rebuttal overnight of the Muddy Waters report. I hope that all of you have had an opportunity to see it and to read it. It is comprehensive and it deals in-depth with the many factual errors and the statements in the report. And let's be very clear, that Muddy Waters report is a false and a misleading document, and it serves only one purpose and we all know what that purpose was.
So let's talk about its substance.
Boiling it down, the report really focuses on 2 fundamental issues, how we describe our investment performance and Burford's liquidity insolvency. And I'm going to cover both of those and then John is going to talk in more detail about some of the other issues. When we talk about investment performance, we have said all of this to you and to the market before. And we've said it over and over again. We've said it in disclosure documents and we've been saying it for a number of years.
We engage in 2 different kinds of reporting of investment performance. First, we provide IFRS compliant financials as of course we must. Those financials are audited each year by Ernst and Young. They have received clean audit opinions ever since our inception. And IFRS financials, as you all know, require us to use a fair value system of accounting for our assets just as investors fair value their own assets.
We also separately provide cash based investment performance information and we do that for the sake of greater transparency and so that you as shareholders and as investors can look at the business in the same way that we do. We don't manage the business on an IFRS basis. We manage it on a cash basis. We've said that repeatedly. And so we provide these two ways of looking at investment performance.
Both of them have been consistent for years in the policies that we apply. We have been transparent in our disclosure documents about what those policies are. And the simple reality is that we have been doing this for long enough. This is Burford's 10th anniversary now that if there was some aberration in the way that we apply those rules, it would by now have become clear. And the simple fact of the matter is that there is not.
The simple fact of the matter is that the way that we report investments is consistent and is transparent. And you have seen over time and in response to investor requests, continued increases in that transparency, culminating most recently in an enormous amount of data that we make available on our website to anyone who would like to see it that gives line by line investment performance about our investments. Now what that data has done is it has allowed somebody with bad motives to come and to attempt to pick out to cherry pick a few examples and try and make a case about that. First of all, we're going to show you factually why those examples don't in fact make the case that they're supposed to support. And more broadly, we're going to remind you that they are a tiny portion of Burford's overall investment population.
There has been a fair bit of noise made by this report and following in the press about the first use case that the report tries to take advantage of. And that's with respect to an investment that we made in a company called NAPO Pharmaceuticals. And really, more than anything else, what this shows you is how effective innuendo without any underlying facts could be. It's certainly true that Invesco, one of the world's largest investment managers, was an equity holder in both Burford and in Napa. But those investments were held in different funds at Invesco with different managers.
Our investment in NAPO, which was a traditional litigation finance investment in the United States, it did not originate with Invesco, and instead it originated through normal litigation finance channels in the United States. That investment that we made in NAPO supporting a piece of important business litigation for this biotech firm Also got cut off along the way in some corporate restructuring that went on in the business. The reality, the true facts here are that Burford took advantage of those various restructurings as a way of improving our position in our investments. And John is on the line. John was personally involved in many of these restructurings and renegotiations.
He's able to answer any questions that any of you have about this. But the reality is when we took advantage of our position, we were probably actually doing so at Invesco's expense, Invesco being an equity holder and Burford being a secured creditor. Ultimately, we reached what we thought was quite a successful resolution. We extracted all of our principal in cash from our investment and a small profit, although that took some time and was hard work for us. And we were able to get a significant piece of the company's equity as well.
That equity could have been valuable and we had high hopes for it. It is equity after all that relates to an already approved drug by the FDA. But so far that equity hasn't performed. This is a relatively unusual situation for us. It's not very common for us to have assets instead of cash when we make investments and get recoveries.
And so we have nonetheless been managing this investment just like we would any other. On our IFRS financials, we have been marking to market the stock that we received every period. And ultimately, in our concluded investment table, we decided that the stock was unlikely to have the value that we originally ascribed to it. And so we reduced it and we disclosed the fact that we had done so and all of those citations are in the report. So while trying to make some headlines in this overheated market by putting the names of Woodford and Investment into the Spotlight, there's nothing here.
Just as there is not anything supporting any of the other investment performance factual allegations made in the report. Let me turn to liquidity and insolvency. This is an entire red herring. Burford has around $400,000,000 in cash right now. We have good visibility into our cash outflows.
We always disclose and we did just a couple of weeks ago what those expected outflows are in any period. And right now, they are less than half of our outstanding commitments. And less than half, it doesn't mean 49.9%. Those are also things over which we have quite a bit of control and quite a bit of visibility. And on top of all of that, we have access to multiple capital sources to continue to grow the business as we've shown not only with our consistent use of the debt markets, but also with our innovative transaction with the Sovereign Wealth Fund last year and with what is now a significant family of investment funds.
The prospect that we are insolvent as alleged in the report is patently ridiculous. Let's unpack the claim that the report makes. To get to that conclusion, it has to ignore a number of relevant things. You need to ignore cash. You need to ignore management fee income.
You need to assume that we won't have any more investment realizations. You need to assume that we will deploy all of our outstanding commitments right away, even though we've disclosed a level well below half of that. And you'd have to have all of our laddered long term debt It doesn't even start maturing until 2022 and runs to 2026. You'd have to have all of that come due today. That's the math that the report does on its final page to conclude that we are insolvent.
It's simply not true. We couldn't be happier with the operating position of the business today. We are the market leader in a rapidly growing industry, and we look forward to continuing to lead that industry for many years to come with the support of our investors. With that, let me turn it over to John for some more remarks.
Thanks, Chris, and thanks to all of you for getting on, on short notice. I'm very sorry for the shareholders who have been victimized by this and lost value, particularly the ones who sold into a declining market the last couple of days and those of you who mark to market and see losses. But I can tell you for me and the team, the long term prospects for Burford are quite promising. And I'm very bullish on this company and there's no validity to anything in the report. I woke up yesterday morning to read it knowing that there was no smoking gun.
I have my finger on the pulse of this business and reading it, sure enough, saw that there was filled with falsehoods and misleading statements. And I guess I should point out that many of you don't hear from me that often. I speak to shareholders twice a year on investment calls, most recently just a few weeks ago, because Chris and I have purposely protected me from the time it takes for shareholder relations, so I can focus on the investment portfolio and the investment process and team. And so I'm going to turn in a moment to the attacks on our concluded investments table. But it's worth pointing out that concluded investments table is investments over the last decade that we've made and concluded that I have presided over personally.
I supervise the team that underwrites those investments. I'm involved in every pipeline and portfolio call. I see every time cash comes into or goes out of the business. And it's important given the discussions about corporate governance. I want to emphasize that we take shareholder concerns seriously and so far as I want to be sure that all of you, our shareholders have the same confidence in the business that I do and be as transparent as possible with you because the business is quite sound and we have to communicate that and make sure that we have governance in place that you can see that.
I do not have any personal relationship with either Chris, our CEO or Elizabeth O'Connell, our CFO, very good working professional relationship, as well as with the other members of the senior management team of Evil Will in New York, Craig Arnott in London and people in Chicago, London and throughout the world. But we're not that big a business that I still am involved in every investment decision. And once we've made an investment in the monitoring and harvesting of cash from those investments. So that's by way of background. I do want to address the 7 attacks on our concluded investments table.
They're really it's not possible. We go through in the report and address each of the 7 in detail and show why they are false and misleading. But it's really not possible to have 7 different discrete problems with what is basically a very simple exercise. Our concluded investments table has 2 components to There is the cash we put out and there are the proceeds we get back in. And we purposely make sure and have since 2012 that you, our shareholders get to see for concluded investments those two things by vintage, by individual investment and for the portfolio as a whole, because if we compare the cash that goes out, the cost of an investment and the proceeds that come in, then you know what the return on invested capital was for that investment.
And if you take into account timing, you also get the IRR. And it's a fairly simple exercise and very straightforward. There's not complicated accounting to do with it. So how is it that this report amasses 7 attacks on that very simple straightforward document that we include in every annual report and provide an even greater detail on our website. There really aren't 7 complaints here.
And I invite you all, I hope you have the time to read our rebuttal in detail. But for those who haven't yet or want a kind of cue on how to read it, they really boil down to 2. There's only 2 inputs. There's the cost and there's the revenues. And if you break it down, the 7 points they make, 4 of them deal with revenues or I should say proceeds as opposed to an accounting, right, the proceeds that come in, 4 deal with the proceeds and 3 deal with the cost.
On the proceeds side, 12 Chris just commented on the napo matter, but criticism 1 is napo, 2 is about Gray. Those are attacks on how we calculate proceeds because in a limited number of cases and they identify I think 3 total out of we've had more than $1,000,000,000 recovery over a decade, but where we had proceeds other than cash. In gray, in addition to getting cash, we received a note secured by real estate in Arizona. In Napo, in addition to getting cash, we received stock in a publicly traded company. On our balance sheet now, we point out there is less than $1,000,000 worth of proceeds that are non cash proceeds from cases.
It's not a relevant metric and it's perfectly transparent the way we've handled this. The second two parts, there's 4 attacks on the revenue side. The second are points 56 where they are complaining that there are litigation matters that have suffered a setback perhaps before finality that we haven't included in the concluding investments table. They mentioned the pro gas case in 5 and some others in 6. We are very transparent that the only things we include in the concluded investments table are investments when there is no more litigation ongoing.
If there is an appeal pending, if there's been a negative development, we will write it down for IFRS purposes and therefore our income statement will reflect that, but it doesn't go on our concluded investments table till the litigation is concluded. And because we have experienced numerous times where you have a setback early and it's turned around and it turns up being a profitable investment. So we've been very transparent that the costs are what the costs go out, the proceeds come in and we only count them in the concluding investment table when the proceeds come in and the litigation has concluded. On the cost side, I don't want to spend too much time on it. One of the things they say, one of the 3 is just a regurgitation of something we had addressed a few weeks ago on our investor call about the idea of partial resolutions.
It's nonsense. It's misleading the way they're saying it and you can read about it there. I won't repeat myself. The other 2, they talk with respect to the GKC investment or purchase and that's 0.3 and 0 point 7, which is the they're basically saying they want us in the concluded investments table not only to include the cost, the cash that goes out to an investment, but also some capitalized share of our overhead, either the goodwill of the GKC we purchased or the overhead of our business. But that's not what the concluded investments table is intended to do.
If you want to measure our profitability on an accounting basis, comparing our costs for a period with the revenues that have come in from prior investments that you can do. But the concluding investments table is there so that you, our shareholders, can monitor, measure and evaluate what I and my team are doing and have been doing for a decade of litigation investment. You can look at we pick a case, we invest cash in that case, the case resolves, we receive proceeds, how did we do, What was our return on invested capital on the cash that went into that investment? What was our IRR on that investment? And you can do it in an aggregate basis by looking at all of them together.
So I think these seven things boil down to an effort to deceive shareholders on something that's quite straightforward. There's no deception at all. We're perfectly transparent. I'm very proud of our track record and I'm pleased with where we are in the market and happy with our portfolio and very bullish. And there's nothing in this report that would give me any pause and I'm very happy to answer questions about any of it.
So I will turn it back over to Chris or open up for questions as we deem set.
Yes. Thanks, John. So I think we are going to now go ahead and take your questions. And as I said at the outset, we're prepared to do that for quite a long time today. I do just want to leave you though with that with the overall point where we started.
We've been doing this for 10 years. In that 10 year period, we built a market leading business in a rapidly growing asset class. We've done that, as John said, with a strong focus on issues like governance and transparency. We are, after all, a firm run by lawyers. This is not just something that we call the lawyers in to do.
This is actually these are actually things that are in our DNA. We know what it looks like when companies don't do the right thing. That's part of what we do every day for a living. And we have deliberately built a business that has high standards and high principles around these issues. To be attacked like this for sheer financial gain or sheer short term financial gain on the backs of investors, many of whom have been with us for years, is deeply distressing to us.
And you have our commitment that we will do everything in our power both to redress this wrong for you and also to continue to drive the performance of this business forward as best as we're able. And with that, let's go to your questions.
You. Our first question today comes from Mike White from Arden. Mike, please go ahead.
Hi, there. Thanks. I was just wondering what is the cash value of the litigation assets on the balance sheet at the moment? I saw on Page 19 of the MoneyWaters report, they suggested 654,000,000 dollars and then the fair value markup was 135%. This doesn't seem correct to me on initial inspection, but I just wanted to get your thoughts on that please.
Hi, Mike. It's Elizabeth.
Go ahead. Yes, go ahead Elizabeth.
Okay, sure. Mike, I'll take that question. On Page 9 of our interim results, we have our full investment performance table. And on that table, you'll see at the bottom of it, your total ongoing investments and you do see a cost of $654,000,000 So that's where Buddy Waters gets that. In the investments portfolio as well, you have complex our complex strategies business as well.
So we have an aggregate amount. But in terms of just core Litfin investments, the cost of those ongoing investments is 654,000,000 dollars When you look at there and I should add, when you look at the table that they have and just for folks, let me just find that table. The table that they have that Mike's addressing is on Page 19 of the report. Their fair value markup of carrying value, it's actually that is a the percentage that they're showing is actually versus cash costs. The carrying values are in fact, as of H1, 2019, fair value change is 52% of the carrying value of the core litigation investment portfolio.
So, I think that the overarching point here and in many, many of the places in this report is transparency. We provide an extraordinary amount of data that permits you to analyze the business however you like. If you think the right way to look at the business is only with respect to cash costs of litigation investments already deployed, that's your affair and you can do it from the financial information that we've always given you. We don't think that's the right way to look at the business. And the market has the market and analysts have agreed with us about that historically.
But the point I think being is that you certainly have the option should you choose to elect that.
Great. Thank you.
Our next question comes from
the line of Julien Roberts from Jefferies. Julien, please go ahead. Hi there. I've got 2 questions, if I may. The first one is, again, on the fair value point more generally.
The one case that you've disclosed very clearly how fair value has progressed over time is the Teyns Verre case. Can we take that to be broadly representative of how you look at cases throughout the core litigation portfolio? And the second question is, do you think that the event for the last couple of days will mean that you provide different or increased detail or more frequent market communication in future?
Thanks, Julian. So yes, let me I'll just start with them and John, you can chime in if there's something that I haven't reached that you'd like to add. So in reverse order, Julian, the way that we have as many of you know, the way that we've always organized investor disclosure is by taking feedback from investors about what kind of disclosure and additional information they would like to have. And you've seen us collect that feedback from you in the past and you've seen us adapt our disclosures and expand our disclosures in response to it. That's an iterative process with us.
This is a relatively new industry. We are the market leader not only in terms of the industry itself, but also in the transparency of our data. And we are delighted to consider incremental disclosure requests from investors as time passes. Although candidly, I'm not quite sure how much more detail we could provide in addition to the investment data chart that many of you already find you need magnifying glasses to scrutinize, but we're certainly open to the conversation and always have been. On TENVIR, I think the short answer to TENVIR is that it was an excellent example of how the fair value process works.
When there are multiple points in the litigation or arbitration matter, where there are cognizable events, definite events by a court or tribunal that can affect value. And so from that perspective, 10 Veer is a good representative example of how the fair value process works. However, in many of our investments, there aren't that many or sometimes any of those intermediate points along the way. And the result of that is that in many of our investments, there's actually no fair value change until we get all the way to the end of the investment and have a realization, because there hasn't been the kind of objective event that satisfies the valuation policy to make a change. John, did you want to add anything else?
I was just going to add that the reason that the TENVIR is a good example for in those cases where as Chris says, there has been some fair value adjustment as opposed to the ones where the case resolves before there's been any, is that the formula which we follow provides that there's never going to be close to a full fair value fair value adjustment up to the level of our entitlement until the ultimate resolution and conclusion. It's always going to be a partial fair value adjustment for a portion of the profit we're entitled to upon conclusion. And therefore, there is always, you might say dry powder left when the case concludes profitably.
Thank you. That's very helpful.
Next question comes from Andrew Sheppard Baron from Peel Hunt. Andrew, please go ahead.
Good afternoon. Thank you. The I've got several questions, but I'll limit it to 3, if I may. The first one is you've given return on capital, excluding Petersen, in your statement today. Could you tell us what the IRR would be cumulative to date, excluding Petersen?
And by the way, second part of that question is, are you going to give us more guidance as to what Petersen is in the books for? 2nd question, it's very difficult. You talk about cash accounting, and cash accounting is a great way, a great alternative way to look at the business. But it's very difficult to reconcile the core investment table with the cash flow statement, I. E, for example, last year, if I just take the year on year change, you recovered about $255,000,000 of core investment.
But if I look in the cash flow table, I'm seeing a number of $520,000,000 for realizations. Could you go some way towards reconciling that, please? And thirdly, for me is in terms of IRR, can you just tell us what the average collection period is from the date of legal resolution that you've experienced in the last couple of years? Thank you.
So, Andrew, let me start on a couple of those and then turn it over to Elizabeth. The point that I wanted to make about giving you more guidance about Petersen's carrying value, that is something we have talked extensively about before. And the reality of the situation is that while investments are ongoing, while there is active litigation ongoing, the view is that the information that would be transmitted by revealing individual investment fair values constitutes attorney work product and is not publicly disclosable because it gives away effectively the lawyers' views about what's going on in the case and how it's going, which is why in a situation like Tenveer, you saw us come and give the fair value history of Tenveer after it had concluded, but not while the investment was ongoing. And with that, I'll turn you over to Elizabeth.
Okay. And I guess I can talk about the cash flow statement. And Andrew, I agree. Our cash flow statement is challenging because it's on a consolidated basis. And when we move to having to consolidate third party interests in our accounts, we started to create a cash bridge in our slide presentations for investors to pick out what was going on for just the Burford investments.
So in the interim presentation on Slide 13 and in the annual 2018 annual slide presentation on Slide 33, those cash bridges are just for Burford only cash moves and excludes 3rd party interests that are muddying up the cash flow statement.
But they don't have €255,000,000 in them. They have cash generation, cash flow from operations, which one can't identify anywhere either. So I'm not sure that they help.
I guess I'm going to say we do have OpEx and in the notes what we do try to do for you, note 7 and others break out what the consolidated entity is and what the Burford only entity is. So you can see realizations just for the Burford balance sheet as opposed to the consolidated piece.
Okay. I mean, I personally think that further reporting could be useful there.
Well, Andrew,
I think the point to
be made yes, but I think the point to be made here that's why we do, do further reporting. So what you have on an IFRS basis is, number 1, you're looking at consolidated statements. And as Elizabeth said, those consolidated statements include the fact that we are required to consolidate several of our large investment funds. And so that introduces a degree of noise into the numbers that we then have to go and back out for you in separate tables. And number 2, those numbers include things in addition to our core litigation finance business.
So for example, they include fund flows in our complex strategies business. And our complex strategies business, we're excited about and we've written extensively about the opportunity that we see there, but it's a different business than core litigation finance. It has a different set of return characteristics. It's an IRR based business instead of a return on invested capital business. And right now, in the IFRS accounts, those numbers are together.
Complex Strategy has not risen to the level of justifying its own accounting segment at the moment. And so as a result, what we do instead is we also give you the investment by investment detail on a cash basis so that you can see very clearly what's going on just in the core litigation finance business. Okay.
And the IRR without Peterson, sorry.
Yes, sure. And on your final question, no, we have not provided that data and we can look into that for sure. And I don't And just so it's clear in terms of the IRR calculations, just so it's clear for everybody, we that is cash in and cash out across the entire portfolio. It's not an average of what the IRRs are per investment. And so it is a long model that runs through the cash that is moving in and out of the business to generate our IRRs.
Okay, great. Thanks. And just sort of the collection period question, apologies.
I guess I'll take that.
I don't think that we really Yes,
really, we don't keep track of that specific metric and it's really hard to say. When a case settles, you often get the cash in a matter of days, weeks, maybe it could be months. When a case concludes by trial and then appeal, it depends if there's a bond posted, you get paid as soon as the appeal is concluded. It really varies from matter to matter.
Okay. Thank
you. And
just to add to that, Julian, as you think about it, as you've been tracking the business for a number of years now, when you look at the receivables balance, it spiked certainly at the interims this year, but it's been quite low over the past couple of years. And that's an indication of what's happening in terms of when I say receivables, I mean from due from settlement from investments. So you can see that we're actually getting the cash in as opposed to having it sit on the balance sheet.
Okay. Thank you.
As a receivable.
Our next question comes from the line of Thomas Raman. Thomas, please go ahead.
Yes, hi there. I've got sort of a few points that I'd like to raise, some of them have already raised before, but nevertheless, I look to raise it. First of all, this is a very complex company. I'm a sort of very qualified individual, very, very qualified and it did take me a number of years as well to fully understand this business. So is this business being marketed to the right people, I.
E, is it market to retail investors who want retail bonds, etcetera, etcetera? My first sort of point is, is it the right kind of people who should be buying this given how complex this business is to understand. I don't know the answer to that, but what's happened this week kind of it makes me want to reassess. In relation to that, I then question whether the listing is appropriate. I mean, yes, AIM, but then another one, just perception is much greater than reality and the perception of the AIM is a lot riskier than the reality.
So it makes it easier for short attacks to kind of scare the market, not only with the bond, sorry, but the equity share, but also with the bond. So that's a kind of high level, something to kind of go away and think away. I don't know the answer to that. But what I think could help, just a few points, is on your concluded investments, if you could sort of yes, I understand it is very simple to all of us are very highly qualified, but something that could maybe add to it is maybe just highlight what is the cash received like and what are the non cash received items? So whether it's another excuse me, whether it's another asterisk beside it or some other note beside it?
And then the other point on that concluded investment is whether it's been fully received so it's in the bank account or whether it's still to be received and maybe some kind of comments as to when it will be received? Because I know you talked about concluded investments being due in the future, etcetera, within your accounting, within a note, but it's very kind of hidden and not on this sort of main page as people look at. The next thing was your cash flow, although it's very detailed, I think it still could any additional where you kind of seek investor feedback could be further expanded. So within your cash flow statement, there is no further or additional notes to the following. Proceeds from litigation investments, proceeds from new initiative investments, funding of litigation investments, funding of new initiative investment.
I understand it, but I don't have other markets which is to understand it. And then how that relates to your Note 7 with proceeds received? That would be greater kind of additional color as to the cash flow movement of the company itself and could give investors a better understanding as to how cash flow sort of moves between the business? And then my final point is, you kind of have a very silent period between July March and that can cause a lot of nervousness in the market as well. So whether you put something in between there, that would be great.
And then it's just not it would be nice if in terms of this week has been very stressful for all of us. So kind of sort of allude to the fact that if there is concern that you can sort of take action, then that would be sort of great as well to kind of not for this to happen again. Thank you very much.
Well, thank you very much for those comments and questions. And let me say just a few things about them. First, on the various financial disclosure and related suggestions that you've made, We will certainly add those to the list and take them under advisement. I would echo Elizabeth's emphasis though on the cash bridge, which we have deliberately designed as a version of something to accompany the cash flow statement because of its inscrutability sometimes to people. And we'll continue to see what more we can do to make that investor friendly.
On concluded investments and cash, I would just make the note, and this is an important point I think that there is if you if the only thing that you do is sit down and read the Muddy Waters report, you're sort of left with this sensation that all of these investments are quite peculiar and their cash comes in later or there are assets that need to be monetized or so on. And as John has already said, that's actually not at all the case. By far, most of what we do is straight cash that is received when litigation settles. And it's relatively unusual for us to have these instances where there are either non cash matters going on. In fact, we only have one at the moment that is well less than $1,000,000 or even where there is cash as opposed to assets, but that cash may be received at some point in the future.
And that represents only about 4% of our investment recoveries. So I don't want you to get the impression that this is a large issue for us. Mostly like most litigation, this is a cash business. And then I do just want to touch on the listing because it's a question that we get a lot. And as you will have noted, it's something that we talked about at our Capital Markets Day in November.
It's something that we wrote about in both the annual report and again in the interim report. And it's something that I'm happy to address here too. What we have said and what we're doing is we are actively exploring the question of whether the business should have a second listing in the United States on a market like NASDAQ or the New York Stock Exchange. And the reason for that consideration is that there is obviously a deep pool of investment capital in the United States and it's our largest market. And so we're giving that some serious consideration.
There is, I think, an incorrect assumption out there that being a large company on AIM and then moving to the main market would cause differences in disclosure. And in terms of the investment disclosure that we make, there would be no difference whatsoever. Our disclosure is entirely compliant with what we would be putting out if we were on the main market. So while I acknowledge that there is sometimes a perception about smaller companies on AIM, we don't today see a particular benefit in migrating the business from AIM simply to the main market. But as I said, we are actively exploring the question of a second U.
S. Listing. So thank you very much.
Our next question comes from the line of Neil Welch from Macquarie. Neil, please go ahead.
Hi, Chris or John, I think this is probably 4. On 0.4 in your reply, which I guess is also replying in order to the points raised by Muddy Waters. In that area, they address a filing of a suit in Dubai in relation to that case. You have dealt very clearly on the Graves case in relation to the counterclaim there. But if I misread, forgive me the description in here, I wonder whether you wish to make any comment about the factual nature of that comment in terms of the 0.4?
Well, I think the short answer is that we regard it as a nuisance matter of the kind that arises with some regularity in asset, especially in asset recovery matters. So as we've said before in our disclosure, when you're trying to separate people from their assets, they tend not to be happy about that. And so it's as I said, it's not all that uncommon for these kinds of collateral claims to be made. John, did I cut you off? No, that was actually all I was going to
say that we do perceive it as completely a nuisance. And our affirmative litigation in that case is the main event, and that's what we're continuing to pursue.
Thank you. That's very helpful. The second thing is that if I'm right in saying at this stage, your average period to conclusion for a case at the moment is 1 point 7 years. I think that was what was recorded at 1eightnineteen. I am recalling that.
And that presumably is the average you receive. How would we apply that in terms of understanding your expectation of cash to come off your existing investments, particularly in the light of move of the portfolio, the overall portfolio to a greater degree of portfolio finance. Is there anything that you could assist us with on that, please?
I'm happy to take that to start, Chris. Sure. I'm sure we have always said that the difficult thing to predict in this business is when any individual matter will resolve. That's why when we make investments, we price them in such a way that we're content to have them run the distance and that usually means higher returns on invested capital, but potentially it leads to a lower IRR or to have them settle quite quickly, in which case we have high IRR, but they usually settle at a discount, so the return on invested capital won't be as high. That's what we do at the front end when we make the investment.
And then over the course of our decade in business, we have experienced that actually the portfolio plays out with a smattering of all of those. Some conclude early with settlements, some conclude later with judgments. And it's as much a question of the defendant's ability to see the case the way we do and understand what the value is and try to settle at a discount earlier versus holding out in which case it resolves later. So we've always resisted making predictions about when any particular matter will conclude. Now I realize you're asking a question that based on our experience, would we be willing to make predictions with respect to how a portfolio, the whole portfolio will conclude.
And we've even said with respect to that, that we don't want to read the change any changes in duration or in ROIC from one period to the next as a sign that there's a migration or a change. It could just be the happenstance of whether during a particular period we had some things that resolved early or we had some things that had been outstanding for a long time that resolved. So I guess it would be easy enough for you to do the math based on our past resolutions and past ROICs and apply that to the existing portfolio. But I don't think I have a better sense of it than you would on that particular front on the timing. Chris, did you have something that I cut you off with?
I would just yes, I would just say, Neil, that the we've actually sort of done that math already for you, at least historically. And so if you look at Slide 26 of the full year investor deck, the full year 2018 investor deck, What you'll see there is that we broke out resolutions by whether they were settlements or whether they were adjudications. And we showed the relative IRRs and ROICs for each of those two situations. And you see, as John suggested, quite a stark distinction. When matters settle, they do so fairly rapidly.
And as a result, they have quite high IRRs, but their ROICs are somewhat lower because, of course, settlements involve taking discounts. And it's often the case that not all of our capital has been deployed by the time the case settles. Adjudications on the other hand take longer and as a result have lower IRRs, but they have ROICs that are about 3 times as high as settlements because you eliminate the need to take that discount and we tend to deploy more capital. So if you look at the universe sort of split into those two categories, that gives you some insight into timing as well.
Very helpful. Thank you very much.
Next question comes from Justin Bates from Canaccord. Justin, please go ahead.
Good afternoon, everybody. Thank you for taking my questions. If I could just cover off on 3 points, please. Firstly, on commitments, could you just remind us what the total balance sheet commitments are? What the maturity profile of those outflows will look like?
So the outflows in H2 2019 and then 2020. And that's for the those existing commitments rather than any new business. Secondly, just covering off on cash, you updated that you were at $400,000,000 on your announcement yesterday. Could you that seems to be an additional $100,000,000 to what was disclosed at the interim stage. So if you could provide a bit more color on the nature, especially at the additional €100,000,000 dollars has that come back through realizations?
And if it's a gross number, so there are any disbursements
that are due
from that? And then finally, you mentioned that there's no intention for an equity raising. And I think also in relation to debt in the past, you've mentioned that you're quite cautious putting any too much leverage into the business because of the lack of visibility on realizations. So could you just perhaps help us understand what your appetite might be for further leverage and what that would be governed by in relation to covenants such as debt to equity and interest cover? Thank you.
Sure. Why don't I start with debt and Elizabeth can pick on the financial questions. So in terms of debt, we sat at the end of June 2019 at 0.3x net debt to equity. That is a lower level than we've been at sometimes. And we're certainly comfortable increasing that level.
What we've said historically is that we don't want to run this as a leverage strategy in the sense that we don't think that this is the right business to put 2 or 3 times debt on just as a way of trying to increase returns. But we certainly view debt as an appropriate part of the capital structure. And we've been pretty candid, both in the annual report and the interim report and then our calls after those releases that we were certainly considering the addition of some incremental debt to the balance sheet as a way of financing future growth. At the same time, we also look to other sources of financing future growth as well. And we've obviously been very successful in raising capital from private fund investors and with our new sovereign wealth fund arrangement.
So that's sort of where we're thinking about in terms of the balance sheet capital structure. And Elizabeth, please go ahead on the other questions.
Sure. And Justin, I think you're talking about our undeployed commitments that's from Note 20 in our interim results. And that figure presently for the balance sheet stands at $770,000,000 And we say in the note that we anticipate less than 50% to be drawn down over the next 12 months on that balance. So less than $385,000,000 to be drawn down over the next 12 months. And then your other question was on cash and how our cash came up.
And you'll recall, on our balance sheet, the reconciled balance sheet, which is on Page 17 of our interim report, you'll see that there are a couple of large items in current assets, both due from settlements of investments and receivables and payments and cash has come in both those categories.
Okay. Thank you very much. Could I just rewind to the debt question just to if you could give us a bit of a feel for the sort of absolute level of appetite. I mean, you mentioned 0.3 times, Chris. Is it a doubling of that level you would feel comfortable at or less?
Just some sort of idea would be helpful.
It's not just an issue that we've had to contend with. In other words, the business hasn't yet faced the need to articulate a maximum level of leverage because we've never taken on very much leverage. Our highest leverage level, if I remember right, was something like 0.42 times or something. And so you would be very unlikely to see us overnight going and exploding the leverage profile of this business. We tend to do these things incrementally, not explosively.
But I don't have a number to guide to right now because it's not something we've needed to do.
Okay, understood. Thank you very much.
The next question comes from Trevor Griffiths from NPS 1stinger. Please go ahead, Trevor.
Yes. Good afternoon. If I heard Elizabeth correctly, the answer to the first question, I think you said that fair value marks represent 52% of the carrying value of investments at the half year end, which is slightly higher than I thought it was. But and if that's correct, then cash cost of those investments is 48% of the total, which suggests to me that fair value marks 108% markup on cost. And in the context of your achieved returns over time, typically with a near 2 year duration.
I just wondered whether there were some sort of special factors boosting that at the moment or whether you are recognizing quite a lot in that number?
Well, let me take the first part of that question, Trevor, and pick out the figures. And then I can let Chris talk about the fair value overall of the business. The number that I was talking about was specifically related. It was in response to page the table on Page 19 of the report that is looking at just core litigation finance, and it pulled out complex strategies. If you look at the entire investment balance, the fair value uplift of the total $1,600,000,000 of investment is 45%, not 52%.
But it is 52% if you're just looking at core litigation finance.
Right. Okay. Which would suggest an 82% markup on cost, 45 over 55.
And I will and Chris, do you want to just talk about the increasing balance of credit card assets?
Yes, sure. So Trevor, look, it's no secret that Petersen has an effect here. We have while I said earlier that attorney work product precludes us from giving individual asset specific numbers, we've certainly been clear that as the market value of Petersen has gone up, that's caused changes in our carrying value of it as well. And Petersen is a very unusual situation for us. Not only is it a potentially large and successful investment, but we've seen now a number of secondary sales at significantly increasing value, which I think is enormously good news for Burford and its shareholders because it's suggesting that a whole pool of sophisticated institutional investors, as many as 40 now have bought interest in Petersen, have independently reviewed Petersen and concluded that it's a very valuable and desirable asset.
But in most of our fair value write ups, what I'll call the traditional piece of litigation like Tenveer, what you see is fair value sort of matching the timing contours of the piece of litigation. So nothing much happens in litigation for a while and there's no fair value change. And then only if the case is sort of coming closer to the end, do you start getting changes in the litigation and you start getting objective events in the court that warrant changes in valuation, which is why you've seen that chart from us before that shows that a bulk of the fair value write ups happened in the last 12 months of an investment's life. Petersen, of course, is an exception to that because Petersen is still obviously ongoing in litigation. But at the same time, an input to our fair value process is the secondary sale marks.
It's not necessarily something that is the only determinant of value, but it's certainly an input. And so there's no question that Petersen's presence there is torquing the total amount of fair value in the assets and we've made no secret of that. It's not as though we are taking the entire, what I'll call the entire conventional litigation portfolio and writing it up massively at the moment. In fact, many of our existing litigation investments have no write ups in them at all.
Okay. Thanks very much. And whilst everybody's giving you their shopping list of additional disclosures, could I possibly repeat that my request that in the investments note, which is usually Note 7, that you split out the gross movements up and down at the fair value movements, which you've been quoting net of transfers to realizations, because I think it would help people understand things.
Okay. We will note it as well. Thanks, Trevor. Okay. Thanks very much.
The next question comes from James Follows from LGT Vistra. James, please go ahead.
Afternoon, everybody. Thank you very much for taking the call. Good to hear at the very start of the call that cofounders have bought $4,000,000 worth of stock this afternoon. I'm very interested to learn if you are happy to disclose, very interested to learn what your thinking is in terms of the company potentially buying back stock. If you could band your answer in percentage or dollar terms, that would be great.
If you feel that you can't at this point disclose what figures have been discussed, then perhaps you could tell me what the maximum is that you are currently permitted to buy under the rules? Second to that, and this is final question from me. 2nd to that, I note with interest your willingness to entertain an expanded number of executives
of directors
from obviously the current 4. Could you give some indication please of what you think the new look board would look like numerically?
Sure. So in terms of the company engaging in a share buyback, what we said in the rebuttal is pretty much all I have to say at the moment, which is that the Board is considering the question, consistent with the question of relative share price and investment value. The issue of course for us is on the one hand, when you see the shares go down this far in a business that we all believe strongly in the prospect of, you're inspired to consider it as an investment alternative. On the other hand, when you are producing the kind of return that we are on our litigation investments with cash, that's a powerful investment alternative as well. And so I think that what is happening here is that the Board is, as we say, considering the matter, waiting to see how the market settles out before reaching a determination on which of the investment alternatives effectively should be rewarded with its cash.
And I don't have so I don't have any sort of bounds to put around that, although if memory serves, and don't quote me on this, but it's obviously a public record matter. My recollection is that we have the standard shareholder approved annual Board Authority buyback, which I think is 5%. But again, it's the piece of paper is on our website. And in terms of the Board, what we said and what we were trying to convey was that the Board has been listening to investors and indeed the Chairman, Peter Middleton has been speaking to and has met with some investors and discussed issues around Board succession and planning and overall governance of the company. And I think the Board is open to continuing to hear feedback from investors.
The line in our report today was more about the prospect that in the relatively near term, we suspect well, we believe that one of our existing directors is likely to retire from the Board and be replaced. But that was our meaning as opposed to suggesting that we were expanding its size at the moment.
Okay, understood. Many thanks.
Our next question comes from Mike Brooks from Aberdeen Standard. Mike, please go ahead.
Hi, Chris.
Yes, a couple of different questions from different angles. So one of them is, let's start with market listing and board aspects. And one that we have engaged you before and is potentially having a main market listing. And I think just the urging I would give you is in considering whether to move to my market listing and also whether to list the sea to fully engage with shareholders and taking views that we certainly think it would be helpful to have UK corporate governance code overseeing what you're doing. And so that's something that we'd urge you to do and we'd be keen to input on that and understand what the pros and cons of different options there.
The second point is, I mean, there's implication in the Muddy Waters report that you're being aggressive in marking up ongoing cases. Now you've always talked about being conservative with your valuations. And I just wonder if it would be it would probably be helpful if you could provide some color on that. So for example, if we look at concluded cases where you've made a profit, then how many instances have there been where you've marked up a case and then it's actually settled for less than what you've marked it up for? I'm hoping that number will be relatively low and that would support your view of conservative valuations.
And one minor point of detail, I mean, there's a lot of mudslinging in the Muddy Waters report. And one thing that seems sensational, is it suggesting that the Nantucket subsidiary has the same address as Invesco. We just some simple Googling suggested to us that Nantucket's address was in Guernsey. So if you could just confirm that as well, because again, these things all add up to paint the view.
Sure. Thanks, Mike, for this question. So let me take them in reverse order. On the Nantucket subsidiary issue, we have actually investigated that, as you might imagine, following the publication of Muddy Waters report. And the document that is being referred to here is an SEC filing that is produced by the company, in other words, by NAPO or Jaguar in this case, that lists its principal investors and that document is filed with the SEC.
It's not a document that either Burford or Invesco prepares to my understanding. And what we believe occurred is nothing more in one iteration only of this document, nothing more than a typographical error in which it looks like Jaguar repeated the address in more than one of the filing fields. And if you were to examine all of the other iterations of that same document, and there have been many SEC filings made about Nantucket's interest in Jaguar, you would not find the Invesco address repeated. So I think that goes down as a pure typographical error. But if I could just add a footnote and you quite rightly said, you called it paint and I call it smoke, this is a great example to me of misleading innuendo.
So clearly, when Muddy Waters did this report, they looked at all of these filings. They footnoted more than one of them, if I recall correctly. So they looked at all of these filings. They knew that the address was the proper address in all the rest of them. Anyone looking at the first filing would have realized probably that it was a typographical error or some clerical error.
But nonetheless, they chose to try to make something of that when there's nothing to be made. And I think that's true not only in this case, but in many, many of the smaller factual allegations that we have on orally called out here. So that's the Nantucket story. In terms of marking up cases and fair value, so first of all, the short answer to your question is it is very unusual for us to have the situation that you have experienced that you commented on that where we write something up and then it turns around and we lose the case. The time you could imagine it happening though is when the trial judge in a case issues a very positive decision before the trial starts And then the case goes to trial and the jury rejects the plaintiff's claim and the case loses.
So that's an example of where that could occur with the vagaries of litigation. But as I said earlier, the reality and what happens with these fair value markups is that there has to be an underlying objective event for us to change for value. And so it's not as though it's sentiment based by us. We have to demonstrate and the auditors audit a process where we're looking for objective evidence of a change in the litigation's actual activity. And so we don't believe that these are aggressive marks.
And finally, you asked about the main market. And just before I go there, let me correct my answer to the prior question about a share buyback. I am informed that I am wrong and that it's 10%, not 5%. So I appreciate that.
So on the issue of
the main market, I think this is something that we are absolutely happy to talk more to investors about. And it's absolutely happy we're absolutely happy to take investors' feedback into account. At the same time, we try when we make investment decisions and when we deploy capital, we try to be rigorous and data driven and intensive in the investment decisions that we make. We don't make litigation investment decisions swayed by sentiment and we don't simply look at the book take the book by its color. So the challenge that we have had when considering a move to the main market is that it's expensive and we it's burdensome in terms of some of the non financial aspects of it.
And we're not entirely clear of the benefit other than possibly at a moment like this, it might make people feel any better. There's nothing that is aim specific about the short attack. Muddy Waters could have written exactly the same report and done exactly the same trading and engaged in exactly the same market manipulation on the main market as it could have on paying. And so it's absolutely something that we'll continue to talk to investors about. But at the same time, in all of the exploration that we've done of this question, it's not entirely clear to me that there is a cogent tangible benefit to be gained.
We do, as I said earlier, think that there may be a tangible benefit to be gained by a second listing in the United States. And I explained earlier the reasons for that. But this is an evolving discussion, as it has been for some time. And I think it's something we'll continue to talk to people about.
Can I add another question? Actually, there's obviously some insinuation there about changes in senior financial positions over time. Can you provide any more color on that just to kind of wrap
up that? Yes.
The financial positions listed, for the most part, were not the CFO position of the public company. So as those of you who have been with Burford for some time know, Burford at a public level didn't have a person with the title CFO. And Elizabeth, who has been with Burford since its founding, performed many of those functions and many of you have known her in that role for some years. We it was simply Burford was a small company and we didn't feel the need to have to throw around that many titles. We just went ahead and got the work done.
We did hire for a brief period Miriam Knoll, who really was a terrific spirited accounting manager from one of the insurance companies and she ran a process whereby we in sourced, if you will, our finance function. And after she completed that, she with that under her belt went back to the insurance industry in a significantly more senior position than she left us. The other people listed in the Money Waters report were divisional level, not public company level people. And so we have really continued on with Elizabeth in that role. Finally, and frankly, somewhat perversely bowing to market enthusiasm for giving Elizabeth the title, which we did a couple of years ago, which for some period of time seems to make everybody happy that now we had formally named a CFO and people have worked with Elizabeth for years.
And now, in response to criticism like this, it seems to be making people less happy because of her long relationship with me. And it's something that we, again, continue to be happy to talk with investors about.
Our next question comes from Alex Hanasihad from Morgan Stanley. Alex, please go ahead.
Just a question around kind of expectation of cases and inflows around those cases.
Are you able to give kind
of any timeline on key hearings that could lead to settlements in the I guess in the coming months? Just trying to understand how the actual inflows could evolve over the short term?
Obviously So I'll let John comment on that. Sure. I'll let John comment on that, but it's
Yes, the gist is, as
I said before, it's very hard to predict the timing of when things will conclude. But it's hard enough, though, not as difficult to predict when something might go to trial. Things can get rescheduled or postponed or you could get things accelerated. That's somewhat capable of prediction, but the timing of settlements is the part that's hard to predict. As I mean, I think we reported part of the reason that June 30, we had a bunch of cash that was due that came in, in the 6 weeks since then, is that we just happen to have a couple of things resolved through settlement at that point and the cash came in afterward.
So it's pretty tough to telegraph the timing of when those inflows will come. The best thing I can say is referring to our past track record, right. The concluded case chart, which talks about ROCs also talks about IRRs. And you can look at our performance that basically year in, year out, we've been in terms of how we've grown the business and the cash flow chart or ladder that we've included that Elizabeth has added to our annual reports and we did at the Investor Day, talks about how we are taking money that comes in from prior period investments. We use that money to fund the future investments and she shows how much of it's coming from that and how much comes from additional capital raises.
Over the course of our history, we've started to provide that. It's very hard to say that there's any particular matter or group of matters that's going to resolve and generate cash in any period. That's sort of from 1 6 month period to the next 6 month period. The timing is not predictable, but we're very comfortable with the soundness of the portfolio and in fact very excited with what we have in it and we think they're going to produce good returns as they have in the past.
Our next question comes from Rory Alexander from M&G Investments. Rory, please
go ahead. Hi, good afternoon, everyone. I've got two questions, please. Firstly, I'm sure you've all been very busy forming your rebuttal to Muddy Waters, but just whether you've spoken to any key clients, I. E.
Legal firms or sort of sources of capital, I. E, the Sovereign Wealth Fund, which you have a relationship with and just what they're saying and just what sort of faith they're giving to you about ongoing business? And then second is just and apologize if I pronounce this wrong, but just the Akhmedov case. I suppose, is one of the ones that just caught my attention. And it seems like private litigation or personal litigation rather than corporate litigation, just how that came about?
It was just one that surprised me that it was there at all. Thank you.
Chris, I'm happy to take 1st and third in terms of client relationships in Akhenov and I'll leave you for the second. So on the client relationships, yes, we have been in touch with law firms in particular, who we've got long standing relationships with. They rely on us for capital. They understand this for what it is. There are some circumstances in which the Muddy Waters report has reported on a case that a law firm we have an ongoing relationship with was involved in litigating.
And so they were very quick to call up and say, oh my God, this is so inaccurate, right? This is completely false and fabricated. But generally, the law firms that we work with and corporate clients understand this for what it is. They've worked with us enough to know that we are an outstanding transparent company that we've delivered what we've promised and they expect us to continue doing so. Just a note on the Ocwenov case, we definitely do take into account the question you raised about personal litigation.
We do not invest historically in personal litigation that's not financial over a business relationship. The reason in this case that we made this investment is once the matter has concluded and there is a judgment, in this case there was a U. K. Court judgment for a fixed amount of money, all that was required here was the enforcement of a UK judgment. And so that's I think other than that, I'd say it's ongoing litigation and I won't talk about the details.
But there is a distinction we draw between the final judgment of a UK court that's being enforced in other jurisdictions requiring them to respect the jurisdiction of UK courts versus being involved in a substantive dispute in a family matter? Chris, do you want to there was another question about sources of capital and potential related Oh, sorry.
Yes. No, I think in the sort of 24 or so hours since this has come out, I think we have at least I have largely been focused on public investors and on rebutting the spurious claims made in the report. I think those kinds of discussions will happen down the road.
Next question comes from Jamie Donald from Liberum. Jamie, please go ahead.
Thank you. I just wanted to ask a bit more of a general question. There have obviously been a lot of comments in terms of the long term sustainability of your returns. I completely agree that excluding your best investments doesn't make any sense. But could do you have any comments in terms of your outlook for returns over the long term, both in terms of IRR and return on invested capital and also the impact of the asset recovery and complex strategies on this?
Thank you.
Sure. And I'm sure that go ahead, John.
Well, all I was going
to say is, as we've said in the past, we think the best prediction for how the future will be is the performance of the past portfolio and we haven't been willing to make projections. You've seen that the band of the IRRs hasn't moved that much over time. The ROIC has, but we think that could be a question just of the timing to conclusion if you have some longer dated higher return matters that will happen. But we don't really provide future projections either about what our revenues will be in a particular period or what our how the IRR or ROIC figures might move from one period to another rather than to give you the 10 year history? Chris, you had wanted to
No, no, that was fine. Thanks.
Okay. Thank
you. The next question comes from Pierluigi Valini from Credit Suisse. Pierluigi, please go ahead.
Thank you. I have three questions on your outstanding investment commitments of EUR 751,000,000 as of the first half. The first question is this. I understand your funding obligations are generally capped at a fixed amount. So could you just explain whether the 751,000,000 corresponds to, so to speak, the overall value of this capped amount?
Or is it a measure of your more realistic expectation of your investment outlays? That's the first question. The second question is whether it is related to the EUR 363,000,000 of your own balance sheet commitments. So if I understand, if you could just clarify whether my understanding is correct. This should be this is meant to represent the investments that are meant to be the investment commitments that you will have to meet with your own liquidity, present or future, without a corresponding ability to call on 3rd party capital.
So if you just cannot explain whether that is correct. The third question is, if you you mentioned that the terms of your investment agreements vary widely. Some of them give you broad discretion on how and when to meet these commitments. Others are more restrictive in nature and carry penalties. I was wondering if there's a number that you could share with us in terms of and this is for a purely hypothetical scenario.
So if in a purely hypothetical scenario, you were to decide to walk away, not on a restructure, however, partially renegotiate the EUR 363,000,000 of investment commitment from your own balance sheet. Is there a number of overall penalties you would incur as a result that you can share with us? Thank you.
Sure. So why don't I start with that last question and then ask Elizabeth to take the others. So the structure of our agreements, there are lots of variations, but they tend to break down into 2 sort of broad concepts. One is and this doesn't include times when we are monetizing an investment, for example, where all of our capital is going out at closing. So we do have some of those deals where somebody will bring out something, we'll deploy our entire commitment the day the deal closes and we'll have no further funding obligations.
But those obviously will not see in undrawn commitments. So undrawn commitments really take a couple of forms. One is when they are tied to known existing pieces of litigation and where our capital tends to be related to the cost, the ongoing costs of that litigation. And in that event, we tend to provide capital as the litigation proceeds as you would imagine. And the question you're asking as to those is what happens when if we were to come along and say halfway through the case, well, we're not going to finance this anymore.
The risk associated with that is not so much a question of penalties. It's a question of what happens to the case and what happens to our asset value in the case. And so it's not something that we could sort of put down in a table because there are some cases if we were to do that and I realize you're talking about a purely hypothetical situation. There are some cases if we were to do that, the corporate client would presumably step in
and just continue on down
the road paying unhappily itself. And we have a fight later about what kind of entitlement, if any, we'd get from the capital we'd already invested. The other kinds of cases though are cases where there may not be the financial ability to do that, for example, in an insolvency situation. And so the fact that we stopped financing unless we arranged for somebody else to step in, which is probably what we would do, could mean that the case simply doesn't proceed any longer and our investment doesn't have any further value. But as I say, it's very much a hypothetical because that's not how that's not what would happen in reality.
In reality, there would be other people who would be happy to step into investments that we've made. In fact, we are we have a significant number of people who regularly would like to step into investments that we've made. And then the other kind and this is an important point when it comes to undrawn commitment. The other kind of undrawn commitment we have is where we have entered into an arrangement with a client, be it a law firm or a corporate client to engage in building a portfolio of litigation matters together. And there, we don't have any particularized obligation.
We have made we've entered into an agreement with the law firm that we'll finance cases that they find, for example, that we believe are meritorious and worthy of financing. And so we'll go off down the road together. But the extent the speed and certainty of doing that is much more flexible. If we were to say to a law firm that we've got one of those arrangements, but, well, gee, we don't want to do this anymore, that would be relationship destroying. It might even be a breach of contract, but it's not something it's not as though there's a case sitting there waiting to be financed.
So, there's quite a lot of theoretical flexibility, although it obviously wouldn't be good for the business to draw on that flexibility. And with that, Elizabeth?
Sure. And just to bring you back to the numbers that you asked about undrawn commitments and whether those are balance sheet numbers or can we draw on 3rd party capital. I'm going to bring you back to Note 20, in the first half interim results that's on Page 46. And in that note, in the 4th paragraph of that note, we pick apart what is only for the balance sheet. And again, when you look at the balance sheet undrawn commitments, it's $770,000,000 outstanding right now.
We anticipate less than 50% of those to be drawn over the next 12 months. And it's because of what Chris just described in terms of our investments, why we're able to even make that statement of any part of our business in terms of cash use and cash inflows. This is the one place where we actually have a decent ability to predict the timing of the outflows because the capital is going out over the time period of the underlying litigation and litigation tends to follow a certain pattern. So we have a reasonable estimate of consolidated funds.
The next question is from David Glynn. David, please go ahead.
Good afternoon. A few points, please. First of all, one of the points in the Muddy Waters report is they make a big issue about the core litigation fair value markup. And they say like how come it's gone up so much from €1,590,000,000 to €1,770,000,000 from the year end of 2018 to the interim. I mean, can I just suggest, because I don't think you've specifically addressed that, I mean, could I suggest myself that is the answer perhaps largely because of the Petersen settlement?
And also because I think you did disclose in the interim report that there's been a lot of progress in a few large matters. That would be the first point. And the next point would be, are you going to do a more extensive sort of line by line rebuttal of the Muddy Waters report, just pointing out further errors and so on, that would perhaps be helpful. And also on a separate note, now there's been obviously a lot of talk about how a lot of returns came from Petersen case. And perhaps that is any regular event.
Now are you able to tell us, are there any other cases which you presently have or which are in the same sort of league as Peterson, which could produce similar returns? And if not, what are the prospects of getting such a case in the near future? And finally, a point which I'm not clear, has been clearly addressed in your rebuttal. The Muddy Waters report makes a big issue about realized net realizations and realizations, how they say you're confusing 2 different things and you sometimes mean one thing, you sometimes mean another thing. Is that true?
Are there 2 different meanings? The one was and when you say dilations, I think in one of your website pages, you say it refers to the markup from the fair value. And that sort of suggesting, well, no, the realizations or the net realizations at least relate to the initial capital cost. So what is the case here? Are you mixing the 2?
Are they 2 different things? Could you provide some clarity on that,
please? Sure. So let me try a couple of those and I suspect both John and Elizabeth may chime in on that. Let me do your last question first. This issue from our perspective is an attempt to sow confusion where none exists.
We have been perfectly clear about how our IFRS fair value accounting works historically. It hasn't changed. And the simple answer to the question is, when we ultimately have an investment that produces a realized gain, we take that realized gain as realized gain. And if there has been prior unrealized gain associated with that investment, that prior unrealized gain is unwound. And the reason that happens as the Muddy Waters report itself admits is that otherwise you would have double counting.
This isn't a methodology that we invented. It's a methodology provided for an IFRS. It's a little clunky if you ask me personally, but it is what it is. And it's the same way that we have done it for a long time. So I think that the suggestion in the report that there's anything untoward or mischievous there is not well founded.
The question about are there other Petersons in there, is Petersen in a regular event. What I'd say to that is that it is often difficult to tell at the beginning of a piece of litigation what's going to happen and whether it's going to be particularly profitable for us or not. And let's take a slightly different case called 10 beer. 10 beer is a case that we resolved over the last couple of years at a very, very substantial profit. When we started off with Timberland, it is a case that we probably imagined was more likely to settle.
The facts were very strong. We thought it would settle and we thought it might settle very rapidly. And if that had occurred, it would have been a perfectly fine investment for us. We would have made a nice profit on it. But it wouldn't have been anything of any great significance for us.
Whereas because Tengger did not settle and litigated for years and used all of our capital and then lost completely before the arbitration tribunal, which issued a multi $100,000,000 award against it. Tenveer turned out to be a very profitable case for us, where we ultimately recovered $107,000,000 on an investment in the low double digit. And so predicting that in advance is difficult. We have a large diversified portfolio of litigation investments and history suggests that some of those investments will not settle and will go on to win and produce substantial adjudications. And the reason that we take umbrage at the occasional suggestion that people should look at our returns without Petersen or without Petersen and 10 beer or what Muddy Waters does, which is to say, well, you should look at their returns without their 4 largest cases.
That to us is just foolishness. This business is about combining the outsized returns available on those large wins with a significant number of other cases that settle and therefore produce lesser returns. That's the business model. It's not all that dissimilar from a venture capital model and it's not all that dissimilar from saying to a venture capital firm, well, we're going to lop off the 2 that really went well. And we're going to then see what's going on in your business.
And that's just not the model. If you didn't think that there were going to be those couple of big investments, you wouldn't probably invest in the fund in the first place. So that's the real nature of the business. And so will there be another big case in our future that produces interesting returns like Petersen? We certainly hope so.
And part of what we do is continue to talk to law firms and other sources to do just that. With that and by the way, are we going to produce a more extensive rebuttal? I think we're waiting for feedback from shareholders. From our perspective, the report was so riddled with falsehood that we believe our rebuttal has effectively knocked it on the head. If there is a further desire for incremental clarity on issues that we see on a groundswell basis, then we will certainly be happy to do more.
But I'm not sure at the moment that it frankly deserves all that much more. Elizabeth, do you want to take anything else or have I covered all of those? John?
Well, I don't know. John,
did you have something before I go?
I think you've pretty much covered it. I think the beginning of the question was just the end of June looked good and it was a good 6 months.
I think that was the only thing
that occurred to me. It was period where we didn't have any losses. We had progress in cases and we had resolutions. And while we can never, as I say, time what any particular 6 month period will deliver, we can look back and say that was a good one.
And I might then just run through for the benefit of the listeners, just 10 VERIT, just so that people understand how we account for this, both on our income statement, our P and L and on our balance sheet, because I think both of those are important. And in our May 30, 2019, RNS when we announced that the annulment was rejected and there was a success for Burford and we were recognizing now further the $7,000,000 put income. We walked through these figures as well. So you can look on in that R and S to get that. But this investment dates back to 2010.
We had total deployed costs on the investment of $13,000,000 There was a tribunal award issued in July of 2017. And in our year end 2017 financials, we wrote up that asset. And I should say before the tribunal award came out, we were holding the asset at $30,000,000 $13,000,000 of cost and $17,000,000 of fair value. At the when the tribunal awards got released, we did write up the asset again to a total holdings value of $69,000,000 which included $56,000,000 in fair value and $13,000,000 of cost. In March 2018, we sold that investment for a total of $107,000,000 $7,000,000 of which was for the put.
And so in our 2018 financials, we recognized the $100,000,000 in the sale and kept the put on the balance sheet. The effect of that was that we had a $31,000,000 income going to the P and L. Let me walk you through that math. And that's what's really critical here. You've turned to Note 7 of our interim results, you can follow these lines.
We had a realization of $100,000,000 That's the $100,000,000 sale that we recognized. We had a net realized gain of $87,000,000 that's the $100,000,000 of sale less the cost of the investments of $13,000,000 and we had a fair value movement of negative 56 the carrying the fair value carrying value that we had at the end of 2017. But the important thing here is the whether it was realized or unrealized, the net P and L impact was $31,000,000 because we had already recognized $56,000,000 through the P and L in fair value adjustments in previous periods. And that is spelled out in that May 30 R and M, that analysis.
The next question comes from Craig Dean from Cambridge. Craig, please go ahead.
Hi, guys. Thanks for making yourselves available. And I'm sure it was a very challenging time both for you and for the rest of the company and I know shareholders. I wanted to just make a couple quick comments and then ask 2 questions. One was just related to Trevor, his earlier request to get both gross and net fair value.
That's something that we would like to see as well as shareholders. Second comment would just be the acquisition of shares today, while positive, is small in the context of what was sold last March and also, just the thought that perhaps acting for the company first in the form of a buyback ahead of acting for individuals may be something to consider. And I'm sure one is just easier and faster from a regulatory and compliance perspective, but those two comments I want to make. And then my first question was with the goal of simplicity, I'm looking to corroborate the cash duration of investment And I'm not here to dispute whether or not you're good at litigation investing in litigation finance. I don't think that's up for dispute.
But how can I corroborate the cash duration of your investments with the cash flow statement? And then my second question is just, if you believe that the market's perception of your book value has gone from very conservative when it was 5 times book 3.5 years ago, but today where or yesterday where it traded at half book, Now the market believes that your balance sheet is overstated in terms of the litigation finance asset values. Your thoughts around how to frame how probably neither of those values was the correct multiple of book value, but just help us make sure that we believe that we should see your balance sheet as conservatively marked versus aggressively marked? Thanks.
Thanks, Craig. So let's talk about book value first. We have said for quite a long time that we don't think that book value is actually the right metric on which to value Burford. And if you look at the analysts out there, there's certainly not any consensus that it is. So we think that Burford needs to be examined through a different prism than asset book value.
And that includes the simple fact that we have built the market leading player in what is clearly by any objective standard a rapidly growing and expanding industry. And the reason that industry is rapidly expanding is because the legal industry itself, which is probably the largest industry left in the world that doesn't make active use of external capital, is starting to and we are right there on the front lines enabling the legal industry to help do that. So we mean what we say when we talk about how we run the business. We run the business largely on a cash basis. We look at returns.
We look at the investment quality, we look at the terms that we're getting and we look at our expenses. So the fact of the matter is the balance sheet is affected obviously not only by the cash carrying value investments that haven't had any valuation changes, but then what those valuation changes are. And from our perspective, nothing much has changed. We have a larger perspective larger portfolio today of litigation assets that are progressing through the litigation process. And so it's not surprising that the amount of fair value in actual terms is going up, which is a good thing because we don't have a significant history of having those assets be marked up and then ultimately losing money on.
It's not that it never does or never could happen for the reasons that I enunciated earlier, but it's certainly not common that it happens. And so my own personal view, but obviously, you're the investors and ultimately it's up to you to figure out how you want to value the company. My own personal view is that simply looking at IFRS book value of the business doesn't complete the story. When you asked about the cash duration of cash flow, how you reconcile cash duration of investment assets with the cash flow statement, they're not trying to tell you the same thing is the simple answer. And it's again the reason that we produce the investment data in the 1st place.
The IFRS statements are going to give you accounting based measures, which don't necessarily reflect time based measures, whereas you can easily tell from the investment data table what the cash duration of any investment is just by looking at the IRR and the ROIC. So that's sort of where we those are sort of our general thoughts about those issues. On the question of buying shares, of John and I purchasing shares right away, I think a couple of things. Number 1, we did so both out of desire to do so, but also in response to advice from advisors. That advice from advisors was unequivocal about doing that.
I think there is while we have certainly considered the question of a share buyback, I think there is also a further layer of consideration for the company that doesn't exist for John and for me, which is the relative choices of the application of capital that would be used for a share buyback. And we certainly noted your endorsement of Trevor's request.
The next question is from Barry Norris from Argonaut. Barry, please go ahead.
Good afternoon, everyone, and thank you for the opportunity to ask some questions. First question, so you've got gross cash of $400,000,000 Just wondered what is the surplus cash over and above commitment that could be used for a buyback? Second question, in the interest of transparency, can you say who the Sovereign Wealth Fund is that you have third party funding from? And then finally, just in terms of the purchase of 123,000 shares today, How should we view that in terms of previous share sales and undisclosed remuneration?
So, the in no particular order, we're not able, as we've said before, to disclose the identity of the Sovereign Wealth Fund. That's at their request. And that is I think has a fair bit to do with the fact that litigation as an asset class is something that people continue to be anxious about. Nobody likes litigation. So that's not something that's in our hands.
Your question about gross cash and surplus of commitments, for the reasons that I gave in sort of a long diatribe earlier that I don't think probably I should repeat at this juncture, isn't really capable of being answered. Elizabeth gave you the numbers that are in Note 20 to the financials about what our currently outstanding commitments are and the sort of the maximum potential drawdown of those commitments over a 12 month period. But as I explained, there's quite a lot of flux in that number. It's not as though we're estimating that to be the drawdown. Rather, we're guiding that no more than that would be likely to be able to be drawn down really under any circumstances.
So matching that number to gross cash, which by the way would also ignore the fact that this business on a regular basis produces cash in the door, is not something that's just a mathematical exercise. And finally, as to the purchases of stock that both John and I made and the share number that you gave was just mine. John and I for historical reasons going all the way back to the IPO had a slight disparity in our respective holdings. And so John, in addition to the shares that I bought, John bought some 350,000 more shares. So we have a total of about 474,000 shares purchased by the 2 of us today.
And that's obviously, as we said at the outset of the call, a multimillion dollar purchase on short notice.
Next question comes from Graeme Burch. Graeme, please go ahead.
My question has actually been answered. It was about the share. Maybe one build on that is whether if it were possible to buy back shares and the Board agreed to that, what sort of timing might we look at?
I think we have not had a sufficient level of discussion with the Board to be able to answer that question at this moment. The certainly, Burford would have taken the view before 48 hours ago that it should not be buying back shares in the market and should be taking all of its cash and reinvesting it in new litigation finance opportunities given the returns that we're able to demonstrate there. Obviously, the share price has changed dramatically since then. It's not entirely clear to us what's going to happen in the coming days. Certainly, our hope is that the share price rebounds after today's event.
But the Board, I think, needs some time to consider the relative capital priorities and uses of capital.
Our next question comes from Aaron Ford. Aaron, please go ahead.
Thanks for
taking my question. Just a couple of things on two quick two topics. One is on the marks again and the marks leading up to realizations. And the second on the general success rate of your portfolio investments and individual claim investments. Back in I think it was last year, mid the half year report, you put out a slide in your investor presentation that was very helpful to indicate how much you marked up investments over time.
And you referred to this a little earlier in the call, whereby at a certain point, 1 year prior to realization, only 35% of the value of the of your income is based on the markups and that 65% of income from realizations never gets marked up. That seemed to be done on a portfolio basis. And I know we've talked a lot about these outsized cases. And certainly, everyone appreciates the idea that they're going to get some outsized cases. But those statistics are helpful if they're representative or if we can get an understanding.
For example, if all the cases are marked up to well over 100% of realization, but one large case offsets that because it becomes so large and those statistics aren't really helpful. So I'm wondering, could you re hit that figure that 65% of all your of the income in realizations isn't marked up until the actual realization. And only up to 35%, obviously, the difference between 65% 100%, 35% is marked up 1 year prior. And how that works sort of on a median or average basis as opposed to the entire historic income, it would be helpful to get a sense of what either if you have the exact number or roughly what that percent is on average across investments? And then the second topic was second question was, we get an idea of cash and that's again big outsized investments are going to offset some of the losses.
But a very key metric in litigation finance industry is the success rate. And you have mostly 2 primary businesses in the litigation funding business 2 primary, sorry, structures, 1 being the direct investment into a claim or a single claim and the other being a portfolio of claims. And obviously, the portfolio of claims, when they're cross collateralized, can have a much lower loss rate. So I'm wondering, could you give us an idea of your success rate, not on dollars, but on cases for individual claims in the last couple of years because your model obviously has evolved and your experience has improved last couple of years on single cases and your success rate on the portfolio of claims cases? So those are my two questions.
Thank you.
Thanks very much for those questions. Let me take a whack at them and my colleagues are certainly welcome to help me out if need be as I go. So to begin with, we'll certainly sort of add, if you will, to our running list of things that investors are interested to see in seeing. We'll certainly add those concepts to it and take it under advisement. I will tell you anecdotally, and John can certainly chime in on this.
Anecdotally, when we think about the regular pattern of litigation activity, As I said earlier, in a traditional piece of litigation, let's just take a random average piece of U. S. Litigation, not a lot happens for quite a while in the case. And so unless we took on a case where the question about whether it's going to survive a motion to dismiss was really the big issue. In most of those cases, you're not going to have a judicial event for quite some time in the litigation that would warrant any sort of fair value adjustment in either direction.
The case is just going to be puttering along and we're going to continue to hold at a cost. And so it is only toward as you start to get toward the end of that case that you start to get judicial orders, like for example, a summary judgment order that might actually impact the what we think the likely outcome is going to be and what the other parties will as well. And of course, what that often prompts is a renewed focus on settlement because if the judges come along and told you, gee, I think your case is full of holes, then the other side may well start to become more realistic about settling the case of paying some money. And that's why when you think about the chart that you were referring to, that's why you saw the predominance of fair value changes occurring through the last 12 months of litigation because cases are then either going to trial or they're in many cases settling. As I said earlier, the presence of Petersen will torque that somewhat for the reasons that we've already articulated.
And so we'll give some thought to what that all might actually do. And but it's certainly not the case because of that dynamic that I just described. It's certainly not the case that all or most of the cases in our portfolio have significant fair value write ups. In fact, it's the opposite. Many of the cases in our portfolio don't have any fair value changes because they haven't yet progressed through the litigation process to the point of justifying them.
John or Elizabeth, is there anything that you'd like to
add to that? I would only add and that's in particular, the cases that settle before summary judgment or sometimes just even the trial. There's a good chance that there's no write up at all, right. But you can imagine and that's why as Chris says, the write ups happen towards the end and there's always what I call dry powder before, but there's always upside beyond that from the ultimate conclusion of litigation. So that if you win a trial, there's a write up then, but it's only a partial write up and then there's an appeal or a settlement at which point you would you take you'd have to take it into the concluded investment table and it would be a realization.
Our next question comes from Stephen Act from Close Brothers Asset Management. Stephen, please go ahead.
Well, I just had two questions, please. Muddy Waters said that the case of Gray, they were suing you for $200,000,000 Was that actually incorrect? Was the first one and then
Okay. You want to give them both to us or one at a time?
Yes. And then second one, on the $770,000,000 of commitments, if for instance, if the board decided to do a big buyback and wanted to use your cash, could you actually use some of the 3rd party financing for that $770,000,000 so you could put that those commitments into the Sovereign Wealth JV for instance?
So and by the way, before we start answering this, we've been going for slightly over 2 hours now, and I'm told that people are dropping off and also that our time is soon to expire. So we're going to wrap up with this question unless I get other instructions from our moderator. And John knows Gray intimately and may well want to chime in here, but let me give you the fast answer on both of those and then we can go back to John for more on Gray. The fast answer on Gray is that Gray is disappointed with the outcome of his entire proceeding. Unfortunately, in the process for reasons unrelated to Burford, Gray went bankrupt.
And the land that he had been litigating to keep was taken from him in the bankruptcy court. He did file an action against Burford in Arizona. That action was stayed by the court, because it should have instead be brought in arbitration and there has been no activity since that, which happened quite a long time ago, there has been no activity to commence an arbitration proceeding. So there's nothing going on there at the moment. As to the potential to shift commitments to other sources of capital if we were inclined to do that.
I think the answer well, the answer under the documents is probably no in the sense that Burford as the fund manager and as a fiduciary to its private fund investors couldn't go along and say, well, gee, we'd like to do something different with our cash than we contemplated originally. So we're just going to put a whole lot more investments than we contracted with you into your fund. So no, I don't think that's a viable prospect. That being said, we've been clear that there is pretty significant demand for to give us capital out there in the market. The $300,000,000 fund that we raised just in December could have been much larger than that had we so wished.
And so circling back to where we started, we don't have any anxiety about the future of the business and being able to continue to access multiple sources of capital for our capital needs. That being said, our guiding principle when we think about the balance sheet is the interest of equity shareholders obviously. And equity shareholders make very good money indeed on the litigation finance investments that we make. And so when I was talking about a buyback earlier, I think the hard question for the Board to weigh here, while it's certainly going to consider the question, the hard question for the Board to weigh is, do you allocate money to buying back shares or do you allocate money to continuing to invest in these high return investments? We've been obviously in a trend towards keeping as many high return investments on the balance sheet as we've been able to finance.
And with that, and now that it's for those of you in London who have tirelessly stuck with us, it's 6 minutes after 5 o'clock and we've been going for more than 2 hours. John, Elizabeth and I, on behalf of the Board, all of the Burford team and all of our stakeholders really are very grateful to all of you for taking the time to join us today and for your continuing support of an interest in the company. We hope that we've managed through the combination of our rebuttal today and these couple of hours conversation to dispel the false illusions and misimpressions left by the Muddy Waters report. And we look forward to this business continuing to perform and continuing to have your confidence.