Thank you very much, and hello, everybody. Thank you all for joining us on quite short notice. We appreciate it. Jon 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 Jon and I have great confidence in Burford. We have shown that confidence by just going into the market today and purchasing almost $4 million in Burford stock to add to what were already significant holdings for us. 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 this conduct. Rather, we're going to focus instead on the falsehoods and simple errors in the report that you've seen. 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 misstatements in the report.
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. Let's talk about its substance. Boiling it down, the report really focuses on two fundamental issues: how we describe our investment performance and Burford's liquidity and solvency. 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 two different kinds of reporting of investment performance. First, we provide IFRS compliance financials, as of course we must.
Those financials are audited each year by Ernst & Young. They have received clean audit opinions ever since our inception. 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. We do that for the sake of greater transparency 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. 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.
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. 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. 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.
What that data has done is it has allowed somebody with bad motives to come and to attempt to cherry-pick a few examples and try and make a case about them. 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. 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 make advantage of, and that's with respect to an investment that we made in a company called Napo Pharmaceuticals. Really, more than anything else, what this shows you is how effective innuendo without any underlying facts can be.
It's certainly true that Invesco, one of the world's largest investment managers, was an equity holder in both Burford and in Napo. 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 U.S., it did not originate with Invesco. Instead, it originated through normal litigation finance channels in the U.S. That investment that we made in Napo supporting a piece of important business litigation for this biotech firm also got cut up 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 investment. John is on the line.
Jonathan was personally involved in many of these restructurings and renegotiations. He's able to answer any questions that any of you have about this. 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. 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. 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 subscribed 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. While trying to make some headlines in this overheated market by putting the names of Woodford and Invesco 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 million 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. Right now they are less than half of our outstanding commitments, and less than half doesn't mean 49.9%. Those are also things over which we have quite a bit of control and quite a bit of visibility.
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.
You'd have to have all of our laddered long-term debt that 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 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. 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 it was filled with falsehoods and misleading statements. 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. I'm going to turn in a moment to the attacks on our concluding investments table. It's worth pointing out that concluding 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. It's important given the discussions about corporate governance.
I want to emphasize that we take shareholder concerns seriously insofar 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 Aviva Will in New York, Craig Arnott in London, and people in Chicago, London, and throughout the world. We're not that big a business that I still am involved in every investment decision.
Once we've made an investment in the monitoring and harvesting of cash from those investments. That's by way of background. I do want to address the seven attacks on our concluded investments table. It's not possible. We go through in the report and address each of the seven in detail and show why they are false and misleading. It's really not possible to have seven different discrete problems with what is basically a very simple exercise. Our concluded investments table has two components to it. There is the cash we put out, and there are the proceeds we get back in. 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.
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. If you take into account timing, you also get the IRR. It's a fairly simple exercise and very straightforward. There's not complicated accounting to do with it. How is it that this report amasses seven attacks on that very simple, straightforward document that we include in every annual report and provide in even greater detail on our website? There really aren't seven 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 two. There's only two inputs.
There's the cost and there's the revenues. If you break it down, the seven points they make, four of them deal with revenues, or I should say proceeds as opposed to an accounting, right? The proceeds that come in. Four deal with the proceeds and three deal with the cost. On the proceeds side, one and two, Chris just commented on the Napo matter. Criticism one is Napo, two is about Gray. Those are attacks on how we calculate proceeds because in a limited number of cases, and they identify, I think, three total. We've had more than $1 billion of 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 million 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 four attacks on the revenue side. The second are points 5 and 6, where they are complaining that there are litigation matters that have suffered a setback, perhaps, before finality that we haven't included in the concluded investments table. They mentioned the ProGas case in five and some others in six. 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.
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 ends up being a profitable investment. We've been very transparent. The costs go out, the proceeds come in, and we only count them in the concluded investment table when the proceeds come in and the litigation is 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 three, is just a regurgitation of something I 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 two, they talk with respect to the GKC investment or purchase, that's point three and point seven. 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. That's not what the concluded investments table is intended to do. If you want to measure our profitability on an accounting basisComparing our costs for a period with the revenues that have come in from prior investments, that you can do. The concluded 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? You can do it on an aggregate basis by looking at all of them together. 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. There's nothing in this report that would give me any pause, and I'm very happy to answer questions about any of it.
I will turn it back over to Chris or open up for questions as we deem fit.
Yeah. Thanks, John. I think we are going to now go ahead and take your questions. 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 the overall point where we started. We've been doing this for 10 years. In that 10-year period, we've 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. 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.
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, for 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. With that, let's go to your questions.
If you would like to ask a question, please press star one on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star two. Whilst asking your question, please ensure that your telephone or audio device is not currently muted. 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 Muddy Waters report, they suggest it's $654 million, 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.
Yeah.
Hi, Mike, it's Elizabeth.
Go ahead.
Oh.
Yeah, go ahead, Elizabeth.
Okay. Sure. Mike, I'll take that question. On page nine of our interim results, we have our full investment performance table, and on that table, you'll see at the bottom of it, total ongoing investments, and you do see a cost of $654 million. That's where Muddy Waters gets that. In the investments portfolio as well, you have our complex strategies business as well. We have an aggregate amount, but in terms of just core lit fin investments, the cost of those ongoing investments is $654 million. When you look at there, and I should add, when you look at the table that they have, and 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, the % that they're showing is actually versus cash cost.
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.
I think the overarching point here, and in 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. The market and the analysts have agreed with us about that historically. The point I think being is that you certainly have the option should you choose to elect it.
Great. Thank you.
Our next question comes from line of Julian Roberts from Jefferies. Julian, please go ahead.
Hi there. I've got two 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 Teinver case. Can we take that to be broadly representative of how you look at cases throughout the core litigation portfolio? The second question is, do you think that the events of the last couple of days will mean that you provide different or increased detail or more frequent market communication in future?
I'm happy to take that.
So-
Thanks, Julian. Chris. Go on.
Yeah, I'll just start with them, and John, you can chime in if there's something that I-.
Sure
haven't briefly you'd like to add. In reverse order, Julian, 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. 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. 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.
We're certainly open to the conversation and always have been. On Teinver, I think the short answer to Teinver 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 a tribunal that can affect value. From that perspective, Teinver 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.
The result of that is that in many of our investments, there is actually no fair value change until we get all the way to the end of the investment and have a realization because there has not been the kind of objective event that satisfies the valuation policy to make a change. John, did you want to add anything there?
I was just going to add that the reason that Teinver 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 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. 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 Shepherd-Barron from Peel Hunt. Andrew, please go ahead.
Good afternoon. Thank you. I've got several questions, but I'll limit it to three, 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? 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? Second question, it's very difficult. You talk about cash accounting, cash accounting is a great alternative way to look at the business. 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 million of core investment. If I look in the cash flow table, I'm seeing a number of $520 million for realizations.
Could you go some way towards reconciling that, please? Thirdly from 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.
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. 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 lawyer's views about what's going on in the case and how it's going. Which is why in a situation like Teinver, you saw us come and give the fair value history of Teinver after it had concluded but not while the investment was ongoing. With that, I'll turn you over to Elizabeth.
Okay. I guess I can talk about the cash flow statement. Andrew, I agree, our cash flow statement is challenging because it's on a consolidated basis. When we moved 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 investment. In the interim presentation on slide 13 and in the 2018 annual slide presentation on slide 33, those cash bridges are just for Burford-only cash moves and excludes third-party interests that are muddying up the cash flow statement.
They don't have $255 million in them. They have cash flow from operations, which one can't identify anywhere either. I'm not sure that they help.
I guess I'm going to say we do have our packs and in the notes, what we do try to do for you, note seven and others break out what the consolidated entity is and what the Burford-only entity is. You can see realizations just for the Burford balance sheet as opposed to the consolidated piece.
Okay. I personally think that further reporting could be useful there.
Well, Andrew, I think the point to be made.
Yeah. I think the point to be made here is that that's why we do further reporting. What you have on an IFRS basis is, number one, 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. That introduces a degree of noise into the numbers that we then have to go and back out for you in separate tables. Number two, those numbers include things in addition to our core litigation finance business. For example, they include fund flows in our complex strategies business. 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. 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. 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. The IRR without Petersen.
And it-
Sorry.
Yeah. Sure. On your final question.
No, we have not provided that data. We can look into that for sure.
I'm sure you-
As you know, and just so it's clear, in terms of the IRR calculations, just so it's clear for everybody, that is cash in and cash out across the entire portfolio. It's not an average of what the IRRs are per investment. 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. Just sorry, that collection period question. Apologies.
I guess I'll take that.
I don't think that we really-
Yeah. 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.
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. It's been quite low over the past couple of years, that's an indication of what's happening in terms of, when I say receivables, I mean from due from settlement, from investments. 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. Yeah.
Our next question comes from the line of Thomas Raman. Thomas, please go ahead.
Yeah, hi there. I've got a few points that I'd like to raise. Some of them I've already raised before, but nevertheless, good opportunity to raise it. First of all, this is a very complex company. I am a sort of very qualified individual, very qualified, and it did take me a number of years as well to fully understand this business. Is this business being marketed to the right people? Is it marketed to retail investors who want retail bonds, et cetera? My first sort of point is this 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 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. The perception of the AIM is a lot riskier than the reality. It makes it easier for short attacks to kind of scare the market, not only with the fund, sorry, with the equity share, but also with the bonds. That's a kind of high level, something to kind of go away and think away. I don't know the answer to that. What I think could help, this is just a few points, is on your concluded investments, if you could sort of just I understand it is very simple to all of us are very highly qualified. 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.
Whether it's another, excuse me, whether it's another asterisk beside it or some other note beside it. 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 comment as to when it will be received. I know you talk about concluded investments being due in the future, et cetera, within your accounting, within a note, but it's very kind of hidden and not on this sort of main page which people look at. The next thing was, your cash flow, although it's very detailed, I think it still could, and this is where you kind of seek investor feedback, could be further expanded. Within your cash flow statement, there's 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 investments. I understand it. I don't know if other market participants understand it. How that relates to your note seven with proceeds received. That would need greater kind of additional color as to the cash flow movements of the company itself and could give investors a better understanding as to how cash flow sort of moves between the business. My final point is, you kind of have a very silent period between July and March, and that can cause a lot of nervousness in the market as well. Whether you put something in between there, that would be great. This week has been very stressful for all of us.
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. 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. 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 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. 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. 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 million.
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. 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. Then I do just want to touch on the listing because it's a question that we get a lot. 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. 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 U.S. on a market like NASDAQ or the New York Stock Exchange. The reason for that consideration is that there is obviously a deep pool of investment capital in the U.S., and it's our largest market. 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. 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.
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. As I said, we are actively exploring the question of a second U.S. listing. 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 for. On point four 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 Grays case in relation to the counterclaim there. If I've misread, forgive me, the description in here, I wonder whether you wish to make any comments about the factual nature of that comment in terms of point four.
Well, I think the short answer is that we regard it as a nuisance matter of the kind that arises with some regularity, especially in asset recovery matters. 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. 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. 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 1.7 years. I think that was what was recorded at 1819. I am recalling that. 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 the 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. 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. To have them settle quite quickly, in which case we have a 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. 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. We've even said with respect to that we don't want to read 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. 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. 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?
Yeah, I would just say, Neil, we've actually sort of done that math already for you, at least historically. 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. We showed the relative IRRs and ROICs for each of those two situations. 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. 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 three times as high as settlements, because you eliminate the need to take that discount, and we tend to deploy more capital. 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 three points, please. Firstly, on commitments, could you just remind us what the total balance sheet commitments are and what the maturity profile of those outflows will look like? The outflows in H2 2019 and then 2020, and that's for those existing commitments rather than any new business. Secondly, just covering off on cash, you updated that you were at $400 million on your announcement yesterday. That seems to be an additional $100 million to what was disclosed at the interim stage. If you could provide a bit more color on the nature, firstly of the additional $100 million. Has that come back through realizations? If it's a gross number, there are any disbursements that are due from that.
Finally, you've 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 re putting any too much leverage into the business because of the lack of visibility on realization. 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. Elizabeth can pick up on the financial questions. 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. 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 two or three times debt on just as a way of trying to increase returns. We certainly view debt as an appropriate part of the capital structure.
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. We've obviously been very successful in raising capital from private fund investors and with our new Sovereign Wealth Fund arrangement. That's sort of where we're thinking about in terms of the balance sheet capital structure. Elizabeth, please go ahead on the other questions.
Sure. Justin, I think you're talking about our undeployed commitments. That's from note 20 in our interim results. That figure presently for the balance sheet stands at $770 million. We say in the note that we anticipate less than 50% to be drawn down over the next 12 months on that balance. Less than $385 million to be drawn down over the next 12 months. Your other question was on cash and how our cash came up. 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 in both those categories.
Okay. Thank you very much. Could I just rewind to the debt question, just 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 will be helpful.
It's not, Justin, 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. 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. 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 Singer Capital Markets. Please go ahead, Trevor.
Yes, good afternoon. If I heard Elizabeth correctly 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. If that's correct, then cash cost of those investments is 48% of the total which suggests to me that fair value marks are 108% markup on cost. In the context of your achieved returns over time, typically with a near two-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, then pick out the figures. 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 the table on page 19 of the report that is looking at just core litigation finance, and it pulls out complex strategies. If you look at the entire investments balance, the fair value uplift of the total $1.6 billion of investments is 45%, not 52%. It is 52% if you're just looking at core litigation finance.
Right. Okay.
Yeah
would suggest an 82% markup on cost, 45 over 55.
Right. Chris, do you want to just talk about-
Yes
the increasing-
Sure
balance of fair value assets?
Yeah, sure. Trevor, look, it's no secret that Petersen has an effect here. 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. 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 interests in Petersen, have independently reviewed Petersen and concluded that it's a very valuable and desirable asset.
In most of our fair value write-ups, in what I'll call the traditional piece of litigation like Teinver, what you see is fair value sort of matching the timing contours of the piece of litigation. Nothing much happens in litigation for a while, and there's no fair value change, and then only as 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. 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. 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 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. Whilst everybody's giving you their shopping list of additional disclosures, could I possibly repeat my request that in the investments note, which is usually note seven, that you split out the gross movements up and down of 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 Vestra. 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 co-founders have bought $4 million 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 bound your answer, in % or dollar terms, that'd be great. If you feel that you can't, at this point, disclose what figures have been discussed, perhaps you could tell me what the maximum is that you are currently permitted to buy under the rules. Second to that, this is final question from me. Second to that, I note with interest your willingness to entertain an expanded number of executive of directors from obviously the current four.
Could you give some indication, please, of what you think the new look board would look like numerically?
Sure. 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 relevant 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 prospects 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.
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. 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%. Again, the piece of paper is on our website.
In terms of the board, what we said and what we were trying to convey was that the board has been listening to investors, indeed, the Chairman, Sir 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. 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. 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. Yeah, a couple of different questions from different angles. One of them is, let's start with market listing and board aspects, and one we have engaged you before and is potentially having a main market listing. I think just the urging I would give you is in considering whether to move to a main market listing and also whether to list overseas to fully engage with shareholders and take in views that we certainly think it would be helpful to have U.K. Corporate Governance Code overseeing what you're doing. 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. Second point is, there's implication in the Muddy Waters report that you're being aggressive in marking up ongoing cases.
You've always talked about being conservative with your valuations. I just wonder if it would probably be helpful if you could provide some color on that. 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 would be relatively low, that would support your view of conservative valuations. One minor point of detail, there's a lot of mudslinging in the Muddy Waters report, one thing that seems sensational is it's suggesting that the Nantucket subsidiary has the same address as Invesco. Some simple googling suggested to us that Nantucket's address was in Guernsey.
If you could just confirm that as well, because again, these things all add up to paint the view.
Sure. Thanks, Mike, for those questions. 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 the Muddy Waters report. 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. 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.
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. I think that goes down as a pure typographical error. 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. 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. 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.
Nonetheless, they chose to try to make something of that when there's nothing to be made. I think that's true not only in this case but in many of the smaller factual allegations that we haven't orally called out here. That's the Nantucket story. In terms of marking up cases and fair value. 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 off 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.
That's an example of where that could occur with the vagaries of litigation. 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 fair value. 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. We don't believe that these are aggressive marks. Finally, you asked about the main market. 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%. I appreciate that.
On the issue of the main market, I think this is something that we are absolutely happy to talk more to investors about. 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. We don't simply take the book by its color. The challenge that we have had when considering a move to the main market is that it's expensive, and it's burdensome in terms of some of the non-financial aspects of it. 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 this 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 AIM. It's absolutely something that we'll continue to talk to investors about. 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. I explained earlier the reasons for that. This is an evolving discussion as it has been for some time. 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 rebut that?
Yeah. The financial positions listed for the most part were not the CFO position of the public company. 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. 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. It was simply Burford was a small company, and we didn't feel the need 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 insourced, if you will, our finance function. After she completed that, with that under her belt, went back to the insurance industry in a significantly more senior position than she'd left it. The other people listed in the Muddy Waters report were divisional level, not public company level people. 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 seemed to make everybody happy that now we had formally named a CFO, and people had worked with Elizabeth for years.
Now, in response to criticism like this, it seems to be making people less happy because of her long relationship with me. It's something that we, again, continue to be happy to talk with investors about.
Our next question comes from Alex Sherwood 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 coming months? Just trying to understand how the actual inflows could evolve over the short term.
I'll let John comment on that.
Sure.
I'll let John comment on that.
The gist is, as I said before, it's very hard to predict the timing of when things will conclude. 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 think we reported part of the reason that June 30th, we had a bunch of cash that was due, that came in the six weeks since then, is that we just happened to have a couple of things resolved through settlement at that point, and the cash came in afterward. 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 ROIC, also talks about IRR. 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 one 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 is, 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 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. Then second is just, and apologize if I pronounce this wrong, but just the Akhmedov case. I suppose it's 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,
take the first and third in terms of client relationships in Akhmedov, and I'll leave you for the second. On the client relationships, yes, we have been in touch with law firms in particular who we've got longstanding 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. They were very quick to call up and say, "Oh my God, this is so inaccurate." Right. "This is completely false and fabricated." 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 upstanding, transparent company, that we've delivered what we've promised, and they expect us to continue doing so. Just a note on the Akhmedov 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 a 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 U.K. judgment. I think other than that, I'd say it's ongoing litigation, and I won't talk about the details. There is a distinction we draw between a final judgment of a U.K. court that's being enforced in other jurisdictions, requiring them to respect the jurisdiction of U.K. courts versus being involved in a substantive dispute in a family matter. Chris, there was another question about sources of capital and potential relations.
Oh, sorry. Yeah.
-with investors.
Yeah, 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. 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-
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. 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. We don't really provide future projections either about what our revenues will be in a particular period or how the IRR or ROIC figures might move from one period to another other than to give you the 10-year history. Chris, you had wanted to.
No, that was something.
Okay, thank you.
The next question comes from Pierluigi Vallini from Credit Suisse. Pierluigi, please go ahead.
Thank you. I have three questions on your outstanding investment commitments of $751 million as of the first half. The first question is this. I understand your funding obligations are generally capped at a fixed amount. Could you just explain whether the $751 million corresponds to, so to speak, the overall value of these capped amounts? Or is it a measure of your more realistic expectation of your investment outlays? That's the first question. The second question is related to the $363 million of your own balance sheet commitments. If I understand, if you could just clarify whether my understanding is correct. 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 third-party capital.
If you just can help me explain whether that is correct. The third question is, you mentioned that the terms of your investment agreements vary widely. Some of them give you broad discussion 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. If in a purely hypothetical scenario, you were to decide to walk away, not honor, restructure, or however, partly renegotiate the $363 million of investment commitments 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. Why don't I start with that last question and then ask Elizabeth to take the others. The structure of our agreements, there are lots of variations, but they tend to break down into two 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. We do have some of those deals where somebody will bring us something, we'll deploy our entire commitment the day the deal closes, and we'll have no further funding obligations. Those obviously you will not see in undrawn commitments. 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 ongoing costs of that litigation. In that event, we tend to provide capital as the litigation proceeds, as you would imagine. 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. 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. 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. As I say, it's very much a hypothetical because 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 have a significant number of people who regularly would like to step into investments that we've made. The other kind, and this is an important point when it comes to undrawn commitments. 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. There we don't have any particularized obligations. We've entered into an agreement with the law firm that will finance cases that they find, for example, that we believe are meritorious and worthy of financing. So we'll go off down the road together. 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 with, "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 as though there's a case sitting there waiting to be financed. There's quite a lot of theoretical flexibility, although it obviously wouldn't be good for the business to draw on that flexibility. With that, Elizabeth.
Sure. 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 third-party capital. I'm going to bring you back to note 20 in the first half interim results. That's on page 46. In the fourth paragraph of that note, we pick apart what is only for the balance sheet. Again, when you look at the balance sheet undrawn commitments, it's $770 million outstanding right now. We anticipate less than 50% of those to be drawn over the next 12 months. 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. We have a reasonable estimate of cash being drawn on each of our investments that have undrawn commitments. Again, to stress, those are for the balance sheet only and not for the consolidated funds.
Please stand by while we confirm the name of the next questioner. The next question is from David Glean. David, please go ahead.
Hello, 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, how come it's gone up so much from $1.59 billion to $1.77 billion from the year-end of 2018 to the interims? Can I just suggest, because I don't think you've specifically addressed that, 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. 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. Also, on a separate note, now there's been obviously a lot of talk about how a lot of the terms came from the Petersen case, and perhaps that is an irregular event. 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 Petersen, which could produce similar returns? If not, what are the prospects of getting such a case in the near future? Finally, a point which not clear has been clearly addressed in your rebuttal, the Muddy Waters report makes a big issue about net realizations and realizations. How they say you're confusing two different things, and you sometimes mean one thing, and you sometimes mean another thing. Is that true? Are there two different meanings?
When you say realizations, I think in one of your website pages, you say it refers to the markup from the fair value, and they're sort of suggesting, well, no, the net realizations, at least, relate to the initial capital cost. What is the case here? Are you mixing the two? Are they two different things? Could you provide some clarity on that, please?
Sure. Let me try a couple of those and, I suspect both Jonathan Molot 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. The simple answer to the question is, when we ultimately have an investment that produces a realized gain, we take that realized gain as a realized gain. If there has been prior unrealized gain associated with that investment, that prior unrealized gain is unwound. 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 in IFRS.
It's a little clunky if you ask me personally, but it is what it is. It's the same way that we have done it for a long time. 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 Petersens in there? Is Petersen the 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. Let's take a slightly different case called Teinver. Teinver is a case that we resolved over the last couple of years at a very, very substantial profit. When we started off with Teinver, 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 fairly rapidly. If that had occurred, it would have been a perfectly fine investment for us. We would have made a nice profit on it. It wouldn't have been anything of any great significance for us. Because Teinver 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-hundred million dollar award against it, Teinver turned out to be a very profitable case for us, where we ultimately recovered $107 million on an investment in the low double digits. 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.
The reason that we take umbrage at the occasional suggestion that people should look at our returns without Petersen or without Petersen and Teinver, or what Muddy Waters does, which is to say, "Well, you should look at their returns without their four 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 look at your investments, but we're going to lop off the two that really went well, and we're going to then see what's going on in your business." 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. That's the real nature of the business. Will there be another big case in our future that produces interesting returns like Petersen? We certainly hope so. 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 falsehoods 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. 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 think-
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 six months. I think that was the only thing that occurred to me. It was a period where we didn't have any losses. We had progress in cases, and we had resolutions. While we can never, as I say, time what any particular six-month period will deliver, we can look back and say that was a good one.
I might then just run through for the benefit of the listeners, just Teinver, just so that people understand how we account for this, both on our income statement, our P&L, and on our balance sheet, because I think both of those are important. In our May 30, 2019 RNS, when we announced that the enrollment was rejected and there was this success for Burford, and we were recognizing now further the $7 million put income, we walked through these figures as well. You can look in that RNS to get that. This investment dates back to 2010. We had total deployed costs on the investment of $13 million. There was a tribunal award issued in July 2017, and in our year-end 2017 financials, we wrote up that asset.
I should say, before the tribunal award came out, we were holding the asset at $30 million. $13 million of costs and $17 million of fair value. When the tribunal awards got released, we did write up the asset again to a total holdings value of $69 million, which included $56 million in fair value and $13 million of cost. In March 2018, we sold that investment for a total of $107 million, $7 million of which was for the put. In our 2018 financials, we recognized the $100 million in the sale and kept the put on the balance sheet. The effect of that was that we had a $31 million income going to the P&L. Let me walk you through that math, and that's what's really critical here. If you turn to note seven of our interim results, you can follow these lines.
We had a realization of $100 million. That's the $100 million sale that we recognized. We had a net realized gain of $87 million. That's the $100 million of sale, less the cost of the investment of $13 million. We had a fair value movement of -$56 million, the fair value carrying value that we had at the end of 2017. The important thing here is whether it was realized or unrealized, the net P&L impact was $31 million because we had already recognized $56 million through the P&L in fair value adjustments in previous periods. That is spelled out in that May 30th RNS, that analysis.
The next question comes from Craig Dean from Cambridge. Craig, please go ahead.
Hi, guys. Thanks for making yourselves available in I'm sure what's 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 two 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. I'm sure one is just easier and faster from a regulatory compliance perspective. Those two comments I wanted to make.
My first question was with the goal of simplicity. I'm looking to corroborate the cash duration of investment. I'm not here to dispute whether or not you're good at investing in litigation finance. I don't think that's up for dispute. How can I corroborate the cash duration of your investment with the cash flow statement? 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 five times book three and a half years ago, to today 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. Let's talk about book value first. The
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. If you look at the analysts out there's certainly not any consensus that it is. 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. 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.
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. The fact of the matter is the balance sheet is affected, obviously, not only by the cash carrying value of investments that haven't had any valuation changes, but then what those valuation changes are. From our perspective, nothing much has changed. We have a 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 them.
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. 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 for 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. It's again, the reason that we produced the investment data in the first 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. 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 one, 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. 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. Say you've got gross cash of $400 million. 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? 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?
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. That 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. 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.
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. Matching that number to gross cash, which by the way, would also ignore the fact that the business on a regular basis produces cash in the door, is not something that's just a mathematical exercise. 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. John, in addition to the shares that I bought, John bought some 350,000 more shares.
We have a total of about 474,000 shares purchased by the two of us today. That's obviously, as we said at the outset of the call, a multimillion dollar purchase on short notice.
Next question comes from Graham Birch. Graham, 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. 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 events. The board, I think, needs some time to consider the relative capital priorities and uses of capital.
The next question comes from Aaron Ford. Aaron, please go ahead.
Thanks for taking my question. Just a couple things on two topics. One is on the marks again, and the marks leading up to realization, 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. You referred to this a little earlier in the call, whereby at a certain point, one year prior to realization, only 35% of the value of your income is based on the markups, and that 65% of income from realization never gets marked up.
That seemed to be done on a portfolio basis. 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. 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, then those statistics aren't really helpful. I'm wondering, could you re-hit that figure, that 65% of the income in realizations isn't marked up until the actual realization, and that only up to 35%, obviously the difference between 65 and 100, 35% is marked up one year prior.
How that works sort of on a median or average basis as opposed to the entire historic income, it'd be helpful to get a sense of what, either if you have the exact number or roughly what that % is on average across investments. The second question was, we get an idea of cash, and that, again, big outsized investments are going to offset some of the losses. A very key metric in the litigation finance industry is the success rate. You have mostly two primary businesses in a litigation funding business. Two primary structures, one being the direct investment into a claim or a single claim, and the other being a portfolio of claims. Obviously the portfolio of claims when they're cross-collateralized can have a much lower loss rate.
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? 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? 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. To begin with, we'll certainly add, if you will, to our running list of things that investors are interested 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 unless we took on a case where the question about whether it was 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. So it is only 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 what we think the likely outcome is going to be and what the other parties will as well. 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 and paying some money. 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. We'll give some thought to what that all might actually do. 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, that's in particular, the cases that settle before summary judgment or sometimes just even the eve of trial. There's a good chance that there's no write-up at all. You can imagine, that's why, as Chris says, the write-ups happen toward the end. There's always what I call dry powder before, there's always upside beyond that from the ultimate conclusion of the litigation. If you win a trial, there's a write-up then, it's only a partial write-up, then there's an appeal or a settlement, at which point you'd have take it into the concluding investment table, it would be a realization.
Our next question comes from Steven Act from Close Brothers Asset Management. Steven, please go ahead.
Just had two questions, please. Muddy Waters said that the case of Gray, they were suing you for $200 million. Was that factually incorrect? Was the first one.
Okay. You want to give them both to us or one at a time?
Second one, on the $770 million 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 third-party financing for that $770 million so you could put those commitments into the Sovereign Wealth JV, for instance?
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. We're going to wrap up with this question unless I get other instructions from our moderator. John knows Gray intimately and may well want to chime in here. 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. 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 been 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. 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 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." No, I don't think that's a viable prospect.
That being said, we've been clear that there is pretty significant demand to give us capital out there in the market. The $300 million fund that we raised just in December could have been much larger than that had we so wished. 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. Equity shareholders make very good money indeed on the litigation finance investments that we make.
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 on a trend towards keeping as many high return investments on the balance sheet as we've been able to finance. With that, and now that it's, for those of you in London who have tirelessly stuck with us, it's six minutes after 5:00, and we've been going for more than two hours.
Jon Molot 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 and interest in the company. We hope that we've managed, through the combination of our rebuttal today and these couple of hours of conversation, to dispel the false illusions and misimpressions left by the Muddy Waters report. We look forward to this business continuing to perform and continuing to have your confidence.