Hello, this is Rob Bailhache, and I look after Burford's investor relations outside the Americas. I and the whole team at Burford would like to welcome you to today's 2025 Retail Shareholder Audio webcast with Chris Bogart, Burford's Chief Executive Officer, and Jordan Licht, Burford's Chief Financial Officer.
Thank you for your interest and, in many instances, long-standing investment alongside Burford's employee shareholders who own around 10% of the company. Before we start with my handing over to Chris Bogart some housekeeping, after some brief opening remarks, we'll move to Q&A. You can ask a question at any time by submitting it in the Q&A box that you can see on the webcast dashboard on your screen. This is the screen to you and us.
If you have any technical questions for the production team in our virtual green room, you can use the same private Q&A box for that purpose. We'll try to get through as many questions as possible, but due to the fixed time available, we likely won't be able to respond to each of them. The selection of the questions we've already received are grouped by topic.
We plan on getting to each topic that's being raised. If there are new subjects from the live Q&A feed, we will try to get to those as well. Finally, a replay will be available to registrants shortly after today's event using the webcast registration link you've already been provided with. With that, I'd like to turn the call over to Chris Bogart, Burford's Chief Executive Officer.
Thanks very much, Rob, and hello everybody. We're grateful for you taking the time today to join us on this call. We've been doing this every June for a while as an additional way of being able to engage with shareholders and take your questions.
And since we have just, in the recent past, done our Investor Day, which I think many of you attended at least virtually, and if not, the slides and the replay are available on our website. So we've not only done the intensive Investor Day, but we've also done the first quarter earnings. And so we've been talking at you quite a lot. And so I'm not going to go and do a slide-based turning of the pages presentation right now because we've already had a significant number of questions.
And so I think the best way to use our time is to be able to walk through those questions, which do cover a wide range of things about the business. I would just open by saying that we're excited about the business, as we hope came through at our Investor Day and with our first quarter numbers.
Obviously, this business has variability on a period-by-period basis about what happens, so you really can't look at any particular quarter and make any judgment about it. But it's clear that we are past the worst of the COVID backlogs, that we're generating quite a significant amount of cash, and we're really firing the business nicely right now with pretty aggressive goals for the future.
We're excited about where things stand, and we really look forward to this opportunity to discuss our view about the business in more detail with you in response to your specific questions and topics. Rob, take it away.
Thank you, Chris. Our first question comes from [Sean Jehan], and it relates to growth. Looking at the next five years, which of the existing or new legal finance segments are anticipated to be the drivers contributing most to the targeted doubling of the portfolio by 2030?
So I don't think it's so much a question of segments in the sense that we're not looking at this and saying, "Oh, we think that our antitrust and competition segment or our arbitration segment is going to just explode with growth." What we think instead we're going to see is the business growing in the way that we've discussed historically.
When we do incremental new business, we're really looking at three things. We're looking at, first of all, trying to get more business from existing clients. And we have a strong record of having law firms who have come to us once come back to us again. The last time we put out that number, I think it was somewhere around 75%. So that's already a nice source of incremental new business.
We then add to that the continuous drive to add new clients to the mix in places that we already do business. So for example, in the United States, we have a dedicated business development team that every single day is out in the market just trying to increase the rate of adoption of our capital in the marketplace.
And the third is by continuing to expand geographically, both within the United States to continue to add physical presence in places that we're not physically present today and around the world. And you've seen us do that most recently by opening an office in Dubai. We have targeted both Spain and Korea for on-the-ground hiring as well in the reasonably near future.
Thanks. Next question relates to new business mix. It comes from [Young Kyu Nam]. It seems that portfolio exposure to intellectual property matters has been increasing recently. Could you explain why these cases are more risky but higher returning than other case types?
I suppose the reason you could characterize them as more risky is because they come with more opportunities to lose. When you think about patent litigation as opposed to contract litigation, when you have contract litigation, you've got two parties fighting over damages and a breach of the contract. But when you have patent litigation, not only are you addressing the question of whether the defendant has infringed the patent, but you actually have to litigate whether the patent is valid in the first place at all.
So while there is a presumption of validity once the patent office issues a patent, when a patent holder then litigates to enforce the patent rights, it's very common that the defendant will not only say, "No, we didn't infringe it," but will also attack the validity of the patent itself. And they're entitled to do that.
And so you have to prove up the patent. Sometimes that happens these days at the patent office again, but it also can happen in litigation. So you're basically having more things that are in the mix, which does a couple of things.
It increases risk because, of course, every time you add a node of litigation variability, you have the risk of something going awry. And it also tends to, in many instances, increase duration. And as a result, the overall aggregate risk profile of those cases is somewhat higher, but they also, when they go well, can be really quite lucrative.
Thank you. A question from Bruce Anderson relating to composition of current portfolio. From the information you presented at the recent Investor Day, the underlying business would appear to be in good shape, and there is a significant runway for future growth. What aspects from the Investor Day would you highlight to support that view?
Thanks, Bruce, for that question. We shared a lot of information at our Investor Day, but let me try and focus on three key takeaways. We think those takeaways illustrate the potential of the business and also, frankly, suggest that the market has undervalued Burford's equity position. Just as a footnote, it's interesting to see that we are in sort of rarefied company and having a pretty significant gap between the current share price and the consensus target estimates of the analyst community.
That gap is larger for us than it is in lots of stocks. I think probably it reflects a little bit of the lack of understanding of the business model and, to some degree, the fact that on a quarter-to-quarter basis, our performance can be quite volatile.
So in terms of what I think people should take away from Investor Day, first of all, we've got the existing core businesses portfolio. We think that that portfolio is attractively positioned. And as modeled, and this is excluding YPF, as modeled, we see that portfolio having the potential to generate $4.5 billion of realizations over time.
That would imply 110% ROIC, which is slightly higher than our historical life-to-date ROIC. But I think we've demonstrated through our historical performance our ability to turn our investment matters into cash. And in fact, we've brought back more than $3 billion already in cash.
The second point to make there is just the sheer TAM, the addressable market that is available to us. Law is just an absolutely enormous market, a multi-trillion-dollar global market between the revenue, the billings effectively that law firms charge, and the value of the underlying litigation matters.
And so we think that that provides a significant runway for growth as we continue to see increased adoption of this capital context. And that's what leads us to have said at Investor Day that we're aspiring to double the size of the portfolio measured as deployed costs and definitive commitments by the end of 2030. We're the market leader in this growing asset class.
We're the market leader by a significant margin, and we enjoy some really significant moats. And on top of all of that, our cash flows are entirely uncorrelated to market conditions and economic performance. And then third, of course, we have YPF. And YPF still comes with some level of litigation risk and duration, but the reality is that any positive outcome in YPF we think is worth a 10-figure recovery from Burford. That's going on top of those realizations from the rest of the portfolio. We're very pleased with where we sit today and with the opportunity going forward into the future.
The next question relates to new opportunities. Comes from [John Randolph]. Can you please talk about how you're investing retained earnings aside from fulfilling legal asset funding commitments? How do you think about widening Burford's competitive advantages over the long haul?
So thanks for that, [John]. So this is really the context of what we said at Investor Day. It's not only taking the core business and continuing to grow and develop it, but it's also being open to investing capital in what we call sort of the close adjacencies.
And Travis Lenkner at Investor Day made a presentation about that. The reality is that when you take a case from beginning to end and take it to trial, there are a whole bunch of things going on there that are not just lawyers scribbing their way in their offices and billing their hours. And so we are already buying an awful lot of products.
We are contributing to the legal ecosystem economics in a number of ways, ranging from obviously law firms themselves, and we remain interested in financing law firms across their capital structure, including in law firm equity when available, but with all sorts of adjacent dynamics ranging from technology to expert witnesses to jury consulting.
All of the things that are necessary to take a piece of complex litigation from beginning to end, and so in addition to continuing to put a significant amount of capital into the core business that we've obviously been doing with considerable success for a number of years, and that will be a meaningful portion of the investment of those retained earnings, we also see the opportunity to continue to meet the needs of the litigation ecosystem generally and to continue to develop and expand our competitive position.
A question from Alistair Lindsay. What caused the experience adjustment factor in your probabilistic model to decline to 0.79x 79% at end 2024 from 96% in 2021?
Yeah. So Jon Molot talked about this at some length at Investor Day, and I'd sort of point you to his remarks for a more fulsome discussion of this. But in brief, the fundamental driver of that change was an increase in the settlement rate that we've seen.
We've seen the settlement rate spike up pretty significantly in the last few years. And part of the issue is that we are not entirely sure whether that's a long-term change or whether that's a pandemic-related disruption. The dynamic associated with the pandemic, of course, is that courts closed for quite some time. That generated a real backlog of litigation, and it slowed pending litigation as it went through the process.
So as you came out of the pandemic in the last couple of years and the world has been reopened and courts are back to full strength, what you have going on is a world where judges have to try to clear that backlog. And one of the tools that judges have to do that is to push parties to settle.
And we've certainly experienced that in some of the cases where we've seen judges be actively engaged in trying to move their dockets along and get parties to settle. So we don't know yet whether this is just post-pandemic normalization or whether this is a lasting trend. And the impact it has on us, of course, is that settlements are lovely in the sense that they come with no litigation risk.
You've de-risked the matter, but they also, generally speaking, come with a discount against the claimed damages for the certainty that you get from settlement. And they may also reduce duration compared to going to trial. And those things obviously can generate somewhat lower returns for us than you might see in other dynamics.
A very good example of this is that, as we talked about in earnings, we had a fairly large case settled more rapidly than we would have expected. That's great. We got $125 million of cash back in the door from a $100 million investment. That's a lovely IRR. I think the IRR was 40-ish%, but it produces a somewhat lower total return and a smaller number of dollars of profit because that capital wasn't outstanding for as long as it might otherwise have been.
There's a follow-up question from Alistair on the probabilistic model. If actual recoveries are running 21% below the model, why don't you adjust the model to improve the fit rather than applying an experience adjustment?
Jordan, would you like to take that?
Sure. Well, Chris, I actually think you hit on a lot of the components of how we thought about that adjustment factor, and I think it's just a sheer moment in time when the Investor Day was. To the extent that we see this pattern continue over a series of periods, then one would expect us to potentially take that and push it directly into the underlying models, but we weren't at that moment in time.
I don't believe we were at a point in which we thought it was appropriate to adjust the underlying, and so we shared with you our thoughts on what that could be and give you the range of results with and without that adjustment factor.
Thanks, Jordan. Next question relates to cash recovery that comes from [Peter Quinn]. Given your previous comments along the lines of, "Judge us on the cash we collect," though the cash generated has clearly improved over the past couple of years, are you disappointed it hasn't been even greater? Can you see significant further improvement in cash generation over the next 12- 18 months or so?
I would always like it to be more and faster. One of the frustrating realities of litigation, which slops over into litigation investing, is that litigation very, very rarely goes faster than you expect or faster than you expect or would desire. The reality is litigation tends to get bogged down, and it tends to be delayed. And that's a consequence both of tactical choices being made by litigation defendants to try to delay matters, as well as congestion and lack of resources in the courts. So sure.
Would I prefer a world in which every case filed was resolved in a year? Yes. That would be, I think, good for us financially, and I think it would be good, frankly, for the system overall. But it seems like it is, with government funding and the reality of resources, it seems like that's simply not a viable approach.
What we instead then see is this big mass of unresolved litigation. If you look at our slides, there's a slide that gives you a chart that shows annual vintage by vintage and shows you what is left to conclude in those vintages. What you'll see if you look at the 2015 to 2020 area is that there's still quite a lot of stuff there that hasn't concluded.
Some of that is certainly moving more slowly than one would expect. I attribute a fair bit of that to the lingering consequences of the pandemic, but the reality is that those cases don't discontinue. None of our cases have discontinued. No client has just said, "Gee, this has been taking a long time, and I'm just bored, so I'm not going to litigate my multi-million dollar case anymore." That just really isn't the dynamic in the business.
We've never had it happen. So what you're seeing is quite a lot of backlog still that needs to turn into cash. And so would I prefer it to be happening at a more rapid rate? Yes. But am I confident that we will get those cases to the end of the conveyor belt, in which case history would suggest that many of them will in fact turn into cash? Yes, indeed. And that's why it's one of the reasons that we're excited about the current status of the portfolio.
There's a question, Chris, from [John Botsford ], who asks, "Can you comment about the changing composition of the competitive environment? I've read about insurance companies trying to edge into the business with products such as judgment preservation insurance and prejudgment insurance of single cases and portfolios for both law firms and plaintiffs." Could you comment?
Sure. So when you think about insurance, insurance and litigation finance are in some ways two sides of the same coin. We're both addressing the same underlying question of legal and litigation risk. It's just that the economic approach is quite different between us. When you're an insurance company, obviously, what you're doing is bringing in upfront cash payments of premiums.
You're then sitting on that cash and investing it, and you're hoping to pay as little of it back out as claims as possible. And so if you are a client that has a lot of cash and is happy to write a check to the insurance company today for a premium against the future potential of getting some recovery, that's certainly one way of going about proceeding. In our experience, people are frustrated, and this is the reason, of course, that Burford was started in the first place.
People are frustrated with having to pay cash out today with respect to litigation. They're frustrated about paying cash to law firms, and they're frustrated about paying cash to insurance companies, and so our economic model is effectively the inverse of that.
The client doesn't have to pay out any cash at all, and in a number of circumstances, we may even pay the client cash right at the beginning of the case, and then we take the case through the process with the hope and expectation that something will arrive positively at the end of it, so if you are a CFO who would prefer to be allocating your internal capital to things that make your business money, your core business that lets you grow and hire more employees and generate more operating profit that the market will reward with a multiple, then our solution is attractive.
There's certainly room for insurance in the world. There are lots of big insurance companies and always have been. And they have, for long before Burford was in existence, they offered an alternative economic model as well. And I see both of those being able to coexist peacefully. The specific products that you mentioned do not have, despite the market noise, do not have particularly good traction.
There was a little boomlet of judgment preservation insurance when insurers got out over their skis and mispriced that product so that judgment preservation insurance was too cheap for the risk that insurance companies were taking on. And as a result, they suffered some meaningful losses. And that kind of coverage is now reasonably difficult to obtain. And there's really not a particularly active market in pre-judgment insurance of single cases.
Thank you. There are three related questions in relation to YPF. So with apologies to [Jerry Ellis], [Martin Devlin], and [John Lockwood], I'm going to merge these questions into one. Further to the favorable YPF ruling now some time ago, do you maintain hope of agreeing a settlement with Argentina over its unlawful expropriation of YPF? If so, what U.S. dollar value might we expect to see Burford recoup, and in what timescale?
So nothing would make me happier than, because I get asked about YPF all the time, to have two things. One is to just be able to talk openly and candidly about it. And the other would be to be able to, with accuracy of prediction, put numbers and dates around it. And I really can't do any of those things, I'm afraid.
And I think the reasons why should be relatively apparent. It is not in shareholders' interest to have public airing of what's going on either in our strategy or in any conversations that may or may not be happening with Argentina. We've highlighted for you, and there was some material in the investor base slides, what the Argentine government has said, which includes a desire to rejoin the world's capital markets as a proper functioning participant and an acceptance of the need to deal with the YPF judgment.
Of course, we've got the pending appeal there as well. So I think that there's probably not anything that I can add to what we said fairly comprehensively at Investor Day. And I know that that is frustrating and challenging for people because if you're modeling the business, it's something that needs a line in your model. And I wish that I would be able to be more helpful to you in being able to tell you sort of what my gut sense is today of being able to put into that line, but I just can't for all of those reasons.
And I think in reality, shareholders wouldn't want me to. So the best I can do is just to continue to say what Jon and I have said, which is this is a multi-front undertaking right now. Assuming a positive outcome in basically all of the positive states of the world, you end up with a likely 10-figure outcome for Burford.
A couple of questions in relation to assets within the portfolio that are in the public domain. The first comes from Alistair Lindsay and relates to the protein claim family. At a high level, how is Sysco/ Carina progressing? You seem to have much the better of the judgment on motions to dismiss from February 25th. And you have a recycled champerty-type argument from Tyson to plead to. Please comment.
So thanks, Alistair, and that shows an avid following of these complex cases. Just to back up for one second to put that in context, although I'm conscious of time and don't want to spend too much time doing this, there are a number of proteins that are being litigated in the United States following a U.S. government finding that there had been illegal price fixing in the protein markets.
By proteins, we mean beef, chicken, pork, turkey, and so on. Those cases are all being litigated individually. In other words, beef is being litigated separately from chicken and so on. And so they are in front of different judges, and they are proceeding on different timetables and indeed in different geographies around the country, but the question is correct in the sense that recently there have been positive litigation outcomes.
A key issue in these kinds of large antitrust cases is the summary judgment motion, which is when the judge looks at the evidence that has been amassed during the course of discovery and decides based on that evidence whether there is a claim to put to a jury, whether there's a claim for the defendant to answer.
And the bulk of the pork claim survived summary judgment. And so those cases are now heading for trial. And you can't ever predict outcomes in individual pieces of litigation, but there is a relatively high settlement rate in U.S. antitrust cases after the cases survive summary judgment. But these have some distance still to run, and they're complex because they, as I said, they're proceeding in multiple courts and with multiple claims. So there will be a number of twists and turns of the conveyor belt here before we get all the way to the end.
Bruce Anderson asks, "What is the expected path for the $11.5 billion claim made by Energy Transition Minerals advised by Clifford Chance against Denmark and Greenland for the cancellation of Energy Transition Minerals' mining license in Greenland?"
And separately, you funded another Clifford Chance client, Sundance Resources, in a $9 billion claim against the Democratic Republic of the Congo and Cameroon, where an ICC decision is expected later this year. Would you agree 2025 looks set to be an interesting year from a claims development standpoint?
I guess what I would say about these claims and the question in general is that there is always a little bit of a danger in this business when, for whatever reason, some of the things that we are financing become known publicly. And what tends then to happen is that an undue amount of investor attention is paid to those particular claims.
And it's again in sort of the YPF problem. These are pieces of pending litigation, and so we're not really in a position to talk about them at any level of specificity because doing so, of course, could be harmful to the case. I would just note in the Greenland case that the principal relief sought by the claimant there is not, in fact, an award of cash in the kind of quantum that was cited there.
The relief sought is the restoration of the license so that our client can go back to operating the mine and producing the rare earth minerals that are available in Greenland, and so there's more nuance in these claims than looking at these kinds of headline numbers that are the headline numbers that lawyers like to put in claims as a general proposition, so I would caution people, while we like all of these cases and all the cases that we invest in, I would sort of caution people not to put too much emphasis on them simply because they happen to have leaked out into the public view.
Question from Alistair Lindsay in relation to prospects for larger wins. Other than YPF and Sysco/Carina, what cases, if any, does Burford have where a realistic possible payout would be material, say, more than $50 million?
Well, given our size, I think our definition of materiality is a little different than that. But leaving aside sort of the securities disclosure aspects of things, the nub of the question is, what's going on in the portfolio? Are there big cases in the portfolio?
And I think the answer to that is yes. It comes back to the dynamic that I described earlier, though, that the faster things resolve by settlement, the greater the settlement discount tends to be as well. And so when you look at any given case, we might well have a case where we say, "Oh, sure. Look, if this case goes all the way to trial and wins everything it can win and survives that on appeal, this is easily a nine-figure case." And absolutely, we have those in the portfolio.
But that doesn't necessarily mean that they will turn out that way because the defendant may come along and say, "Well, okay, this was a strong case. I'm going to get rid of it. Here's a cash offer today." And that cash offer might be quite appealing to a client, even though it might be much, much, much smaller than the possible trial outcome that they would collect years and years later. So that's the dynamic that you have to weigh in all of this when looking at the overall portfolio.
We have a question relating to the accounting of Burford's employee deferred compensation plan. And it comes from [Peter Thompson]. Can you explain the mechanics of the accounting for the deferred compensation plan when employees elect to purchase Burford stock?
Sure.
Sure. Yep. So basically, what happens is that when an employee elects to defer their compensation and chooses the stock, assuming the stock price were to stay the same, we don't have any future liability. If the stock price goes up from that moment in time, so then say we were trading at $13 U.S. dollars, it goes to $14, that incremental dollar becomes a liability and runs through the income statement for Burford.
And so what you see is with movements in the stock price up or down, you then get the corresponding expense or the negative. What we do behind the scenes, though, is actually take the cash on that day when the employee has determined to elect to defer their compensation, and we economically hedge ourselves by purchasing the shares, which can then be delivered. And so while you see that P&L movement, and that's just because of the accounting rules, we've gone and taken cash to offset that.
Thank you. Next question relates to allocation of employee carried interest. It comes from [Young Kyu Nam]. If you invest today, employee carried interest would model with approximately 11% of capital provision income. Would the carry levels for future vintages remain at around 11%? In the long term, what is the appropriate level of carry allocation for the litigation finance asset class?
Yep. So with respect to carry on a go-forward basis, look, there's detailed disclosure in our filings that gives you what carry is per year. I think that one can assume that approximately around 11% is the right number for future vintages. In terms of what is the appropriate level of carry allocation, I think we believe that we're around that level. I wouldn't expect to see this materially go up or down in either direction.
Jordan, there's a follow-up question on employee carried interest accounting from [Peter Thompson]. Would a realized gain on the realization of the YPF-related asset be recognized in the Burford-only financial statements before the deduction of expense associated with employee carried interest?
So the way in which a realized gain on YPF would occur is you would see that occur in the revenue of the financial statements. It would unwind the previously unrealized gain, and then we would see a realized gain. And then to the extent that realized gain was above and beyond where the previous period's fair value was, we would see the incremental carry expense come through the income statement to the carry line associated with a YPF resolution.
Thank you. Next question relates to big business lobbying. It comes from [Sean Jehan]. What's your impact assessment of the recent news flow featuring large corporate insurers lobbying against legal finance? What are the best and worst-case scenarios for Burford, this activity?
I would first of all say that there's nothing new about this. It maybe has received a little bit more media coverage of late, but this has been going on for years and years and years. And the dynamic is simply that defendants would prefer not to be sued and would prefer not to be parted with their money because of the litigation process.
And so they tend to try to attack anything that causes that to occur. The principal goal enunciated by the insurers is largely around disclosure in the context of U.S. litigation and even more particularly multi-party U.S. litigation. That's an issue that has been percolating around for a while. It's almost a uniquely American issue because in the rest of the world, we have a fair bit of disclosure.
And the reason that it's more sensitive in the U.S. is because in the rest of the world, we disclose, but it's not accompanied by potentially expensive and disruptive discovery. Whereas in the U.S., the game plan around disclosure is to do just that. So we'll see where this all ends up. It's being studied by a number of committees and so on.
Sometimes it's a state law issue, and so you'll have varying state law issues and so on. But it's not something that causes me to lose sleep at night. You asked best and worst cases. The best-case scenario is the status quo prevails, and the worst-case scenario is we get more extensive disclosure ramifications. I would just, as sort of a footnote, note that in the U.K., the Civil Justice Council released its report on litigation funding this week, and that report was generally positive.
It recognized the important contribution that the industry makes to justice in the U.K.. It did not seek any sort of intrusive or aggressive regulation, and it strongly recommended the immediate legislative overturning of the PACCAR decision, which we've talked about previously.
Chris, the next question actually does relate to the U.K. as well. It's in relation to the Competition Appeal Tribunal. It comes from Alistair Lindsay. How do you see the opportunity in class actions in the U.K. CAT? Claim size is huge, but payouts today have been disappointing. There's lots of upfront costs and a risk of a carriage dispute, and recoveries are constrained by PACCAR and the CAT's discretion. Please comment.
So look, I think there are opportunities. I welcome the U.K. moving to a system of judicial collective redress. I think that's an important thing to have instead of being entirely reliant on regulators. Some of the features that you're describing in the question are present in every collective redress system. The reality is, and you can debate whether this is good public policy or not, but the reality is that in large claims, large multi-client claims, it's rare for the full damages to be paid.
The classic example of this is in U.S. securities litigation, where you can clearly show the damages, right? The stock of a company is trading at 100. Bad news comes out that should have been released earlier. The stock falls to 50. You've got a $50 loss. But the average settlement in U.S. mass securities litigation hovers around 4.5% or 5% of actual damages.
And there are a whole bunch of reasons for that, but that sort of is the reality of the system. I assume that when you look at CAT cases and see these, like the Mastercard case with $40 billion, GBP 40 billion of damages, there's just not a practical way of making awards quite of that scale. So I accept that as the reality as opposed to a disappointment.
I do think that we need to work hard for the system to work for the cost of it to be lower. English litigation is very expensive, as we've said on a number of occasions, and that constrains the size of cases that you're able to bring in the U.K. and really sort of prices out the middle market, unfortunately. But I think it's an interesting area, and I think we'll continue to see our participation in the right kinds of cases when they come along for the [audio distortion] CAT.
Next question is from [Frank Rosen]. Why are executive compensation and total shareholder returns so divergent? It doesn't seem to pay presently to be a Burford shareholder.
I'm sorry for the sentiment, and unfortunately, I think it represents a little bit of a misunderstanding of the distinction between cash and accounting. Bear in mind that Burford doesn't pay out the employee compensation expenses that you see running through the P&L. It only pays out carried interest when there is the actual receipt of cash.
But whenever we increase the accounting value of an investment, we also accrue compensation against that accounting value. And so you have a significant mismatch between the P&L, which shows a level of employee compensation expense, and the cash payments, which are significantly lower than that. And I think that the compensation levels that we have for our employees are market-based and perfectly reasonable in the context of generating those cash returns.
But if you are looking just at the P&L, you're going to be seeing, and this is particularly true with YPF, you're going to be seeing large accruals booked there that are not being paid out to anybody. Ultimately, we're generating high returns, and we aspire to a long-term ROE around 20%.
If we are successful in both doing that and continuing to grow the overall size of the business, we think shareholders, including management shareholders who own or who are the largest shareholders in the business, will be rewarded ultimately by the market. And that's sort of the best I can do right now.
We have a question on leverage, and it comes from Bruce Anderson. One of the benefits of Burford's U.S. listing is the access to U.S. capital markets, especially the 144A private debt market. Given the success you've had, why wouldn't you raise debt finance to redeem the August 2025 bond and instead use balance sheet cash to buy back shares?
Jordan, do you want to take that one?
Yep, yep. I appreciate the question. I think the answer really is that the 144A market, while attractive and has been accretive to us continuing to grow, does come in size. When you look at the relative size of the August 2025 bond and even the bond that comes due in 2026, you do have to think about, okay, would we do an issuance of significant size to take out something smaller and then maintain that cash on the balance sheet?
It is a delicate balance. I don't think that shareholders should overread into the fact that we are currently delivering by buying back the 2025. I think it's really a matter of timing of when's the appropriate time, given the pipeline, when bonds are due, when things are callable, or in this case, not callable, as there isn't a callable or make-whole function associated with this that balances out our cash balance.
Thank you. Just looking at the live chat, we have a question from [Alexander Latham]. Could you provide some color on your future plans for the company's capital structure, particularly in light of the recent debt buybacks? How are you thinking about leverage targets and potential financing activities moving forward?
Jordan?
Yep. I appreciate that. As I mentioned on previous calls, our covenant levels really on the 144A kick in around one and a half times. We've been eloquent around saying that we wouldn't look to degrade our ratings, and in fact, most recently saw the upgrade from Moody's. The concept that we've said is that we could see ourselves go to a max of 1.25x if we were using leverage to continue to grow the business and invest in the business.
Given where we are today at approximately 0.8x , there's ample room to expand the capital structure. We're going to do that thoughtfully. While no one can perfectly time the debt markets, we're constantly monitoring them and then monitoring our pipeline as to when it's appropriate or inappropriate to be accessing capital. As I mentioned, it does come in chunky sizes. We do have to be conscious of that.
There's another question from [David Rothman] in relation to balance sheet cash. How does management think about the upper limits of the appropriate level of cash to hold? Of course, things like debt maturities and definitive commitments come into play, but what is the level of cash relative to those and other items when you consider other uses of capital like share buybacks or special dividends? How do you think about that?
Jordan [audio distortion] .
Yeah. When you look at our cash balance, and while it does show over $500 million, first and foremost, we are conscious of the maturity that's coming due in this summer. When you have a near-term maturity like that, what one might do in a traditional 144A market is use the excess cash to call it.
Unfortunately, the bond did not come with that feature, and so what you've seen is that we've been purchasing it when we do see it trade at below par or other economic conditions that are accretive to the balance sheet. That's why we're currently maintaining that excess cash. To the extent that we had significant amounts of excess capital above and beyond that, we could discuss how that could be returned to shareholders.
What we see and with the runway that we currently see with respect to our pipeline and how the business has grown over the course of the last years, we continue to think investing in the balance sheet is the best use and investing in the CPA assets is the best use of that capital.
There isn't a specific number that we're going to put out there publicly, but what we do on a regular basis is we're constantly modeling out a year, two, three years out to understand our liquidity runway, to understand the maturities that we have, to understand the inputs of our probabilistic modeling and the potential of the cases, as well as the outflows associated with our book of business. All that goes in, but there isn't a specific number that we're going to put out there to say, "Hey, at this number, we're going to do X.
Thanks, Jordan. We have a question relating to a perception of seasonality in Burford's results and trading of Burford stock. It comes from [Peter Quinn]. Given the seasonality of Burford's results, the typically predictable pattern of stronger second and fourth quarters encourages short-term directional trading. One way to discourage this is spot announcing material wins. Can you see the possibility of any material wins in the next one to two years?
I guess I would, first of all, I wouldn't necessarily agree with the sort of seasonality and directional point overall. I think that there in the past has certainly been fourth quarter seasonality when it comes to new business. That relates to what I often call lawyers' procrastination, that lawyers just simply don't sort of focus on their own financial performance and arrangements until you get quite late in the year.
I am not so sure that I would agree that there's the same sort of second quarter seasonality, especially now that we've gone to quarterly reporting, nor do I think you can reliably pigeonhole when courts decide things into quarters.
So I think that to the extent that the market believes that judges produce more decisions in the second quarter than the first, I don't think that there's necessarily a basis in fact for that. And our performance is, of course, variable based on when judges decide to release opinions and also, frankly, when large new significant cases come into the mix.
And we had a strong first quarter in part because we added a new claim family, but that's not something that happens reliably on a quarter-by-quarter basis. The specific point of the question was about announcing material wins. And as I said earlier, it sort of boils down to a question of what materiality is for a business of this size. We obviously do announce any material news flow.
If we had a material win, for example, as we had in YPF, and there have been other examples in our history of large wins, we do announce those separate and apart from the usual earnings cycle. That question of materiality for a business of this size doesn't sweep in most of the normal ebb and flow of the business.
We think both from sort of an investor communications perspective, but also importantly from a client basis, regularly announcing individual litigation outcomes is problematic, not only in terms of volume, but also in terms of running the risk of people being able actually to identify the clients and the associated litigation, which would be unpopular with clients.
Thanks, Chris. We've had a couple of questions on dividends and cutting both ways as we hear from time to time in the market, but I'm going to pick one from [Bill Pickard], which I think captures the broadest range of issues.
A sub 1% dividend yield for a balance sheet financial isn't really sufficient to attract investor attention when 6%-8% is widely available elsewhere. If you close the yield gap a bit, it could re-rate the equity more than the extra dividend cost capitalized, except U.S. tax mitigates against more dividends. But would you comment on this and whether perhaps you could add a scrip dividend alternative?
I think it sort of dovetails with what Jordan was talking about earlier and about the use of leverage and how to use cash. To push the dividend to the kind of range that [Bill's] question talks about, that would effectively be in round numbers $200 million a year if I had the math right, at least $150 million-$200 million.
And the question is where you're going to get that cash from because you either would need to divert it from new opportunities or you'd need to borrow it. And I think I'm relatively unenthused about the idea of using debt to pay a dividend to try to juice yield.
There's that point, and then there's the overall point about dividends before, which is that, as I've said a number of times to shareholders, there's probably no issue on which Burford shareholders are less aligned, ranging all the way from shareholders to engage in a gross generalization who are mostly smaller U.K. shareholders who favor higher dividends all the way to U.S. institutional shareholders who affirmatively don't want them and are not buying Burford stock for a dividend yield.
And so I'm not. I'm also, even if we had the cash to pay a dividend in that kind of range, I'm actually not convinced that that would necessarily be to our overall advantage with institutional investors, especially U.S. institutional investors. I just don't think that's where the play is. I think that performance and growth are what will drive the stock price.
And sort of circling back since we're at the end of time, circling back to the lovely opportunity Bruce Anderson gave me at the top of the call to talk about key takeaways from Investor Day, there is no question that YPF makes this a more difficult story to analyze.
But that is, and there's no question that the lack of correlation, which is a benefit, also makes it more difficult to analyze because it doesn't have through lines. But my goodness, the business has been performing. We are seeing real growth in it. We see real value in the existing portfolio, and YPF is like a very large cherry on the top of all of that.
And so despite those challenges, I think that the future here is particularly bright in being able to continue to grow the size of the business, get more market attention to it, especially in the U.S. market, and over time re-rate that dynamic.
So I hope these were helpful to everybody. We're grateful to all of you for your thoughtful following of the company and for taking the time to give us questions and take the time to listen to us. And with that, I'll turn you back to Rob.
Thank you, Chris. I just wanted to thank you on behalf of Jordan and myself for taking the time to join us today. We really do hope you found the session helpful. As a reminder, a replay facility will be available shortly after the event via the same webcast registration link you used to access today's audio webcast. As always, we encourage you to reach out to us with any follow-up questions through the usual channels, or you can email ir@burfordcapital.com. Thanks again for participating and enjoy the rest of your day.