THE BURFORD ANNUAL. In 2017 Burford committed $1.3 billion to law firms and clients. We ve worked with 88% of the AmLaw 100. What are you waiting for?

Transcription

1 THE BURFORD ANNUAL A report on our business and the state of legal finance In 2017 Burford committed $1.3 billion to law firms and clients. We ve worked with 88% of the AmLaw 100. What are you waiting for?

2 2017 Highlights $3.3 billion invested in and available for legal finance $1.3 billion committed to new investments in 2017 alone $773 million in investment successes to date 8 consecutive years of significant growth as a business 90+ staff including more than 40 experienced lawyers 88% of AmLaw 100 have worked with Burford 250+ years of complex litigation experience on Burford s Investment Committee

3 Burford is listed on the London Stock Exchange, with a market capitalization in excess of $3 billion. Consistent with being a large public company, we are transparent about our operations. On March 14, we release our 2017 annual report for shareholders, which is replete with data and information about our business. For the curious, the full report is available on our website. This condensed version is intended to provide Burford s client community with an update on our business key trends, how we ve grown, and the opportunities for companies and law firms that use or are considering using legal finance. The growth of legal finance has been nothing short of extraordinary, and at this juncture lawyers who are not seriously considering how to incorporate financing in their practices face the real potential of being upstaged by their competitors. As in our annual report, we focus primarily on our business in the calendar year 2017, but with perspective on trends to come in the years ahead. We hope you find this information useful and we hope you won t hesitate to reach out to us with questions or to discuss opportunities to work together. There are other providers of litigation finance, but we believe working with us will show you why so many of your peers choose Burford. Burford has become one of the largest purchasers of legal services in the world. We are in the unique position of being your client and your service provider at the same time. We look forward to earning your business, just as we hope you will solicit ours. Christopher P. Bogart Chief Executive Officer Jonathan Molot Chief Investment Officer 1

4 Business highlights Burford s team made record-setting new commitments of $1.34 billion in 2017 This represents a more than 3x increase in new commitments compared to 2016, and speaks to significant growth in demand for Burford s capital Burford now has $3.3 billion invested in and available for investment in legal finance Growth has continued with an active start to 2018, with $128.5 million committed to 12 new investments in just the first two months of the year When we founded Burford in 2009, the legal industry was poised for a financial revolution. Law firms account for hundreds of billions of dollars of direct economic activity every year and trillions of dollars of indirect activity, but the legal sector has traditionally operated without reliance on external capital, running large, highly profitable businesses on a pure cash basis. The law firm business model worked well for law firms, but corporate clients, beleaguered by ever-increasing spending burdens for regulatory compliance and litigation, have been increasingly rebelling against that model and seeking the kind of financial alternatives commonplace in other aspects of their businesses. In this environment, law firms are challenged to find ways to offer top-quality services while continuing to grow both revenues and profitability. 2

5 Total balance sheet assets ($ in millions) New balance sheet litigation commitments annually ($ in millions) $698 $1,318 $968 $378 $376 $533 $594 $152 $206 $ Rather than forcing law firms to upend their business models, Burford provides those financial alternatives, through an ever-growing range of products and services, all of which build on our core competency the assessment of legal and regulatory risk as applied to commercial litigation and arbitration. This is our entire business. Based on our 2017 results and the growth in client demand for our capital that they reflect, acceptance of legal finance has definitively entered a new phase. Demand for our capital tripled in This trend has carried into 2018, and we have seen no slowdown in funding inquiries. What this means for our clients Burford is the world s largest provider of legal finance several times over This gives us capacity to do deals quickly and with flexibility and scale beyond the competition and the lowest cost of capital in the industry, which we can pass on to our clients Our reputation and scale, as well as our readily available, permanent capital, make Burford well-suited to the long-term commitments that are required in legal finance The extent of the increased demand for Burford s capital speaks to our reputation and the value-added partnership for which we are known qualities that matter greatly to law firms and their clients 3

6 The evolution of litigation finance The trend towards multi-case portfolios is continuing, and represents 54% of Burford s new commitments in 2017 Burford s multi-case portfolios have a lower loss rate by dollar value (3%) than single cases (19%) and can thus be priced more attractively to clients There are nonetheless many uses of single case finance and Burford remains the market leader in providing it as well Including fund commitments, Burford made about $75 million in new single case investment commitments in 2017 In addition to raw growth, we have also seen enormous evolution in the business. The largest trend is the move to portfolio-based financing and other investment transactions that reduce the risk of binary loss associated with litigation. Litigation is an inherently high-risk and unpredictable process with a high degree of idiosyncratic variability in outcome. By reducing our risk of loss, we are able to reduce the price of our capital and clients are enthusiastic about structures that moderate risk in exchange for lower pricing. Portfolio-based financing is also on the rise because of the many other advantages it offers law firms and corporate clients including flexibility, efficiency and the capacity to manage risk. Our clients are enthusiastic about structures that equip them to meet a range of needs and to respond nimbly to opportunities. 4

7 Current balance sheet investment commitments Evolution of investment commitments SINGLE CAS E Portfolio Recourse Single Case Legal Risk 4% 100% 82% 52% 67% 63% 53% 87% 88% 87% 17% 48% 33% 47% 37% 16% 63% 0% 18% 13% 12% 5% PORTFOLIO AND RECOURSE * 2017 * Legal risk commitments represent the remaining 8% in 2017 Total 2017 investment commitments: $1.344 billion $ in millions Balance sheet commitments Investment fund commitments Single case finance $34.4 5% $38.3 6% Portfolio finance $ % $ % Recourse finance $ % $ % Legal risk management $59.2 8% $10.8 2% Total $ % $ % Total investment commitments $1.344 billion However, we continue to have a robust business around financing single litigation cases, as there continues to be demand for financing the costs of single litigation matters, where clients who are either unwilling or unable to pay legal fees seek a third-party capital solution to do so on their behalf. Many such clients are structurally challenged when it comes to meeting legal fees, such as fund managers with illiquid investments that have a litigation component or insolvencies that have distributed out their remaining assets to creditors. There are also litigants whose size, liquidity or capital spending priorities lead them to seek external financing for single matters. What this means for our clients With our scale and our 81% success rate on these types of matters on a dollar value basis, Burford, Burford is the leading partner for single case litigation financing arrangements Law firms and companies that wish to unlock larger capital streams at a lower price rely on Burford as the clear leader in portfolio-based financing of legal assets 5

8 Current investment portfolio Burford has a large and widely diversified portfolio of legal investments, with 82 investments encompassing 877 underlying individual litigation and arbitration claims Our portfolio represents $2.4 billion invested in law with $1.5 billion from our public company balance sheet portfolio and with nearly $1 billion more when adding our funds business Burford s commitments are highly diversified, with no concentration by defendant, law firm, geography, type of matter or other factors, creating a foundation of stability for our business and our clients Burford s portfolio of legal investments expanded significantly in While our annual report provides robust and granular detail, the critical concepts for clients to understand relate to the range of the economic structures we use and the diversification in our portfolio. Burford makes investments using a wide range of economic structures. In a single-case investment we will typically receive our invested capital back as a priority followed by some preferred return on that capital along with a share of the ultimate recovery. Even in straightforward investments, the terms agreed will vary widely based on our assessment of the risk and likely duration. The larger or more complex a matter, the more likely it is to have an individually designed transactional structure to meet client needs, align interests and incentivize rational economic behavior. It is impossible to generalize about the financial terms of litigation finance and we have regularly cautioned our clients about the one-size-fits-all or teaser pricing they may encounter with less experienced funders. 6

9 Litigation investment recoveries & duration of concluded balance sheet portfolio ($ in millions) Current balance sheet investment portfolio ($ in millions) $773 $564 $1,546 Duration (years) 1.6 $ $982 $348 $147 $ CURRENT INVESTMENTS UNDRAWN COMMITMENTS LITIGATION INVESTMENT PORTFOLIO We believe that by a considerable margin we have the largest diversified portfolio of litigation investments in the world. In addition to sheer size, Burford s portfolio is widely diversified across many other metrics. Matters in our portfolio are being litigated in over 30 US states and countries, and multiple arbitral institutions. Although we focus on English common law jurisdictions and international arbitration, clients who bring actions in those fora are located around the world. Over 40 different law firms have active investments with Burford, and last year alone, we worked with 70 of the AmLaw 100 on potential investments. Our portfolio reflects claim types that run the gamut of complex commercial litigation and arbitration, and we are involved in every stage of claims, from pre-filing to matters where judgments have been obtained and an appeal is pending or enforcement is under way. There is no capital risk concentration in matters we finance: no single defendant rises to even 5% of our commitments; no single case loss would rise to 2% of Burford s balance sheet commitments. What this means for our clients The scale of Burford s portfolio makes us among the world s largest purchasers of litigation services Our ability to offer a range of structures helps us meet the unique needs of our clients Relevant expertise, expert economic assessments and deep experience in managing the costs of complex litigation The scale and diversification of Burford s portfolio give us a solid and secure foundation that make us a reliable partner for the long term 7

10 Other key trends Average size of commitment ($ in millions) $3 $7 $11 $18 $ Demand remains strong and diversified In 2017 Burford received a significant volume of incoming requests for funding totaling 1,561 requests for capital. More than half of the inquiries that entered Burford s pipeline related to litigation claims or assets with estimated values over $100 million, and 38% of inquiries related to claims or assets with estimated values between $20 million and $99.9 million. The top five types of matters for which funding was sought were IP/patents (26.1%), contract disputes (19.9%), financing of legal receivables (14.4%), international arbitration (12.3%), and antitrust/competition (10.1%). Burford received funding inquiries from well over 500 firms, including 70 of the AmLaw 100 and 70 of the Global 100. Ultimately, Burford closed 59 individual investments in 2017, ranging in size from $1 million to over $100 million, and with an average commitment size of $24 million. Ongoing mainstreaming of legal finance After a period of early adoption, legal finance has entered the mainstream of the legal sector, showing dramatic growth in a few short years with considerable growth still to come. According to Burford s annual independent market research, the number of US private practice lawyers who said their firms have used litigation finance directly grew five-fold from 2013 to 2017; a clear majority (72%) agree that litigation finance is a growing and increasingly important area in the business of law. The media provides another window into the growth and evolution of legal finance. The number of stories written about litigation finance in 2017 alone nearly equaled the total number of stories written on the subject in the preceding seven years together. The trend is continuing: the number of stories in January and February 2018 is already well over half of the total volume of 2017 coverage. 8

11 Market research: Litigation finance is growing and increasingly important Current balance sheet commitments denominated by currency Agree Indifferent USD EUR 1% Disagree 20% GBP AUD 6% 8% 8% 72% 85% Law firm & corporate respondents Geographic expansion Burford has always invested capital in connection with litigation matters pending in any English language common law jurisdictions. Our largest measured by the location of cases is the US, and we are also active in the UK, Australia, Canada, Singapore, the Cayman Islands, the British Virgin Islands, Brazil, Germany and some other smaller markets; we have a robust international arbitration practice. Burford has responded by opening an office in Singapore and expanding its presence in the region. We also announced Burford s financing of the first-ever Singapore-seated arbitration funded by a third-party finance provider following adoption of the new legislation brought new focus on Asia. Until 2017, both Hong Kong and Singapore had prohibited litigation finance. Both jurisdictions passed legislation in 2017 that enabled litigation finance for arbitration. Notably, they did not expand their tolerance for risk-based litigation beyond litigation financiers, so lawyers remain prohibited from taking on risk; the only way for a client to achieve a risk-based arrangement is with a litigation finance firm. 9

12 Burford s team In 2017, we added 23 new employees Our team now numbers 90-plus people, more than 40 of whom are experienced lawyers Burford s investment committee has more than 250 years of collective litigation experience We had our first full year of operation with our Chicago office supplementing our New York and London presence (along with individual people located in Washington, Boston, Texas and California), and late in 2017 we opened an office in Singapore in addition to our continuing European expansion We re proud to have built the leading team in the litigation finance industry. In 2017 we made new hires in key positions that reflect further growth of our business and the team behind it, including Chief Compliance Officer, Chief Accounting Officer, General Counsel, UK/ European Corporate Counsel, the Director of our new Singapore office, and a Director, Investor Relations. Two new Directors joined Burford to build our expertise in bankruptcy and insolvency and securities litigation, and four Vice Presidents added further depth and breadth to our investment team. Our new hires are veterans of companies and firms including Barclays, Brookfield Asset Management, Freshfields Bruckhaus Deringer, Goldman Sachs, Herbert Smith Freehills, Lehman Estate/Lehman Brothers, Loeb & Loeb, Nuveen Investments, Oppenheimer Funds, Quinn Emanuel Urquhart & Sullivan, RPX Corporation and UBS. We also promoted Elizabeth O Connell as Burford s Chief Financial Officer; Aviva Will as Senior Managing Director in Burford s core litigation finance business; Emily Slater as Managing Director overseeing Burford s business development activities with US law firms; Katharine Wolanyk as Managing Director overseeing Burford s Chicago office and its intellectual property business; John Lazar as Director of Burford s investment team; and Eric Carlson as IP Principal. We have always recognized that diversity and inclusion are key values in fielding a marketleading team, particularly in an activity like litigation where assessment of human conduct is a key factor in what we do. Since inception, Burford has worked to build a best-in-class diverse team. Women hold key leadership positions including Chief Financial Officer, Senior Managing Director, Chief Marketing Officer, Chief Process & Innovation Officer, CFO-Funds, and a variety of other Managing Directors and Directors. What this means for our clients Litigation finance is not just about capital; it s about human capital and Burford s team provides a host of non-financial benefits and value-added insights to the law firms and clients who do business with us Not only do we bring hundreds of years and billions of dollars of litigation experience, but our team is multidisciplinary as well, with senior and experienced finance and investment professionals a critical component in any investment decision making undertaking 10

13 Christopher Bogart, Chief Executive Officer Jonathan Molot, Chief Investment Officer Elizabeth O Connell, Chief Financial Officer Aviva Will, Senior Managing Director Craig Arnott, Managing Director Katharine Wolanyk, Managing Director

14 Other ways we re expanding our offerings Asset recovery Our asset recovery business provides expert assistance to lawyers and clients around global asset location and enforcement. As one might expect given Burford s background and orientation, we approach this business as lawyers, not as on-the-ground private investigators. Our asset recovery business is run by an English barrister and an English solicitor, and tends to be heavily research-intensive. With the results of our research, we then use global legal tactics and strategies to obtain yet more information and ultimately to seize (typically financial) assets to satisfy judgments. In late 2017, a multi-jurisdictional enforcement action by Burford was featured as a front-page story in The Wall Street Journal. We are pleased to be able to offer asset recovery on a contingent risk as well as a fee-for-service basis. Last year marked the continuing shift from billing clients for our time, and the bulk of our business is now done on risk in exchange for a share of whatever recovery is generated. Adverse costs insurance Burford is in the process of launching its own insurance company to offer our legal finance clients a new insurance product to address adverse costs risk in commercial litigation and arbitration globally. The insurance product will meet a need in the marketplace for significant levels of adverse costs cover for major cases in cost-shifting jurisdictions around the world. We have extensive experience in providing adverse cost insurance, having written over 50,000 such policies in our very successful English insurance business. Adverse costs risk remains a key issue for larger complex litigation and arbitration, Burford s core business focus. Today, it is difficult to find a path forward on litigation claims once the adverse costs exposure approaches 20 million as there is presently limited capacity in the insurance market for such claims. There is also growing demand for such protection in large arbitration matters. To provide this new insurance cover, Burford has applied for a license to establish Burford Worldwide Insurance Limited and expects to have full regulatory approval imminently. 12

15 The future Our business is client-driven and we re proud to partner with leading companies and law firms ranging from high-quality boutiques to the world s largest legal brands. When we innovate, we do so in response to demand from our clients. We re working now with many law firms and corporate clients as they rethink how to deliver or purchase legal services. The traditional models are eroding or disappearing. Clients no longer have any sympathy for the argument that litigation is unpredictable, and they expect their business partners to take risk and assist them in navigating this new world. That is an uncomfortable dynamic for many law firms, which have built their organizations and their approaches to partner compensation around traditional economic models. Burford is ready to help. We are essentially investment bankers to the legal sector. We work with law firms to ameliorate the impact of those client trends and enable them to take whatever degree of risk they wish. And we work with clients to unlock the invisible value of their claims and to assist them in navigating the dynamics of corporate capital allocation. Don t miss the boat. Call us. It s time to raise your game. New York 292 Madison Ave New York, NY London 24 Cornhill London EC3V 3ND Chicago 353 N. Clark Street, Suite 2700 Chicago, IL Singapore 10 Collyer Quay Level 40, Ocean Financial Centre, Singapore, Aviva Will awill@burfordcapital.com Craig Arnott carnott@burfordcapital.com +44 (0) Katharine Wolanyk kwolanyk@burfordcapital.com Quentin Pak qpak@burfordcapital.com Burford Capital. All rights reserved. Burford, Burford Capital and the Burford logo design are registered trademarks of Burford Capital.

16 Notice and disclaimer: This report ( Report ) does not constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite or otherwise acquire or dispose of any securities of Burford Capital Limited (the Company ) nor should they or any part of them form the basis of, or be relied on in connection with, any contract or commitment whatsoever which may at any time be entered into by the recipient or any other person, not do they constitute an invitation or inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000 ( FSMA ). The Report does not constitute an invitation to effect any transaction with the Company or to make use or any services provided by the Company. This Report is a summary or abbreviated version of information contained in the Company s disclosure documents, including its 2017 report to shareholders; it does not purport to be a complete description of the Company s business or results. Terms used in this Report are defined more fully in that annual report and this Report should be read in conjunction with that annual report and the notes and qualifications therein. The full annual report is available online at The information in this Report or on which this Report is based has been obtained from sources that the Company believes to be reliable and accurate. However, no representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information or opinions contained in this Report, which information and opinions should not be relied or acted on, whether by persons who do not have professional experience in matters relating to investments or persons who do have such experience. The information and opinions contained in this Report are provided as at the date of this Report and are subject to change without notice. Neither Burford Capital Limited, its associates nor any officer, director, employee or representative of the Company or its group members accepts any liability whatsoever for any loss howsoever arising, directly or indirectly, from any use of this Report or its contents or attendance at the Report. This report may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, business performance andresults of the Company. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Company, including amongst other things, the Company s future profitability, competition with the markets in which the Company operates, changes in economic conditions, terrorist and geopolitical events, changes in legal and regulatory regimes and practice, changes in taxation regimes, exchange rate fluctuations, and volatility in the Company s share price. As a result, the Company s actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise forwardlooking statements, except as may be required by applicable law and regulation (including the AIM Rules). No statement in this report is intended to be a profit forecast or be relied upon as a guide to future performance. In particular, past performance is no guide to future performance.