- Burford Capital provides litigation funding
- It has benefited from courts catching up on Covid-19 backlogs
- The company's income should be uncorrelated to macro trends
Alec Cutler, manager of funds including Orbis Oeic Global Balanced (GB00BJ02KY25), explains why he invests in litigation funding vehicle Burford Capital (BUR).
“A litigation funder is a third-party firm that provides an alternative financing arrangement for clients pursuing claims. This funding arrangement often involves the financier taking a share of the ultimate recovery of the claim in exchange for paying the legal costs. Essentially, Burford invests in legal claims, with a strong focus on commercial claims. Since its inception in 2009, Burford's investment book has delivered a return on capital of 88 per cent and an internal rate of return of 29 per cent.
“Burford was founded by its chief executive officer, Christopher Bogart, and chief investment officer Jonathan Molot. The company basically created the litigation finance industry and has been a trailblazer in providing new financing solutions to clients. This is innovative and equitable, as it levels the playing field between those who have deep pockets to defend themselves and those who have legitimate legal claims but less money for legal fees.
“Burford has many appealing attributes. It is owner-operated and its leaders have a large percentage of their wealth invested in the company. It has a deep 'moat' [competitive advantages over its competitors] due to being the first, largest and most recognisable name in this space, giving it first pick on many claims and a data advantage in assessing them. Burford is an income stream which is uncorrelated to the rest of our own investment portfolio – legal claims won’t go down when macro trends weaken. And it relies on a rigorous research process similar to our own.
“Burford’s most prominent investment relates to the Argentine government expropriating the oil company YPF (AR:YPFD3). The case originated in 2015 and is the sort of complex, lengthy litigation that Burford is well placed to manage. In late March 2023, the judge granted summary judgment and subsequently awarded the plaintiffs a meaningful award. Argentina can appeal, but these were important milestones.
“Courts have started catching up on their Covid-19 backlogs and Burford’s underlying business has had a great 2023. Using what we consider to be conservative assumptions about the future, we believe that a discount to intrinsic value remains – even without a big payoff from the Argentine case.
“Argentina has been combative in past spats with sovereign bondholders and the market is bearish about Burford’s chances of extracting the YPF-related claim. But sovereign credit enforcement proceedings are different to a commercial judgement in a US court, and Burford has historically shown an amazing ability to deliver what its clients are owed from the most recalcitrant defendants.”
Burford Capital was Orbis Oeic Global Balanced's sixth-largest holding accounting for 2.4 per cent of its assets at the end of November, and overall the fund had 15 per cent in financials.
