Burford Capital Ltd (BUR) 2017 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Burford Capital Full Year Results 2017 Conference Call. My name is Holly, and I'll be your coordinator today. (Operator Instructions)

I would now like to hand over to Chris Bogart, Chief Executive Officer, to begin today's presentation. Chris, the line is now yours.

Thank you very much, and hello, everybody. Thank you very much for taking the time to join us today. With me on the call is Jon Molot, Burford's Chief Investment Officer; and Elizabeth O'Connell, Burford's CFO. And you'll be hearing from both of them as we go through this.

I'm going to lead off and I'm going to be talking from the investor presentation, from the slides that are up on our website, and we'll refer to the page numbers so that you know where we are going.

These are more extensive slides than we've used in the past, and we're not going to touch on every single one of them. Some of them are included just as background to the business. But they're designed as a comprehensive presentation alongside what grew into quite a long annual report this year.

But in that report, we make an effort as well, as we have in the past, to really describe in pretty good discursive detail what our views are about the business and what's going on in the market generally.

We're obviously delighted to be presenting these results. We've seen across-the-board record-breaking numbers, and we're going to take you behind what we think is going on both in the business and the market that's enabling us to generate these kinds of returns.

I think it's notable -- and I'm on Slide 3 now looking at some of the financial statement highlights. I think it's notable that our income is coming from a number of different sources. So in 2017, we had 20 separate investments that were generating realized gain for us.

And as well, the business has historically had a level of unrealized gain in our income. That level of gain has remained consistent year-over-year. So within that income, you've got many, many investments contributing realized gains. And you've got about 53% this year of unrealized gains as against 54% last year, so that's remained entirely stable.

That big jump in income is really attributable to the fact that the business, over the last number of years, has continued to grow the size and the depth of its portfolio, and Jon is going to spend some real time walking you through the portfolio when we get into those slides.

We continue to manage expenses tightly in this business, with -- the result of that income is turning into a significant level of profits after tax, creating a 78% profit margin. And this is not just profit, it's cash. Our duration continues to be moderate in this business, and we're producing a considerable amount of cash from investment results.

In fact, we're generating enough cash in the business to fund a substantial level of the business' reinvestment needs, even as we continue to grow. And you see there, of course, information about assets and equity as well.

We've proposed another increase in the dividend that will make every single year of our existence one in which, we've suggested, the dividend is increased to shareholders, and we're pleased to be able to continue that tradition.

And before I leave this page, I would just note separately that we were absolutely delighted yesterday to be able to announce a terrific transaction with respect to our Teinver investment. Teinver, as many of you will recall, is a long-running arbitration investment that we had a number of years ago and had a successful result in July of last year. And we've now taken that result, which still probably has several years of further proceedings to run, and we've sold the entire investment for $107 million, posting a 736% gain, return on invested capital.

We're really excited about that transaction because sitting with the investment effectively idle for several more years wouldn't have had us generate incremental return of any particular significance in our view. And at the same time, we're now going to be able to take that $107 million and reinvest it into the business immediately and produce incremental returns on that capital. So that was, for us, a terrific transaction, and we're very pleased we've done it.

The final thing I'll note before I leave this page is actually with respect to this footnote. The gift that we were delivered this year by some new accounting required us, on the face of our IFRS financial statements, to consolidate in one of our investment funds.

And because we don't think that gives you a particularly good look at the business, we have actually excluded that fund from the numbers that we talk to. But we've provided a comprehensive table in the annual report to let you reconcile what we think of as these operating numbers to the numbers on the face of the financials.

Turning to Slide 4. I'm just going to touch on some of the highlights here, because Jon is going to go through the investment portfolio in considerable depth. But I just have to point out the remarkable level of growth that we're seeing in the business overall.

If you look at 2017 there, and these numbers are just for the balance sheet, if you were to add investment funds alongside the balance sheet, we committed more than $1.3 billion in new business, just in 2017. That's a level that is more than 3x the prior year, 3x 2016. But I think almost more remarkably than that, you only have to go back to 2013 to find that, that level has increased by 30x.

So what is characteristic of what's going on in this business, generally, is that we have turned the corner into the mainstream. And the -- there is no question that there is significant appetite for the use of our capital in the legal sector, a sector that has historically been starved for capital alternatives. And now what's evident is that lawyers and clients are both embracing the opportunities that come from having capital available to them.

If you look at the 2 charts on the top, the top center and the top right, what we've been able to show is now a multiyear consistency of results, and that's over a very significant pool of invested capital. So we've now recovered $773 million in investments, which means that we are far past the point of this being new or esoteric. We are operating on a multiyear track record across a very significant pool of investment recoveries.

Going down below that recoveries chart to commitments deployed by vintage, you see a level of consistency there as well, with us being able regularly to deploy a significant majority of the commitment dollars that we generate. So that 83% number is the average level of commitments that are actually deployed in investments, which of course sets us up for investment profitability.

And then these other 2 small boxes, just reinforce -- the center one reinforces the point that I made earlier, that while fair valuing and unrealized gains are a part of this business, they're a part in a very consistent way. And that gray part of this chart shows you the level of unrealized gain in the portfolio, so that a significant majority of our assets continue to be carried at cost -- across what is a large and ever-growing balance sheet investment portfolio.

On Slide 5, I'm not going to belabor the point here, except to draw your attention to what is quite a low leverage ratio for a specialty finance firm. And that leverage ratio includes the impact of a new bond offering that we raised last month. And that bond offering has been included in -- as though we raised it in December. So our year-end numbers, even though they don't include that bond, we've calculated the leverage ratio as though it did, in fact, exist.

On Slide 6, back to the theme of growth. What I'd really call out to you here are 2 of the red numbers on the side. One being that 88% now of the AmLaw 100 have worked with Burford. AmLaw 100 are the 100 largest law firms in the U.S. and many of those firms are global law firms, so that really is representing a global slice of the legal sector.

And we've now seen proliferation of legal finance, or litigation finance, into the legal market, such that this is now a regular occurrence for large law firms to be reaching out and working with us. And we've also seen the scale of those inquiries continue to grow, so that half of the inquiries that we got last year were for claims that were being valued by their originators at more than $100 million.

Slide 7 shows you a number of our people. And it's here not just to show you some smiling faces, but also really to make the point that we are putting out into the market the leading team in the business, and that's a team with a number of senior, highly skilled people who have been with Burford for a number of years. We're experiencing very low turnover in this business, and we're just absolutely thrilled with the team and the quality of our people.

I am now going to skip several slides. Slides 9, 10 and 11 really just give you some general background to the business that we're in. And at the end of this call, we're, of course, happy to take questions on any part of this. But I'd like to just spend a moment or 2 on Slides 12 and 13 before Jon takes over.

Slide 12 is really continuing the theme that we have been sounding about growth and adoption in the legal industry. And so what you see here are a couple of different data points. You've seen numbers, of course, already, you've seen the financial numbers and the commitment numbers that I described, that 30x 2014 and 3x 2016.

But what this now shows you is both our independent market research in these circle graphs, which show continuing significant increases in adoption rates of this capital by lawyers and law firms. But at the same time, showing that there is still an enormous amount of room to go.

So if you look at the numbers on the left, for example, on the one hand, it's terrific that we have moved from 7% to 36% of lawyers saying that their law firms have used litigation finance in just such a short 4-year period.

On the other hand, that really just means that one lawyer in each law firm has done that. And law firms are composed of dozens, if not hundreds of partners. So the fact that one -- we've cracked one partner in a law firm, all that means is that there's a lot more opportunity out there. So we're really excited about the prospect and the runway that lies ahead.

And just using media coverage is an interesting way of looking at this as well. Last year, in 2017, legal press coverage of litigation finance, the amount of that press coverage equaled, in that 1 year, the coverage that the industry had received for the prior 7 years combined. And looking just at the first 2 months of this year, we are already above half of last year's volume.

And these are the kinds of data points that, I think, continue to illustrate what you're going to hear from Jon that we're seeing in the market, like significant step up in demand for capital and a real embrace now by law firms and by their clients of the ability to use external capital.

On Slide 13, that has shown up in just the sheer number of inbound inquiries that we received in 2017. So in the year, we received more than 1,500 people coming in the door looking for capital from us and our progressive diligence process winnowed that down to quite a small number of investments that we ultimately actually closed. So we have a terrific ability to create a well-diversified, highly diligence-ed handpicked portfolio.

And with that, Jon Molot, Chief Investment Officer, will tell you a little bit more about how we deal with that portfolio.

Thanks, Chris, and thanks to you all for your time and thanks to our investors for trusting us with your capital. We're delighted to be able to produce these returns for you.

I'm going to spend time on, really, 3 different things. The first is what the prospects are for Burford for the future, that is looking at our existing portfolio and the deal flow we have coming in as that portfolio grows, what can we expect in the future. Because after all, you're investing in Burford not based on what it's done in the past, but rather, what you hope it'll do in the future.

I will then spend time on our past performance, and as Chris says, we have quite a robust data set to show you, and that's important because we have studiously avoided making forward-looking projections and so you only have our past track record to look to, and I'll spend time on that.

I also do want to address a bridge between the past and the future, how we have harvested cash from successful past investments and reinvested them in future attractive opportunities. And then I'll spend a couple of minutes on some secondary market transactions that have garnered attention.

So starting on Slide 14 on the deck. The main point is we have a robust diverse portfolio of investments. That's 877 claims through 82 ongoing investments in more than 30 different jurisdictions, states and countries.

And how did we get there? Just stepping back before going through the metrics of this large diverse portfolio, for those who have been with us from the beginning, you'll remember when Chris and I launched Burford and it was a nascent industry and there were a few people who had dabbled in it, there were 2 big distinguishing features between what we set out to do and what others had done.

And the first was we were going to build, internally, an investment management team that was composed of the brightest and the best litigators, people who had worked at top firms and worked in-house managing portfolios, who were going to make the transition from lawyer to investor and be dedicated investors in litigation risk. And others who had dabbled would raise some money and then ask advice from outside lawyers on whether this is a good case to invest in. And the litigators you retain as outside counsel just are not investors, and that was the first thing we did.

And the second thing that distinguished us was we were going to invest and seek business from a diverse group of lawyers in various jurisdictions, various different fields of practice. And I think that's in contrast to others who would basically lean on their contacts, a few lawyers here or there in cases they knew would just plop it all down and take the risk.

And the fact that we did the outreach and accepted inbound inquiries from a diverse group of lawyers, and built the portfolio that way, has certainly helped us grow the industry and grow our business platform. Because whether you are an international arbitration lawyer in London, a securities lawyer in New York or a commercial litigator in L.A. or Chicago, Atlanta, you name it, you're going to know Burford. And when there's need for financing, you're going to call Burford and you're going to know somebody who's used Burford. And so that's important for the future.

But it also is important because that's how we built this diverse portfolio, where we are working with more than 40 law firms, no case capital loss would exceed 2% of our balance sheet portfolio. Every defendant's under 5% of commitments.

The largest law firm relationship represents 14% of investments, but that's a global enormous firm with more than 30 partners involved in many different offices, many different subject matters. Quite a diverse portfolio. So it really is a robust diverse portfolio, and that's important to both drive growth but also manage risk.

And when you look at the graphics, I won't spend much time, you've seen in the past that our portfolio here, it's very large, $1.5 billion, consists of current investments and then there's undrawn commitments, the dry powder. And over time, as the vintage progresses, of course the number shifts for each vintage.

You see that our rate of commitment has increased dramatically year-by-year. Chris talked about that, that in 2017, just on balance sheet, it's $698 million. And that's a big step-up from 2016 and the years before. And then when you add in the fund capital, it's much larger than that. As Chris said, it's $1.3 billion we put out in 2017.

You also see commitments denominated by currency, which is, to some extent, a proxy for jurisdiction, but not completely. Those -- the U.S. dollar-denominated investments are not necessarily all U.S. litigation. There are lots of international arbitration matters that could involve 2 non-U. S. parties. And nonetheless, the contract was -- that was breached entitles the claimant to a payment in U.S. dollars.

You do see a sizable euro and pound sterling-denominated pool of investments. And I've been very pleased with our growth in the U.K. and Europe over this past year. And you see some nascent Australian business as well.

Turning to Slide 15, this is quite an important part -- point given the growth of our business through multicase portfolios. We have been talking for some time now about a pattern whereby Burford will do an initial investment with a law firm. It will go well, the law firm will come back to us for a second. And then it will realize that it can use Burford's financing as a business development tool to expand its litigation practice, that clients hate paying hourly fees.

They can't plan when they're paying hourly fees and they feel that the lawyers have better control over managing costs than they do and why should the lawyer benefit from having the costs run up. And so they want alternative billing arrangements, fixed fees and success fees.

But law firms are cash in, cash out partnerships who, as Chris mentioned -- or have not had access to financing or the capital markets. What law firms have learned is by taking our financing and the portfolio facility, they then can go out and pitch clients offering them through alternative billing arrangements.

And so it's become a business development tool for lawyers. And from our perspective, it's a wonderful thing because, basically, these lawyers with whom we have portfolio arrangements become our business development partners. They are out generating business for us to deploy our capital into, and they're all very good firms we have worked with before and have enjoyed success with.

Now the question that has arisen that people have asked over time is, when you shift from single-case investment to portfolio investment, we understand that the risks are lower by their nature because of diversification, but does that mean you are sacrificing something in returns? And the answer to that is no.

And we've not put out this data before on Slide 15, but I think it is important to note that our single-case loss rate as of now is around 19%. And that means that we have generated a 90% return on invested capital in successful matters in order to generate a 54% rate of return on invested capital across the portfolio of single-case investments, net of losses.

By comparison, portfolio loss rates are around 3%. And as a result, when you take into account losses as well as wins, our portfolios are currently generating higher net returns than our single-case investments. We're not prepared to give you the ROIC number for portfolios because most of those portfolios are still works in progress.

But by and large, the message is we have been able to grow the business and actually work with better firms on better, bigger cases by shifting to and emphasizing portfolios without sacrificing returns at all. And that is a wonderful bit of news, I would think, for investors. It's something we've believed in for a while, but we now have some data to share about that.

When you turn to Slide 16, this is a slide which you've seen the basic structure before on our interim report, that we, in order to give you a better sense of how we're deploying that $1.3 billion or how we are committing that $1.3 billion across what kinds of investments, you see single-case finance, portfolio finance, recourse finance and legal risk management. And you further see the division into balance sheet commitments and investment fund commitments, where our investment funds and balance sheet do share many of the deals.

Not surprisingly, the portfolio finance is the majority, 54% of both balance sheet and investment fund commitments. Single-case finance has become a much smaller portion, it's in the single digits. It is still a substantial business compared to any of our competitors. It is never going to be an area we are going to cede ground.

We think it's important both because the single case often leads to a later portfolio and develops important relationships; but also, in and of themselves, those single cases can produce good returns, right. Teinver and Petersen were both single case investments. So we are, by no means, ceding that ground. However, there's no doubt that when you look to the future and where returns were coming from, the portfolio is going to -- are going to produce a greater share of our profitability.

Recourse financing are deals where there is an underlying asset value such that we are not taking binary complete risk of 100% loss in the event that you've invested in litigation and it loses.

An example that is public that we've put out there of this kind of investment would be the Rurelec matter, where we provided a recourse finance facility with an interest rate. And then there was a kicker based on the success of an international arbitration and that did work out well. And the kicker ended up generating very high IRRs and attractive ROIC across the whole thing. But had the litigation lost, we would not have lost our investment, we would have earned a still decent interest rate.

And then, finally, there's legal risk management. Even before founding Burford, I was confident that there was a need for litigation risk transfers that might not even involve a transfer of capital. Defendants might want to offload litigation risk because it's interfering with business decisions. And so we are a better bearer of legal risk as long as we can be compensated and earn a premium for doing so, and that's what that category represents.

So turning to Slide 17, this is where I mentioned -- I've been talking about the future and what's in our portfolio and why I'm bullish on it. Before I turn to the past and what our returns have been, it's worth spending a moment emphasizing how we have been able to fuel our growth based on cash recoveries from past successes.

Then if you take the $169 million of cash we had on hand at the beginning of the year and you saw the inflows of $362 million in cash from successful resolutions of prior investments, that's what fueled our ability to make new commitments in 2017.

And so it is -- the questions in this business are, are there enough profitable opportunities out there to build a portfolio of attractive investments? And I've just gotten through showing you or explaining why I'm quite bullish on the value of our existing portfolio and the prospects of the future.

And then there's the question of can you fuel that growth, do you have the resources? And this slide helps show how, as the business grows, we harvest the past profits and plow them into new investments, and that's worked very well for us.

When you turn to Slide 18, now as much as you're in this for the future, I know you want to know about the past, and this is some further granularity on how we have performed. And as Chris mentioned at the outset, our record of performance is based on $773 million of concluded investments. This is not a small data set. It's not a fluke. It's not a nascent business. We've been at this for the better part of a decade and we've shown results.

And the returns on invested capital have been 75% and the IRRs come out to 31%. The return on equity has jumped to 37%. Interestingly, the weighted average duration of the portfolio fell this year to 1.5 years. We had often said it was more like a 2-year duration. I would not say you should you should read into that a trend. We have said consistently, since inception, that the thing that's probably hardest to predict in litigation is when it will resolve.

We have a good idea, or at least are as well-equipped as anyone or better equipped, to predict at the outset if it runs long, what are the range of possible outcomes. And if it settles early, what are the range of possible outcomes. We understand that the general pattern is if things run long, you go all the way to trial. There is the potential for much larger recoveries. Whereas if you settle earlier, you'll tend to settle at a discount of your entitlement to reflect both the time value of money and the diminishing of risk.

And it's just hard to know at the beginning which category it's going to fall into. To some extent, we're indifferent as long as you have a diverse portfolio and you can support your cash needs because you had a smattering of things that will settle and generate cash sooner, and a smattering of things that will go long and produce higher returns and the IRRs should even out. So I wouldn't say that we can draw conclusions about duration, but it is an interesting observation.

Another thing that has -- you see, in the past, we have had questions about receivables. We win a piece of litigation and we end up with a note instead of cash, or a note backed by real estate, in one example, and -- instead of cash. And people wondered would those be translated into cash. And indeed, the answer has been yes.

That our receivables now are down to $4.8 million, collections have increased significantly. That was -- it was $39.3 million at the end of 2016. And so by and large, the recent results have resulted in cash recoveries. And where there has been something other than cash, we've been able to convert those to cash. And you see, indeed, cash receipts rose to $336 million, up from $203 million in 2016, which is what has fueled our reinvestment.

Slide 19 provides that greater granularity that we began breaking out a few years ago of investment results by vintage. You see the overall conclusion is across 61 investment recoveries to date. We've got a 75% return on investment capital and 31% IRR. Different vintages might have different numbers, but we've always said you can't read too much into that for the reason I mentioned just before that things that take longer can often resolve much higher.

And in fact, that 2010 year that we used to get a lot of questions on, why is 2010 not doing as well, and we said be patient. And you saw in 2017 that it started to do better, right? It still wasn't as good as some of the other years, but that Teinver matter that we just sold was a 2010 investment. So of course, in the next year's report, 2010 will be a very different picture.

So this is based on $773 million of recoveries on $443 million invested across 61 investments. And it does not include the Teinver matter that I'll talk about in a moment.

On Slide 20, I think it's worth spending a moment on our valuations and unrealized gains. A significant majority of our investments are held at invested cost with no valuation change, roughly 2/3. And the portion of our income in 2017 from unrealized gain is consistent with what it was in 2016, 53% in 2017 versus 54% in 2016.

We have been quite conservative in how we value things. We do not adjust valuations based on sentiment. It's not that we say, oh, because the judge seems sympathetic, we're going to write up this investment, or because the other side seems scared, we are going to write up the investment. It's only when concrete case events occur that we then are required, under our investment policy, to make an adjustment, which the auditors then will review.

And perfect examples of the conservatism are Petersen is now carried at a value well below the value at which minority interests in Petersen have been trading in the market; and Teinver was carried at a value, at the end of 2017, well below the entitlement value and well below the ultimate sales price that we have achieved.

Only 2 investments in our history have ever been written up and then resulted in a loss, and those amounted to 0.2% of total write-ups by dollar value. So on the whole, we're quite conservative about our unrealized gains and follow our valuation policy quite conservatively.

So the last thing I want to do is address 2 secondary market transactions, we sometimes get questions about, one of which is just from this week. As Chris mentioned before, we had a victory in July against Argentina, a $324 million award plus interest. Although interest awarded by the tribunal was just at treasury rates, so it was not a significant interest rate.

Our entitlement was in excess of $100 million, but the nature of claims in this area is -- in order to get a settlement and not have to go through full enforcement, generally claimants need to accept a discount. And one could imagine a claimant that is trying to negotiate its discounted settlement would look to the finance -- financer, Burford, to take a discount as well.

And we thought it was prudent to consider whether there would be interest in monetizing this. And it turns out, as Chris said, we're thrilled with the outcome, that we sold our interest for $107 million, that's a $94.2 million gain and a 736% return on invested capital. And so we think that's a home run. We're very, very pleased.

The other secondary market transaction you're familiar with, in which nothing has changed since it happened, is we sold the 25% interest for $106 million. It seems, magically, we are only willing to sell things when the number is -- the purchase price is around $106 million or $107 million. That's all we'll sell for.

But we retained 25%. That case has -- there's been nothing that has happened. It is -- we won or Petersen won in the trial court on, basically, what is being thought about now as just a procedural motion of whether this is the appropriate forum for the suit to proceed in the U.S. District Court for Southern District of New York. And that Argentina then appealed, and it's pending in the Court of Appeals. But regardless of that outcome, which we're pretty bullish on, it still would go forward. It would just go forward in a different forum, which is, in fact, if it didn't go forward in the Southern District of New York, the forum it would go forward in is an investment treaty arbitration under the Argentina Bilateral Investment Treaty, and that's exactly the forum in which we won the big award in tender.

Before I turn it back to Chris, I just want to say that the portfolio we have built, our prospects for the future and the successes we've enjoyed to date are largely attributable to the amazing team we have built since inception. And almost all members of those team -- that team, I expect, are on this call right now because like you, they are all shareholders and they care about Burford's success.

And as grateful as I am to the shareholders for having trusted their capital to us, and I know that our team shares that gratitude and is grateful for the opportunity to deploy that capital and really change the legal market, I am so grateful for this team that I get to work with every day. I wake up every day thankful that we have a team. And they're not just there as stewards of capital, they are changing an industry. They're changing the way the market for legal services functions. And they're all very smart, very dedicated and your capital is in good hands.

So I do want to say thanks to the team, as well as to our shareholders. And with that, I will turn it back to Chris.

Thanks, Jon. And I absolutely echo those sentiments from Jon. And it's something that we regularly talk to investors about is the -- is a key differentiating factor that we have in our business.

I'm going to turn to the investment management business that we have, starting on Slide 24. And we just have a few slides here and I'm not going to spend an enormous amount of time on this business. But I do need to emphasize as an overarching matter that when we think about the investment management business, we think about it, number one, as providing access to incremental capital for us to be able to deploy into the market.

And when we made the strategic decision a couple of years ago to add an investment management component to our business, we were doing that with an eye to the availability of capital. Our principal motivation was not, as some investment managers have it, it was not simply to go and generate some management fees. Rather, we saw a world where we anticipated very significant growth. That growth has now been delivered and continues to be delivered. And we saw a world in which we needed multiple capital sources beyond just the capital that we could access on our own balance sheet to be able to meet the demand that we saw rising in the market.

And so investment fund capital is desirable from that perspective. It comes with incremental flexibility. And it opens up a whole new universe of capital for us to tap, and we're thrilled with the ability to do that and with the relationships that we have with limited partner investors.

We are, at the moment, because of the structure of the funds that we have, earning management fee income. We brought in $13 million in management fee income last year. But really the excitement of this business lies in the future potential of performance fees. Because if the investment management business produces returns that are comparable to Burford's historic balance sheet returns, then the real economic engine of having the investment management business for us is those future performance fees.

They come with the other disadvantages of litigation finance. They're not as predictable. They have the potential for period-to-period earnings volatility because we're dependent on the outcomes of litigation, which are difficult to predict. But nevertheless, in the long run, we are optimistic about the future potential of the performance fee line of income.

And a pretty good example of that is on Slide 25. If you look at the Partners I fund, that's a small fund that is finished with its investment period and is in harvesting mode. But there is, sitting in that fund right now, one investment where we have had a preliminary success.

If that success holds and we ultimately realize the full gain on that investment, the performance fees on that investment alone will be more than all of the management fees that, that fund will have paid throughout its entire history. And so that's an interesting illustration of why we're focused on the performance fee dynamics in the investment management business.

The Partners funds are our flagship funds in terms of deploying capital into the litigation finance space. And I should add now that we look at the investment management business really just as a way of providing incremental capital. The business is completely integrated in terms of our investment process and our investment management.

We are close to being fully committed in Partners III, which is the fund that we're currently investing. And so I think it's reasonable to expect to see some incremental fundraising activity from us during the course of 2018.

We've also, turning to Slide 26, enjoyed some early success in a new fund. We raised in June of last year our Complex Strategies fund, closing it at $500 million. We've already invested more than $325 million of that fund and we've had one early return with nice returns, as you can see on the slide.

So we're thrilled to have this business. We're thrilled to have our new capital partners from the private fund side in the Burford umbrella. We have successfully integrated this business. And as I said, we're running it as a single unitary investment process. So the only thing going on here is the question of which pool of capital one's pulling from, which we do under a formulaic allocation policy. And what that has led to us is just further support for the engine of growth that we have going on.

And now, having left her with very little time, let me hand you over to Elizabeth to talk about the corporate matters slides.

Thanks, Chris, and I will be brief so I don't steal time away from your questions.

Turning to Slide 28, I'm often asked about operating leverage in the business. And this slide clearly shows the existence of leverage. Our cost, as a percentage of our income, has steadily declined. However, there is a limit to that operating leverage, and we will continue to need to grow our team as the business grows.

And our low operating expenses are also a function of our historic approach to managing this business. As those of you who've been long-time followers of Burford will have heard before, we've been careful about managing our growth and not overextending ourselves. We may have sacrificed some growth as a result, but we've been content with our conservative approach.

And then turning to Slide 29, Jon's already talked about our strong organic cash generation. Over the last 4 years, we've been supplementing that cash generation with some long-term, low-cost debt capital. Even including our February bond offering, which, by the way, was the first-ever dollar-denominated ORB bond, which we priced at a very attractive spread to treasuries. But even if we include it, we're still at a low level -- a low leverage level, less than 50% net to debt equity, which Chris said earlier.

And while we have the capacity on our balance sheet to take on some more debt, which, as you know, is a cost-effective way of financing growth for our equity holders, we're not interested in a running highly leveraged strategy.

Going forward, instead, we see a balance between investing on our balance sheet and investing through our investment funds. I really do see our funds as another prong in our capital structure. And thus, as Chris just said, we plan to make use of our investment fund capital as a way of meeting the strong growth in demand for capital that we see in the market.

I'm not going to flip through Slides 30 and 32, which deal with governance and control, although we're happy to answer any questions on these slides.

Instead, let me conclude by saying that Burford prides itself on its robust governance and its strong controls. We are, after all, a business run by lawyers, litigators to boot. And we augment that culture with a 13-member finance team that I'm proud to lead and a 7-lawyer legal and compliance team.

And with that, I will hand the baton back to Chris who will open it up for questions.

Thank you very much, Elizabeth. And Holly, we are ready for questions.

(Operator Instructions) At this moment, we have no questions registered from the phone lines. So I'll hand the presentation back to you for any further remarks.

Thanks. So we have done it again. I sometimes joke with investors that one of the risks involved with having Burford people present is that many of us, as lawyers, spend the early stages our career being paid by the hour to talk. And we're quite capable of taking full advantage of that opportunity. So at 45 minutes of delivery from some dense slides, it feels like we may have exhausted people.

Am I right, Holly, we still have no questions?

We have just had some questions registered. And the first question is from [Robin Canci], a private investor.

I just wanted to ask if you are able to elaborate a little bit more on the level of your tax charge. Just on the face of it, the level of tax that you're paying seems particularly low relative to the level of profitability. Perhaps you could just give us a little bit of guidance on that.

Sure. And we actually have written about our tax position before and we've done so again in this annual report. And the guidance that we've given, historically, about taxes is that we expect to settle out at a tax rate in the low to mid-teens. We actually amended that guidance this year in the annual report because of the impact of U.S. tax reform, and said that we expected that instead to settle in the low-teens. The reason that you're seeing a sort of glide path to getting there is really from 2 reasons. One, because Burford had an alternative structure early in its life. It wasn't a tax-paying operating business, it was instead structured as a fund. And so we're still working some of those old investments through the process. But even more significantly, when we made the acquisition of Gerchen Keller in December 2016, that acquisition, because it was an acquisition of an investment manager, generated a significant amount of goodwill. And under the U.S. tax approach, that goodwill is actually amortized for U.S. tax purposes, even though it is not amortized for financial statement purposes. And so as a result, you're seeing us work through sort of like at a snake digesting a meal that amortization of a significant amount of goodwill benefit, and that is reducing, for a time, our effective U.S. tax rate. So as a result, once that finishes and once we sort of get to a level-setting world consistent with U.S. tax reform, we do expect our tax rate to be in the low double digits.

At this moment, we have no further questions registered. So I'll hand the line back to Chris for any further remarks.

Well, thanks. And what I think we'll do at this point, I will riff for another moment to see if anyone else would like to ask anything.

But failing that, we have not only provided the slides that Jon, Elizabeth and I just walked through, and those are available on our website. But as I said at the start, we spend quite a lot of effort in this business, senior management effort, in the creation of an annual report. We do this a little differently than lots of public companies do. Maybe it's a little bit of our legal background. We're not as nervous perhaps about -- talking about what we really believe is going on in the business.

And so we write what is intended to be an approachable long letter to shareholders, where we really do comment on what we think is going on in the business and in the market in which we're operating. This year, we tried to make this even more approachable by having some bullet point summaries at -- in front of each of the paragraphs, in front of each of the points.

But the other thing that we do is we make an effort to address in detail the kinds of questions that we get regularly from investors during the year.

And so in the annual report this year, for example, you'll see us taking head on questions around the competition and barriers to entry and market expansion in this business. You will see us talking about things like our employee base and employee compensation and a whole host of other things.

So if you have the time and inclination, and sitting on a train ride or on an airplane, so reading it from end-to-end, you'll end with an awfully comprehensive picture of how we think about the business.

And so, Holly, unless somebody else has popped into the queue, I think with that, we can thank all of you very much for your time and attention.

We do have a question from the phone lines, if you would still like to take it, from [Colin Driver] of [Carnes Capital].

I've got two questions for you. First of all, are you able to say something about competition? I would have thought the returns you're generating must be attracting plenty of competition? And how successful are any other competitors? The other one is when you sell an investment, who's the typical buyer?

Sure. So in reverse order, when we are selling investments, what we're doing really is we're at the early stages of trying to develop a secondary market for litigation risk. And we see a future in which investors with varying return aspirations can participate at different stages of the litigation process. We are content to take on litigation risk at the very beginning of litigation, and that's obviously a considerably higher-risk area of the time curve, and we are happy to do that and happy to get paid for doing that. But as investments work their way through the process, we certainly find that there are some investments where the risk profile has changed dramatically, Teinver is a great example of that. So Teinver, we took Teinver on at the very beginning of its life. Teinver has now won a substantial and well-reasoned award. And so now, the risk profile associated with Teinver is obviously very much lower. And so moving Teinver into the hands of the pool of other institutional investors who have -- who are interested in the uncorrelated nature of litigation returns but are -- but have lower-return aspirations and shorter time durations makes a good deal of sense for everybody concerned. And so that really is the genesis of that market. It's an institutional investor market with people seeking that kind of exposure. And as to competition, I would sort of turn you back to a fulsome discussion that we've got in the annual report on that subject. But the very short answer to the question is that, yes, we operate in a competitive marketplace and always have. One of the current features of that marketplace is that the -- there are capital flows into it, but many of those capital flows are going to existing players. So there are at least 11 other players in the market at $100 million or more in size. All of those players have been in existence for at least 4 years. And so there is absolutely a competitive market, we just happen to have survived and risen through the ranks to lead that market. And we are considerably larger than any of our competitive peers.

I guess on the competition front, if I could just add one thing. I think it has been healthy and good for our business that there has been competition. You see the increased demand for our capital and the increased commitment levels. I think that having competitors out there just creates more buzz and makes people, at large firms and large companies, think this is an accepted part of the legal services industry now, that there should be financing, and that's something we have to take into account. Then once they make that decision that they're going to want financing, as Chris says, we have been able to win in that competition, in part because it's not necessarily just about price. It's about intelligence, relationships, structuring. Most of our -- many of our big deals are repeat clients, repeat customers, either corporates or law firms, that come back to us because we can help to structure deals and achieve results for them that work to their benefit. So it's not a commodity industry by any means. So I would say the competition we've experienced thus far has been welcome, and I think there's so much more room in the industry. But we've also seen, I should say, as much as Chris said, there are a number of competitors out there. We've seen competitors go by the wayside, right? Where they haven't followed those -- the cardinal rules we have of building the right team internally, managing risk prudently with a diverse portfolio, managing the finances, you have the ability to meet your clients' capital needs, that's a recipe for disaster. So I think that's part of why we have survived and thrived in the competitive environment.

Our next question today comes from the line of Russell Wynn of Canaccord.

I was just going to ask, assuming that your growth continues at this rate it has been and you will be considering another bond issue in due course, I was just wondering if you'd be thinking about doing one more aimed at the institutional markets, with getting the company rated by Fitch or S&P or something? I wondered if that was in your thought process currently.

I think -- thanks, Russell. I think in terms of continued capital-raising for us, I think, frankly, everything is on the table. We were really pleased to be able to do the first ever U.S. dollar ORB issue in February. We have, as Jon showed you in that circle chart of some slides back, we have a significant exposure, obviously to U.S. dollars. And so having debt that matched the currency of those revenues was very attractive to us. And we were thrilled with being able to do that at very tight pricing over the relevant treasury. We certainly are considering all of the various options, including whether to pursue a rating, whether to continue on in a debt market that has treated us very, very well up to now, and which hasn't required us to go through the incremental expense of either getting a rating or moving to quarterly financial reporting. But I think, as we continue to grow, everything is on the table.

And I think with that...

And Chris, it looks like we have no further questions registered, so I hand the line back to you.

Thanks. And I think with that, that brings us to a close after an hour of discussion. We're very grateful to all of you for joining us. We're obviously always available for individual comments or questions, and we try to be very responsive to shareholders in that regard.

So let me just close on behalf of Jon and Elizabeth and everybody else at Burford, echoing Jon's earlier comments, thank you very much to all of you for your support. It has been quite a journey to...