Burford Capital Ltd (BUR) 2021 Q2 法說會逐字稿

Hello and welcome to the Burford Capital Interim 2021 Results Call. On the line with me today is Christopher Bogart, Chief Executive Officer; Jonathan Molot, Chief Investment Officer; and Ken Brause, Chief Financial Officer. (Operator Instructions)

I will now hand over to your host, Christopher Bogart, Chief Executive Officer. Chris, over to you.

Hello, everyone, and thank you for joining us for another Burford earnings presentation. We're delighted to have so many of you with us today on the phone or on our webcast or online. And as usual, I'm joined by Jon Molot, Burford's Chief Investment Officer and for the very first time, Ken Brause, our new Chief Financial Officer. We're looking forward to introducing all of you to Ken. The 3 of us, as usual, will walk through the slides that we've distributed and that are available on our website. At the end of our presentation, we will open the floor to questions, and look forward to having some further dialogue with you.

We're excited about the results that we were able to post for the first half of 2021. Really 3 key messages came away from those results. The first is around new business growth, not just commitments, but also a really strong record-breaking deployment possession. Having us deploy capital is obviously critical to our future potential profits from that capital, and so smashing our prior performance there, especially in an era where we had seen some prior COVID-related delays. It was really very, very rewarding and sets the business up well for the future.

The portfolio itself was slower in terms of its turnover this period, but we didn't come away with any bad news. Returns are up a little bit, losses are down and we completed the Akhmedov matter, which over time has brought in $108 million to us. Pretty impressive returns, 233% return on invested capital, 71% IRR. And in addition to that, sort of underlining our ability to do large complex noisy matters like that and frankly the appropriateness of us doing them for all the reasons we said in the past.

I think the other part of the message that goes along with that is that while these cases are going on, to the extent that our involvement in them has become public, you just can't believe what you read in the media. And we're not able during the course of pending litigation to go and correct any of that. We make, as Jon has outlined many times in the past and I'm doubtless will continue to do so today. We make our investment decisions based on rigorous underwriting and we have low loss rates and high levels of confidence in the matters that we do take on.

And finally, and I'll talk about this in a little more detail in a minute as will Ken. As to accounting, we see U.S. GAAP in our future as we've been pretty clear about with people and to facilitate us looking more like a U.S. GAAP issuer, we're taking a series of onetime non-cash accruals that really just match up those accruals to the carrying value of the cases. And this, from my perspective, is really just, what I'll almost call some accounting noise.

As you know, I've always focused on the cash performance of this business and not the accounting performance. And this stuff is all theoretical until the cash actually comes in from the underlying investments. And I'll take you through a slide on that in a minute. But the numbers on this page really are very pleasing to us in terms of the overall performance. Before I go into any more details, I just note a couple of other elements that is sort of the non-financial part of the business. Our Board has continued to evolve exactly as we said that it would in 2019. We've kept to all of our commitments there. Mr. Peter Middleton retired as our Chairman at the AGM. Steve Wilson stepped into that role and now will serve a 3-year term, and we are in the market recruiting for another new Non-Executive Director.

During the course of the year, we already talked once before about the successful U.S. debt offering that we generated earlier this year. That offering has been trading nicely as has the remainder of our U.K. debt. So we're very pleased with our capital and our liquidity position. And we've seen a nice run of U.S. market receptivity to the dual listing. We didn't do a flash bang approach with a big offering that would have generated all sorts of immediate coverage and interest. We did it more organically instead. And I'm pleased to say that about 25% of our total trading volume went through the New York Stock Exchange, which is pretty nice from our perspective on a purely organic low resource approach.

So turning to Slide 4, the numbers here -- this is all about our new business. The numbers here really speak for themselves. COVID continues to have some impact on our business development and origination activities. But as you can see from these numbers, we've been able to post substantial numbers nevertheless. And so we feel good about that in terms of what it says about our ability to write new business and it leaves us with some optimism about what our pace can look like once the world does come fully back to normal.

The trend of new business continues as it has over the last several years, a mix of smaller one-off matters and larger high-conviction matters with real scale to them. It's important from our perspective to do both of those things in our business. We are simply at such a scale now that if the only thing we did was a dire small one-off litigation funding matters, that would not be enough to continue to grow the business. But at the same time, it's very important to do those matters as there continues to be real growth in the market. We still are just scratching the surface in terms of the proportion of litigants who are users of third-party capital. And so mixing those in with the larger matters that have been successful for us in the past is from our perspective, a very desirable way of managing the portfolio.

I'm sure that to forestall what inevitably would be some questions, you will notice here a bullet point on the bottom of this deck about one of those new large matters. As usual, we don't have any ability to go beyond the pretty limited public disclosure that we give in most of these matters, and this is no exception. But this is, as you'll see in another chart, a large global antitrust matter that has hundreds of underlying cases associated with it. As always, these kinds of large deals come with bespoke structures and a substantial amount of underwriting work on our part. The accounting for them is awfully complex, and this won't be any exception to that. We have a component of equity risk in this transaction as opposed to our more traditional credit risk and that will tweak the accounting somewhat, but obviously, we wouldn't be doing deals of that size, unless we had quite a high level of conviction about.

Turning to Slide 5, and Jon is going to talk in more detail about the portfolio. I'll just note quickly here that as we've always said, the speed of resolution of these matters is unpredictable. That's what gives us our uncorrelated nature of our business. We're wholly predictable as to both duration and outcome, then you wouldn't need people like us doing it and you wouldn't be able to generate the returns that we can. So we are satisfied with the quality of this underlying portfolio when we think about where the returns and the loss rates have come. And Jon, as I say, will address the dynamics of the portfolio a little bit more.

Before we get to Jon, on Slide 6, I need to take you through a couple of accounting points. As I mentioned upfront, we have -- we are having serious eye towards U.S. GAAP. And we've thought not only about what that looks like as we convert to U.S. GAAP, the answer is not a huge number of changes, but also given that we want to make the most of the New York Stock Exchange listing and the dual listing, we want to try and look like other U.S. GAAP issuers as well as part of our goal to make the stock as investable as possible to as many shareholders as possible. And even though the practice is mixed on the subject in -- among European companies under IFRS, there is more consistency in practice under U.S. GAAP when it comes to matching accruals against fair value changes. And so that's just what we've done here.

As we explained in August, we've taken some onetime non-cash accruals that basically take prior fair value gains, a whole big chunk of which are in the Petersen and Eton Park cases and accrue the potential expense against those. This is all to me, as I said earlier, this is sort of accounting noise because this only becomes relevant when the cash rolls, and the cash numbers -- to make the accruals work, the cash numbers have to be big. So for example, the YPF related cases previous to Eton Park would have to generate in litigation more than I think $1.6 billion in cash before the accruals become fully an issue. So that's what we're doing here. It required a onetime accounting charge, but it is from our perspective something that is accounting related and doesn't relate to the cash performance of the business.

Before I turn you over to Jon, while I've been talking about Petersen here, just a word about Petersen to forestall the inevitable questions. As you know, given the cases in active litigation, we can't discuss our views about it or really very much at all, but we can tell you factually that the case is proceeding now through the litigation process. And at the end of August, fact discovery did close -- did come to a close in the case, which is the longest tent-pole, if you will, in the post jurisdictional elements of this case, which means under the current schedule, the case would go to trial in the middle of next year. There is some expert discovery and some briefing. Obviously, every court schedule continues to be subject to potential change, but finishing fact discovery is a pretty significant milestone in moving the case forward.

And with that, let me turn you over to Jon Molot.

Thank you, Chris. Thanks to everybody for joining. Speaking of court schedules, I would say that Chris pointed out that the sort of slowdowns we experienced in doing new deals and putting new money out during the COVID-related effects in the economy, that really feels like it's behind us, we've bounced back. When it comes to how our portfolio has performed like what kind of realizations have we seen, there we still do see COVID-related delays.

If you look at Slide 7, I'll walk you through how we're doing in terms of realizations. On the one hand, there is good news that although our realizations are down from the first half of 2020, they're up from the second half of 2020. And to the extent, that realization haven't yet returned to earlier levels. It's not because anything bad has happened, it's not because we've lost cases, it's just been because of delays. In fact, our realized loss rate decreased to 0.5% in the first half of 2021, down from second half of 2020, but close to half of our matters have been delayed by COVID. And we see the courts picking up, but there is no doubt that that slowed things down. Now those delays are just that delays. There is not a single case in our portfolio that was discontinued because of COVID. All the money we put out, the assets we've got in our portfolio, the deals we've done, they're all there. And so in fact, delay is not necessarily a bad thing for us because often our deals are negotiated with increasing returns that are product of time and therefore, they can lead to greater profitability.

So the fact that you can sort of see it graphically represented on the lower left, where you see realizations by vintage year, the red lines are the realizations that came in and the black lines below the middle line are the ongoing costs that are out. And on one hand, we've said before, we have begun to see those years with greater deployments. The real growth we've did enjoyed since 2015 have started to produce. The red lines are significant and an example of that was the success Chris talked about earlier, a fairly prominent asset recovery matter, where we collected more than $100 million. But you also see that the black lines below are quite big and that's the dry powder, that's the -- or those are the deals we've already put on that we're sitting on and managing and watching for future performance.

And actually if you turn to Slide 8, you'll see why I am quite bullish on our portfolio on what's in those black lines. And we've shown you this slide before, but just to tell you how I think about this. You've basically got a business where we do a deal and we put our money and we're going to end up with the result that falls into 1 of 3 general buckets. We can get more granular and I will on the next slide, but the big buckets are we go to full adjudication and we win, we go to adjudication and we lose or the case settles.

The majority of our investment dollars do result in settled recoveries. And those are quite attractive returns, generating a 31% IRR and return on invested capital that's almost a half, meaning you're getting your money back and then half of your money back again on average in those cases. The adjudication losses, they're not complete losses and it's only 10% of our cases, but then the adjudication gains, which is 30% of deployment so far, that's where it has really generated really phenomenal returns where we've gotten investment back and 2.5x your investment back.

So when you take the big gains from the adjudication wins and combine them with the still attractive gains from settlements, it obviously much more than offsets the smaller number of adjudication losses and generates the returns you see on the side with the 95% return on invested capital, which Chris pointed out that has actually ticked up from the past and the 30% IRR. And so to the extent, those black lines I talked about are matters that we have taken on using the same rigorous underwriting process that we adhere to. It's our belief and hope that those have a lot of dry powder left.

So turning to Slide 9, you'll actually see even greater granularity, which we've shown before here instead of just lumping the cases into the investments into 3 buckets. You have every individual resolved case, which is represented by one of the bars on the bar chart, ranging from the very high-end wins to the losses and you can see from the shape of the curve, which the curve doesn't quite help you, the categories above really do give you a sense of why this is such an attractive business. You've got -- on the one hand, you look at D, the number of matters and the size of the matters that have produced returns greater than 200% return on invested capital.

I mean you're doing better than your money back plus 2 times your money. 15% of the money out has produced 77% of our returns, which fall in that bucket. And so you've got these asymmetric, very attractive upside returns from a slice of the portfolio and yet those are the kinds of returns you'd expect from a high-risk strategy, a venture capital type strategy, which would also carry with it a large loss rate. But when you look at the left side, where we've got a 0% or less return on invested capital, meaning you've made an investment, you haven't gotten your full investment back. It's a relatively small portion of capital, right, it's under $100 million that fall into that category.

And the vast bulk of investments are not, just in terms of dollars out and number of investments are cases that are producing still attractive returns. You see the ones in C that are producing greater than 1x return on invested capital. You're somewhere between getting your money back in 1x or your money back in 2x and the one in column B, which are providing more modest returns but still attractive. So the thing about the strategy and to the extent that those black bars are subject to the same that I talked about a couple of slides ago, the money is still outstanding to the extent those are -- were deals put on with the same rigorous underwriting process as these that have concluded.

We believe there is a fair bit of promise left in there because it's very hard to find an investment, where you can combine the attributes we have. Usually, if you're going to have the asymmetric upside potential that we see in the right-hand side of this Slide 9 with the very large returns, you're going to have to take a risk -- a very high risk of loss or you might decide you want stuff that looks much more like the middle of this chart, where you're getting more modest returns, but you wouldn't necessarily in order to avoid losses and reduce your risk or take modest returns.

What I love about this and what makes me happy not just be an employee and a manager but to be a shareholder is that we're able to produce these levels of returns without the accompanying loss rate that you'd expect from producing that level of returns. And mind you, these are all unlevered returns. This is without leverage that we're talking about. So it is a theme you've heard from me before, and I'm just showing you based on past experience from realizations, but of course, we are focused every day on the new deals both the ones we're putting on and the deals that are in our portfolio that haven't realized yet, and I really love what's in our portfolio.

And with that, I will turn it over to Ken.

Thanks, Jon, and Chris, thank you for that nice introduction and glad to be here today. It's been just over 4 months since I joined Burford and pleased to be on my first results call. Since Chris has already addressed some of the key operating and financial results for the period, I thought I'd start by discussing our liquidity and funding and then follow that with some comments on the few components of our financials.

And just for the record, unless I state otherwise, the figures I mention are going to be on a Burford-only basis.

So turning to Slide 10, you can see here, we ended the period in our strongest liquidity position ever. Our cash and cash management assets at the end of June were $430 million, a new high for us. And this strong level of liquidity reflects a robust $215 million in deployments in the first half, but not the $103 million we collected in July for the Akhmedov realization, which represented the majority of our due from settlement receivables at period end.

The largest contributor to the increase in cash assets in the first half was our $400 million U.S. bond issuance in April that Chris mentioned, our first in the U.S. And as intended, we utilized a portion of the net proceeds of that offering to repurchase GBP24 million, or $33 million of our nearest bond maturity which occurs in August 2022 and I'll discuss the details of that tender in a few minutes.

You'll also notice on the graph that cash management assets constituted a much larger proportion of our total liquidity than in the past. These cash management assets consist predominantly of high quality and liquid fixed income assets and are managed by one of the top fixed income managers in the United States. The establishment of these accounts enables us to earn an incremental yield on our cash assets without taking undue risk. We believe the maintenance of a relatively high level of cash assets on our balance sheet is prudent in order to take advantage of new opportunities when they arise, while also recognizing the sometimes unpredictable nature of our cash inflows.

So turning to Slide 11, you can see here that we generated $63 million of cash receipts in the first half of 2021, a relatively low figure, as this was a quiet period for realizations. We've already exceeded that amount in the second half, and although we recognized the $103 million realization I mentioned in the first half, that cash was not received until July and therefore not included -- it's not included here in the first half cash receipts.

Cash receipts, excluding capital provision indirect assets, were up from $54 million in the year-ago period, which were significantly impacted by the onset of the pandemic. I think the chart in the lower left hand side of this slide demonstrates how variable our cash receipts have been over the past few years. Cash receipts in this period were derived predominantly from realizations from capital provision direct assets and from asset management income. Capital provision indirect assets contributed $170 million in total cash receipts in the year ago period as a result of the decision we made to monetize certain assets in the Strategic Value fund in light of economic conditions at the time, but none in this period. We believe that excluding the impact of capital provision, indirect cash receipt is the best way to evaluate our performance relative to the year-ago period.

Turning to Slide 12, you can see our liability structure remains conservative. Our debt maturities are well laddered and our leverage levels remain modest and well below in the covenant levels in both our U.K. and U.S. bonds. As I mentioned, we successfully completed our first U.S. debt issuance in April, which was also the largest in Burford's history. We issued $400 million bonds that mature in 2028. We were pleased by the strong investor interest in that issue, which enabled us to upsize the offering and drive down the anticipated coupon.

And we utilized some of the incremental cash from the upsizing to repurchase through a tender offer a portion of our nearest debt maturity or 6.5% notes due in August '22. Through the tender offer, we repurchased GBP24 million or $33 million equivalent in aggregate principal amount of these bonds at a price of 105%. The remaining principal outstanding is therefore down to just $86 million. And we've seen pretty consistent improvements in the yields on all our outstanding bonds have been offering. And with our strong liquidity position and our low leverage, we believe Burford is well positioned to take advantage of the significant growth opportunity we see ahead.

On the next 2 slides, I'll talk about some components of our total income or revenue. As Chris mentioned, the first half of 2021 was a strong period for new business but was a relatively quiet period in terms of portfolio progress. In addition to the normal factors that influence the judicial process, COVID also impacted the progress in several cases within our existing portfolio.

If you turn to Slide 13, you will see that while our unrealized gain in the period exceeded our unrealized losses. The transfer of unrealized gains from prior periods to realized gains in this period more than offset the fair value adjustments. So as a reminder when we have a realized gain on an asset for which we've recognized unrealized gains in the prior periods. Those prior period unrealized gains are reversed out in the period of the realization. You can think of this is a transfer of the unrealized gains to realized. So the net impact on total income in any period is just the incremental gain realized above the gains already taken.

As a result of these transfers exceeding unrealized gains in the first half, fair value adjustments, net of transfers to realized, had a modest $8 million negative impact in the period. Our aggregate cumulative unrealized gains at the end of June continue to consist substantially of our YPF-related assets. Excluding our YPF-related assets, aggregate cumulative unrealized gains declined in the first half to 14% of those assets' carrying values. Again, that was primarily due to the transfer of previously recognized unrealized gains to realized gains.

So turning to Slide 14. Asset management income was $12 million, up 50% from $8 million in the year ago period. We earned management fee income from BOF, BAIF and the Strategic Value Fund, although the growth in fee income was primarily the result of growth in realized and unrealized gains from BOF-C compared to the year-ago period. Although we had a $163 million in capital provision-direct Group-wide realizations in the period, there was no performance fee income recognized due to the European waterfall structure of our funds.

That said, if Partners I and II return capital to investors over their expected lives and maintain their current levels of returns, those funds together would generate in excess of $50 million of performance fees. This estimate does not include any performance fees from other funds, including BOF that are still in their investment periods.

Let me now turn it back to Chris who can make some concluding remarks.

Thanks, Ken. And on Slide 15, we've just got half a dozen key bullet points to really sum up the remarks that we've just made. I'm not going to dwell on them, so that we leave lots of time for questions. But it's really back to what I said at the beginning, 3 fundamental points. #1, a terrific period for new business, both commitments and deployments shattering our deployment record. #2, a strong portfolio that has grown a little bit, had a relatively quiet period for realizations probably in part due to some COVID delays, but at the same time saw the returns tick up a little bit with really low loss rates. And #3, a strong position overall, liquidity, cash and the accounting noise that we discussed previously.

So we're pretty happy, especially in the middle of the ongoing global pandemic with where things stand. We're looking forward to getting back into real business development and origination to show you what we can do then.

But for now, let's take any questions that you may have.

(Operator Instructions) The first question comes from David Chiaverini from Wedbush Securities.

The first one, I wanted to touch on -- you mentioned about the record level of new business with commitments over $500 million. Can you talk about the pipeline for new deals on a go-forward basis?

Sure, although we don't do a lot of forward-looking commentary in this business because -- for a whole variety of reasons that we've laid in the past, but what I would say just as a general matter is to sort of echo what Jon said before. We saw a sharp reduction in the pipeline and in new business which was, we believe, entirely COVID related in the first half of 2020 and we saw resumption of activity, but not to historic levels in the second half of 2020. And then in the first half of 2021, we obviously saw a meaningfully greater ability to deploy capital. It's a little early probably to determine exactly how the Delta variant is going to impact the legal world and in turn, how that's going to impact us, but we're certainly seeing opportunities to invest at this point in the cycle.

I can appreciate how the business can be lumpy and volatile quarter to quarter for interim results period. Shifting to -- you mentioned about how the delay in resolving some matters could be more profitable for Burford. I was curious what level of time value on average is built into the deal structures?

Jon, do you want to address that?

Sure. Thanks for the question. It really does vary by matter. We are always trying to be protective of ourselves, if things trigger delay, but I think we've said historically, that our returns usually consist of 2 elements. There is going to be a preferred return, which is going to be dependent upon how much money we've put out on what schedule. And then, there's going to be a percentage of the recovery, which is going to depend on how much rather than when. Although both of those elements can be toggled with time, such that you could say if a matter resolves early, we get this preferred return and this percentage of the net.

If it takes longer, which is often a question both of whether it takes longer and if we've put out more money, then our preferred return goes up by [0.5x or 1x] and our percentage of the net goes up by 5% or 10%. So that if it goes the full distance and the full duration, we end up with our maximum returns. And I can't -- I don't have the numbers handy. We haven't sort of broken down across our portfolio how much of an effect time has on returns, so I can just say as a general matter, it's a feature that is often incorporated into the terms of our deals.

And then the last one for me. I saw a media report about how a law firm that's not a Burford client, but I had a question about it nonetheless, that this law firm was pledging assets to multiple litigation finance firms without each of those firms knowing about it. So it was amounting to fraud, but I was curious is Burford taking any measures to mitigate any sort of risk that this issue could present, whether it's creating escrow accounts for cash flows, just curious about your -- any commentary there?

Sure. The case that you're talking about is a fairly well-known case for a variety of reasons. It's a California lawyer, whose wife -- sort of a very high profile California lawyer whose wife is also very high profile and I think is an actress on one of the housewife series. And he is in an entirely different business from us. He was a sort of a class action master contingency fee lawyer. And so what he had where a very large number of much smaller claims and clients. That business consists of amalgamating thousands and thousands of cases and then pursuing them on a group basis.

And so you can't, in that business, have the same kind of corporate arrangements that we have. So we're able, by contrast, to do traditional institutional financings with full and negotiated documents. The other side has counsel and they negotiate those, in appropriate cases we take security position. It's a very -- and we establish payment conduits usually through the law firms. So it's just an entirely different part of the legal industry.

The next question comes from Julian Roberts of Jefferies.

I was just wondering if you could expand a bit on the new largest asset by deployments, which I think between you and the sovereign wealth fund partners $277 million of commitments and a large number of underlying claims and also there is interesting point you make in the report that there is an equity element to your exposure. Is there any more detail you can give us on that, please?

My -- obviously, my operation of saying that I'll talk a little bit about it now because I won't be able to say anything more about it, I was unsuccessful, I got there. So as is always the case with our investments unless for some clients or judicial reason they've become public, what we've said in the disclosure is all that we are going to be able to say publicly. If you look at the disclosure, what we've said about this cases is, as you say, it's a large matter, but it's an antitrust matter. It involves a major global company. There are more than 500 underlying claims -- underlying cases. So we've released at least that much information, but beyond that, I'm afraid that -- that's all that we are able to state at the moment.

Okay. And on the pre -- the matter that was previously the largest by deployments, it looks like that you've added a couple of cases to that investment. And I think I can tell from the investment data, especially you released that there may have been a little bit more of a recovery in one of those underlying cases. Am I barking up the wrong tree or has there been a bit of positive movement there?

Let's see. Jon Molot, are you able to address that?

I'm not sure...

Yeah, we may have to come back to you.

We may have to come back to you on the specifics, I can say as a matter -- as a general matter, with respect to where we take our position across multiple cases where we have a high conviction and we see profit opportunity, it's increasingly common that we will continue to make additional investments, either with the same counterparties who want additional capital or with new counterparties that we've talked to or in the same situation, businesses, same situation. And it's also not uncommon in something with that many things involved that there will be smaller settlements along the way that will generate some returns.

It is always -- for your question about do you extrapolate from those, it's always a tricky question and particularly I understand given the constraints we have on disclosure about when you take, how much you read into early resolutions. And you can imagine if there is a large category of litigation, multiple pending suits against people in the same industry and may be guilty of the same misconduct. If they settle -- if 1 or 2 on the outskirts end up settling, that may not well tell you very much, it may not set a benchmark say for what the other settlements will be, but there could be some more significant ones that do tell you more.

So I guess, I'd say it's not unexpected that there would be both additional and follow-on investments and there would be some resolutions, whether the resolutions are a marker of when and the quantum that is involved in the future ones. I don't want to -- that -- it does happen, right. Things start to settle and then there will be multiple settlements and a benchmark could be established, but I can't really say whether in this particular instance that would be a wanted conclusion.

And I'd just sort of add to that -- I'd just sort of add to that, Julian, a really good example of what Jon just described is what you saw in the large pool of investments that we concluded in the first half of last year. So I may get the years wrong by one year, but the spacing is right. In 2016, for example, we started investing in that area and we only had one deal at the time. And so we closed one deal and we waited and we watched and we -- our conviction grew, and then in 2018, we did more deals with more counterparties. And in 2019, we did more deals with more counterparties. And we amassed a position which then resolved satisfactory for us very successfully for us in 2020. So that's an example of how you see Jon's concept playing out in practical reality.

The only difference I would point out is in that case, we kept putting on more money, which did reflect our conviction, but then all of the successes came at the end or is in the one I think you've identified. We've continued to put out more money, but we also have seen some settlements before we get to the end. So you're on the right track there, but I can't draw conclusions about what it means for the future.

Yeah, understood. I remember watching the ones that Chris has just referred to as they went through the spreadsheet getting bigger and then with some of the success, I remember thinking when they all seemed to conclude or lots of them completed one sort of the thinking that probably not that many defendants. But of course, there's no way of telling with this new law. I mean there -- but thank you. That's very helpful. Thank you.

So we are going to intersperse questions between the phone and the webcast. So don't despair, if you've been submitting questions on webcast, but I think we're going to go next to one more telephone question.

The next question on the telephone comes from Andrew Shepherd-Barron of Peel Hunt.

This is a sort of follow-up questions for the call -- the question about whether new money is going, and obviously, this large antitrust portfolio of cases. Can you make -- can you make a comment about in terms of your business over the years has sort of morphed sometimes between doing single cases and cross-collateralized portfolios might be a purchase of an existing case which this one looks as purchase of existing interest because the cash has been deployed in the same period that it was committed, but typically, I've always understood that from of legal -- future legal expenses rather than buying into an existing case?

And also the split between when you are supporting legal firms, are you taking cases from them and therefore equivalent to a contingent fee arrangement paying the legal fees or by -- or taking corporates i.e., basically taking the cases from a corporate and replacing their balance sheet and bringing all the tranches that you can? What -- is there a trend that's going on here? Could you talk a little bit more about that? I'm trying to understand where we should expect in the next 2 to 3 years where we are likely to see a focus.

So why don't I start on this and Jon, I'm sure, will chime in as well. But even before I start, what I'm going to do is actually knit your questions together with a couple of the other questions that we've had of a similar vein from the webcast. So for example, we've had also Mark Lauber asking, is it fair to say that much of the existing book of cases is corporate versus corporate, whereas the new very large case looks more like a class action? And if this is the case, does that represent a shift in strategy? And we've similarly had [Barry O'Callaghan] ask, well, first of all say congratulations to the Burford team for stellar results. Thank you very much for that. My question relates to new deployments. As you point out case sizes are becoming larger and more complex, can you give some color on this complexity and how it impacts on the risk profile of the overall portfolio.

So I think the way to approach this discussion is to think about what we do in the context of the development of the legal finance market. So when we started, we were predominantly providing as you say, Andrew, fees and expenses financing. And that was the corporate desire was for companies to get the cost -- the increase in cost of litigation off their P&L and to put it on to someone else. And frankly, they didn't care that much where it went. And so those -- in those days, the typical dynamic was the company would go to the law firm and say figure out a way to do this case for me without me paying your high hourly fees on a current basis. And it was sort of up to the law firm whether they took the risk themselves, whether they looked for outside capital, whether they throw up their hands and ran in circles.

And so we were initially a very desirable solution for both the law firm trying to land the clients and the clients who wanted the P&L [relate]. And that continues to this day. We have an active and vibrant single case fees and expenses financing business. Really, the only thing that has changed much about that business is the rather dramatic increase in the cost of legal services even just over the 12 years we've been doing this. And so you've seen the investment sizes rise. It's actually not the case that we're leaving the small cases behind, it's the case that it costs very considerably more to have the same law firm do the same work in 2021 than it did in 2010, for frankly no particularly good reason other than demand.

But what happened -- what the evolution that has happened both in our business and in the market is that as companies started to make use of that capital, they said there are other things that we can do when we think about litigation as an asset instead of thinking about just cost avoidance and we can start attending to the balance sheet side of the business as well. And so you've seen us lead the market in terms of developing first of all multi-case portfolios and more recently, a drive towards monetizing some of the underlying potential value beyond just covering fees and expenses in these cases. And when you see larger deployments, that's deployments to close that's often what is happening.

So before I turn it over to Jon, just a couple of other points along the way. I don't think you can necessarily correlate volume, as the question -- as one of the webcast questions did, with type of litigation. So just for reference, we would show a class action as one asset. We wouldn't show it as multiple assets. So just to correct that assumption.

Jon, do you want to add anything there?

Sure. I actually think the questions really and obviously your description that captured the evolution of our business. And I don't think that simply because there has been a trend toward expansion and growth, meaning we went from single cases to law firm portfolios, to doing deals with corporates that involves not only covering their costs, but to litigate a series of lawsuits, but actually monetize their litigation receivables and accelerated recoveries. It is true that the evolution has been to grow and expand and deploy capital in new ways that's useful both to corporate clients and law firms, but that has not meant we are leaving behind the businesses where we already were enjoying success.

And I mean we still do single cases and some of those single cases in the past, you have seen from our results have produced very attractive returns that have been meaningful, and we have lots of single cases in our portfolio right now that we're monitoring that have great potential. And it is true that when you do a portfolio, you're putting out more money at a time and you're mitigating risk in the single cases. There is a risk of a complete loss of binary risk.

But as part of our portfolio, we still think they're attractive. And you never really know as long as they are with the kinds of law firms and corporate clients, we want to have as our counterparties and we want to do business with. You do a single case with someone, it works well. That is the next portfolio. That's the next monetization opportunity with the corporate. And so I think we are not leaving behind, instead we just continue to expand.

So let's switch gears to some other questions that we've had from the webcast. And we'll start with a question from Trevor Griffiths. Does the definition of undrawn commitments included in the total portfolio on Slide 5 refer to commitments from investors in funds you manage or commitments entered into by the company in respect to case investments or both? I'm trying to understand the movement in BOF-C, which seems a bit of a lag with the other elements of the portfolio.

Yes, it has -- I have -- we settled on the term commitment before we were a fund manager. And I have long regretted the fact that we now have 2 different kinds of commitments in the business, which does cause this confusion from time to time. But to be clear, when we talk about commitments to investments or commitments in our portfolio, we are talking to the commitments that we have entered into by Burford to finance matters. We're not talking about commitments that the private fund investors have made to give us capital, and we address the latter in an entirely separate asset management discussion.

The reason I think, Trevor, that you're seeing a little bit of aberrant movement around BOF and BOF-C and so on, I think is because of the combination of the maturity of BOF. And so just to refresh everybody, while we raised BOF and BOF-C at the same time, BOF-C is the sovereign wealth fund arrangement and BOF is the traditional multi-investor 2 and 20 fund. They have different -- they were different sizes obviously and they have different lengths of investment period. The other thing is that BOF-C is excluded from certain category of investments, as we've disclosed before.

And so what has happened is that BOF has filled up more rapidly, and has a shorter investment period, so BOF is full and actually became full around the end of 2020 or the beginning 2021. And so it's not receiving any new investments at all. And so we've instead realigned the distribution -- the allocation of investments between the balance sheet and BOF-C on a 50-50 basis, subject to that carve-out, so that's really I think what you're seeing going on there.

Next, we have a question from Paul de Grucci. I'm sorry if I'm mispronouncing that. How to value Burford is always a matter for debate with some believing it should be treated as a financing company and others as an asset holding company. Without judging which approach is correct, what would Burford's NAV be if it were treated as an investment company accepting that there would be a very fine management company alongside the assets themselves? In other words, what is the value of Burford's underlying investments in its own name or as a co-investor using its funds less any debt?

So interestingly, of course, Burford started life in the asset holding company, investment company structure with an external fund manager and we figured out in -- by 2012, that was not the optimal structure for us to use. And so we converted to our current structure and have been living happily in that rubric ever since. But I think the question because we have quite a straightforward balance sheet and capital structure. I think the question literally is the net asset value on the balance sheet because especially when you look at this on a Burford-only basis, what you see there are simply the case investments that we've gone and made valued in exactly the same way that they would be valued regardless of corporate structure or corporate form.

The obvious question though is how you then look at them. And I think it's -- when you consider the growth rate that the business has had, and this is what sets us apart I think from a pure asset manager investment company, publicly traded investment trust. The growth rate that we have had in the overall business, not only just at capital dollars, but in scope of strategy and the returns is where I think you, at least, in our judgment would appropriately see a more premium valuation.

Next we have a question from Jerome Hass. Given the liquidity is an all-time high and the lumpy performance in 1H due to COVID-19 delays, wouldn't this be an ideal time for the Board to introduce a normal course issuer bid?

And I think we've -- we've talked -- we've had this question in various forms at various times over the last several years. And I think our continued philosophy -- well, it's certainly something that we look at along with all of the other shareholder and corporate finance questions that we address, which include should we be paying a dividend. And if so, at what level, should we be buying back stock and so on, should we be using capital to prematurely retire some of our bonds and so on.

I think we put all of those things in the hopper and we also though look hard at what the -- what we think is coming in terms of not only of new business from the market, but also we have a very significant level of undrawn commitments in the business, something above $900 million of both the combination of definitive and discretionary commitments.

And so we look at those numbers and we also candidly look at the volatility of capital markets and the unpredictability of our cash inflows and we say in a world where we deployed $400 million in the first half of this year and we're generating very nice returns, isn't it better to take the capital that we're able to get our hands on and use it to continue to grow the business and make what we hope are high-quality asset additions to the book. One can obviously have the corporate finance debate about that issue and one can also have the corporate finance debate about dividends. And I think one's position on those issues depends on a number of factors and it's certainly not something that we ignore or take lightly, but that's the present situation that we find ourselves in.

Now I think this is a question for -- a couple of questions that I think are for Jon. First from Ed Quail. As the business has evolved to new business lines, has your pricing for new commitments been kept such that you expect future investment returns to keep pace with the historic 30% IRR? And Jon will of course comment generally on this, but as you all know, we don't predict the future and guide about where we think individual returns are going to go.

That's right. Thanks for the question. We don't. Yes, I would never project what our IRRs would be in the future. I will say that our underwriting process become no less rigorous that the expansion into new lines has been the -- because of the presence of new opportunities and I don't see that we've had to, for the risk involved, sacrifice pricing. There is always the question. We've always said that we price differently depending upon risk and duration. Its risk-adjusted returns that we pay attention to and we model everything very carefully. So for a single-issue 1-year appeal, where we feel fairly bullish that there is going to be an affirmance of an existing verdict and you already have all the information because the trial judgment has been rendered, that's going to come in different pricing from a suit that's just being filed where there's factual uncertainty, there is many ways you could -- there are obstacles along the way and the duration will be longer.

So our pricing is always very depending on risk, but our approach to pricing has not markedly changed. I think probably if anything with experience, our underwriting continues to get better or modeling as much more data to draw upon and we have much more experience, but we haven't changed our underwriting standards.

I'm conscious that it's now one minute past the hour. With your indulgence, I think we can probably have time for 2 more questions, but I think after that, we will probably close this and -- but always, of course, welcome your direct interaction with any of us. Why don't we next do a question from Dennis [Two]. Commitments have been fairly flat over the recent years. What's limiting the growth in commitment? Is the capital, the size of your sourcing team, or the fact that there is simply not that many attractive cases in any one period to be funded?

So Jon, why don't you comment on that, but I think -- I think that one of the elements obviously, Dennis, is our selectivity as well. We continue to say yes to a single-digit percentage of the things that come in the door.

Right. It's interesting. I would say, that is the flip side of Ed Quail's question in terms of the way Chris described our standards. Our standards remain the same and that means we say no to most things and we ensure that our pricing is commensurate with the risk to generate the returns we think are justified. I think frankly COVID slowed us down, right. I think when you say they are flat, it's not just that the commitments were flat, right, we did see a dip and then we came back up and now we've come back up further still and I feel like the market is quite robust right now. I'm seeing lots of great opportunities that I like and want to invest in.

So I don't have the data at my fingertips, but I don't -- I think there has been a period that we had to get through then -- we mentioned before, the court process is still delayed, but the flow of deals has come back and I'm optimistic that the flow of deals can increase when our business development and origination teams are allowed to get back out into the market and meet with people in person. And so I see plenty of good opportunities and hopeful that the growth resumes. We're on a growth trajectory from where we were, but I'd like to see more.

And finally, a question from Bruce Anderson. We've talked about some of this. Let me read the question, and then we'll sort of decide dissect it a little bit. Can you comment on the level of new commitments and the fact that only 14 new commitments were made in the period? While the value of new commitments in the period is very high, the level of new commitments in terms of numbers was less than in prior periods. And then, Bruce cited some numbers and let me come back to that in a second. Why were there so few commitments made in H1, because the market really has yet to pick up or was it a conscious decision not to go after more business and if so what was behind it? By going further up market in terms of value, are you allowing the competition to take the space in that sector of the market than you previously occupied?

So just on the subject of the actual numbers, we provide 2 different sets of numbers. We provide total business activity numbers across all of the platforms in which we invest. So traditional core litigation finance that we put on the balance sheet and in BOF and BOF-C, pre-settlement -- sorry, post-settlement things that we put in the base funds, strategic value investments and so on. And then, we separately provide in tabular form a huge amount of detail, both in our interim report and then even more on our website tables information just about the capital-provision direct assets. And so one of the [targets here] in your question, Bruce, is that you mismatched the total number against the capital-provision direct. So we did 14 capital provision direct matters in the first half just by comparison, we did -- so that would annualize to 28 and in 2017, we did 25, in 2018 we did 39 annualized.

So we're not off our historical path, although, as Jon just said, we look forward to a world of yes more. But leaving the numbers aside, I'm going to sort of the substance of the question, it really goes back to what Jon and I were talking about earlier. It's a combination of the evolution of the market and the upsizing of litigation costs. So it's -- we just are not seeing, I'll pick on a firm, Freshfields used to do an international arbitration case for a few million dollars a dozen years ago. And today, that number is going to be 5x that.

The -- and so, we're not ceding the market at all in the kinds of cases that we've historically done and like to do. It's just that those cases have become more expensive, which is frankly not a terrible thing for us, it's not wonderful for the underlying clients, but it's not a terrible thing for us. But then, what we're doing is we're really adding. It's not that we're shifting, but we're adding whole new areas of capital provision opportunity and endeavor. And so that's really how we think about it. But as Jon says, it would be nice if we were not having all of that evolution happen with the COVID hanging over what might otherwise be a more active period. So we're very pleased with the level of activity that we did have. And in the portfolio, we're pleased nothing went awry, but at the same time, it will be awfully nice to come back to normal, not only for us, but for of course everybody else in the world.

So with that and having gone 7 minutes over time, I think we'll call it a day. But we really appreciate all of your participation and attendance today. We're available to talk to any of you about anything that you'd like about the business. We know that we give you a whole lot of data, some of which -- some of which needs some explanation and Rob Bailhache and Jim Ballan are delighted to either aid in that. Ken Brause is getting out to see investors and make the rounds. And so will excited to introduce Ken to you. And we're looking forward to interacting with you in a number of different ways, not only through some traditional meetings but through some group and investor engagement.

And finally, we hope that all of you will participate in our investor event, our Capital Markets Day in early November. We put an announcement this morning about the date and time of that as well and that will be an opportunity for us to spend more concentrated period of time with you going through some key elements of the business and some things that we think you'll find very interesting about how we look at the portfolio.

So with that, thank you. Thank you all very much.

This concludes today's conference call. Thank you for joining. You may now disconnect your line.