Burford Capital Ltd (BUR) 2020 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Burford Capital 2020 Earnings Call for investors and analysts. My name is Ruby, and I will be your moderator for today's call. (Operator Instructions) I will now hand over to your host, Christopher Bogart, CEO, to begin. Christopher, please go ahead.

Thank you very much, and hello, everybody. It's great to be able to present some earnings and talk to everybody about Burford again. As usual, I'm joined by Jon Molot, Burford's Chief Investment Officer; and Jim Kilman. Burford's Chief Financial Officer. And together, the 3 of us are going to turn the pages of the investor slide deck that's posted on our website, take you through some highlights of the year, give some commentary on what we think is going on in the business and then take your questions.

We're really very pleased with Burford's 2020 performance. This was the best year in our history for our portfolio performance. And it really shows the strength of our uncorrelated, diversified business model that in the middle of a global pandemic we were able to put out record-breaking results.

Group wide, the numbers are quite staggering. We brought in $1 billion of cash this year, $500 million of group-wide income. And that, obviously, to the extent that, that doesn't reflect balance sheet activity, that's setting us up for future performance fee income. On the balance sheet itself, we set a number of records. We had record levels of realizations of realized gains and of cash flows from case successes. Our returns, our cumulative asset returns grew to 92% return over invested capital. And it's notable that all of that happened without any contribution from the Petersen YPF assets. In the last several years, those assets have featured in our performance. And this year, they were simply flat as that case proceeds along the path towards trial. And so all of this performance that you're seeing captured on the Slide 3 that we're looking at. All of the performance that you're seeing there is happening without any contribution this year from those assets. And indeed, if you were to remove the YPF-related assets from our prior performance, our total income this year more than doubled and our operating profit went up 226% year-over-year, again, without any contribution from the YPF-related assets.

As you can see from the graphics on these pages, and we'll be touching more on them as we go forward in the slide presentation, I would just really call out the overall size and growth rate of our portfolio, the graphic that's in the top left corner here. The fact is that we've grown this portfolio at a 52% CAGR over the last 5 years. And now we have, obviously, this multibillion-dollar portfolio that, as Jon Molot will talk about in some detail in a few minutes, we expect to continue to throw off cash and positive cash successes for years to come. The other thing that this level of growth really suggests is that it's really -- it really justifies the ongoing investment that we've been making in the business. We have been growing Burford consistently, not profitably, but consistently, so that every year, we've been adding headcount, we've been expanding geographically, we've been adding product lines. Those things take some years to realize gains and to mature, but the size of the portfolio that we've been able to build and the consistency of our returns really suggests a very bright future here.

Before I go into more financial detail, just a few overarching topics. First of all, I would just call to everyone's attention that following the lead of so many other firms, we suspended briefly our dividend but we have completely restored our dividend at its historic level. And not only that, but Burford would normally have paid an interim dividend in December of 2020 and then the remainder of the full year dividend in May or June of 2021, we didn't pay that interim dividend. And so in June of 2021, we're going to pay the entire $0.125, the entire full year dividend even though we didn't pay the interim last year. We've consistently talked about governance and our progress in those -- in that area.

And I'd call to your attention as well, some real progress this year consistent with the commitments that we've made to the market. Burford appointed 3 new directors during 2020. All the bios are both in our annual report and on our website. But these are high-quality independent directors who have come in and really refreshed the Board. And as part of that process as well, our long-time Chairman, Sir Peter Middleton, who has chaired the Burford Board since Burford's inception in 2009, is retiring in May. We owe him an enormous debt of gratitude for him steering Burford to its current position in the market, and we'll have more to say about that at the AGM.

It's been difficult during the pandemic to engage with shareholders in the way that we historically have and would like to be. Happily, that seems to be coming back to life a little bit. But we just flagged for shareholders that we do intend to hold the Capital Markets Day later this year, and we also are continuing to look for other ways to engage a wide variety of shareholders including the fact that I'll be presenting again at the shareholders' conference, which is widely available online.

And finally, we would just really highlight and express a deep sense of gratitude to the Burford team during this difficult period. Everybody in the business has gone remote, and we have functioned pretty much as well as if we had been in the office. Certainly, our numbers that you see here suggest a very strong year, indeed. And that took a real level of extra effort and commitment from people, and we're deeply grateful for that. And I'd just remind shareholders just how aligned they are with this team. Burford's employees own 9% of our shares. They consistently increase their exposure to the business. In fact, this year, more than 20% of our employees, in addition to their annual share grants, opted to go and take on additional exposure to the stock showing their enthusiasm for the long-term prospects of this business.

So digging in a little bit and turning to Slide 4. This slide is showing the progress of realized gains. And what we see here, first of all, as the graphic on the left demonstrates, it's just a record level of realized gains on the balance sheet. And this, of course, doesn't take into account the further realized gains that we made in our managed investment funds. And those funds, for the most part, pay performance fees on gains like this later in their lives. And so in addition to the cash benefit and the income benefit from these realized gains, we can look forward to future performance fees from those funds. It's notable that not only did these numbers go up in 2020, but the relative contribution from realized gains rose considerably.

Our income streams are a combination of realized and unrealized gains, and Jim Kilman will take you through that in more detail. But our income this year had a significantly larger component of realized gains in it than it had in the prior year. And third, I'd just direct your attention to the graphic on the right-hand side of the slide, which shows the -- which shows graphically the impact of the YPF-related assets of the Petersen case on Burford's income. The graphic on the left of this dotted line in the slide shows the change in income year-over-year, including the impact of the YPF assets. And the graphic on the right shows that without the impact of the YPF assets in 2019 and shows you just how much Burford's income grew on an organic basis.

Turning to Slide 5. As we've always said, we measure accounting, but we care about cash. This business is all about generating cash. It's the cash that we generate that we use to pay our expenses and our debt service and we turn around and reinvest the excess in the business. And that's exactly what we were able to do in 2020. We generated again more than $0.5 billion of cash on the balance sheet, and indeed, more than $1 billion group-wide. That for the balance sheet alone, left us with $387 million of cash available for redeployment. And so that enables us to continue to power that growth that we showed you a couple of slides back of the total portfolio.

Turning to Slide 6. One of the most notable things here when we look at these statistics is that the base that we're working on now is $1.6 billion of recoveries. That's at the far right of the slide. So when we talk about the consistent returns that we've been able to generate, which are showing on the left and have now risen to a 92% return on invested capital and when we talk about the consistent duration or weighted average life of our assets, which fluctuates sort of around 2-plus years for the portfolio right now. When we talk about those consistent numbers over years, we're now talking about a track record of $1.6 billion of recoveries for the balance sheet. So these are statistically significant, very, very large numbers.

And by the way, if you were to look at the business overall, these numbers are just for the balance sheet and just for the capital provision direct assets, in other words, our core litigation finance business. If you were to look at our total business across all of our sources of capital and all of our strategies, we've now hit the point where Burford has generated $2.6 billion in cash on the balance sheet. And if you add in the funds, our investing success has been to the point that we've generated $4.3 billion in total cash. And that just really goes to show that we figured out the mousetrap, that this business is capable of producing ongoing repeated results, and Jon is going to talk some more about that.

Turning to Slide 7, which is really one of my favorite slides. This slide really illustrates how the business works. Investors who have been with us for a while have seen me talk to this slide before. But the reason I like it so much is it really just graphically illustrates the financial attributes of the business that we run. We write new business in the form of commitments. We turn those commitments into deployments. And then we wait. We're effectively buy-and-hold investors, and we wait for an outcome. And there are 3 possible outcomes in litigation. You can go to trial and win, you can lose or the majority of it comes in our portfolio, you can settle. And it's not just our portfolio. That's a consistent litigation phenomenon, cases settle more often than they go to trial. When they settle, they do very nicely indeed. When they go to trial and win, they do even better. And the combination of those outcomes, along with a moderate number of losses, results in the kinds of returns that you see in the red box there to the right.

And finally, turning to Slide 8. Let me touch briefly on COVID. It's impossible to give an investor presentation these days without doing so. COVID really had a couple of impacts on us. The most significant was that our new business fell sharply in the first half of 2020. And you can see that in the hashmarked areas here. And that was really a combination of our choice. We really were concerned about where the market was heading and where liquidity sat for our -- for defendants and their creditworthiness in the first half of the year. And so we declined a number of cases that we might normally have done. And clients as well were discombobulated by trying to deal with the impact of the pandemic. And so the net of all of that was the reduction that you see here. But the reality is that the business rebounded and the market rebounded in the second half, so that our second half of 2020 really closed right on top of 2019. And I'll talk a little bit more about COVID when we get later on in this presentation. But for now, let me turn you over to Jon Molot to talk about the portfolio.

Thanks, Chris, and thanks to all of you for joining, and I'm very pleased with our portfolio, as Chris hinted, which continues to grow. It's notable that we've generated growth at above 50% compound annual growth rate over the past 5 years, which positions the business for future cash flow generation as the portfolio continues to turnover, and there'll be a little more about that in some later slides.

But if we start at Slide 9, if you turn to Slide 9, you'll see that the portfolio at the end of 2020 was larger and more valuable than the portfolio a year earlier despite 3 things that you might have expected to hinder that growth. The first was that, as Chris just mentioned, COVID slowed deployment in the first half of the year. That picked up in the second half of the year. But nonetheless, we finished the year having put out less money than we would have liked, yet the portfolio nonetheless is larger today than it was a year ago. The second is we've had some very large profitable realizations in the core portfolio, which Chris alluded to and I'll talk a little bit about further. But despite those large realizations, that didn't shrink the portfolio because all the -- although the profits on those realizations were large, the carrying cost of the investments that resolved were a much smaller number, and the new investments we put on more than exceeded the carrying costs of the old ones that resolved.

Third, we had realizations in the capital provision indirect portfolio. Those are the shorter duration, lower risk matters with somewhat lower returns that we did not replace because we didn't think market conditions warranted their replacement. So that means we made up for the decline in the capital provision indirect assets with additional value in the higher-returning core capital provision direct portfolio. And a combination of putting out capital even if not at the growth rate we would have liked and seeing progress in the portfolio that led to modest fair value adjustments. Remember, we've got a policy that only makes fair value adjustments for concrete case events, and historically has met modest write-ups until matters actually conclude. But those 2 things, putting more money out and having the litigation matters in the portfolio progress means we're sitting on a more valuable asset base today than a year ago.

Turning to Slide 10. You'll get to see how the more recent larger vintages that I've been speaking about these past couple of years are now beginning to generate results and bear fruit. We had 51 distinct investments contribute to our returns, 10 of which spread across 18 cases contributed significantly to the record realizations we enjoyed in 2020. Looking at the vintages that generate these returns on the lower left, you see that a number of different years contributed to this year's profit, that's the shaded thing, and have contributed to our cumulative returns over life when you add in deeper red. But we're beginning to see the larger, more recent investment vintages, the deployments are representing in black below the line are generating sizable returns. Indeed, if you turn to the right bottom of the slide, you see how that has led to an increase in overall realized returns, and 2020 was, as Chris pointed out, a record year for realizations and group realized returns, which dwarfed previous years. So variability is part of the equation. These vintages won't produce cash flow smoothly, but they should do so inexorably over time.

If you turn to Slide 11, you can see with some greater detail the evolution of our business and of our portfolio. And this is a new slide that we're introducing here for the first time, and it really demonstrates the potential of the portfolio and helps explain my enthusiasm for it. Fundamentally, it shows that the conversion from investment to realization over time, and it shows that portfolio growth sets the business up for potentially significant future realizations as assets mature. And we've broken the life of the business down into 3 stages. The early stage, which we demarcated, 2009 to 2012 is when we proved the business model. We built an impressive track record with high returns on invested capital, high IRRs, and most importantly, we built our origination network, our brand and our team, so we became the market leader by a long distance, and we're positioned to take advantage of tremendous growth in the years that followed. But in pure financial terms, the business was quite small at that point. So its returns while strong, are simply not as large in nominal terms.

Turning to the middle phase 2013 to 2016, that's a phase when we were able to put out much more capital, often in law firm portfolios, further expand our footprint in the market and prove to investors that the early successes we had enjoyed were not flukes but were replicable and that we would continue to grow the business without sacrificing returns or reducing the quality of our investments. We've become by then the provider of finance to the market for legal services. We were the provider that, that market looked to, to facilitate its own growth and development. The recent vintage 2017 to 2020 reflects the dramatic expansion of our business after 2016 when we began to manage a funds platform to co-invest alongside balance sheet capital.

In this period, we became the provider of capital and risk solutions, not just to law firms, but also to corporate law departments. And we were able not only to help corporate clients manage their legal budgets by financing legal fees, but also enable them to monetize receivables that had some legal risk attached to them. And we're able to take good investments in our portfolio and find ways to grow them as we saw favorable developments unfold, either by adding monetization for the client to a case we were already financing or by striking a deal with another company in the same field with the same kinds of legal receivables and the same kinds of litigation problems that they needed to solve. So we can really grow those attractive opportunities and generate significant investments and significant returns.

I've been saying on these calls for the last couple of years that I'm really pleased with the portfolio we've built and with how we continue to build it. I've always seen new opportunities that were equally, if not more attractive. But given that shareholders and analysts can only see what we've done in the past, in those prior years, when I expressed enthusiasm, they were looking at the returns from the early and middle vintages, knowing we had put out much more money in the recent vintages, but not yet having seen those vintages produce returns and thus not knowing if they would be as successful as the earlier years. Well, when you look at the top and bottom figures and you compare 2019 to 2020, you see that the composition of the portfolio, which will generate tomorrow's returns is now much better reflected in the returns we are already enjoying today. So last year, the recent vintage was yet to produce. But this year, you see it has started to produce, contributing to our profits this year in a size that's proportionate to its share of our portfolio. So I hope this helps you understand the enthusiasm I exhibited in the past calls and lead you to share my enthusiasm on this one.

Finally, before I turn it over to Jim, let's take a look at Slide 12, which really captures our batting average. What's our win-loss ratio? How has past wins and losses contributed to our returns overall? And there was an earlier slide that Chris had spoken to that reflected that to some extent, the breakdown among settlements and adjudications. But this provides a little greater detail. And I think perhaps the best takeaway from this slide is that it shows just how unusually attractive the business we've built is. Typically, investors have to choose between strategies with modest returns and low loss rates on the one hand and strategies that can deliver outsized returns but carry with them a higher risk of loss. Think on the one end of the spectrum about a financing business that earns a spread over LIBOR, such that the interest generated on its loans is sufficient to cover a smaller number of losses, cover costs and deliver a modest return for investors.

On the other end of the spectrum, you might think about a venture capital strategy, where a small number of home runs delivers truly extraordinary asymmetric returns, but most of the investments just don't make any money. The amazing thing about Burford is that because most lawsuits settle and the settlement eliminates the risk of loss, we earn enough money on settlements to cover very modest losses in the smaller number of matters that lose often after only modest spending, cover costs and deliver positive returns. But even among settled cases, there are those that generate much larger returns and bring you in to, say, category C on the slide. You can sometimes do better than doubling your money in a settled case if the case is developed well by the time of settlement.

And then with category B, you have truly outsized returns where you're doing better than tripling your money. That has historically happened in 12% of the capital we've deployed. And this spread of returns, which lead to very high overall IRRs and ROICs across our diverse portfolio can't be attributed to our luck in picking a few good investments, rather it's built into the asset class. Every case is going to have a distribution of returns, ranging from a loss of your investment to a verdict or judgment, which you not only win on liability, but the judge, the jury or the arbitrator accepts your entire damages theory and awards you everything you were asking for. In between, there's a range of trial outcomes and settlement possibilities. We can't know at the start whether it will settle or go to trial or which category it will fall into. But what we do know is that if we construct the diverse portfolio, the spread of returns will follow.

And so what's our secret sauce to be able to generate these kinds of returns is not just the asset class. It's that, a, we've got a brand and origination function that generates these great opportunities, right? The market relies on us for capital and knows we're there for them and we understand what they need. B, it's our expert underwriting team that they can't predict the precise outcome of any case, but they can accurately underwrite the range of outcomes and probability weight them using our own proprietary rich data set so that we know what -- which cases we should turn down, which cases we should take and how we should price them. C, our portfolio management expertise in which we help our clients maximize value from their cases and optimize results. We don't just put out our money and hope for the best. We remain an active investor and offer free advice and assistance to our clients who very much appreciate and take advantage of it. So it's not just that we're in a great asset class with enormous opportunities, that's true. But it's that we have the 1 team in the market that's positioned to take advantage of that opportunity and deliver the spread of returns that are depicted on Slide 12.

And with that, I'll turn it over to our CFO, Jim Kilman.

Thanks, Jon. I'll start by touching on a few highlights from our brokered-only income statement on Slide 13. Group-wide, we set a record for total income, more than $0.5 billion. However, because a portion of that income is in our funds, our performance fees will only appear later in the fund's life. Our balance sheet income was essentially flat in 2020, compared to 2019, but there were some positive trends underneath that headline number. First, a higher proportion of total income was cash gains this year. Realized gains made up 51% of our total income in 2020 versus 36% in 2019. And while last year our YPF-related assets contributed significantly to income, our 2020 results were driven by the rest of our portfolio. Excluding gains from YPF-related assets, Burford-only total income in 2020 was over twice 2019's level.

Our general operating expenses were up 11% in 2020 year-over-year. Although we kept our headcount relatively constant in 2020, our employee growth in 2019 meant that our average headcount during 2020 was 11% higher than the year prior. In addition, we had $8 million of onetime listing and equity-related expenses as we completed our listing on the New York Stock Exchange. As a result, our operating profit was down given flat total income. And our profit after tax was down even more because a lot of the realized gains during 2020 occurred in higher tax rate jurisdictions. Nonetheless, because of our tax planning, our level of cash taxes was only $11 million, less than 1/3 of our book tax expense.

Finally, to touch briefly on second half results, similar to 2019, we had a slow second half of 2020 for realizations after a strong first half. As we frequently said, realizations in our business can be lumpy. So slow periods are not unusual, but we did see continued case progress in our portfolio during the half. To drill a bit deeper on our fair value or unrealized gains during 2020, we can turn to Slide 14. As you may recall, our YPF-related assets account for the bulk of the unrealized gains on our balance sheet, some 80% at year-end 2020. We did not change our carrying value for the YPF-related assets during the year, so we continue to hold them on our books at the value implied by the last significant sale of that asset. We are in an active pre-trial process in a case underlying these assets, so we can't comment any further on them at this point. But would note that the trial is currently scheduled for January 2022.

While further delay is always possible, this is not a jury trial and the courts have continued to operate efficiently with respect to non-jury matters. Away from the YPF-related assets, continued positive case progress in the Burford-only capital provision direct portfolio during the year led to $141 million of unrealized gains on 41 different assets. This is not surprising since as the portfolio matures and more cases draw to conclusion, they are more likely to hit the case milestones that would cause us to make fair value adjustments.

As the bar chart on the right shows, our experience on our concluded cases continues to be that most unrealized gains occur later in the life of an asset and represent only a modest portion of the ultimately realized gain. Even with the steady and widely distributed unrealized gains during 2020, our capital provision direct portfolio, excluding YPF, still has only a small portion, 17% at year-end 2020 of its carrying value in the form of unrealized gains.

As a reminder, as we lay out on Slide 15, our fair value policy relies upon objective case milestones to trigger unrealized gains or losses based on a relatively conservative formula. If we win a pretrial motion, we mark up by a small percentage of our expected profit. If we win a trial, we mark up by a bit more and so on. The percentages and the policy are set so as to leave plenty of headroom between our carrying value and ultimate expected realized profit, which has proven out in our results as the chart on the prior slide showed. Currently, of our consolidated capital provision portfolio, about 1/3 is held based on market prices. This is mostly the YPF-related assets. 1/3 is held at cost because there haven't been case events to trigger a mark yet. And about 1/3 is carried at values based on case milestones. It's interesting to note from the chart on the right that the percentage of our portfolio valued based on case milestones has increased from 10% in 2018 to 34% in 2020, as an indicator of the positive progress occurring in the litigation underlying our portfolio.

Turning next to our funding configuration on Slide 16. You can see that about 2/3 of our group-wide portfolio is now funded on the balance sheet. About 25% in limited partnership funds that we manage and just under 10% in our sovereign wealth fund arrangement. We've certainly evolved our funding strategy from 4 years ago when everything was done on the balance sheet. And we've diversified our funding even since 2 years ago with a sovereign wealth fund arrangement becoming a more meaningful part of the mix. We would expect to see the sovereign wealth funds share of the funding pie continue to increase this year, since late in 2020, we filled up our current core litigation fund, Burford Opportunity Fund, which have been taking 25% of our new originations. With that fund full, the sovereign wealth fund arrangement is now taking 50% of our eligible core litigation finance originations, with 50% going on to the balance sheet.

One of the benefits from our more diversified funding configuration over the past several years has been a stream of asset management income, which totaled $24 million last year, as you can see on Slide 17. Just under half of that was from management fees, which were down last year because some of our earlier funds are now past the point where they pay management fees, and we've not raised a new fund since 2019. Importantly, though, we saw performance-related fees account for over half of our asset management income in 2020. As you'll recall, most of our funds have a European performance fee structure, meaning that we get our 20% performance fee towards the end of the fund's life. That actually happened in 2020, where we received a further $6 million performance fee as our first core litigation fund accounting for only 2% of our AUM, successfully concluded its life. Our next 2 core litigation finance funds, Partners II and III at this stage would deliver us another $50 million in performance fees were their current performance to continue through the remainder of their lives.

Our other funds, including our core -- current core litigation fund, Burford Opportunity Fund, are too earlier in their lives to estimate future performance fees. However, one indicator of the future store of performance fees is to look at the amount of gains occurring in the funds alone in 2020, which are the black and gray portions of the bars on the upper right-hand corner of Slide 17. We had $187 million of gains in the funds themselves in 2020, 95%, which was realized gains. These gains are building up a store of future performance fees that ultimately will come back to Burford as the funds mature.

Turning next to our funding configuration -- one of the key takeaway from this slide is to note that BOF-C, our sovereign wealth fund arrangement, contributed a meaningful slice of our asset management income despite the young age and smaller size of that vehicle, which is only about 25% deployed at this point. BOF-C is structured to be more profitable to us than the regular limited partnerships and also to pay us our share of the profits as they occur rather than waiting until the end as with the other funds. Therefore, as BOF-C grows and begins to receive significant realizations, its key contribution could increase.

Before turning to our balance sheet, I did want to touch briefly on receivables collection on Slide 18. Chris talked earlier about the sizable realizations we had during 2020. As you know, a significant portion of those occurred late in the first half and did not pay immediately in cash so that we had $281 million of receivables at June 30. We collected almost all of those receivables during the second half, leaving us with only $31 million of receivables at year-end 2020. This meant that 98% of our realizations during 2020 were collected as cash and continues our historical pattern where almost 90% of capital provision realizations turn into cash in the same year they are realized and much of the rest shortly thereafter. All of that cash coming in during 2020 allowed us to increase our liquidity position by $130 million during 2020 despite not having raised any external capital since 2018.

As you can see on Slide 19, we finished the year with $336 million of cash and cash management assets more than any period prior year-end. Our liability structure also remains conservative. Our debt is laddered with our next maturity 18 months away and long-dated with a weighted average life of our debt almost twice that of our assets. And our leverage remains low with net debt to tangible assets at year-end 2020 of 13%, well below our covenant level.

With that, I'll turn it back to Chris.

Thanks, John. So on Slide 20, I return to COVID briefly. We've already talked about the impact of COVID on new business. Really, the other thing I'd comment on in terms of the existing business on COVID is with respect to jury trials. In general, courts and arbitration institution did a pretty good job in migrating to a virtual world and in dealing with the impact of the pandemic. And as you could see from our financial performance in 2020, we saw lots of case success and lots of case resolution, notwithstanding the ravages of COVID-19. The -- and indeed, we think some of those changes are going to be permanent and are going to increase the efficiency of the judicial system so that you don't have things like lawyers flying around the country or around the world to attend short -- scheduling conferences and so on and doing more of those live video.

The one place, though, that has been pretty routinely hampered is with respect to jury trials. Most courts are really not doing in-person jury trials right now. They haven't been for much of the year. Now many of our cases don't require them or settle before them. But nevertheless, some of our cases do need jury trials and the knowledge of an impending jury trial can also drive settlement a little bit. So the reality is there's a little bit of a backlog there that will take some time to work through. This isn't necessarily a bad thing from our long-term perspective. Many of our assets come with time-based returns. So the delay is the risk for the client as opposed to the risk for Burford. And it may well be that we'll make more profit on cases that are delayed, but it is a timing and duration issue, nevertheless.

Beyond that, while COVID has obviously been a global calamity on so many personal and economic levels, the reality of the situation is that lawyers get called into circumstances where there has been disruption and dispute. And the simple fact of the matter is that COVID is going to produce or has already produced a lot of dispute and is going to continue to do that for years to come. Just looking at the U.S., we've already seen -- according to a law firm that tracks new COVID filings, we've already seen 9,500 -- more than 9,500 COVID filings, COVID-related litigation filed in the United States. So just to put that in perspective for you, in the entirety of the U.K. commercial court, there are only about 800 cases filed a year.

So you've got a very significant volume, but litigation already showing its head, and that is probably just the tip of the iceberg. Lots of that litigation won't be addressable to Burford. It will be too small or it will be too cookie cutter. But between pandemic-related litigation directly and between the likely financial distress and insolvency that we will see in some sectors once government stimulus comes to an end, this reminds us of the period of opportunity for Burford that existed after the global financial crisis, as we spent some number of years litigating some cases in that area. This isn't necessarily a business transformative, but it's business additive, and it's something that we expect to see going forward for a number of years.

So that takes us to Slide 21. Just to sum up. We couldn't be happier with our performance in 2020. As I said at the outset, it was the best year in our history for portfolio performance. And not only did we demonstrate again the proof-of-concept and the substantial track record that we've been able to develop. But I think you've seen through all 3 of our presentations today, just the potential of the future for Burford. We have the industry's largest and a very well-diversified portfolio, a multibillion-dollar portfolio of litigation assets. We've got a long track record of being able to generate strong returns from our portfolio. We have an excellent liquidity position. We're the clear market leader with a number of moats around our position. And the strongest balance sheet position we've ever been in with a lot of incremental capacity from private funds and the ability to access incremental leverage. So we're very excited about where Burford sits, and we're excited to be able to present 2020 results to you.

Before we go on and take your questions, I also just want to comment on the announcement this morning of our launch of a $350 million debt offering in the U.S. institutional investor, the so-called 144A market. We've said for a long time that we're an opportunistic debt issuer and that we would look to take advantage of attractive terms when they were available. If we conclude this offering, it will be our first debt issuance in 3 years or so. And we have very strong liquidity without it. Our philosophy has always been consistent with the old adage, the time to raise capital is when you don't need it. And we don't need this capital today, but we're being opportunistic in pursuing an attractive market condition. Our current debt is trading at levels that are consistent with where we previously issued.

And that's reflecting, I think, as well the strong performance and strong liquidity that we have on the balance sheet. The -- if we succeed in this offering and we will be price-sensitive with respect to it, but assuming that we get an offering done, that will give us yet more capital to deploy into the opportunities that we see coming ahead as well as to consider the retirement or the repurchase of some of our existing debt. And the other thing that it does, Jim showed you a slide a few minutes ago that showed our -- the laddering of our existing bond debt, and this would fit nicely into that ladder. The maturity of this issue would be a 7-year issue and that maturity would be passed well beyond the longest current debt maturity that we have.

This also reflects a shift consistent with our shift to the New York Stock Exchange, dual listing last year. The U.S. institutional debt market is the deepest in the world. And so putting an inaugural issue into that market, becoming an issuer there is something that has been a long-term goal of ours. We started by getting debt ratings in 2019. And our hope would be with this inaugural issue out of the way, that we'll have access to -- ready access to that market and to be able to drive down our funding costs over time. So we'll report to you in due course about how that offering goes. And with that, we'd be delighted to take any questions that anyone has.

(Operator Instructions) Our first question is from [Steve Samson].

How much of the H2 '20 portfolio value growth was a catch-up of delayed H1 '20? And how much was a higher level of ongoing activity that we should expect to see as the new base level for H1 '22?

So I don't know the -- and maybe Jon can comment on that. I don't know if I could characterize it as H1 delayed activity. The litigation process doesn't really work that way. Things go through the process at their own merry pace and defendants decide whether to settle or not at their own merry pace as well, often incentivized to do that by an impending trial date. So we didn't have the jury trial pressure, so there wasn't that kind of delay. Otherwise cases were running pretty normally. And I think what we saw was just routine normal variability and timing of the kind that we've seen throughout our existence.

And I guess I'd add to that, there's sort of 2 components to the -- that one might consider. One is the activity of putting money out and the other is the activity of getting money back in. And as Chris said, there have been jury trials postponed, which meant that -- meant not only that the verdicts and judgments are postponed in those cases, but settlements, which usually happen on the eve of trial would be postponed. But the other piece of this is we -- obviously, our pace of deployment increased dramatically from H1 to H2. And in terms of whether we think that would continue, my feeling is just the pipeline is robust. It's a moment, as Chris said, people tend -- litigation ends up being more prominent in business people's thinking when things go badly, when things go in an unexpected way and when there's dislocation.

And so there's no doubt that some of the opportunities coming our way arise from that. But there's also -- we've seen during good times that as Burford brand has expanded and awareness of litigation finance has expanded, the market opportunity just continues to expand. So our pipelines continues to be robust. We're seeing all sorts of litigation, some of which arises from recent economic dislocation, some of which does potentially arise from disputes that may have been brewing in the first half, but the lawyers hadn't gotten around to lining up the case, lining up the financing and coming to us. So I think it's kind of a combination of those things, and I'm pretty bullish, not just about our portfolio, which I spent -- most of our discussion spending time on, but also on the pipeline.

Our next question is from James Hamilton of Numis Securities.

On Slide 15, you helpfully sort of break out the carrying values by sort of type. And obviously, you've got case milestone market transactions and held at costs. If we were just to ignore the market transactions (inaudible) just the YPF one and look at the rest of the portfolio, it looks like you've gone from 19% of being -- having had positive movements due to case milestones in 2019 and up to 53% in (technical difficulty), that's obviously quite a big move, as you'd expect as the money, I guess, invested in the cases progress. What I'm sort of interested to try to find out from you is, you're right in assuming that, obviously, the -- not just the most of the valuation update comes at conclusion, but given the shape of that, just in aggregate, your portfolio is today much, much closer to that valuation update at conclusion than it was in 2018? And if so, could you possibly put any sort of time quantification on it. I appreciate that every case is a different time line, it can be very short, very long, but just taking a blended average?

Sure. So I'm not sure that it's so much -- that it's -- that the portfolio -- let me start that again. The portfolio is not a static thing, obviously. And so I don't think it's the case just that the things that were in existence prior to 2018 have advanced, although they surely have. I think it's also the fact that we've added yet more things to the portfolio over time. All that being said, I agree with the general thrust of your question, which is that having written a lot of business in the last 5 years, that business is flowing through the system and producing recoveries. We saw the impact of that in 2020. And if history repeats itself, and we -- Jim come and laid out on the preceding slide on Slide 14, the general way in which fair value moves through the process and tends to appear close to a conclusion, that's obviously a logical inference to draw from the data as presented. We'll see if that holds true on a completely straight-lined basis or to what extent COVID interferes with that a little bit. But in general, that certainly bears out what Jon was saying, just about his qualitative sense of where the portfolio sits today.

And I might add to that. I think it's a great question. It's sort of -- I said given -- if you look at this moment compared to a year ago, I was equally bullish on the -- on this call a year ago with the portfolio, although, as Chris said, we've added some great things to the portfolio since then. And we've seen progress in the portfolio since then. I've said basically now that you're seeing results from some of the things I was bullish about, but there hadn't been anything to show for it. I hope you would share my enthusiasm. I guess you're asking the further question of what's the time frame for both the matters we've added that Chris is talking about, but probably you're asking more specifically for the matters that were in existence a year ago and have made progress over this year as reflected in fair value adjustments, when do we actually expect those to resolve? And just as for public shareholder purposes, we're just not prepared to make those kinds of predictions. I think other than that qualitative assessment that Chris has echoed from me that things are progressing quite nicely, I can't -- I don't think we want to put a date on how much we'll realize it on what dates.

Our next question is from Portia Patel of Canaccord.

I just wondered if you could provide an update on the potential 200% ROIC matter, potentially delivering 100 million of income, which was flagged as early stage in the April trading update last year. Just an update on current status would be helpful. Is it still early stage? Or has it progressed at all?

I don't know that we have a specific update to give on that matter as I sit here, Portia.

(Operator Instructions) Our next question is from Trevor Griffiths, a private investor.

If you'll indulge me, I've got 3 questions. The first is a bit touchy feel. I just wonder how you would characterize how the business feels at the moment in terms of being relatively quiet and busy? And how it compares to, say, the middle of last year? People got a bit bored during quiet spells, has the staff turnover increased at all? Obviously, it's a bit more difficult to supervise people working remotely. That was that one. The second one is on regulatory movements. I just wonder if you could outline any relatively significant changes either beneficial or obstructive to litigation finance in the markets you serve or are looking to serve? And the third one is, I think, one for Jim. Waiting for performance fees at Burford sometimes feels a bit light weighting for (inaudible). But I think the topic is important given the debate around your shares over the past couple of years. Aren't you being excessively prudent in your recognition or non-recognition of performance fees?

I appreciate you've given us some disclosure in the slide pack today. But there must be some of these fees that are pretty reasonably certain by now. And I wonder if you might even go as far as to recognize a receivable for performance fees earned but not yet received. And just have a matching credit balance of deferred income. And then finally, sorry, it's not really a question. But I don't know even if you know if he's on, but could I congratulate Peter Middleton on his upcoming retirement from the Board. And thanking very much for his enthusiastic and successful stewardship of the company since foundation.

Well, thanks very much, Trevor, for all of those, and especially for your last point. I couldn't agree more and the entire management team shares that view. Sure Peter has been an extraordinary part of Burford's history and has provided remarkably deft and adept guidance to the company as it's grown from literally nothing to its current posture. So as I said, we'll speak more about Peter in the months to come, and it's going to be sad to lose him, but he's made an enormous contribution to the business.

And to take your questions in order. I think the business feels busy and also expect them to, if you will. You asked how compared to a year ago. A year ago, I think it felt uncertain. Nobody knew what was going on in the world. And I think right now, there is a first, not just in our business, but in the legal industry in general, there's a thirst to get back to it. Lawyers are -- lawyers interact with other people a lot by the nature of the profession, and it's been a strange year to have that interaction dramatically curtailed. For example, we have a regular and active presence at legal industry affairs around the world. It's one of the elements of our business development and origination platform, and there simply have been none of those. And a lecture on Zoom doesn't replace some of the dynamics of those. So I think that -- so while as the numbers suggest, everybody in law did a pretty good job after the first few months of pandemic and just getting right back at it, I think people are eager to have their full life come back, as, of course, people are across the spectrum.

In terms of regulatory activity, no, there's not really any regulatory activity since we last spoke about those issues. The dynamic, I think it's fair to say is that there is no serious consideration anywhere of litigation finance being anything other than now an accepted and appropriate part of the justice system. And so there's no activity out there to try to tamp it down in any particular -- in any particularly dramatic way. Instead, we're probably moving into a jurisdiction by jurisdiction in the world where jurisdictions express their own political preferences.

Not surprisingly, Singapore, for example, is somewhat more regulatory about litigation finance than New York is. But our public policy team stays on top of the developments, and we find, frankly, that the public policy engagement is generally an opportunity to educate people about the benefits of what we do, which consistently is recognized by the judiciary. We've got a fairly long list now of quotes from judges and judicial policymakers about the importance of legal and litigation finance. And the most recent one of those just came from the English Court of Appeals 2 or 3 weeks ago, where the court made it clear that litigation financing was an appropriate and valued part of the civil justice process. And I'll let Jim come and take your third question, he waiting for a good audit (inaudible) question.

Yes, Trevor. No, it's a fair point that you make, which is, I think we can sit here and estimate and do a projection and come up with a view as to what the performance fees might be as we did relate it to Partners II and III. But the accounting standard is that performance fees are recognized when a reliable estimate of the fee can be made and it is highly probable that a significant revenue reversal will not occur. So that's a pretty tough test. You really have to be at a point where the revenues are there and won't go away. And therefore, our revenue recognition as it relates to performance fees is pretty conservative, but it's in keeping with that accounting standard.

Our next question is from Rick Roberts of Vulcan Capital.

Congratulations to the team for some great momentum through a difficult environment in 2020. Really straightforward, I'm just curious whether you're seeing any sort of trends develop in -- at the highest level, sector or industry level, where you think conflict will arise. The kind of conflict that, that Burford really cares about in sophisticated matters?

Well, I think the answer is the conflict arises pretty much continuously, and it's really a question of what the underlying source of the conflict is and how we can best address it. As Jon and I both commented, the events of 2020 are going to give rise to a very significant amount of conflict in really multiple buckets, right? There's a lot of conflict between insurance companies and their insureds over the scope and extent of coronavirus pandemic policy coverage. And even that breaks down into many different layers. You've seen some business interruption style, litigation activity already, but there's also going to be just a lot of garden variety, who pays for the loss that occurred. You're a banana manufacturer and you shipped a shipload of bananas to a buyer and the port was closed by the time it got there because of COVID. Who bears the loss? The shipper, the buyer, the insurance company for the ship? Those are the kinds of questions that are going to take a long time to sort out.

And then on top of that, there's sort of a similar, if not larger, number of noninsured pandemic-related disputes of all sorts of sizes, large and small. You're building a multibillion-dollar construction project, you didn't make your completion dates because the country you're building it in wouldn't let the workers come in. Do you -- are you out of luck? Or is that a force majeure such that you still can claim the completion payment? All of those issues are up for discussion. And then as Jon noted, the collateral impact of 2020 is certain to be a wave of economic distress across a number of businesses, and Burford does a lot of business in those kinds of situations. But beyond that and leaving the pandemic entirely aside, the simple reality of human behavior is that companies when put under pressure from shareholders to perform often do things that they shouldn't do. They cut corners, they fixed prices with competitors, they do all sorts of things like that. And as those things become discovered, they present places for Burford to become involved on behalf of its clients.

Understood. And very helpful. And so just as a follow-up to that, does that and then any -- Jon, you can take this, too. Is there a different layer or a different type of case law that will develop out of all of this, do you think? Or is it pretty much in the wheelhouse of all of your existing legal relationships?

I think it's -- again, it will be nuanced as opposed to revolutionary. There will be -- there will certainly be more force majeure law made 10 years from now, when we look back, the force majeure law will be richer than it is today. But even though while living in this moment, this is an extraordinary event for all of us, English common law stretches back hundreds of years. And these events in different forms have certainly been encountered before. And so it's nuanced and it's fact specific as opposed to something seismic that you're going to see, I think.

So there was a question that came on the webcast about accounting. And somebody noted that the financial statements have been signed by Ernst & Young Guernsey as opposed to Ernst & Young London last year and asked about why and how that happened?

So the quick answer to that is that Ernst & Young operates an integrated audit practice between England and the Channel Islands. And so the people and the partners are all interchangeable there. And so the question of where the particular signing location depends on the physical location, as I understand, that of the current audit partner, and we have -- E&Y regularly rotate the audit partners. And so we have rotated to our -- he is our third E&Y audit partner now. And he happens to be based in Channel Islands, but the team that works on Burford's activities and Burford's audit is, in fact, multi-jurisdictional, it's not just people from London and Channel Islands. But it's also a meaningful component of their U.S. team, especially now that Burford is not only just an IFRS issuer, but also is being audited under what's called the PCAOB standards, which is the U.S. accounting standards board with -- the rules of which we need to comply to -- comply with as a New York Stock Exchange issuer. So there's -- the location of the signature of the audit firm is of no (inaudible) we have a huge and very expansive, I might add, team of E&Y people who are all over the business from all over the world.

And I'm conscious that we've taken well over an hour of your time. And so absent any other pressing question, I think that we will close here. Well, thank you very much for your time and attention, for your support of Burford. Jon and Jim and I and the whole team are excited to see what a return to normal looks like in 2021 and what we might be able to do with this business in the years to come. And we appreciate your support and loyalty and joining us for this always interesting ride. Thank you all very much.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.