Burford Capital Limited · LSE:BUR
Burford Capital — Investor Day (November 2018)
77 slides from Burford Capital's investor day presentation, Nov 12, 2018
Slide 1: Investor Presentation: Capital Markets Event
INVESTOR PRESENTATION CAPITAL MARKETS EVENT 12 NOVEMBER 2018 This presentation is for the use of Burford’s public shareholders and is not an offering of any Burford private fund.
Slide 2: Presenters
Sir Peter Middleton Christopher Bogart Jonathan Molot Elizabeth O’Connell David Perla Aviva Will Craig Arnott 2
Slide 3: Notice and disclaimer
Notice and disclaimer This presentation (“Presentation”) does not constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite or otherwise acquire or dispose of any securities of Burford Cap
Slide 4: Sir Peter Middleton – Chairman
SIR PETER MIDDLETON – CHAIRMAN 4
Slide 5: Board of directors
Board of directors • All directors are non-executive and all committees composed solely of independent directors • All directors attended every in-person full day quarterly meeting in 2017 • CEO and CIO attended all board meetings in full except for closed sessions 5
Slide 6: Christopher Bogart – Chief Executive Officer
CHRISTOPHER BOGART – CHIEF EXECUTIVE OFFICER 6
Slide 7: Burford's equity performance
Burford’s equity performance Total Shareholder Return 5-year Since Burford’s 2009 inception YTD 2018 Burford 1,292% 1,786% 40% FTSE All-Share 31% 100% (4%) AIM All-Share 33% 64% (3%) 7 Source: Bloomberg LP, as of 08 November 2018
Slide 8: Burford's performance
Burford’s performance $1,400 ($ in millions) $1,200 $1,000 $800 $600 $400 $200 New commitments Income Profit after tax (1) Cash receipts from operations 8 Source: Burford publicly reported financial data (1) As adjusted and defined in each Burford Annual Report
Slide 9: Use of litigation finance is growing
Use of litigation finance is growing Over the past two years, has your Litigation finance is a growing and How familiar are you with How likely is your organisation to use organisation's use of litigation finance increasingly important area in the litigation finance services? litigation finance in t
Slide 10: Why is litigation finance growing?
Why is litigation finance growing? As clients move away from paying firms on an hourly basis, litigation finance will become more commonplace (% agreeing) 80 83 83 78 73 US UK Australia Have used Would consider using Source: Burford 2018 Litigation Finance Survey 10
Slide 11: Burford's prominence
Burford’s prominence of interviewees named Burford first or solely in answer to the question “What providers of litigation finance are you most familiar with?” of remaining interviewees who could cite any litigation finance provider, only 10% named any other firm, and half of them named Burford as w
Slide 12: The global commercial litigation finance industry
The global commercial litigation finance industry Cumulative Private Capital Raised + Market Capitalisation ($ in millions) $6,976 Public debt and private funds raised Market capitalisation of public equity $970 $740 $669 $557 $405 $352 $242 $211 $126 Burford Capital Harbour IMF Therium Longford Jur
Slide 13: Burford's business
Burford’s business • Burford provides capital and risk solutions: - To law firms and their clients - Against the value of legal assets - In connection with legal or regulatory processes • Burford continually grows and broadens its business in response to market demand • Our current business is much
Slide 14: Burford's opportunity
Burford’s opportunity The legal industry is being transformed Clients are rebelling Increases in legal Law firm Evolution is Capital is against the billable expense are driving stratification is mandatory entering the hour model the need for financial increasing industry alternatives Burford is in a
Slide 15: Frequent questions
Frequent questions Size and penetration of Barriers to entry and Sustainability of returns and the addressable market unique advantages impact of competition and entry Team motivation, Regulation Capital compensation and retention structure 15
Slide 16: Size and penetration of the addressable market
Size and penetration of the addressable market Law firm fees Value of settlements, Assets affected by legal and judgments and awards regulatory processes 16
Slide 17: Size and penetration of the addressable market: law firm fees
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES LAW FIRM FEES • Some focus purely on fees paid to law firms as • In 2016, Thomson Reuters estimated that defining an addressable market the US alo
Slide 18: Size and penetration: settlements, judgments and awards
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES VALUE OF SETTLEMENTS, JUDGMENTS AND AWARDS • No one knows, but very large indeed estimated annual US tort costs by • US tort actions alone are est
Slide 19: Size and penetration: assets affected by legal processes
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES ASSETS AFFECTED BY LEGAL AND REGULATORY PROCESSES • Another giant area challenges on large mergers by US • As just one example, 84% of US M&A deal
Slide 20: Barriers to entry and unique advantages
Barriers to entry and unique advantages Enormous head start on scale with an Lowest cost of capital institutional-quality business Ever-growing proprietary data set for Deep, sticky law firm relationships and continued enhancement of investment dominant brand name decision-making Portfolio diversifi
Slide 21: Barriers to entry and unique advantages
Barriers to entry and unique advantages Significant capital required to achieve Large, experienced and expensive team portfolio diversification and to meet client needed for quality investment decisions and needs – very difficult for a new entrant for client relationships and confidence without a tr
Slide 22: Sustainability of returns and impact of competition and entry
Sustainability of returns and impact of competition and entry Average profit margin of AmLaw 100 firms Fee awards in pharmaceutical antitrust cases 50% 50% 45% 45% 40% 40% 35% 35% 30% 30% 25% 25% 20% 20% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2
Slide 23: Sustainability of returns and impact of competition and entry
Sustainability of returns and impact of competition and entry • Competition has a number of meanings in our business • It is not uncommon for Burford to decline investments rather than lower pricing – we price for the assessed • Our largest competitor is often our client, electing not to risk take o
Slide 24: Team motivation, compensation and retention
Team motivation, compensation and retention • Burford benefits from being a very attractive destination for litigators from • Compensation levels can therefore be closer to in-house levels than law law firms who are not going to spend their entire careers at those firms; firm partner levels the alte
Slide 25: Regulation
Regulation • Need to view regulation through a different lens when • Any “regulation” is likely to come from judges and be considering the judicial system – not agency regulation fact-specific (SEC, FCA, etc.) • Burford’s scale and prominence means we would likely • While we are regulated by agencie
Slide 26: Capital structure
Capital structure • Burford sees flexibility and reliability of capital sources as highly desirable • General principle of avoiding dependency on any single source of capital and use of multiple sources • Balance sheet draws on public equity, public debt, recycling and the burgeoning secondary marke
Slide 27: Business trends
Business trends Investment breadth Expansion in the US and globally • Litigation funding is the entry level product, not the main • Moving from early adopters to the mainstream requires event adjustment in origination approach Capital structure, cost and efficiency Absorbing and managing growth • In
Slide 28: Jonathan Molot – Chief Investment Officer
JONATHAN MOLOT – CHIEF INVESTMENT OFFICER 28
Slide 29: Burford's investment scope
Burford’s investment scope Balancing vision and pragmatism Maintaining quality in the face of change Key drivers of success • We are pursuing a long-term vision for the • Expanding universe of investments • Consistent focus on risk-adjusted returns legal profession • Expanding team • Quality of unde
Slide 30: Burford's investment scope: vision and pragmatism
Burford’s investment scope Vision Pragmatism We push boundaries without ignoring them • Bridge the gap between capital markets • Proven areas of profit opportunity will • Legal markets have only just begun to open and the market for legal services remain our unrelenting focus to capital • Law has be
Slide 31: Burford's investment scope: staff and geographic expansion
Burford’s investment scope STAFF GEOGRAPHIC DIFFERING SKILL SETS EXPANSION EXPANSION AND BACKGROUNDS More than 100 employees and Employees in New York, Chicago, DC, Litigators from large firms and in-house 50 lawyers California, London, Singapore and Sydney Lawyers/investors from financial instituti
Slide 32: Burford's investment scope: ways we deploy capital
Burford’s investment scope Variety of ways we deploy capital Single case Principal strategies Portfolio Asset recovery Recourse Insurance Risk absorption Post-settlement Contract breaches Patents Variety of subject matters Commercial disputes Competition/antitrust Ownership disputes Securities Inves
Slide 33: Burford's investment scope
Burford’s investment scope If higher risk, need high return potential Target similar net return profiles for larger deployment, lower risk, lower loss rate opportunities • Results of international arbitrations: Teinver turned $13m into more than $100m • Prudence suggests having a diversified busines
Slide 34: Burford's investment scope
Burford’s investment scope Careful attention to capital utilisation Short-term low risk opportunities fit nicely with longer lasting, slow drip core litigation finance opportunities: Enabling us to earn returns • Core strategies remain our focus and we continue to see growth in on the same dollars f
Slide 35: Different structures of litigation finance investments can generate comparable returns
Different structures of litigation finance investments have the potential to generate comparable returns Example #1 Year ● ● ● ● ● ● ● ● ● Traditional private 0 1 2 3 4 5 6 7 8 Profit ROIC IRR equity investment Gross cashflows -100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 280.0 180.0 1.80x 13.7% Example #2 Yea
Slide 36: Burford's investment scope
Burford’s investment scope Competitors have helped Professionalism and Smart capital is not a Maintain speed and generate demand quality help us shine commodity product client service • When only one litigation finance • Best law firm relationship • Law firm portfolios create • Competition keeps us
Slide 37: A key investment
A key investment Merits haven’t changed since we underwrote the case • Trial court and appeals court both properly understood case Argentina’s responses – and noise – are also what we expected • When you don’t have a real defence on the merits you try to distract - Some in administration blame multi
Slide 38: Elizabeth O'Connell CFA – Chief Financial Officer
ELIZABETH O'CONNELL CFA – CHIEF FINANCIAL OFFICER 38
Slide 39: Finance organisational chart
Finance organisational chart 39
Slide 40: Conservative use of leverage to capture growth opportunity
Conservative use of leverage to capture growth opportunity Long-dated debt maturity (1) Net Debt / Equity Principal Coupon Maturity £90 million 6.500% August 2022 0.45x 0.39x £100 million 6.125% October 2024 $180 million 6.125% August 2025 0.28x £175 million 5.000% December 2026 Current weighted ave
Slide 41: Cash bridge from inception through June 2018
Cash bridge from inception through 30 June 2018 Cash bridge since inception ($ in millions) $1,450 $288 $235 $70 $114 $166 41
Slide 42: Investment results by vintage show depth of performance
Investment results by vintage show depth of performance • Including Teinver and the latest Petersen sale, portfolio returns rise to a 99% ROIC and 33% IRR 42 Note: We use the term concluded to encompass: (i) entirely concluded investments where Burford has received all proceeds to which it is entitl
Slide 43: Investment results by vintage show depth of performance
Investment results by vintage show depth of performance • The portfolio through 2015 has generated gross proceeds of $742 million on concluded investments. The portfolio has deployed $533 million of which $332 million has concluded and $202 million remains deployed in ongoing investments (1) ($ in m
Slide 44: Investment results show different return profiles based on path to conclusion
Investment results show different return profiles based on path to conclusion Total portfolio • When matters settle, they typically conclude more rapidly, and for less than total damages – so IRRs are higher than the portfolio overall and ROIC is lower (1) ROIC IRR ($ in millions) $908 Adjudications
Slide 45: Fair value accounting
Fair value accounting • Investments are initially recorded on the balance sheet at cost • Burford only adjusts asset values and thus experiences unrealised gains (or losses) when there is some objective basis in the underlying litigation, such as a court ruling, a settlement offer or a secondary sal
Slide 46: Fair value accounting case studies
Fair value accounting case studies Initial Further Affirmance Matter Funding Funding of liability Settled ● ● ● ● 2012 2013 2014 2014 2015 - $10.0m gross proceeds Deployment $2.9m - $1.0m $6.1m investment profit Fair value adjustment - - - $1.8m (unrealised P&L event) Carrying value of $4.3m realise
Slide 47: Q&A
47 Q&A [Burford
Slide 48: David Perla – Managing Director
DAVID PERLA – MANAGING DIRECTOR 48
Slide 49: Business development and marketing
Business development and marketing Our mission • Ubiquity • Preference • Loyalty Our strategy • Build awareness • Drive demand • Create preference and loyalty 49
Slide 50: Target market
Target market • Types of firms • Subject matter target areas • Firm segmenting & tiering • Value proposition & research • List generation & testing • Industries & profiles 50
Slide 51: Expansion of business development function
Expansion of business development function METRICS STRUCTURE • Measure total inquiries • Measure inquiries from targeted and • Hub & spoke geographic approach desired organisations • Measure % of qualified (better • Internal experts converting) and warm trigger • Measure quantum inquiries GUIDING PR
Slide 52: Quality expansion of business development team
Quality expansion of business development team Net new business development hires in 2017-18 in Asia, Australia, UK/Europe and US 52
Slide 53: Building awareness through marketing
Building awareness through marketing - AmLaw 100 Partner (1) Media coverage shows growing interest in the industry of 2018 survey respondents perceive litigation finance as growing (1) PR increase YOY in respondents who are “very familiar” with litigation finance (1) increase in Burford media covera
Slide 54: Driving demand through marketing
Driving demand through marketing increase in use of litigation Key programmes finance since 2012 (1) “one-to-many” opportunities through Q3 2018 (2) increase in LinkedIn followers YTD (2) (1) 54 Burford 2018 Litigation Finance Survey (2) Burford internal data
Slide 55: Generating preference and loyalty through marketing
Generating preference and loyalty through marketing - Law firm partner (1) Key programmes of interviewees cited only Burford or Burford first as the most familiar provider in the field (1) of firms receiving Burford single case financing later brought us new opportunities (2) of those new opportunit
Slide 56: Public affairs
Public affairs Washington D.C. London Sydney Singapore Hong Kong Paris Berlin Amsterdam 56
Slide 57: CSR: Doing well for our investors by doing good for the industry
CSR: Doing well for our investors by doing good for the industry Wendy J. Miles QC Tara Lee Faith Gay Sophie Nappert Domitille Baizeau Sue Prevezer QC Partner Chair Founding Partner International Arbitrator Partner Chair Debevoise & Plimpton Transnational Litigation Group, Selendy & Gay Moderator La
Slide 58: Aviva Will – Senior Managing Director
AVIVA WILL – SENIOR MANAGING DIRECTOR 58
Slide 59: Portfolio investment/management team
Portfolio investment/management team 59
Slide 60: Investment process
Investment process Inbound inquiries Number of inquiries received that run through our initial screening process, filtering potential investments into our pipeline Pipeline process Number of potential investments discussed among the global investment team that progress into more significant diligenc
Slide 61: Case study 1
Investment process Inbound inquiries Case study 1 Number of inquiries received that run through our initial screening process, filtering potential investments into our pipeline • Case Breach of contract • Budget $8 million Pipeline process • Estimated damages $40-70 million Number of potential inves
Slide 62: Case study 2
Investment process Inbound inquiries Case study 2 Number of inquiries received that run through our initial screening process, filtering potential investments into our pipeline • Case Securities • Budget $8 million Pipeline process • Estimated damages $160 million Number of potential investments dis
Slide 63: Case study 3
Investment process Inbound inquiries Case study 3 Number of inquiries received that run through our initial screening process, filtering potential investments into our pipeline • Case Arbitration • Budget $7 million Pipeline process • Estimated damages $400 million Number of potential investments di
Slide 64: Investment modelling
Investment modelling Burford uses sophisticated financial modelling that leverages in-house expertise and proprietary data as a component of its underwriting and portfolio management process O° Merits risk Appeal risk Quantum risk | Collection risk 64 Proprietary database — 9 years of pipeline and i
Slide 65: Portfolio management
Portfolio management MONTHLY QUARTERLY WEEKLY REPORTING REPORTING CALLS Weekly calls to report and Monthly reporting to senior In-depth quarterly reporting on discuss developments on cases management on every matter entire portfolio to senior management and board QUARTERLY BI-ANNUAL QUARTERLY POST-
Slide 66: Portfolio management case study
Portfolio management case study The Burford difference Burford proposes new Burford invested lawsuit and funds costs Case settles and Burford $2.5 million to monetise to support new counsel receives its investment claim after trial court win Case loses on appeal on contingency plus 2x its investment
Slide 67: Craig Arnott – Managing Director
CRAIG ARNOTT – MANAGING DIRECTOR 67
Slide 68: International opportunities and expansion
International opportunities and expansion Team Expanded underwriting team and business development team • Since 2015 the London office has been serving European and Asian clients • The London hub has continued to drive real growth New products • Significant growth in 2017 – 18 investments in the UK,
Slide 69: International opportunities and expansion
International opportunities and expansion 69
Slide 70: International opportunities and expansion
International opportunities and expansion • Burford’s scale, results and reputation position us to extend our leading position into all jurisdictions that allow litigation finance, capturing the growth in high value claims • Deepening presence in UK base - Ongoing major role in the international arb
Slide 71: International opportunities and expansion
International opportunities and expansion • Burford's global growth is fuelled by our status as trusted partner with high quality of UK lawyers say they are team, diligence and case management very aware of litigation finance • This leads to a virtuous circle of growth • A steady pipeline of high va
Slide 72: International opportunities and expansion: Europe and UK
International opportunities and expansion Western Europe UK Opportunities in competition litigation, international arbitrations, Opportunities in competition securities litigation and with insolvency practitioners; litigation, international arbitrations Germany and Netherlands very active and with i
Slide 73: International opportunities and expansion: Asia and Australia
International opportunities and expansion PRC Opportunities for asset recovery outside China or Middle East arbitrations seated outside mainland China, Opportunities in construction funding allowable in China; difficult market to arbitration and asset enter domestically recovery Hong Kong Singapore
Slide 74: Focus: AMP shareholder action
Focus • In April 2018 Burford invested in Australia’s largest shareholder action • This is an ongoing competitive process to take exclusive carriage in AMP which is not yet resolved • AMP is a leading Australian financial institution • Burford is making headlines with its entry designed to disrupt a
Slide 75: Focus: Singapore first-mover advantage
Focus • Burford has moved quickly to take ‘first mover’ advantage in Singapore - March 2017 – Singapore introduced reforms permitting third-party funding for international arbitration - June 2017 – Burford funded first Singapore arbitration (SIAC) - November 2017 – Burford opened Singapore office •
Slide 76: Q&A
76 Q&A [Burford
Slide 77: Notice and disclaimer
Notice and disclaimer This presentation (“Presentation”) does not constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite or otherwise acquire or dispose of any securities of Burford Cap