Chris Bogart, CEO, Burford Capital (courtesy photo)
Burford Capital Ltd. announced Tuesday another banner financial year, with profit after tax rising 75 percent from the year prior as the publicly traded litigation funder committed $378 million to new investments, a yearly increase of 83 percent.
The results by Burford, which in December spent $160 million to buy its biggest rival, Chicago-based Gerchen Keller Capital LLC, reinforce the growing demand among law firms and clients to use third-party money to pursue claims or to finance payouts from judgments. Income at Burford, which hit $163.4 million last year, has more than tripled since 2012.
Burford generated $216 million in cash from investment returns last year, up 48 percent from 2015. Its stock price on London’s AIM Exchange more than tripled in 2016, and Burford’s market cap is now nearly three times the size of its next closest competitor, the U.K.’s Harbour Litigation Funding Ltd.
While the results highlight Burford’s size and momentum, they also show how the litigation funding industry, despite being only around a decade old in the U.S., is quickly evolving from its beginnings as a way to help under-funded plaintiffs use America’s costly court system.
“What is really driving the growth of this business is that this is normal, everyday corporate finance, and corporate clients are expecting to be able to use finance in their legal department spending just as they do in the rest of their spending,” said Burford CEO Christopher Bogart in an interview.
Burford’s annual report suggests litigation finance is beginning to be seen as a way to change the large law firm business model. Burford said it has worked with 75 of the Am Law 100 and last year lent $100 million and $50 million to two global law firms, respectively, to finance their litigation departments.
In the example of the unnamed law firm that took in $100 million from Burford, the former already had a portfolio of investments that Burford bought into. For the firm, the capital is a way to provide more flexible fee agreements to clients, Bogart said. But the capital can also be used for law firms to build a book of business. The unnamed firm receiving $50 million from Burford will use it to hire lawyers and attract new cases, the latter of which Burford will analyze for their likelihood of success.
Burford said that a mere 12 percent of the money it committed to new investments last year went to finance single cases, which is the business model that litigation finance used to break into the U.S. market. In 2009, for instance, that figure was 100 percent at Burford. Of the $378 million the firm invested last year, $150 million went to the two law firms. Bogart said he envisions more deals to finance law firms and corporate legal departments in the coming year.
“The fact that you have large firms doing capital transactions of that size suggests that although this is still at an early adopter stage, it’s increasingly a consideration for firms when they think about how to manage their own business model and their own capital structure,” said Bogart, a former Cravath, Swaine & Moore associate who spent nearly three years as general counsel at Time Warner Inc.
Burford’s investments have also grown in scale since it was started in 2009, when Bogart said the firm’s average investment was around $3 million. Today, that number stands at around $13 million.
In other examples of the growing uses for litigation funding capital, Burford is poised to reap a 91 percent return on its 2015 purchase of a portion of a $213 million bankruptcy court judgment, the first known purchase of a bankruptcy judgment by a litigation funder. And Burford said it has begun to sell stakes in its investments to secondary investors. In March, the firm said it sold for $40 million a 10 percent stake in claims brought by The Petersen Group against the Argentine government related to its 2012 nationalization of a publicly traded energy company.
With the acquisition last year of Gerchen Keller, a private manager of assets worth more than $1 billion, Burford also got into the business of financing the payout of judgments and other post-settlement deals that involve less risk than ongoing litigation. Burford said it is in the fundraising stage for a fifth closed-end fund, meaning the world’s largest litigation funder is poised to grow even larger.