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Leading the way,
today and for
the long term
BURFORD CAPITAL ANNUAL REPORT 2019
About Burford Capital
Burford Capital is the leading global finance and asset management firm focused on law. Its
businesses include litigation finance and risk management, asset recovery and a wide range of
legal finance and advisory activities. Burford is publicly traded on the London Stock Exchange,
and it works with law firms and clients around the world from its principal offices in New York,
London, Chicago, Washington, Singapore and Sydney.
Contents
Strategic report
1
2
3
4
10
12
15
22
24
28
29
71
Introduction
Financial summary
At a glance
Management statement
Our business model
Our market position
Burford’s business
The Equity Project
Definitions
Corporate structure
Financial and operational review
Risk management
COVID-19
Governance
76
79
81
83
88
Board of Directors
Management team
Compensation
Corporate governance report
Directors’ report
Financial statements
94
103
108
154
159
Independent auditors’ report
Consolidated financial statements
Notes to the consolidated
financial statements
Glossary of terms
Further information
Beginning in the first quarter of 2020, the COVID-19 pandemic has had a major impact on business,
markets and the world. Although we do not address COVID-19 significantly in a report covering 2019,
we do provide on page 73 an extensive discussion of its potential future impact on Burford, based on
what we know at the time of publication of this report. We would encourage investors to refer to any
subsequent updates we release on this topic for more current information.
Watch our CEO Christopher Bogart
summarise our performance at www.burfordcapital.com/shareholders/
Our 10-year history
2009
Burford IPO
In the midst of the
global financial crisis,
Burford completes a
$130 million IPO.
2010
First ever
portfolio investment
Recognising the benefit
to clients of financing
multiple matters in one
capital facility, Burford
makes its maiden legal
finance portfolio
investment—a first for
the industry.
2011
Burford opens
London office
With the announced
acquisition of the UK’s
leading ATE insurance
provider, Firstassist Legal
Expenses, Burford enters
the UK legal finance
market.
2012
Inaugural legal
finance survey
Burford launches its
inaugural annual
research survey; one in
ten respondents say
their organisations have
used litigation finance.
2013
Trailblazers
Burford founders
Christopher Bogart and
Jonathan Molot named
among the National Law
Journal’s inaugural list of
Legal Business
Trailblazers & Pioneers.
This report is for Burford’s public shareholders and does not constitute an offer of any Burford fund.
About Burford Capital
Burford Capital is the leading global finance and asset management firm focused on law. Its
businesses include litigation finance and risk management, asset recovery and a wide range of
legal finance and advisory activities. Burford is publicly traded on the London Stock Exchange,
and it works with law firms and clients around the world from its principal offices in New York,
London, Chicago, Washington, Singapore and Sydney.
Management statement
Corporate governance report
Contents
Strategic report
Introduction
Financial summary
At a glance
Our business model
Our market position
Burford’s business
The Equity Project
Definitions
Corporate structure
1
2
3
4
10
12
15
22
24
28
29
71
COVID-19
Financial and operational review
Risk management
Governance
Board of Directors
Management team
Compensation
Directors’ report
Financial statements
76
79
81
83
88
94
103
108
154
159
Independent auditors’ report
Consolidated financial statements
Notes to the consolidated
financial statements
Glossary of terms
Further information
Beginning in the first quarter of 2020, the COVID-19 pandemic has had a major impact on business,
markets and the world. Although we do not address COVID-19 significantly in a report covering 2019,
we do provide on page 73 an extensive discussion of its potential future impact on Burford, based on
what we know at the time of publication of this report. We would encourage investors to refer to any
subsequent updates we release on this topic for more current information.
Watch our CEO Christopher Bogart
summarise our performance at www.burfordcapital.com/shareholders/
Our 10-year history
Strategic report
Governance
Financial statements
Leading the way,
today and for
the long term
At Burford, we have set a goal to be more than just the leader of the
litigation funding industry. We aim to transform how companies and
law firms finance their legal assets. In setting this more ambitious
goal, we enhance opportunity for all our stakeholders—among
them our clients, investors and employees.
We are proud of our achievements in our first decade and confident
in the increasing value and appeal of our capital and services in the
years ahead, especially in these uncertain times. As demand for
commercial legal finance increases, we will continue to grow and
set stretch goals to evolve our business—underpinned by what is
arguably the most experienced and innovative team in the industry.
2009
Burford IPO
In the midst of the
global financial crisis,
Burford completes a
$130 million IPO.
2010
First ever
portfolio investment
Recognising the benefit
to clients of financing
multiple matters in one
capital facility, Burford
makes its maiden legal
finance portfolio
2011
Burford opens
London office
2012
Inaugural legal
finance survey
With the announced
acquisition of the UK’s
leading ATE insurance
provider, Firstassist Legal
Expenses, Burford enters
the UK legal finance
Burford launches its
inaugural annual
research survey; one in
ten respondents say
their organisations have
used litigation finance.
2013
Trailblazers
Burford founders
Christopher Bogart and
Jonathan Molot named
among the National Law
Journal’s inaugural list of
Legal Business
Trailblazers & Pioneers.
investment—a first for
market.
the industry.
2015
Burford acquires asset
recovery boutique
With the addition of
London-based Focus
Intelligence, Burford
becomes the first legal
financier to offer funded
judgment enforcement
in house.
2016
With GKC acquisition,
Burford opens
Chicago Office
Burford becomes the
world’s largest provider of
legal finance by a
significant margin and the
only provider with both
public and private capital.
2017
Burford opens
Singapore office
Burford becomes
the first to finance a
Singapore-seated
arbitration.
2018
The Equity
Project launches
The Equity Project
launches with a $50 million
pool of capital to finance
litigation matters led by
women–helping to close
the gender gap in law.
2019
Burford continues
growth
Burford passes
the $1.5 billion mark
for Group-wide
commitments. With
new offices in Sydney
and Washington,
Burford continues
to grow its team
and business.
This report is for Burford’s public shareholders and does not constitute an offer of any Burford fund.
Burford Annual Report 2019
1
Financial
summary
Full audited IFRS consolidated financial statements can be found beginning on page 103 of this
report. Below is a summary of Burford’s results without third-party interests in consolidated entities
and after certain adjustments made to assist in understanding the underlying performance of
Burford. Without these adjustments, reported profit after tax would have been $212.1 million,
and the decrease against 2018 would have been 33%.
Burford-only results without third-party interests in consolidated entities, as adjusted
Capital provision income
Asset management income
Services and other income
Total income*
Operating expenses
Operating profit*
Finance costs
Profit before tax*
Taxation
Profit after tax*
2019
$’000
2018
$’000
% change
316,780
392,525
26,130
13,800
15,799
12,050
356,710
420,374
-15%
(77,412)
(65,494)
279,298
354,880
-21%
(39,622)
(38,538)
239,676
316,342
-24%
(13,417)
12,463
226,259
328,805
-31%
* Total income, operating profit, profit before tax and profit after tax exclude the impact of amortisation of the intangible asset, operating expenses
incurred related to (i) one-time expenses related to equity and listing matters and (ii) case-related legal fees not included in asset cost, and third-party interests in
consolidated entities. Refer to pages 90 and 91 for a reconciliation to the reported IFRS consolidated statement of comprehensive income.
Throughout this document reference is made to various terms associated with the Burford structure: these include Burford only
or balance sheet, the Company, Group, Group-wide, BOF, BOF-C, and the Strategic Value fund. These, along with other key
terms, are set out in the glossary of terms on pages 154 to 158.
Financial
summary
Capital provision income
Asset management income
Services and other income
Total income*
Operating expenses
Operating profit*
Finance costs
Profit before tax*
Taxation
Profit after tax*
2019
$’000
2018
$’000
% change
316,780
392,525
26,130
13,800
15,799
12,050
356,710
420,374
-15%
(77,412)
(65,494)
279,298
354,880
-21%
(39,622)
(38,538)
239,676
316,342
-24%
(13,417)
12,463
226,259
328,805
-31%
* Total income, operating profit, profit before tax and profit after tax exclude the impact of amortisation of the intangible asset, operating expenses
incurred related to (i) one-time expenses related to equity and listing matters and (ii) case-related legal fees not included in asset cost, and third-party interests in
consolidated entities. Refer to pages 90 and 91 for a reconciliation to the reported IFRS consolidated statement of comprehensive income.
Throughout this document reference is made to various terms associated with the Burford structure: these include Burford only
or balance sheet, the Company, Group, Group-wide, BOF, BOF-C, and the Strategic Value fund. These, along with other key
terms, are set out in the glossary of terms on pages 154 to 158.
Strategic report
Governance
Financial statements
At a glance
A specialty finance business
focused on law
Full audited IFRS consolidated financial statements can be found beginning on page 103 of this
report. Below is a summary of Burford’s results without third-party interests in consolidated entities
and after certain adjustments made to assist in understanding the underlying performance of
Burford. Without these adjustments, reported profit after tax would have been $212.1 million,
and the decrease against 2018 would have been 33%.
Burford-only results without third-party interests in consolidated entities, as adjusted
Burford is a multi-faceted financial services business focused on
the legal industry
▪ Clear market leader in legal finance
▪ Strong position with significant moats
▪ Diverse capital structure including innovative financings
▪ Significant positive cash flow
Large, diversified portfolio
Total portfolio
($ in millions)
Continued rapid growth
Annual commitments
($ in millions)
4,209
1,463
2,746
3,218
1,029
2,189
2,368
812
1,556
858
551
1,573
847
1,403
675
1,326
565
728
761
726
378
206
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Burford balance sheet only
Funds including SWF
Burford balance sheet only
Funds including SWF
For more details see page 35.
For more details see page 49.
Strong cash generation
Cash generated during 2019
Burford balance sheet only
($ in millions)
Consistent returns
Core litigation finance returns since inception
Burford balance sheet only
($ in millions)
518
(82)
(39)
397
85%
93%
30%
31%
1,193
1,027
76%
31%
760
60%
27%
522
70%
28%
348
A
B
C
D
2015
2016
2017
2018
2019
A Cash generated from operations
B Operating expenses
C Finance costs
D Cash available for deployment
Core litigation finance recoveries
ROIC %
IRR %
For more details see pages 41–44.
Total
Expenses
Net
For more details see pages 32–33.
We assess the performance of the Group using a variety of alternative performance measures, which are explained on page 25. We refer readers to greater detail
and explanation about all of the data above in our financial and operational review beginning on page 29 and the definitions on page 25.
Burford Annual Report 2019
3
Management statement
2019: Leading the
way today
Sir Peter Middleton GCB
Chairman
Christopher Bogart
Chief Executive Officer
Jonathan Molot
Chief Investment Officer
Record levels of new business, exceeding $1.5 billion
for the first time
Portfolio growth and scale underpin future cash
flows with stable, high returns
In 2019, the final year of its first decade, Burford made
new commitments of more than $1.5 billion, a record, and
deployed more than a billion dollars in capital. We have come
a long way from the $11 million in commitments we made in
2009, our first year in business. That speaks to what we have
accomplished: the transformation of the global legal industry
as a user of capital, and the creation of a widespread
understanding that legal claims and judgments are
financeable assets.
We have done that by building an industry-leading team that
lives up to the quality of the global brand we have developed.
Sixty-three percent of lawyers name Burford first or solely in
answer to the question, “What providers of litigation finance
are you most familiar with?” No other firm even makes it to
ten percent.
We now have a multi-billion-dollar portfolio and a global
business, and we are well-positioned for our second decade.
We are bullish about where we think the use of capital in the
legal sector is heading, and we are set to be a meaningful part
of that future.
We are well-positioned because we have a large and growing
portfolio that is primed for future success. Diversified portfolios
of litigation assets like ours can reasonably be expected to
produce desirable net positive cash flows for years into the
future given the combination of the propensity of litigation to
settle and the positive asymmetry of the financial outcomes in
adjudicated litigation. We have been able to generate robust
portfolio returns throughout our history, with our core
litigation finance portfolio generating returns of 93% on
invested capital for our balance sheet since inception. We
believe that our existing portfolio will produce substantial
positive returns over time.
4
Burford Annual Report 2019
Management statement
2019: Leading the
way today
Sir Peter Middleton GCB
Chairman
Christopher Bogart
Chief Executive Officer
Jonathan Molot
Chief Investment Officer
Record levels of new business, exceeding $1.5 billion
Portfolio growth and scale underpin future cash
for the first time
flows with stable, high returns
In 2019, the final year of its first decade, Burford made
We now have a multi-billion-dollar portfolio and a global
new commitments of more than $1.5 billion, a record, and
business, and we are well-positioned for our second decade.
deployed more than a billion dollars in capital. We have come
We are bullish about where we think the use of capital in the
a long way from the $11 million in commitments we made in
legal sector is heading, and we are set to be a meaningful part
2009, our first year in business. That speaks to what we have
of that future.
accomplished: the transformation of the global legal industry
as a user of capital, and the creation of a widespread
understanding that legal claims and judgments are
financeable assets.
We are well-positioned because we have a large and growing
portfolio that is primed for future success. Diversified portfolios
of litigation assets like ours can reasonably be expected to
produce desirable net positive cash flows for years into the
We have done that by building an industry-leading team that
future given the combination of the propensity of litigation to
lives up to the quality of the global brand we have developed.
settle and the positive asymmetry of the financial outcomes in
Sixty-three percent of lawyers name Burford first or solely in
adjudicated litigation. We have been able to generate robust
answer to the question, “What providers of litigation finance
portfolio returns throughout our history, with our core
are you most familiar with?” No other firm even makes it to
litigation finance portfolio generating returns of 93% on
ten percent.
invested capital for our balance sheet since inception. We
believe that our existing portfolio will produce substantial
positive returns over time.
Strategic report
Governance
Financial statements
Moreover, as we continue to generate new business, we
establish the foundation to continue to deliver those positive
returns far into the future. The substantial increase in new
business we have seen in the last three years has yet to deliver
much in the way of performance — and that is entirely
consistent with the reality that litigation is slow moving, and
each stage of it takes time. We have historically measured the
duration of our portfolio based on the weighted average time
of deployments as a starting point, and in many instances it
can take quite some time for us to deploy the capital we have
committed to investments. Thus, we don’t expect that we
should already be seeing substantial realisations on the larger
deployment volumes we have made just since 2017.
Business robustly cash generative with
strong liquidity
Burford’s business generates a significant amount of cash
and always has. We more than cover our operating expenses
and financing costs with the cash we generate from assets,
and we generate cash profits. We then redeploy that recovered
cash in new assets. In 2019, we generated over four times
more balance sheet cash receipts than we needed to cover
our operating expenses and interest, leaving almost $400
million available for redeployment. Because of our rate of
growth, we may also from time to time raise capital to finance
some of those new deployments, but doing so is not an
imperative; if we elect not to raise incremental capital, we
could simply grow the business less quickly than might
otherwise be possible.
We have always managed our liquidity prudently and
conservatively to ensure adequate capital to meet our
clients’ needs. We have sizeable cash balances and maintain
low leverage. At year end, we had $206 million of liquidity
on the balance sheet and a 17% net debt/tangible assets
leverage ratio.
In recognition of the need for incremental growth capital,
we have established multiple capital sources over the last
few years so that we now have a substantial investment
management business with almost $3 billion in AUM and with
over $700 million available for us to call and deploy. Access to
these multiple capital sources enhances our liquidity and ability
to grow.
The strong demand we saw in 2019 for new commitments
resulted in our latest fund, the $300 million Burford
Opportunity Fund, being almost fully committed well ahead of
schedule. To bridge the period to a new fund, our sovereign
wealth fund strategic capital partner has agreed to increase its
share of commitments to the extent BOF is full.
By definition, legal finance cash flow is “lumpy”
As we have long made clear, we can neither predict nor
control the timing of the generation of our litigation returns.
Burford is not a business for those focused on short-term
profits or for those who eschew volatility and seek
predictability. Quarterly earnings are both irrelevant to
understanding the value of our business and outside our
control. We finance large, complex commercial claims. Our
cash flows come from their resolution. There is no “normal” for
such claims; they are inherently idiosyncratic. We have had
cases resolve in less than a week, and we have matters from
2010 still going strong. That is the opportunity in our business,
and it is why we are able to generate the returns we have
historically delivered. If litigation were predictable as to
outcome and duration, banks could finance it; there would be
no need for Burford.
That does, however, create a difficult marriage between legal
finance and the public markets. This year was a slower year
than last for the resolution of existing business simply because
cases didn’t show as much activity as they did the year before.
As a result, our income was lower overall. We are not
concerned about that; we like our portfolio, and we did not
suffer any meaningful setbacks — indeed, our realised losses
declined to less than 1% of average portfolio assets from over
3% in the prior year. We can’t control when matters resolve
— and in many instances, we make more money from delay.
But we know that this private equity-like approach can sit
uneasily in a public-market environment where investors are
inclined toward predictability and often take shorter-term
views. We are confident in our course, and we will keep doing
what we have been doing. We are voting with our own time
and money — and so are Burford employees, who own almost
10% of our stock. Dozens of our people are also invested in our
funds. We have low turnover and a strong cohort of people
who want to work for us. Clearly our team has confidence in
our eventual outcomes.
Petersen’s role in our growth
Burford’s business has experienced explosive growth in the last
three years. In 2019, we committed nearly $1.6 billion to new
assets Group-wide and deployed $1.1 billion; in 2016, those
numbers were $378 million and $276 million, respectively.
That growth has required significant investment in growing our
business — and in particular growing our team — even as the
new investments we have made largely remain unconcluded.
4
Burford Annual Report 2019
Burford Annual Report 2019
5
Management statement
continued
At the same time, we have enjoyed considerable success from
our funding of the Petersen litigation, enabling us since 2015 to
sell 38.75% of our interest in its outcome for cash proceeds of
$236 million — and our total deployment in Petersen remains
below $20 million.
That success has had three impacts on our business. First, we
have been able to use the cash generated by the Petersen
sales to finance the growth of our business. Second, we have
been able to rely on the cash profits — the realised gains —
provided by those sales during a period when our profitability
would otherwise have been considerably lower while we wait
for the higher volumes of business we have written recently to
turn into cash profits. We have been clear about the positive
cash attributes of Petersen on Burford’s business — and about
how large successes like Petersen are a recurring part of
Burford’s business, not a one-time event.
The third impact is an accounting one: We are required to
account for our litigation assets at fair value. In traditional
ongoing litigation, without any secondary sales to third parties,
the accounting impact of fair value accounting is modest. We
only adjust carrying values on the basis of objective events in
the underlying case, and then moderately; most of our
traditional litigation finance income comes at the conclusion
of matters, meaning that our existing portfolio has significant
upside remaining if it performs consistently with past practice.
In fact, the current total fair value mark on our direct capital
provision portfolio (core litigation finance and asset recovery)
excluding our YPF-related assets is only $38 million and has
never been larger than $65 million in our history. However,
when faced with substantial sales to independent third parties,
we concluded that, under the accounting standards, we
should look more to those sales prices than to litigation
assessments, and the sales prices of successive Petersen sales
have thus weighed more heavily over time on our asset
valuation as the number of buyers and the total volume of
sales have increased. This trend reached its zenith in 2019
when we not only sold $100 million worth of Petersen but our
broker for the transaction also organised more secondary
sales, resulting in 15% of the total asset changing hands in a
single sale. That was a sufficiently large sale to a dispersed
group of buyers that our final 2019 valuation of Petersen was
entirely based on the sale price. We discuss Petersen and its
fair value in more detail later in this annual report.
In essence, Petersen has operated as a valuable bridge from a
smaller Burford to a larger one as we wait for the remainder of
the portfolio to perform, something we have already begun to
see in 2020.
Short attack affected investor confidence, not
business fundamentals
The fundamentals of Burford’s business remain unchanged
from before last summer’s short attack — and indeed we
added new staff, new products and new clients in late 2019
that leave us in an even stronger position than we were before.
As can be seen by our record-breaking level of new business,
the short attack did not cripple Burford’s ability to grow and
carry on its global strategy.
However, we take very seriously the impact of the short attack
on our shareholders and our share price, even if the
substantive allegations were meritless and easily debunked,
and even if the ensuing turmoil did not change the
fundamentals of our business. That is why we have engaged
with regulators on both sides of the Atlantic, and that is why
we have begun legal proceedings to attempt to discover the
identities of traders who we believe manipulated Burford’s
share price, although it is regrettable that the LSE has elected
to attempt to block those proceedings instead of working with
us to seek redress for shareholders’ losses. We have also
increased very considerably our shareholder outreach activities
in order to educate new potential shareholders about Burford
and its business model and to create demand for our shares;
we were pleased to see the arrival of two new 5% shareholders
and a number of other institutional holders in the months
following the short attack.
Short attacks are corrosive; they injure innocent shareholders
and they inspire panic selling. That is, of course, why they have
gained popularity with unscrupulous attackers; if the arrival of
a short attack triggers a feedback loop suggesting that shares
will reliably fall quickly, then even shareholders who are
confident of the prospects of their investments will sell into
the attack, delivering ill-gotten gains to the short attackers
and their co-conspirators on the backs of long-term
shareholders. If one adds illegal manipulation into the mix,
the rewards can be even greater. There are only two ways to
combat this phenomenon: Regulators can act, or shareholders
can collectively resist the urge to sell into attacks and instead
buy on dips, rather than leaving the low-hanging fruit to
hedge funds. And while it would be nice to believe that the
FCA and the LSE would bestir themselves, recent history
suggests otherwise.
At the end of the day, however, much as we may bemoan the
regulatory response or the wrongdoing itself, it now falls to us
to restore shareholder confidence and to continue to deliver
performance, a challenge and a responsibility we are happy to
accept. Unfortunately, events outside of Burford’s control —
market and economic turmoil, slow-moving courts and
challenges at some of our shareholders — have made the
rehabilitation of our share price more difficult in the short term,
but we have always taken a longer-term view and continue to
do so.
6
Burford Annual Report 2019
At the same time, we have enjoyed considerable success from
Short attack affected investor confidence, not
Management statement
continued
our funding of the Petersen litigation, enabling us since 2015 to
sell 38.75% of our interest in its outcome for cash proceeds of
$236 million — and our total deployment in Petersen remains
below $20 million.
That success has had three impacts on our business. First, we
have been able to use the cash generated by the Petersen
sales to finance the growth of our business. Second, we have
been able to rely on the cash profits — the realised gains —
provided by those sales during a period when our profitability
would otherwise have been considerably lower while we wait
for the higher volumes of business we have written recently to
turn into cash profits. We have been clear about the positive
cash attributes of Petersen on Burford’s business — and about
how large successes like Petersen are a recurring part of
Burford’s business, not a one-time event.
The third impact is an accounting one: We are required to
account for our litigation assets at fair value. In traditional
ongoing litigation, without any secondary sales to third parties,
the accounting impact of fair value accounting is modest. We
only adjust carrying values on the basis of objective events in
the underlying case, and then moderately; most of our
traditional litigation finance income comes at the conclusion
of matters, meaning that our existing portfolio has significant
upside remaining if it performs consistently with past practice.
In fact, the current total fair value mark on our direct capital
provision portfolio (core litigation finance and asset recovery)
excluding our YPF-related assets is only $38 million and has
never been larger than $65 million in our history. However,
when faced with substantial sales to independent third parties,
we concluded that, under the accounting standards, we
should look more to those sales prices than to litigation
assessments, and the sales prices of successive Petersen sales
have thus weighed more heavily over time on our asset
valuation as the number of buyers and the total volume of
sales have increased. This trend reached its zenith in 2019
when we not only sold $100 million worth of Petersen but our
broker for the transaction also organised more secondary
sales, resulting in 15% of the total asset changing hands in a
single sale. That was a sufficiently large sale to a dispersed
group of buyers that our final 2019 valuation of Petersen was
entirely based on the sale price. We discuss Petersen and its
fair value in more detail later in this annual report.
In essence, Petersen has operated as a valuable bridge from a
smaller Burford to a larger one as we wait for the remainder of
the portfolio to perform, something we have already begun to
see in 2020.
business fundamentals
The fundamentals of Burford’s business remain unchanged
from before last summer’s short attack — and indeed we
added new staff, new products and new clients in late 2019
that leave us in an even stronger position than we were before.
As can be seen by our record-breaking level of new business,
the short attack did not cripple Burford’s ability to grow and
carry on its global strategy.
However, we take very seriously the impact of the short attack
on our shareholders and our share price, even if the
substantive allegations were meritless and easily debunked,
and even if the ensuing turmoil did not change the
fundamentals of our business. That is why we have engaged
with regulators on both sides of the Atlantic, and that is why
we have begun legal proceedings to attempt to discover the
identities of traders who we believe manipulated Burford’s
share price, although it is regrettable that the LSE has elected
to attempt to block those proceedings instead of working with
us to seek redress for shareholders’ losses. We have also
increased very considerably our shareholder outreach activities
in order to educate new potential shareholders about Burford
and its business model and to create demand for our shares;
we were pleased to see the arrival of two new 5% shareholders
and a number of other institutional holders in the months
following the short attack.
Short attacks are corrosive; they injure innocent shareholders
and they inspire panic selling. That is, of course, why they have
gained popularity with unscrupulous attackers; if the arrival of
a short attack triggers a feedback loop suggesting that shares
will reliably fall quickly, then even shareholders who are
confident of the prospects of their investments will sell into
the attack, delivering ill-gotten gains to the short attackers
and their co-conspirators on the backs of long-term
shareholders. If one adds illegal manipulation into the mix,
the rewards can be even greater. There are only two ways to
combat this phenomenon: Regulators can act, or shareholders
can collectively resist the urge to sell into attacks and instead
buy on dips, rather than leaving the low-hanging fruit to
hedge funds. And while it would be nice to believe that the
FCA and the LSE would bestir themselves, recent history
suggests otherwise.
At the end of the day, however, much as we may bemoan the
regulatory response or the wrongdoing itself, it now falls to us
to restore shareholder confidence and to continue to deliver
performance, a challenge and a responsibility we are happy to
accept. Unfortunately, events outside of Burford’s control —
market and economic turmoil, slow-moving courts and
challenges at some of our shareholders — have made the
rehabilitation of our share price more difficult in the short term,
but we have always taken a longer-term view and continue to
do so.
Strategic report
Governance
Financial statements
Governance engagement and continued
transparency increases
While the short attack did not raise any lasting questions about
the substance of our business or our accounting, it did cause
shareholders to express concern about corporate governance
and transparency issues, and we have listened and responded.
▪ We issued detailed public statements about business issues,
providing an unprecedented level of transparency into our
activities, including our approach to fair valuing our assets,
and this 2019 annual report continues to increase our
transparency
▪ We have now named two new proposed independent
directors with extensive market and finance experience to
the Board, nominated Christopher Bogart, our CEO, for
board membership, and announced a comprehensive Board
succession plan
▪ We are pursuing a dual listing in the US
▪ We have reorganised our management team to emphasise
our deep bench of management talent
▪ We have appointed a new CFO and engaged in succession
planning in the finance function
We have also extensively redesigned and enhanced our annual
report. Some shareholders may be sad that we have trimmed
back our discursive commentary on the business and resorted
to a more traditional shareholder report format, but we hope
that a significant number of newly enhanced disclosures help
to compensate for the change — while this letter continues the
bully-pulpit tradition we have established over the past decade.
It has been a turbulent year and we are grateful for the support
of shareholders who have stuck with us. It is cold comfort to
note that even at its year-end share price Burford generated a
743% total shareholder return (TSR) since our IPO 10 years ago
compared to a 125% TSR for the FTSE All-Share index and a
60% TSR for the FTSE AIM Index over the same period — and
while markets have obviously declined subsequently, even our
depressed share price today remains many multiples ahead of
the indices.
Social responsibility is in Burford’s DNA
This year, more businesses than ever are writing about
social responsibility.
For many companies, social responsibility requires them to do
something that they are not doing, and which in many cases
does not fit neatly with — and indeed is inconsistent with —
their businesses. Industrial companies need to reduce their
carbon footprints. Tech companies need to consider privacy.
Both would earn more profits by not changing.
At Burford, there is no such tension. The rule of law is one of
the cornerstones of civilised society. Burford’s business makes
the rule of law fairer, more accessible and more efficient. Our
entire business is about social responsibility, and it happens
effortlessly, every day, while also generating profits. As Lord
Neuberger, the President of the UK Supreme Court, put it:
“Litigation funding is the life-blood of the justice system. It
helps maintain our society as an inclusive one.”
Our asset recovery business, which was much maligned and
regularly misrepresented in the English press this year, is an
excellent example of this. Without our asset recovery team,
which exists purely to enforce court orders against rogue
debtors, court decisions would mean less, the courts would be
regarded with less respect and the rule of law would be weaker.
If ignoring court orders starts not to have consequences or to
become socially acceptable, the entire fabric of the courts and
their role in society are weakened. Burford’s asset recovery
business helps ensure that does not occur.
The year ahead
We enter 2020 with considerable optimism about our business
and have announced substantial positive progress in our
investment portfolio to date.
At the time of writing, it is too soon to know how profound the
impact of the COVID-19 outbreak will be on the global
economy or our business; we include extensive commentary
on it on page 73. Regardless, it seems reasonable to believe
that we are entering a potentially severe economic downturn,
an environment that tends to spawn litigation and puts
pressures on corporate legal departments and their law firms,
conditions that increase demand for our capital and services.
We are particularly grateful for the support of all of our
stakeholders during the past year and we look forward to
continuing our dedication to Burford’s performance.
Sir Peter
Middleton GCB
Chairman
Christopher Bogart
Chief Executive
Officer
Jonathan Molot
Chief Investment
Officer
6
Burford Annual Report 2019
Burford Annual Report 2019
7
Q&A
We provide below some of the questions we regularly receive
from shareholders and bondholders, and our responses.
Q. Your new commitments grew a lot in 2017 and
have remained high ever since, and you say the
average life of your litigation finance assets is
about two years. Why haven’t you seen
more realisations?
A. They’re coming! They just take some time. For context,
31% of 2017 matters by number are either concluded or
have generated partial realisations. That number is 58%
for 2016 and 81% for 2015—and 23% for 2018 and 6% for
2019. Making a commitment doesn’t necessarily mean
that we have begun deploying capital against that
commitment. In fact, it takes us six months on average to
go from commitment to deployment—and in matters
where our capital is flowing out over the life of a matter,
sometimes much longer. From that point of average
deployment, it has taken 2.3 years for the average
recovery. Moreover, we make more money from
successful adjudications than from settlements, and
adjudications have had a weighted average life of 3.4
years. Extracting desirable returns from our portfolio is a
multi-year process, but we have been doing it
successfully for more than a decade, and our consistent
IRRs prove that out. The graphs on page 40 show this
point in more detail.
Q.
If you don’t raise new capital, will you
have enough liquidity to cover your
operating and financing costs and meet your
commitment obligations?
A. Burford has a strong liquidity position—over $200 million
in cash and cash management assets at the end of 2019
and another $185 million in short tenor complex
strategies assets on its balance sheet. Burford also
generates a lot of cash. Over the last three years, Burford
has generated more than a billion dollars of cash from
operations—an average of $376 million in balance sheet
cash receipts per year, after paying all operating expenses
and finance costs, with $397 million of that coming in
2019, a relatively quiet year for the business.
And while Burford has many opportunities to deploy
capital into new investments, it only has $289 million of
balance sheet legal finance commitments where failure
to deploy capital as needed comes with adverse
consequences—and Burford has only deployed a median
of 16% of its unfunded commitments each year. In short,
while the pace of Burford’s future growth is related to
continued access to capital, we don’t see liquidity risk
from our current position.
Q. What will the impact of COVID-19 be
on Burford?
A. We talk extensively about COVID-19 on page 73.
Moreover, it is simply an unfortunate fact of life that there
are inevitably more disputes and less corporate liquidity in
any economic downturn, and thus likely increased
demand for Burford’s services for several years to come.
As to COVID-19 in the short term, Burford is fortunate in
that its business is much easier than many to operate
remotely and we were prompt to close our offices (doing
so before there were requirements in force) in order to
safeguard our staff’s well-being and eliminate their need
to commute to work. We also dispersed our senior
management team geographically, with three senior
people (including our CEO and CFO) relocating away
from their usual New York base. We believe that
only three of our staff have tested positive for COVID-19
and all have recovered. We also took other steps
to reduce implied pressure on staff to work together
physically; for example, we believe we were the first
London-listed firm to delay release of our results,
something for which we received some criticism at the
time only for that to become commonplace and
ultimately mandated by the FCA. The Board is monitoring
the situation closely, including through weekly calls.
We are also being prudent about liquidity, both to
preserve it in a world where liquidity has suddenly
become a scarce commodity and to maximize our ability
to take advantage of the new opportunities we expect to
see in the coming months. Difficult measures such as the
decision not to propose a final dividend are part of that
prudential approach.
Q. Why doesn’t Burford buy back its shares given
their sharp decline in price?
A. Especially in a time of dislocated markets with uncertain
paths to incremental liquidity, we think the long-term
interest of the business is to husband our capital to our
clients’ use and continue to grow and expand our
portfolio; we believe that that will continue to add more
long-term value to shareholders than the short-term
panacea of a share buyback.
8
Burford Annual Report 2019
Q&A
We provide below some of the questions we regularly receive
from shareholders and bondholders, and our responses.
Q. Your new commitments grew a lot in 2017 and
Q. What will the impact of COVID-19 be
have remained high ever since, and you say the
on Burford?
average life of your litigation finance assets is
about two years. Why haven’t you seen
more realisations?
A. They’re coming! They just take some time. For context,
31% of 2017 matters by number are either concluded or
have generated partial realisations. That number is 58%
A. We talk extensively about COVID-19 on page 73.
Moreover, it is simply an unfortunate fact of life that there
are inevitably more disputes and less corporate liquidity in
any economic downturn, and thus likely increased
demand for Burford’s services for several years to come.
As to COVID-19 in the short term, Burford is fortunate in
for 2016 and 81% for 2015—and 23% for 2018 and 6% for
that its business is much easier than many to operate
2019. Making a commitment doesn’t necessarily mean
remotely and we were prompt to close our offices (doing
that we have begun deploying capital against that
so before there were requirements in force) in order to
commitment. In fact, it takes us six months on average to
safeguard our staff’s well-being and eliminate their need
go from commitment to deployment—and in matters
to commute to work. We also dispersed our senior
where our capital is flowing out over the life of a matter,
management team geographically, with three senior
sometimes much longer. From that point of average
people (including our CEO and CFO) relocating away
deployment, it has taken 2.3 years for the average
recovery. Moreover, we make more money from
successful adjudications than from settlements, and
adjudications have had a weighted average life of 3.4
years. Extracting desirable returns from our portfolio is a
multi-year process, but we have been doing it
from their usual New York base. We believe that
only three of our staff have tested positive for COVID-19
and all have recovered. We also took other steps
to reduce implied pressure on staff to work together
physically; for example, we believe we were the first
London-listed firm to delay release of our results,
successfully for more than a decade, and our consistent
something for which we received some criticism at the
IRRs prove that out. The graphs on page 40 show this
time only for that to become commonplace and
point in more detail.
Q.
If you don’t raise new capital, will you
have enough liquidity to cover your
operating and financing costs and meet your
commitment obligations?
A. Burford has a strong liquidity position—over $200 million
in cash and cash management assets at the end of 2019
and another $185 million in short tenor complex
strategies assets on its balance sheet. Burford also
generates a lot of cash. Over the last three years, Burford
has generated more than a billion dollars of cash from
operations—an average of $376 million in balance sheet
cash receipts per year, after paying all operating expenses
and finance costs, with $397 million of that coming in
2019, a relatively quiet year for the business.
And while Burford has many opportunities to deploy
capital into new investments, it only has $289 million of
balance sheet legal finance commitments where failure
to deploy capital as needed comes with adverse
consequences—and Burford has only deployed a median
of 16% of its unfunded commitments each year. In short,
while the pace of Burford’s future growth is related to
continued access to capital, we don’t see liquidity risk
from our current position.
ultimately mandated by the FCA. The Board is monitoring
the situation closely, including through weekly calls.
We are also being prudent about liquidity, both to
preserve it in a world where liquidity has suddenly
become a scarce commodity and to maximize our ability
to take advantage of the new opportunities we expect to
see in the coming months. Difficult measures such as the
decision not to propose a final dividend are part of that
prudential approach.
Q. Why doesn’t Burford buy back its shares given
their sharp decline in price?
A. Especially in a time of dislocated markets with uncertain
paths to incremental liquidity, we think the long-term
interest of the business is to husband our capital to our
clients’ use and continue to grow and expand our
portfolio; we believe that that will continue to add more
long-term value to shareholders than the short-term
panacea of a share buyback.
Strategic report
Governance
Financial statements
Q. Why have your shares declined so much in price
and not recovered?
A. Burford’s shares began to come under pressure in the
middle of 2019 when the Woodford Equity Income Fund,
one of Burford’s largest shareholders, encountered
difficulty and suspended withdrawals. That led short
sellers to predict—accurately, as it turned out in the
end—that Woodford would become a forced seller of its
large positions like Burford. Then in August, Burford was
the victim of a false and misleading short attack which,
aided by what we believe was illegal market manipulation,
caused Burford’s shares to fall sharply. In the aftermath of
the short attack, when new shareholders were coming
into the stock and one might normally have expected a
recovery, the continuing overhang of the Woodford
position and rumoured weakness at another large holder
contributed to ongoing softness and persistent selling.
More recently, macroeconomic conditions have battered
Burford like many other stocks, although even at its
current depressed level Burford has still dramatically
outperformed the indices since its inception a decade
ago. In short, a number of factors external to Burford
unfortunately coalesced to damage our share price.
As we face economic uncertainty and dislocation, we
would expect—just as occurred following the global
financial crisis—to see significant demand for our capital
and many desirable opportunities, and our management
team has confidence in Burford’s long-term prospects.
Q.
If you believe in the business and think it is
undervalued, why isn’t the management team
buying stock?
A. Burford’s team has bought approximately $10 million in
stock in the last nine months and now owns almost 10%
of the business, making management likely the largest
shareholders—in addition to investing millions of dollars
in Burford’s private funds. Moreover, Burford’s CEO and
CIO have both committed to use the entire proceeds of
their 2019 annual performance bonuses (which were set
and paid some time ago) to buy Burford’s securities in the
market. However, the suggestion that the only way for
management teams to show confidence in the business
as its share price falls is to buy more and more stock
simply isn’t so; the management team is highly aligned
with shareholders and strongly motivated to generate
share price performance through what are already
extensive shareholdings and fund investments.
Q. Why have we yet to see any meaningful
performance fees from Burford’s private funds?
A. Burford’s funds (except for the Strategic Value Fund and
the Sovereign Wealth Fund arrangement) operate on a
European waterfall basis, meaning that performance
fees are not paid until close to the end of a fund’s life,
and the funds still have meaningful continuing
investments. However, 2019 did see a significant—65%—
increase in asset management income, including almost
$8 million in performance fees and income from our
SWF arrangement.
Q. You have now disclosed that the Petersen case
makes up much of the fair value on your
balance sheet. Why is that, why have you not
disclosed that before and what does that say
about the remainder of your portfolio?
A.
In general, we are not in a position to disclose the
carrying values of individual assets for legal privilege and
confidentiality reasons; we discuss this further on page 19
of this report. However, during 2019, we concluded a
further sale of a portion of our entitlement to proceeds in
the Petersen matter; that sale was of such size and
breadth that in our year end valuation process we
concluded that our remaining Petersen holdings should
appropriately be marked at that sale price, without using
any privileged or confidential information in the valuation
process, thus enabling us to release its carrying value.
What this enables us to demonstrate is how historically
modest and reliable our fair value marks are on assets
other than those influenced by third-party sales; on
average, we mark assets up to 29% or less of their
ultimate realised value, and we tend to take most of our
unrealised gain in the year prior to conclusion of an asset
position. We have an extensive discussion around fair
value later in this annual report.
Q. What has the feedback been from
shareholders on the changes to the Board
and its succession plan?
A. We have found the vast majority of shareholders to be
supportive of both the substance and the clarity of
succession planning for the Board. We continue to
believe it would be a mistake to rotate Burford’s
experienced Board too quickly.
Q. Where does the US listing stand?
A. We have been working towards filing a registration
statement with the SEC for a US listing as soon as the
auditors have completed their work on the financial
statements. Although we originally anticipated being in a
position to file by the end of April, the delay in the audit
process because of COVID-19 and the continued
challenges of a remote working environment are likely to
create a backlog for the auditors that may extend that
date somewhat.
Q. Why do you need to pay your senior managers
so much?
A. Burford deploys capital in a specialised area where
experienced and highly skilled people are critical to
successful decision-making. Good lawyers are, simply
put, very expensive. Our senior people are paid
considerably less in cash compensation than they would
be able to earn at law firms and investment banks, and
are aligned with shareholders in looking to the
appreciation of Burford’s equity to complete their
compensation packages.
8
Burford Annual Report 2019
Burford Annual Report 2019
9
Our business model
How we deliver value
Commercial legal claims, defences, settlements, judgments, awards and fee receivables
are financial assets. We help companies and law firms unlock the value of these
financial assets by providing a range of financing and risk management solutions based
on their expected future value. We fund these solutions by deploying capital from our
own balance sheet and private investment funds that we manage.
Our products
and services
Our diversified
capital structure
Burford’s breadth of services gives us many ways to work with
clients and generate revenue from our expertise in valuing and
managing legal assets.
We operate multiple sources of capital, as this better
serves clients while giving us a competitive advantage
and the optionality to sustain our high growth.
Core litigation finance
Complex strategies
▪ Financing to corporate
clients and law firms against
value of legal assets either
on a single case or a
portfolio basis
▪ Client retains ultimate
decision-making authority in
the litigation
▪ Investment in underlying
asset where the value to
Burford is tied to the
outcome of litigation or
regulatory process
Asset management
Asset recovery
▪ Managing private investment
funds focused on legal
finance assets
▪ Enforcement of judgments
globally
▪ Expert assistance to lawyers
and clients on global asset
collection and enforcement
Post-settlement
Legal risk management
▪ Monetisation of post-
settlement and other legal
receivables
▪ Deployments made only
through funds
▪ Global large dollar adverse
cost insurance
Total portfolio
Balance sheet 65%
Strategic capital 6%
Private funds 29%
$4.2b
In our Group-wide portfolio
Balance sheet
$2.3b
total assets, including
▪ $1.8b capital provision
portfolio
▪ $0.2b cash
Funded by
▪ $1.5b shareholders’ equity
▪ $0.7b debt
Strategic capital
$1b
pooled SWF arrangement
▪ $667m from sovereign
wealth fund
▪ $333m from balance sheet
Profit split
▪ 60% to the balance sheet
▪ 40% to the sovereign
wealth fund
Private funds
$2.9b
assets under management, including
funds currently being invested:
▪ $500m Strategic Value Fund
▪ $300m Burford Opportunity
Fund
▪ $300m Burford Alternative
Income Fund
Details on the figures contained on pages 10 and 11 can be found in the Financial and operational review section starting on page 29.
10
Burford Annual Report 2019
Strategic report
Governance
Financial statements
Our business model
How we deliver value
Commercial legal claims, defences, settlements, judgments, awards and fee receivables
are financial assets. We help companies and law firms unlock the value of these
financial assets by providing a range of financing and risk management solutions based
on their expected future value. We fund these solutions by deploying capital from our
own balance sheet and private investment funds that we manage.
Our products
and services
Our diversified
capital structure
Our cash generation
and returns
Our stakeholder
values
Burford’s breadth of services gives us many ways to work with
We operate multiple sources of capital, as this better
clients and generate revenue from our expertise in valuing and
serves clients while giving us a competitive advantage
managing legal assets.
and the optionality to sustain our high growth.
We use organically generated capital from fees and
asset realisations as well as external finance to fund
profitable balance sheet growth.
We are strongly aligned behind the shared objective of
creating value for all our stakeholders worldwide.
Core litigation finance
Complex strategies
▪ Financing to corporate
clients and law firms against
▪ Investment in underlying
asset where the value to
value of legal assets either
on a single case or a
portfolio basis
Burford is tied to the
outcome of litigation or
regulatory process
▪ Client retains ultimate
decision-making authority in
the litigation
Asset management
Asset recovery
▪ Managing private investment
funds focused on legal
▪ Enforcement of judgments
globally
finance assets
▪ Expert assistance to lawyers
and clients on global asset
collection and enforcement
Post-settlement
Legal risk management
▪ Monetisation of post-
settlement and other legal
▪ Global large dollar adverse
cost insurance
receivables
▪ Deployments made only
through funds
Total portfolio
Balance sheet 65%
Strategic capital 6%
Private funds 29%
$4.2b
In our Group-wide portfolio
Balance sheet realisations from concluded
portfolio since inception*
$1.3b
$0.6b
Cash profits from recoveries
Total recoveries
$0.7b
Deployed capital returned from
recoveries
Balance sheet
$2.3b
total assets, including
▪ $1.8b capital provision
portfolio
▪ $0.2b cash
Funded by
▪ $1.5b shareholders’ equity
▪ $0.7b debt
Strategic capital
$1b
pooled SWF arrangement
▪ $667m from sovereign
wealth fund
▪ $333m from balance sheet
Profit split
▪ 60% to the balance sheet
▪ 40% to the sovereign
wealth fund
Private funds
$2.9b
assets under management, including
funds currently being invested:
▪ $500m Strategic Value Fund
▪ $300m Burford Opportunity
Fund
▪ $300m Burford Alternative
Income Fund
Core litigation finance
93%
ROIC
31%
IRR
Capital provision-direct*
88%
31%
ROIC
IRR
Group-wide cash receipts
$1b
2019
Balance sheet cash receipts
$0.5b
$2.1b
2019
since inception
* Capital provision-direct portfolio which includes core litigation finance,
asset recovery and non-fund complex strategies assets.
Shareholders
We aim to deliver superior risk-adjusted returns
uncorrelated to the market or economy, creating the
conditions for attractive total shareholder returns. Since
inception in 2009 our total shareholder return is 743%.
Companies
Our solutions allow businesses to attribute financial
value to claims, increase working capital and raise
capital efficiency.
Law firms
93 AmLaw 100 and 89 of the 100 largest global law firms,
along with numerous respected litigation boutiques, have
sought our capital and services to meet the growing and
complex needs of their clients and facilitate growth for
their firms.
Fund investors
We are the stewards of billions of dollars of endowment,
pension fund, and other investor capital, which we
safeguard and work to enhance.
Bondholders
Through judicious oversight of our asset portfolio and
parsimonious use of external finance, we manage our
liquidity and capital prudently, supporting predictable
returns for our note holders and optimal credit ratings.
Employees
We recruit diversely, encourage intellect and develop
professionals who succeed.
Society
Legal finance permits meritorious disputes to be
resolved and monetised. Efficient resource
attribution improves productivity, in turn increasing
economic growth.
Details on the figures contained on pages 10 and 11 can be found in the Financial and operational review section starting on page 29.
10
Burford Annual Report 2019
Burford Annual Report 2019
11
Our market position
The legal industry is
being transformed
We are the world’s leading legal finance firm by size and have the most recognisable
brand name in our industry. We aim to continue the evolution in our business as a
specialty finance company and as an investment bank for law. We intend to maintain
our leadership position given the industry’s considerable barriers to entry and
Burford’s strong “moats” against competition and price commoditisation.
Burford is well-positioned to leverage and
profit from the legal industry’s transformation
▪ Increases in legal expenses are driving the need for financial alternatives
▪ Law firms generally do not have balance sheet capital to provide those alternatives
▪ Clients are rebelling against the billable hour model
▪ Corporates are recognising litigation as an asset
▪ Capital is entering the legal industry and transforming it into a capital user
▪ Burford is the best capitalised and most widely recognised player
Burford has built strong relationships and works
with both corporates and law firms
Group-wide
commitments
by client type
Corporates 52%
Other 4%
Law firms 44%
Client retention rate
As of 31 December 2019, 70% of all single
case users since our inception have
returned to us with another inquiry
or opportunity.
Law firms
93 of the 100 largest US law firms by
revenue (the “AmLaw 100”), 89 of the 100
largest global law firms by revenue (“the
Global 100”) and numerous respected
litigation boutiques have sought our capital.
Corporates
Though potential transactions often come
to us through a law firm, our client is
frequently the business that is pursuing the
legal claim. As legal finance has become
more widely known and as we’ve
developed more direct relationships with
corporate litigants, we are sourcing an
increasing share of our corporate business
directly, including from Fortune 100 and
FTSE 100 clients.
12
Burford Annual Report 2019
Our market position
The legal industry is
being transformed
We are the world’s leading legal finance firm by size and have the most recognisable
brand name in our industry. We aim to continue the evolution in our business as a
specialty finance company and as an investment bank for law. We intend to maintain
our leadership position given the industry’s considerable barriers to entry and
Burford’s strong “moats” against competition and price commoditisation.
Burford is well-positioned to leverage and
profit from the legal industry’s transformation
▪ Increases in legal expenses are driving the need for financial alternatives
▪ Law firms generally do not have balance sheet capital to provide those alternatives
▪ Clients are rebelling against the billable hour model
▪ Corporates are recognising litigation as an asset
▪ Capital is entering the legal industry and transforming it into a capital user
▪ Burford is the best capitalised and most widely recognised player
Burford has built strong relationships and works
with both corporates and law firms
Strategic report
Governance
Financial statements
Our unique advantages
There are considerable barriers to entry in this industry and Burford has
developed strong “moats” against competition and price commoditisation.
1.
2.
3.
4.
5.
Group-wide
commitments
by client type
Significant
scale, capital
and resources
▪ Institutional
quality business
▪ Immediate access to
substantial capital
Corporates 52%
Other 4%
Law firms 44%
Corporates
Client retention rate
Law firms
Though potential transactions often come
As of 31 December 2019, 70% of all single
93 of the 100 largest US law firms by
to us through a law firm, our client is
case users since our inception have
revenue (the “AmLaw 100”), 89 of the 100
frequently the business that is pursuing the
returned to us with another inquiry
legal claim. As legal finance has become
or opportunity.
largest global law firms by revenue (“the
Global 100”) and numerous respected
litigation boutiques have sought our capital.
more widely known and as we’ve
developed more direct relationships with
corporate litigants, we are sourcing an
increasing share of our corporate business
directly, including from Fortune 100 and
FTSE 100 clients.
Strong
relationships
and brand
A large and
diversified portfolio
with lower risk
Large,
experienced
team
Proprietary
data and
systems
▪ Most diverse product
offering in the market
▪ New entrants will
take many years to
achieve comparable
diversification—and
operate at higher risk
in the interim
▪ Strong relationships
with law firms and
corporate clients
▪ One-stop
shopping approach
provides added
value for clients
▪ Most recognisable
player in the market
▪ Enables us to
scale existing
strategies and
launch new ones
▪ Arguably the most
experienced team in
the industry
▪ High-quality
decision making and
deep knowledge
▪ Burford’s training
and experience
transfer is essential:
Lawyers can’t do this
out of the box
▪ Unmatched dataset
to enhance
investment decisions
▪ Bespoke risk
assessment and
modelling
12
Burford Annual Report 2019
Burford Annual Report 2019
13
Our market position
continued
The market opportunity
Despite the overall size and stability of the legal industry, certain trends have fuelled the growth of legal finance. In particular,
increasing numbers of corporate clients prefer to pay law firms for success rather than on an hourly fee basis. Yet law firms
operate as cash businesses with little balance sheet capacity and often need the steady stream of income that hourly fees
provide. Legal finance has grown rapidly over the past decade to bridge this gap. In addition, corporate legal departments are
under pressure to extract value from their litigation assets, and legal finance gives them a tool to do so.
Law
firm fees
$825b
Total annual global legal fees1
$445b
Estimated annual US legal spend2
$118.3b
Estimated total annual revenue
of the largest 200 law firms in
the US3
Large
addressable
market
Although it is impossible to put
a number on Burford’s
addressable market, three
significant areas of activity paint
a picture of its potential scale.
Value of
settlements,
judgments and
awards
$2t+
Total value of pending
arbitration cases at the top
30 firms4
$14.74b
Total value of the largest 100
US verdicts in 20185
Assets affected by legal and
regulatory processes
4x
Median spending among large
companies on IP litigation in 2019
more than 4 times what it was in 20156
160
$19b
M&A shareholder cases were filed in
2018, compared to 115 in 20177
Total recoveries in antitrust
class actions from 2013—20188
1. GrandView Research, “Legal Services 2019-2025,” published September 2019.
2. Thomson Reuters Legal Executive Institute, “2019 Report on the State of the Legal Market”.
3. Burford analysis of 2019 AmLaw 100 and AmLaw 200 rankings.
4. Global Arbitration Review, “GAR 30: Ranking the World’s Leading International Arbitration Practices,” April 5, 2019.
5. ALM VerdictSearch, “The Top 100 Verdicts of 2018”.
6. Morrison & Foerster research, “Benchmarking IP Litigation 2019”.
7. Cornerstone Research, “Securities Class Action Filings 2019 Year in Review”.
8. University of San Francisco Law research paper, “2018 Antitrust Report: Class Action Filings in Federal Court”.
14
Burford Annual Report 2019
Our market position
continued
The market opportunity
Law
firm fees
$825b
Total annual global legal fees1
$445b
Estimated annual US legal spend2
$118.3b
Estimated total annual revenue
of the largest 200 law firms in
the US3
Despite the overall size and stability of the legal industry, certain trends have fuelled the growth of legal finance. In particular,
increasing numbers of corporate clients prefer to pay law firms for success rather than on an hourly fee basis. Yet law firms
operate as cash businesses with little balance sheet capacity and often need the steady stream of income that hourly fees
provide. Legal finance has grown rapidly over the past decade to bridge this gap. In addition, corporate legal departments are
under pressure to extract value from their litigation assets, and legal finance gives them a tool to do so.
Value of
settlements,
judgments and
awards
$2t+
Total value of pending
arbitration cases at the top
30 firms4
$14.74b
Total value of the largest 100
US verdicts in 20185
Large
addressable
market
Although it is impossible to put
a number on Burford’s
addressable market, three
significant areas of activity paint
a picture of its potential scale.
4x
Median spending among large
companies on IP litigation in 2019
more than 4 times what it was in 20156
160
$19b
M&A shareholder cases were filed in
2018, compared to 115 in 20177
Total recoveries in antitrust
class actions from 2013—20188
1. GrandView Research, “Legal Services 2019-2025,” published September 2019.
2. Thomson Reuters Legal Executive Institute, “2019 Report on the State of the Legal Market”.
3. Burford analysis of 2019 AmLaw 100 and AmLaw 200 rankings.
4. Global Arbitration Review, “GAR 30: Ranking the World’s Leading International Arbitration Practices,” April 5, 2019.
5. ALM VerdictSearch, “The Top 100 Verdicts of 2018”.
6. Morrison & Foerster research, “Benchmarking IP Litigation 2019”.
7. Cornerstone Research, “Securities Class Action Filings 2019 Year in Review”.
8. University of San Francisco Law research paper, “2018 Antitrust Report: Class Action Filings in Federal Court”.
Strategic report
Governance
Financial statements
Burford’s business
Legal finance explained
With legal finance, a litigant or law firm uses the asset value of
commercial litigation or arbitration to secure capital, either to finance
the litigation or for general business purposes.
Defining legal finance
In its most basic form, legal finance is provided on a single-
case basis to pay for the legal fees and costs associated with
commercial litigation or arbitration in exchange for a portion
of the ultimate award or settlement.
Often, this approach fulfils the needs of companies that can’t
or don’t want to pay their lawyers by the hour, or of law firms
that wish to offer clients flexible terms but can’t or don’t want
to assume the entire contingent risk of doing so. Rather than
pressuring their law firm of choice to take on this cost and risk
or being forced to work with a different firm, companies can
leverage legal finance as a hybrid or “synthetic contingency”
that bridges the gap between their needs and those of their
law firms. And rather than having to forgo service to a client,
law firms can use legal finance to manage risk and generate
new business. Increasingly, however, legal finance is used in
ways resembling specialty corporate finance.
As a US law firm partner put it, “A broad range of corporate
plaintiffs from small to large Fortune 50 companies use legal
finance for a variety of reasons, as do law firms.” Companies
and law firms use legal finance to move cost and risk off
balance sheets, free up capital for other business purposes
and improve risk management while adding budgetary
certainty. Clients also make use of portfolio-based finance,
where multiple matters (both plaintiff and defence
matters) are combined in a single cross-collateralised
financing arrangement.
Assets affected by legal and
regulatory processes
How legal finance works
A litigant or law firm
seeking financing will
engage with a finance
provider such as
Burford that will
consider commercial
legal matters as
financeable assets.
The finance provider
will use the value of
those legal assets
to craft financial
solutions, whether
financing a single
case, portfolios of
multiple cases or
structures that are
bespoke to a
company or
law firm.
The capital provided
may be used to pay
fees and expenses
associated with a
case, or for entirely
different business
purposes.
Although terms and
structures vary,
Burford’s capital is
almost always
non-recourse—
meaning that we do
not earn a return and
risk losing capital if
the litigation is
unsuccessful.
Financing can be
provided at any stage
of proceedings—from
before filing to appeal,
for legal receivables
awaiting payment and
for matters in which a
judgment requires
enforcement.
14
Burford Annual Report 2019
Burford Annual Report 2019
15
Burford’s business
continued
Our products
and services
1.
Legal finance
Core litigation finance
Legal risk management
Asset recovery
2.
Complex strategies
3.
4.
Post-settlement
Asset management
16
Burford Annual Report 2019
Burford’s business
continued
Our products
and services
1.
Legal finance
Core litigation finance
Legal risk management
Asset recovery
2.
Complex strategies
3.
4.
Post-settlement
Asset management
Strategic report
Governance
Financial statements
1. Legal finance
Core litigation finance
Our litigation finance business provides capital and expertise to
many of the world’s largest law firms and their clients. We
finance commercial high-value single litigation matters or
portfolios of matters at any stage of the litigation process, from
before inception to after a final judgment has been entered. In
some instances, we provide financing to a law firm that has
agreed to take on a case on a contingent fee or alternative fee
basis. In other situations, we provide financing to monetise the
value of a claim by offering a client an upfront cash payment
for a claim with significant potential value. We in turn receive
our funded cost and return from the ultimate settlement or
judgment on the claim.
We also provide financing to law firms and corporate clients
for portfolios of cases. In these instances, we provide financing
for a group of cases with the same counterparty on terms that
tend to recognise the lower risk of loss generally associated
with multi-case portfolios. We underwrite each case in these
portfolios. Typically, the cases in the portfolio are cross-
collateralised, such that we can recover losses in one case
from successes in another. This structure reduces our risk
and allows us to offer more attractive terms while still
achieving a similar risk-adjusted return as with single cases.
Portfolios allow us to originate larger volumes of assets with
greater efficiency.
For corporate clients, legal finance allows them to hire law
firms that will only agree to work on an hourly fee basis.
Further, our financing allows corporate clients to avoid
incurring legal fees as an operating expense, thereby improving
their net income metrics. Monetisations allow corporate clients
to obtain value and cash for an asset that otherwise would not
appear in their financial statements. Burford works with all
sizes of businesses, including Fortune 100 and FTSE 100
companies, to monetise their litigation positions to unlock the
value of pending litigation and unenforced judgments and to
enhance corporate balance sheets.
For law firm clients, our financing allows them to obtain cash
to operate their businesses and pay their lawyers even when
they have taken a case on a contingent fee basis. It also allows
law firms that prefer to operate on an hourly basis to compete
for contingency fee work.
Origination
When our dedicated origination function generates a new lead
through business development outreach, that lead has a four
times greater likelihood of progressing through our initial
intake process and into our pipeline (where we consider
matters in greater depth) than a lead that comes in the door
unsolicited. We continue to seek a higher rate of closed
financings relative to inquiries by educating the market so that
we can continue to make our process more efficient; we
improved our closed investment rate as a percentage of
inquiries from 5.9% in 2018 to 7.0% in 2019.
Although a primary focus for the origination team continues to
be law firms and lawyers (the traditional source of most of our
opportunities), we have also been increasingly directly
targeting potential corporate clients, resulting in the
procurement of several large financing opportunities.
Underwriting
Before we make a commitment, we conduct extensive
in-house diligence. All financing agreements must be
approved by one of Burford’s dedicated commitment
committees which consider legal merits, risks, reasonably
recoverable damages, proposed budget, proposed terms,
credit issues and enforceability.
The manner in which we provide funding on a commitment
varies widely. Some financing agreements require us to provide
funding over a period of time, whereas other agreements
require us to fund the total commitment up front. The terms of
our agreements also vary. In some cases, we have broad
discretion as to each incremental funding, and in others, we
have little discretion and would suffer adverse consequences
were we to fail to provide incremental funding.
Pricing and returns
The structure of each legal finance asset varies and our returns
can have several components, including:
▪ Return of our investment
▪ Time-based return such as an interest rate or multiple
▪ Percentage of the ultimate proceeds received
In a basic single-case funding transaction, we pay some or all
of the costs of a claimant bringing a litigation matter. In such
transactions, we typically use a structure that provides for our
capital back plus a time-based return followed by an
entitlement to some portion of the net recovery. As a simple
example, we might structure our return so that upon
conclusion of a successful claim, we would receive our funded
cost back plus two times our cost plus 20% of net proceeds
from the claim. Deal terms are bespoke and not every
investment will have all of these components, and some will
have other structures.
We also engage in transactions in which the risk of loss can be
reduced, typically by using a portfolio or multi-case structure,
but occasionally through a variety of other structures such as
interest-bearing recourse debt (sometimes with a premium
based on net recoveries) or the purchase of equity or debt
assets that underlie the relevant litigation or arbitration claims.
16
Burford Annual Report 2019
Burford Annual Report 2019
17
We have built proprietary analytical tools that enhance our
ability to analyse and price any legal finance matter. Using
the significant data set we have developed over 10 years of
operation as well as the views of our experienced
underwriters, we employ a bespoke asset return model to
calculate the likelihood of loss and probability-weighted
risk-adjusted returns for each asset that goes to the
commitment committees.
We price our capital commensurate with the risks we identify
and quantify. Broadly, as we underwrite new legal finance
assets, we are targeting risk-adjusted returns consistent with
the historic performance of our concluded portfolio.
Importantly, in structuring our returns, we strive to ensure that,
in a wide range of outcomes, the deal structure will also deliver
appropriate economics for the claimant and for counsel in
order that their interests align with ours.
Asset monitoring
We have a robust internal portfolio management process to
optimise legal finance assets. Each of our matters has a Burford
professional assigned to monitor the underlying case. We
generally schedule regular calls with clients to discuss case
developments. Case updates are reported monthly to senior
management. We also conduct a quarterly risk review and
provide an in-depth quarterly report on our entire portfolio to
senior management and our Board of Directors. We conduct
an extensive semi-annual review of every legal finance asset
for valuation purposes, which includes our external auditors. In
addition to reports from counsel, we proactively keep
ourselves informed of case developments, including receiving
docket alerts and reviewing court documents filed.
Our matters resolve in various ways consistent with the
outcomes in the litigation process generally. Many of our
matters reach a negotiated resolution—a settlement—between
the litigants, either before or after going to trial. Others do not
resolve amicably and go all the way through the formal dispute
resolution process, including trial and appeal(s). The duration
of those outcomes varies widely and depends on the
complexity of the matter and the schedule of the
relevant tribunal.
Burford’s business
continued
Burford’s commitment process
The graphic below illustrates our process and shows the
volume of potential matters at each stage. One of our
goals is to increase the percentage of closed
commitments relative to inbound inquiries, not by
lowering our standards but by continuing to improve the
quality of inbound matters through education and
marketing. This approach may result in fewer but higher
quality inquiries, as happened in 2019.
1,414
1,470
Inbound inquiries:
screening
Number of inquiries
generated from
marketing and dedicated
origination that run
through our initial
screening process,
filtering potential assets
into our pipeline
Pipeline process
Number of potential
assets assigned to
underwriters, discussed
among the global team
and progressed into more
significant diligence.
Burford combines
proprietary data and deep
experience in its in-house
diligence process
Commitment
committees
Number of potential
assets reviewed at
commitment
committee. Burford's
commitment
committees have deep
specialist knowledge
and significant
litigation experience
570
456
170
168
99
87
Closed legal
finance assets
Note: Financing process figures are from 2019. Smaller
figures are from 2018.
18
Burford Annual Report 2019
marketing. This approach may result in fewer but higher
We price our capital commensurate with the risks we identify
We have built proprietary analytical tools that enhance our
ability to analyse and price any legal finance matter. Using
the significant data set we have developed over 10 years of
operation as well as the views of our experienced
underwriters, we employ a bespoke asset return model to
calculate the likelihood of loss and probability-weighted
risk-adjusted returns for each asset that goes to the
commitment committees.
and quantify. Broadly, as we underwrite new legal finance
assets, we are targeting risk-adjusted returns consistent with
the historic performance of our concluded portfolio.
Importantly, in structuring our returns, we strive to ensure that,
in a wide range of outcomes, the deal structure will also deliver
appropriate economics for the claimant and for counsel in
order that their interests align with ours.
Asset monitoring
We have a robust internal portfolio management process to
optimise legal finance assets. Each of our matters has a Burford
professional assigned to monitor the underlying case. We
generally schedule regular calls with clients to discuss case
developments. Case updates are reported monthly to senior
management. We also conduct a quarterly risk review and
provide an in-depth quarterly report on our entire portfolio to
senior management and our Board of Directors. We conduct
an extensive semi-annual review of every legal finance asset
for valuation purposes, which includes our external auditors. In
addition to reports from counsel, we proactively keep
ourselves informed of case developments, including receiving
docket alerts and reviewing court documents filed.
Our matters resolve in various ways consistent with the
outcomes in the litigation process generally. Many of our
matters reach a negotiated resolution—a settlement—between
the litigants, either before or after going to trial. Others do not
resolve amicably and go all the way through the formal dispute
resolution process, including trial and appeal(s). The duration
of those outcomes varies widely and depends on the
complexity of the matter and the schedule of the
relevant tribunal.
Burford’s business
continued
Burford’s commitment process
The graphic below illustrates our process and shows the
volume of potential matters at each stage. One of our
goals is to increase the percentage of closed
commitments relative to inbound inquiries, not by
lowering our standards but by continuing to improve the
quality of inbound matters through education and
quality inquiries, as happened in 2019.
1,414
1,470
Inbound inquiries:
screening
Number of inquiries
generated from
marketing and dedicated
origination that run
through our initial
screening process,
filtering potential assets
into our pipeline
Pipeline process
Number of potential
assets assigned to
underwriters, discussed
among the global team
and progressed into more
significant diligence.
Burford combines
proprietary data and deep
experience in its in-house
diligence process
Commitment
committees
Number of potential
assets reviewed at
commitment
committee. Burford's
commitment
committees have deep
specialist knowledge
and significant
litigation experience
570
456
170
168
99
87
Closed legal
finance assets
Note: Financing process figures are from 2019. Smaller
figures are from 2018.
Strategic report
Governance
Financial statements
In many instances, our clients receive full cash payment for the
entitlement from matters at the time of their conclusion.
However, there are some instances where payments are
delayed by agreement (for example, when a settlement is paid
in instalments over time) or where the parties agree on an
entitlement that includes non-cash value that must be
monetised over time. Because our client is giving up some
valuable leverage through the pendency of the litigation
process by agreeing to a resolution, clients tend not to do so
unless payment is quite certain, and it is very rare in our
experience for there to be a default in connection with such
payments. There are, of course, some instances where
defendants lose and refuse to pay, in which case enforcement
efforts may be needed.
Once there is no longer any litigation risk on a matter, such as
when there has been an agreed (but unpaid) settlement, the
matter becomes a due from settlement receivable. At that
point, we record the estimated value to be received
(discounted appropriately) as income, and thereafter recognise
separately any further increments in value caused by the
passage of time, such as from interest running on the
entitlement. Due from settlement receivables for legal finance
assets typically are resolved into cash during a financial
reporting period, though some can take varying lengths of
time before generating cash. In a small number of cases (less
than 5% of realisations by value to date), we have received an
asset other than cash (such as stock, a mortgage or a note) for
our entitlement upon conclusion of a case. In these cases, we
estimate the value of the asset for purposes of recording
realisation income, and then record gains or losses on the
asset over time until it is resolved into cash. At 31 December
2019, we had less than $30,000 of this kind of asset on
our books.
Privilege and confidentiality
In order to make our underwriting decisions and conduct our
ongoing asset monitoring, we receive from our clients
confidential and legally privileged information (what in the US
is called “attorney work product”). That sensitive information
can lose its protection and become accessible to a litigation
opponent if it is used publicly (a concept called “waiver”),
which could have catastrophic consequences for the litigant.
Burford is entitled to receive such information but is under a
strict obligation to protect it. Among other things, this
obligation requires us to tightly restrict access to the
information itself and conclusions drawn from it. As an
example, the release of individual valuations of ongoing legal
finance assets may create a risk of waiver over sensitive
information since a court order or other objective event that
might give rise to an asset valuation can only be put in context
with the use of privileged information. Burford thus does not as
a matter of policy release asset valuations of ongoing matters,
including partially concluded cases, and is similarly unable to
provide other asset-specific information about its portfolio
unless that information becomes publicly available through
other means.
Legal risk management
In many legal jurisdictions, the loser in a litigation must pay the
winner’s legal expenses, creating adverse cost risk. As a result,
there is a market for insurance against that adverse cost risk.
In 2011, we acquired a leading provider of adverse cost
insurance in the UK. Following certain unfavourable changes in
regulations that we anticipated at the time of the acquisition,
we stopped issuing new insurance policies through this legacy
business at the end of 2016, and it has been in run off since
then. This business wrote about 57,000 insurance policies
while open to new business. Of those matters, 79% resolved
favourably, 21% suffered losses and fewer than 200 cases
remain unresolved. Our operating profits from this business
have exceeded $80 million. We have only 11 cases from this
legacy business remaining in the £250,000+ category.
Adverse legal cost risk remains a key issue, however, especially
in the kind of larger complex litigation that is the focus of our
core business. For example, it is difficult to find a path forward
on English litigation claims once the adverse cost exposure
approaches £20 million, as there is limited capacity in the
insurance market for such claims. Moreover, adverse cost
protection is often a prerequisite in large cases as individual
claimants are typically unwilling to take on the kind of joint-
and-several adverse cost exposure that can exist in such cases.
Given our historical experience as an insurance provider and
our expertise in litigation risk assessment, we re-entered the
adverse cost insurance business in 2018 with Burford
Worldwide Insurance (“BWIL”), our wholly owned Guernsey
insurer. BWIL offers adverse cost insurance globally in litigation
and arbitration cases. BWIL is structured so that it takes on 20%
of the insurance risk while entering into contracts with a set of
leading reinsurers to take the remaining risk.
Currently, BWIL only writes coverage for matters which we are
financing as part of our core litigation finance business. We
view this business as enabling our more profitable litigation
finance business, not as a material standalone business in its
own right.
Asset recovery
Once a matter has been litigated through to a final judgment,
and all appeals have been exhausted, that judgment is
enforceable as a debt obligation of the judgment debtor. While
many litigants do pay their judgments when they ultimately
lose a matter, some do not, and further effort is needed to
collect the judgment debt.
Our asset recovery team provides expert assistance to lawyers
and clients on global asset location and enforcement,
including providing legal expertise, critical research and
investigative strategies as part of a recovery effort. We use
global legal tactics and strategies to obtain information and
ultimately to seize assets to satisfy judgments.
18
Burford Annual Report 2019
Burford Annual Report 2019
19
Burford’s business
continued
Asset recovery offers two additional benefits beyond its
financial contribution. First, it is an additional service to offer to
our clients. Second, our asset recovery team can provide
valuable insight into judgment collectability as part of our legal
finance underwriting process, as well as critical assistance in
enforcing judgments in our own legal finance portfolio should
the need arise, although it has done so only rarely.
Historically, we provided asset recovery services on a fee-for-
services basis. However, over the past several years, we have
been adding a capital provision model such that the bulk of
our business is now done on risk in exchange for a share of
whatever recovery is generated.
This capital provision approach gives rise to a legal finance
asset for our balance sheet. We underwrite, structure and price
these asset recovery assets in a similar manner to our other
legal finance assets. As a consequence, we anticipate that
these assets will have risk-adjusted returns similar to the rest of
our portfolio and should ultimately be more profitable than the
fee-for-services approach.
Recently, two international banks have contracted with our
asset recovery business to outsource on a capital provision
basis their asset recovery work arising out of non-performing
loans and other similar assets. These arrangements are
attractive to us because we can structure desirable economics
based on recoveries across the bank’s portfolio as opposed to
a single case basis. In 2016, in order to enhance our ability to
serve asset recovery clients, we launched Burford Law, a
standalone law firm that works closely alongside our asset
recovery team to provide a flexible, seamless and cost-
effective service to judgment, award, insolvency and other
creditors. In addition to undertaking legal work in England and
Wales, Burford Law also provides a coordinating or supportive
role in multi-jurisdictional projects, usually working alongside a
number of local law firms.
2. Complex strategies
In our complex strategies business, we acquire assets that we
believe are mispriced and where value can be realised through
recourse to litigation and regulatory processes. We can
operate across the spectrum of legal assets with a wide variety
of duration, risk and return characteristics in pursuit of
desirable risk-adjusted returns. In most cases, there is
underlying asset value to support the position, in addition to
potential value from legal or regulatory proceedings.
Unlike in our legal finance business, where we are financing a
client who retains decision-making authority in the litigation, in
complex strategies matters, Burford is the owner of the asset
subject to the claim, and therefore retains that decision-
making authority. Otherwise, much of the two approaches is
identical, including reliance on our legal and financial diligence
process and our post-financing management process. With
both types of assets, we view the outcome of litigation and
regulatory processes as the key driver of returns. Complex
strategies assets generally permit us to deploy more capital per
situation and to have a more predictable level of total capital
deployed than would be the case with our core litigation
finance assets also.
There are also significant risk management benefits with
complex strategies investments because, if we lose the
litigation, we still own the underlying asset, as opposed to the
core litigation finance business where a loss of the case will
generally cause us to lose our entire funded cost. Most
complex strategies assets are much lower risk than the
corresponding client asset financing asset but still deliver
attractive returns.
In recognition of the impact of the underlying asset value on
complex strategies assets, we have a separate complex
strategies commitment committee, which includes members
with significant financial market expertise and members with
legal backgrounds.
We began our complex strategies activities in 2017 and these
are undertaken largely through a consolidated fund, the
Strategic Value Fund, in which Burford has made a substantial
general partner investment alongside the capital provided by
the fund’s limited partners.
An example of our complex strategies assets is in merger
appraisal situations. In these, we typically take largely offsetting
long and short equity securities positions typically in
conjunction with merger transactions where we pursue judicial
appraisal of the fair value of the acquired company’s share
price to determine whether an adequate control premium was
offered. To illustrate better how this strategy works, consider
that many US companies are incorporated in Delaware, which
has a statutory provision that permits shareholders of Delaware
companies to challenge in court the price at which a company
proposes to enter into a merger transaction. By holding shares
in the targeted company prior to the transaction closing,
Burford becomes entitled to pursue that Delaware litigation
directly. In such an example, Burford typically isolates the
litigation risk by hedging the underlying equity position. In
many jurisdictions, including Delaware, acquirors are required
to pay a statutory interest rate on funds owed to a shareholder
pursuing an appraisal claim while that claim is pending. As a
consequence, acquirors very often prepay the value of the
acquisition price even while our appraisal claim is ongoing.
3. Post-settlement finance
In addition to our legal finance business, we also offer clients
the ability to monetise post-settlement and other legal
receivables. There can be significant delays between the point
at which parties to a litigation matter agree upon a settlement
and the finalisation of and payment under the settlement.
Often, those delays are due to the operation of the judicial
process, which may require notice periods and fairness
hearings before approval of settlements. In the interim period,
both law firms awaiting payment of their fees and clients eager
for cash to flow may well find it attractive to secure funding
against those expected receipts.
In addition, law firms are often looking for funding at various
points, particularly over their fiscal year end when cash is
needed to pay partners and employees. In those situations, we
offer the ability to monetise or purchase a law firm’s
receivables, which typically are high quality.
20
Burford Annual Report 2019
Burford’s business
continued
Asset recovery offers two additional benefits beyond its
There are also significant risk management benefits with
financial contribution. First, it is an additional service to offer to
complex strategies investments because, if we lose the
our clients. Second, our asset recovery team can provide
litigation, we still own the underlying asset, as opposed to the
valuable insight into judgment collectability as part of our legal
core litigation finance business where a loss of the case will
finance underwriting process, as well as critical assistance in
generally cause us to lose our entire funded cost. Most
enforcing judgments in our own legal finance portfolio should
complex strategies assets are much lower risk than the
the need arise, although it has done so only rarely.
corresponding client asset financing asset but still deliver
Historically, we provided asset recovery services on a fee-for-
attractive returns.
services basis. However, over the past several years, we have
In recognition of the impact of the underlying asset value on
been adding a capital provision model such that the bulk of
complex strategies assets, we have a separate complex
our business is now done on risk in exchange for a share of
strategies commitment committee, which includes members
whatever recovery is generated.
with significant financial market expertise and members with
This capital provision approach gives rise to a legal finance
legal backgrounds.
asset for our balance sheet. We underwrite, structure and price
We began our complex strategies activities in 2017 and these
these asset recovery assets in a similar manner to our other
are undertaken largely through a consolidated fund, the
legal finance assets. As a consequence, we anticipate that
Strategic Value Fund, in which Burford has made a substantial
these assets will have risk-adjusted returns similar to the rest of
general partner investment alongside the capital provided by
our portfolio and should ultimately be more profitable than the
the fund’s limited partners.
fee-for-services approach.
An example of our complex strategies assets is in merger
Recently, two international banks have contracted with our
appraisal situations. In these, we typically take largely offsetting
asset recovery business to outsource on a capital provision
long and short equity securities positions typically in
basis their asset recovery work arising out of non-performing
conjunction with merger transactions where we pursue judicial
loans and other similar assets. These arrangements are
appraisal of the fair value of the acquired company’s share
attractive to us because we can structure desirable economics
price to determine whether an adequate control premium was
based on recoveries across the bank’s portfolio as opposed to
offered. To illustrate better how this strategy works, consider
a single case basis. In 2016, in order to enhance our ability to
that many US companies are incorporated in Delaware, which
serve asset recovery clients, we launched Burford Law, a
has a statutory provision that permits shareholders of Delaware
standalone law firm that works closely alongside our asset
companies to challenge in court the price at which a company
recovery team to provide a flexible, seamless and cost-
proposes to enter into a merger transaction. By holding shares
effective service to judgment, award, insolvency and other
in the targeted company prior to the transaction closing,
creditors. In addition to undertaking legal work in England and
Burford becomes entitled to pursue that Delaware litigation
Wales, Burford Law also provides a coordinating or supportive
directly. In such an example, Burford typically isolates the
role in multi-jurisdictional projects, usually working alongside a
litigation risk by hedging the underlying equity position. In
number of local law firms.
2. Complex strategies
In our complex strategies business, we acquire assets that we
believe are mispriced and where value can be realised through
recourse to litigation and regulatory processes. We can
operate across the spectrum of legal assets with a wide variety
many jurisdictions, including Delaware, acquirors are required
to pay a statutory interest rate on funds owed to a shareholder
pursuing an appraisal claim while that claim is pending. As a
consequence, acquirors very often prepay the value of the
acquisition price even while our appraisal claim is ongoing.
3. Post-settlement finance
of duration, risk and return characteristics in pursuit of
In addition to our legal finance business, we also offer clients
desirable risk-adjusted returns. In most cases, there is
the ability to monetise post-settlement and other legal
underlying asset value to support the position, in addition to
receivables. There can be significant delays between the point
potential value from legal or regulatory proceedings.
at which parties to a litigation matter agree upon a settlement
Unlike in our legal finance business, where we are financing a
client who retains decision-making authority in the litigation, in
complex strategies matters, Burford is the owner of the asset
subject to the claim, and therefore retains that decision-
making authority. Otherwise, much of the two approaches is
identical, including reliance on our legal and financial diligence
process and our post-financing management process. With
and the finalisation of and payment under the settlement.
Often, those delays are due to the operation of the judicial
process, which may require notice periods and fairness
hearings before approval of settlements. In the interim period,
both law firms awaiting payment of their fees and clients eager
for cash to flow may well find it attractive to secure funding
against those expected receipts.
both types of assets, we view the outcome of litigation and
In addition, law firms are often looking for funding at various
regulatory processes as the key driver of returns. Complex
points, particularly over their fiscal year end when cash is
strategies assets generally permit us to deploy more capital per
needed to pay partners and employees. In those situations, we
situation and to have a more predictable level of total capital
offer the ability to monetise or purchase a law firm’s
deployed than would be the case with our core litigation
receivables, which typically are high quality.
finance assets also.
Strategic report
Governance
Financial statements
- Asset recovery and legal risk management: We allocate
100% of our asset recovery and legal risk management
matters to our balance sheet.
▪ Post-settlement: We allocate 100% of our post-settlement
assets to our post-settlement fund Burford Alternative
Income Fund (“BAIF”)
▪ Complex strategies: We allocate 100% of certain specified
assets to the Strategic Value Fund; other complex strategy
assets that do not meet the mandate of the Strategic Value
Fund are allocated to our balance sheet
We generally conduct the sponsorship and management of
our funds through limited partnerships. Each fund that is a
limited partnership has a Burford-owned general partner that is
responsible for the management and operation of the fund’s
affairs and makes all policy and asset selection decisions
relating to the conduct of the fund’s business. Except as
required by law, the limited partners of such funds take no part
in the conduct or control of the business of such funds, have
no right or authority to act for or bind such funds and have no
influence over the voting or disposition of the securities or
other assets held by such funds. Each fund engages an
investment adviser. Burford Capital Investment Management
LLC serves as the investment adviser for all our funds and
is registered under the Investment Advisers Act of 1940,
as amended.
Burford provides a revolving credit facility from its balance
sheet to two of its funds (Strategic Value and BOF). Each of the
funds can draw on this facility at Burford’s discretion in order
to fund assets in which it is investing while the fund completes
a call of capital from its limited partners, at which point the
fund repays the borrowed amount. The purpose of this facility
is to allow the funds to consolidate their limited partner capital
calls into larger, less frequent calls, which limited partners
generally prefer. While balances under that revolving credit
facility sometimes rise at period end given our high level of
activity at such times, draws under the revolving credit facility
tend to be modest in size and short in duration, and Burford
retains complete discretion over whether to allow use of the
facility at any time.
In both types of situations, as well as others where a lower-risk
but legal-related financing opportunity arises, we are able to
provide capital at pricing levels considerably lower than
traditional litigation finance. We provide this type of finance
through one of our managed funds, the Burford Alternative
Income Fund, which targets mid-teens gross returns. Though
we manage this fund and receive management and
performance fees from it, Burford’s balance sheet is not an
investor in it.
4. Asset management*
We operate eight private funds as an investment adviser
registered with and regulated by the SEC. The discussion of
our funds ignores sidecars unless specifically included and
we collapse fund structures into overall strategies, ignoring,
for example, onshore and offshore separations and parallel
funds. As of 31 December 2019, our total assets under
management were $2.9 billion. We believe that we are the
largest investment manager focused on the legal finance
sector by a considerable margin.
We view our funds business as an important addition to our
balance sheet business. Having access to private fund capital
has improved our ability to pursue financing opportunities and
has also permitted us to engage in larger transactions without
seeking external partners
Under our internal policy, we allocate certain portions of
every new commitment to our own balance sheet and our
various funds.
▪ Legal finance:
- Core litigation finance: We allocate 25% of each new
matter to Burford Opportunity Fund (“BOF”), our flagship
litigation finance fund; 50% to our sovereign wealth fund
(“SWF”) arrangement, and 25% to our balance sheet. The
structure of our SWF arrangement is such that the SWF
contributes two-thirds of the capital and we contribute
one-third, with the result that the balance sheet is
effectively providing 42% of all new advances. Burford
Opportunity Fund-C (“BOF-C”) is the fund through which
the SWF contributes its portion of the capital. Therefore, in
presenting BOF-C data throughout this report, we are
presenting data on just the SWF’s portion of the
arrangement; Burford’s portion is included in our balance
sheet data. In that context, BOF-C is allocated 33% of
each new eligible asset. Also note that BOF-C does not, by
pre-agreement, participate in certain specified types of
litigation finance assets, in which case BOF-C’s allocation
is attributed between BOF and our balance sheet. Once
BOF is fully committed, which is expected to occur during
2020, the SWF has agreed that BOF-C’s share of eligible
commitments will increase from 33% today (two-thirds of
50%) to 50% while BOF or its successor fund are
unavailable to make further commitments. In that
circumstance, the balance sheet’s share of eligible
commitments will increase from 42% to 50%.
20
Burford Annual Report 2019
Burford Annual Report 2019
21
* Burford Capital Investment Management LLC, which acts as the fund manager, is registered as an investment adviser with the US Securities and Exchange
Commission. The information provided herein describes multiple investment vehicles focused on multiple investment strategies. Nothing herein should be construed
as a solicitation to offer investment advice or services. Information about investments in Burford Capital Investment Management LLC-managed funds is available only
in the form of private placement memoranda and/or other offering documents. The information contained herein does not purport to present a complete picture of
the actual or anticipated financial position, activities, results, actions and/or plans of any fund or account managed by Burford. Past performance is not indicative of
future results.
The Equity Project
An economic incentive to close
the gender gap in law
In October 2018, Burford launched The Equity Project, a
ground-breaking initiative to commit a $50 million capital
pool for financing commercial litigation and arbitration led
by women. The Equity Project seeks to address the
significant and stubbornly persistent gender gap, which is
particularly acute at the senior-most levels of the world’s
largest law firms.
According to a 2019 study by the American Bar Association
and American Lawyer Media Intelligence, in the US, women
accounted for between 45% and 50% of law school graduating
classes but only 20% of law firm equity partners in 2018,
indicating a high attrition rate for women lawyers. The report’s
co-author and Equity Project Champion Roberta Liebenberg
told The American Lawyer that among the many reasons
women leave Big Law is the challenge of building books of
business and retaining origination credit in a historically male
dominated industry.
“If women are not getting the business development
opportunities, they aren’t getting the business. If they aren’t
getting the business, they aren’t getting the origination credit
which affects compensation,” she said.
Similar statistics and equally daunting challenges exist in the
UK, Europe and across the globe.
The Equity Project is designed to provide a concrete tool for
women to generate their own books of business, which in turn
will lead to career advancement opportunities. To qualify for
funding, matters must meet Burford’s standard investment
criteria and have a woman litigator as first chair; a woman
serving as plaintiffs’ lead counsel or chairing the plaintiffs’
steering committee; a women owned law firm representing
the client; a woman litigator earning origination credit; or a
woman partner serving as the client relationship manager.
As of 31 December 2019, Burford has received 55 qualifying
requests for Equity Project funding and committed $24 million
of the $50 million pool, including two matters with all women
teams. The matters span the globe and cover a range of practice
areas, including antitrust/competition, investor treaty claims and
general commercial claims.
While the volume of women led matters still lags what Burford
would like to see, many women lawyers have told us that the
mere existence of capital available through The Equity Project
has served to provide a lever that changes the conversation
inside firms and with clients.
Throughout 2019, The Equity Project was deployed as a
platform to bring added awareness to the challenges that
women face in advancing to senior levels in law firms and the
impact that having greater control over their own books of
business can have in propelling their careers.
Working with our 22 Equity Project Champions—lawyers and
other business leaders from leading law firms and organisations
in six countries on three continents who have joined with
Burford to promote this initiative—we held events in the US, the
UK, France and Australia to discuss the gender gap and draw
attention to the financing available to advance meritorious
litigation and arbitration cases led by women.
Burford’s culture and its success reflect the value it places on
having women at the senior most levels of its business. The
Equity Project is an innovative solution that reflects those same
values; we’re challenging law firms to elevate women not only
because it’s the right thing to do but because it’s a smart way to
grow the bottom line.
More information about The Equity Project, and the list of
Champions, can be found on Burford’s website at
burfordcapital.com.
2019
Awards
“Stand out” award for
Diversity and Inclusion,
FT Innovative Lawyers
North America
Inaugural winner of
the ERA Pledge Award, 9th
Annual Global Arbitration
Review (GAR) awards
Aviva Will named a
“Trailblazer” for her
work on The Equity
Project, New York
Law Journal
Aviva Will named a
“Distinguished Leader”
for her work on The Equity
Project, New York
Law Journal
22
Burford Annual Report 2019
The Equity Project
An economic incentive to close
the gender gap in law
In October 2018, Burford launched The Equity Project, a
As of 31 December 2019, Burford has received 55 qualifying
ground-breaking initiative to commit a $50 million capital
pool for financing commercial litigation and arbitration led
by women. The Equity Project seeks to address the
significant and stubbornly persistent gender gap, which is
particularly acute at the senior-most levels of the world’s
requests for Equity Project funding and committed $24 million
of the $50 million pool, including two matters with all women
teams. The matters span the globe and cover a range of practice
areas, including antitrust/competition, investor treaty claims and
general commercial claims.
largest law firms.
According to a 2019 study by the American Bar Association
and American Lawyer Media Intelligence, in the US, women
accounted for between 45% and 50% of law school graduating
classes but only 20% of law firm equity partners in 2018,
indicating a high attrition rate for women lawyers. The report’s
co-author and Equity Project Champion Roberta Liebenberg
told The American Lawyer that among the many reasons
women leave Big Law is the challenge of building books of
While the volume of women led matters still lags what Burford
would like to see, many women lawyers have told us that the
mere existence of capital available through The Equity Project
has served to provide a lever that changes the conversation
inside firms and with clients.
Throughout 2019, The Equity Project was deployed as a
platform to bring added awareness to the challenges that
women face in advancing to senior levels in law firms and the
impact that having greater control over their own books of
business and retaining origination credit in a historically male
business can have in propelling their careers.
dominated industry.
“If women are not getting the business development
opportunities, they aren’t getting the business. If they aren’t
getting the business, they aren’t getting the origination credit
which affects compensation,” she said.
Similar statistics and equally daunting challenges exist in the
UK, Europe and across the globe.
The Equity Project is designed to provide a concrete tool for
women to generate their own books of business, which in turn
will lead to career advancement opportunities. To qualify for
funding, matters must meet Burford’s standard investment
criteria and have a woman litigator as first chair; a woman
serving as plaintiffs’ lead counsel or chairing the plaintiffs’
steering committee; a women owned law firm representing
the client; a woman litigator earning origination credit; or a
woman partner serving as the client relationship manager.
Working with our 22 Equity Project Champions—lawyers and
other business leaders from leading law firms and organisations
in six countries on three continents who have joined with
Burford to promote this initiative—we held events in the US, the
UK, France and Australia to discuss the gender gap and draw
attention to the financing available to advance meritorious
litigation and arbitration cases led by women.
Burford’s culture and its success reflect the value it places on
having women at the senior most levels of its business. The
Equity Project is an innovative solution that reflects those same
values; we’re challenging law firms to elevate women not only
because it’s the right thing to do but because it’s a smart way to
grow the bottom line.
More information about The Equity Project, and the list of
Champions, can be found on Burford’s website at
burfordcapital.com.
2019
Awards
“Stand out” award for
Diversity and Inclusion,
FT Innovative Lawyers
North America
Inaugural winner of
the ERA Pledge Award, 9th
Annual Global Arbitration
Review (GAR) awards
Aviva Will named a
“Trailblazer” for her
work on The Equity
Project, New York
Law Journal
Aviva Will named a
“Distinguished Leader”
for her work on The Equity
Project, New York
Law Journal
22
Burford Annual Report 2019
“
The Equity Project is designed
to provide a concrete tool for
women to generate their own
books of business, which in
turn will lead to career
advancement opportunities.”
Definitions
New segments and key definitions
Definitions related to Burford’s activities
Throughout this report, we will refer to our activities as follows:
▪ Legal finance
includes our traditional core litigation finance activities in
which we are providing clients with financing against the
future value of legal claims. It also encompasses our asset
recovery and legal risk management activities, which often
are provided to the same clients.
▪ Complex strategies
encompasses our activities providing capital as a principal
in legal-related assets, often securities, loans and other
financial assets where a significant portion of the expected
return arises from the outcome of legal or regulatory
activity. Most of our complex strategies activities over the
past two years have been conducted through our Strategic
Value Fund.
▪ Post-settlement finance
includes our financing of legal-related assets in situations
where litigation has been resolved, such as financing of
settlements and law firm receivables.
▪ Asset management
includes our activities administering the funds we manage
for third-party investors.
Our funding sources, however, are not organised based on
these services but by expected return, risk and life of the assets
we originate. We use our balance sheet and certain dedicated
funds to provide capital for higher risk, higher return, longer-
lived assets such as those created in our legal finance business.
We typically use dedicated funds, in which our balance sheet is
an investor, to provide capital for the kind of lower risk, lower
return, shorter-lived assets that typify complex strategies
activities. And we use still other dedicated funds (without
balance sheet investment) for low risk, low return, very
short-lived assets, such as post-settlement and law firm
receivables financing.
To better present our business in line with this stratification of
asset types, we have re-aligned our operating segment
presentation. We now provide our financing and other services
through three principal operating segments:
Capital provision, which includes both
▪ Direct, where we provide our capital directly to clients or
as principal in our legal finance activities
▪ Indirect, where we provide our capital by investing
through funds that we manage
Asset management, which includes our activities in
managing our third-party funds and resulting fee streams.
Services and other corporate, which includes fees
generated for services provided by our asset recovery and
legal risk management (including insurance) activities as
well as corporate financial activity.
This re-aligned segment presentation compares with prior
years as follows:
Capital provision (previously our Investments segment)
includes all of our litigation finance assets held on Burford’s
balance sheet. We have eliminated the New Initiatives
segment, which previously included only our asset recovery
activities. We have combined the financing assets generated
from our asset recovery business into our capital provision
segment as their risk/return profile is very similar. The fee-for-
service income from our asset recovery business will now be
included in services and other corporate.
In order to provide greater clarity on our capital provision
assets, we are sub-dividing that segment for purposes of
reporting a number of financial metrics into:
▪ Direct
which includes all our legal finance assets (including those
generated by asset recovery and legal risk management
activities) that we have made directly (i.e., not through
participation in a fund) from our balance sheet. We also
include direct (not through a fund) complex strategies assets
in this category. Broadly, when we originate all of these
types of assets, we are targeting risk-adjusted IRRs in the
mid-20s to mid-30s with an expected weighted average life
of from two to five years, though we can on occasion
accept a lower return on a shorter-lived, more liquid or less
risky asset.
▪ Indirect
which includes our balance sheet’s participations in one of
our funds. Currently, this category is comprised entirely of
our position in the Burford Strategic Value Fund. At present,
with this type of asset, we are targeting risk-adjusted IRRs in
the mid-to-high teens with an expected weighted average
life of one year or less.
We now present data separately on these two sub-divided
categories in our financials when providing detail on
realisations, deployments and income, among other items. For
each of these two categories, we also provide separate asset
data tables with a complete list of every investment in each
category (available on our website) and separate return metrics
(IRR, ROIC, weighted average life).
Asset management
includes similar activities as our previous investment
management segment.
Services and other corporate
now includes not only our general corporate activity but also
our fee-for-service asset recovery activity and insurance, both
of which are too small to justify standalone segment
presentation.
A major objective in revising our financial presentation was to
provide greater transparency on how different information in
the financials ties together. To that end, we’ve provided greater
detail in some of the footnotes on the flows in and out of our
capital provision assets as well as the related components of
income, with direct and indirect broken out separately. We’re
also providing in more detailed schedules the “bridge” between
our capital provision asset flows, our cash flow statements and
the data in our complete asset portfolio table is available on
our website.
24
Burford Annual Report 2019
Definitions related to Burford’s activities
This re-aligned segment presentation compares with prior
Definitions related to Burford’s business structure
Definitions related to calculating returns
Strategic report
Governance
Financial statements
As many investors are aware, IFRS requires us to present
financials that consolidate some of the limited partner interests
in funds we manage as well as assets held by our balance
sheet where we have a partner or minority investor. We
continue to strive to provide clarity on Burford as a stand-
alone business by furnishing information that eliminates the
effect of this consolidation. To that end, throughout this
report, we will refer to our funding configuration as follows:
▪ Burford-only
Burford standalone, Burford-only, Burford balance sheet
only, or “balance sheet” refers to assets, liabilities and
activities that pertain only to Burford itself, excluding any
third-party interests and the portions of jointly owned
entities owned by others. Burford balance sheet only largely
corresponds to the view of our business presented in the
investment in consolidated entities footnote in our financials.
▪ Consolidated
refers to assets, liabilities and activities that include those
third-party interests, partially owned subsidiaries and special
purpose vehicles that we are required to consolidate under
IFRS accounting. This presentation conforms to the
presentation of Burford on a consolidated basis in our
financials. The major entities consolidated into Burford
include the Strategic Value Fund, BOF-C and several entities
in which Burford holds investments where there is also a
third-party partner in or owner of those entities. Note that in
our financial statements, our consolidated presentation is
referred to as Group.
▪ Group-wide
refers to Burford and its managed funds taken together,
including those portions of the funds owned by third parties
and including funds that are not consolidated into Burford’s
consolidated financials. In addition to the consolidated
funds, Group-wide includes the Partners funds, Burford
Opportunity Fund and Burford Alternative Income Fund and
its predecessor.
Alternative performance measures:
In managing the business, we primarily focus on cash returns,
without reference to IFRS or fair value accounting. In other
words, this is an independent way of looking at our business;
it does not build on our IFRS reporting but stands entirely
separate from it unless we explicitly refer to IFRS-based data.
These alternative performance measures are explained
further below.
In discussing cash returns, we refer to several metrics that
we have applied consistently for many years in our
financial disclosure:
▪ Concluded assets:
A legal finance asset is “concluded” for Burford’s purposes
when there is no longer any litigation risk remaining. We use
the term to encompass: (i) entirely concluded legal finance
assets where Burford has received all proceeds to which it is
entitled (net of any entirely concluded losses); (ii) the portion
of legal finance assets where Burford has received some
proceeds (for example, from a settlement with one party in a
multi-party case) but where the case is continuing with the
possibility of receiving additional proceeds; and (iii) legal
finance assets where the underlying litigation has been
resolved and there is a promise to pay proceeds in the future
(for example, in a settlement that is to be paid over time) and
there is no longer any litigation risk involved in the asset.
In most instances, concluded investments both conclude
and we receive all cash proceeds associated with the
investment in the same period. Sometimes, non-cash assets
are received or cash will be paid over time. In those
instances, a balance sheet due from settlement receivable is
created, in which event we estimate the future date we
expect to receive cash for purposes of calculating returns
such as IRR and WAL. When proceeds are ultimately
received, the returns on the investment data table are
adjusted to reflect actual proceeds and timing.
For purposes of calculating returns, we must also consider
how to allocate the costs associated with an asset in the
event of a partial conclusion. Our approach to cost
allocation depends on the type of asset:
- When single case assets have partial resolutions along the
way without the entire case being resolved, most
commonly because one defendant settles and the
remaining defendant(s) continue to litigate, we report the
partial resolution when agreed as a partial realisation, and
we allocate a portion of the investment to the partial
resolution depending on the significance of the settling
defendant to the overall claim.
- In portfolio assets when a case (or part of a case) resolves
or generates cash, we report the partial resolution when
agreed as a partial realisation, and we allocate a portion of
the investment to the resolution. That allocation depends
on the structure of the individual portfolio arrangement
and the significance of the resolution to the overall
portfolio, but it is in essence a method that mimics the
way an investor would allocate cost basis across a
portfolio of security purchases.
Definitions
New segments and key definitions
Throughout this report, we will refer to our activities as follows:
▪ Legal finance
includes our traditional core litigation finance activities in
which we are providing clients with financing against the
future value of legal claims. It also encompasses our asset
recovery and legal risk management activities, which often
are provided to the same clients.
▪ Complex strategies
encompasses our activities providing capital as a principal
in legal-related assets, often securities, loans and other
financial assets where a significant portion of the expected
return arises from the outcome of legal or regulatory
activity. Most of our complex strategies activities over the
past two years have been conducted through our Strategic
Value Fund.
▪ Post-settlement finance
includes our financing of legal-related assets in situations
where litigation has been resolved, such as financing of
settlements and law firm receivables.
▪ Asset management
for third-party investors.
includes our activities administering the funds we manage
Our funding sources, however, are not organised based on
these services but by expected return, risk and life of the assets
we originate. We use our balance sheet and certain dedicated
funds to provide capital for higher risk, higher return, longer-
lived assets such as those created in our legal finance business.
We typically use dedicated funds, in which our balance sheet is
an investor, to provide capital for the kind of lower risk, lower
return, shorter-lived assets that typify complex strategies
activities. And we use still other dedicated funds (without
balance sheet investment) for low risk, low return, very
short-lived assets, such as post-settlement and law firm
receivables financing.
To better present our business in line with this stratification of
asset types, we have re-aligned our operating segment
presentation. We now provide our financing and other services
through three principal operating segments:
▪ Direct, where we provide our capital directly to clients or
as principal in our legal finance activities
▪ Indirect, where we provide our capital by investing
through funds that we manage
Asset management, which includes our activities in
managing our third-party funds and resulting fee streams.
Services and other corporate, which includes fees
generated for services provided by our asset recovery and
legal risk management (including insurance) activities as
well as corporate financial activity.
years as follows:
Capital provision (previously our Investments segment)
includes all of our litigation finance assets held on Burford’s
balance sheet. We have eliminated the New Initiatives
segment, which previously included only our asset recovery
activities. We have combined the financing assets generated
from our asset recovery business into our capital provision
segment as their risk/return profile is very similar. The fee-for-
service income from our asset recovery business will now be
included in services and other corporate.
In order to provide greater clarity on our capital provision
assets, we are sub-dividing that segment for purposes of
reporting a number of financial metrics into:
▪ Direct
which includes all our legal finance assets (including those
generated by asset recovery and legal risk management
activities) that we have made directly (i.e., not through
participation in a fund) from our balance sheet. We also
include direct (not through a fund) complex strategies assets
in this category. Broadly, when we originate all of these
types of assets, we are targeting risk-adjusted IRRs in the
mid-20s to mid-30s with an expected weighted average life
of from two to five years, though we can on occasion
accept a lower return on a shorter-lived, more liquid or less
risky asset.
▪ Indirect
which includes our balance sheet’s participations in one of
our funds. Currently, this category is comprised entirely of
our position in the Burford Strategic Value Fund. At present,
with this type of asset, we are targeting risk-adjusted IRRs in
the mid-to-high teens with an expected weighted average
life of one year or less.
We now present data separately on these two sub-divided
categories in our financials when providing detail on
realisations, deployments and income, among other items. For
each of these two categories, we also provide separate asset
data tables with a complete list of every investment in each
category (available on our website) and separate return metrics
(IRR, ROIC, weighted average life).
includes similar activities as our previous investment
management segment.
Services and other corporate
now includes not only our general corporate activity but also
our fee-for-service asset recovery activity and insurance, both
of which are too small to justify standalone segment
presentation.
A major objective in revising our financial presentation was to
provide greater transparency on how different information in
the financials ties together. To that end, we’ve provided greater
detail in some of the footnotes on the flows in and out of our
capital provision assets as well as the related components of
income, with direct and indirect broken out separately. We’re
also providing in more detailed schedules the “bridge” between
our capital provision asset flows, our cash flow statements and
the data in our complete asset portfolio table is available on
our website.
Capital provision, which includes both
Asset management
24
Burford Annual Report 2019
Burford Annual Report 2019
25
Unlike our IRR and ROIC calculations, using the aggregate
cash flows from the portfolio in making our portfolio level
computations will not readily work with WAL computations
because our funded assets are originated in different
timeframes. Instead, in calculating a portfolio WAL, we
compute a weighted average of the individual asset WALs.
Historically, in doing this, we weighted the individual WALs
(durations) by the costs deployed on the asset. In this report,
we are also providing portfolio WAL data weighted by the
realisations on the individual assets.
In addition to these measures of cash returns and asset life, we
also refer to two other alternative performance measures in
this report:
▪ Assets under management (AUM):
Consistent with its status as a registered investment advisor
with the SEC, Burford reports publicly on its asset
management business on the basis of regulatory assets
under management. For the benefit of non-US investors, the
SEC’s definition of AUM may well differ from that used by
European asset managers. AUM, as we report it, means the
fair value of the capital invested in funds and individual
capital vehicles plus the capital that we are entitled to call
from investors in those funds and vehicles pursuant to the
terms of their capital commitments to those funds and
vehicles. Our AUM will fluctuate as we raise new funds and
other investment vehicles, and as existing funds and vehicles
mature and no longer represent sources of callable capital in
the future; there is no direct translation from AUM to asset
management income.
▪ Cash Receipts:
Cash receipts provides a measure of the cash that Burford’s
business generates during a given year. In particular, cash
receipts represents the cash generated from operations,
including cash proceeds from realised assets, before any
deployments into funding existing or new assets.
Cash receipts is calculated as the cash proceeds from our
capital provision assets, including cash proceeds from
related hedging assets, plus cash income from asset
management fees, services and other income. A more
specific analysis of cash receipts can be found on
pages 32 to 34.
Definitions
continued
▪ Internal rate of return (IRR):
IRR is a discount rate that makes the net present value of a
series of cash flows equal to zero and is expressed as a
percentage figure. Burford computes IRR on concluded
(including partially concluded) legal finance assets by
treating that entire portfolio (or, when noted, a subset
thereof) as one undifferentiated pool of capital and
measuring inflows and outflows from that pool, allocating
investment cost appropriately. Burford’s IRRs do not include
unrealised gains.
An alternative approach to computing IRRs that is also used
in our industry is to calculate IRRs on individual investment
outcomes and then to express portfolio-wide IRRs on a
weighted average (or even simple average) basis. Were we to
use this alternative method our IRRs would be considerably
higher (by orders of magnitude) due to the greater impact of
some very high IRR resolutions from successful assets with
short lives. For example, we have one asset where IRR was
1,497,414%, which alone would skew our returns on that
alternative calculation basis. Investors comparing Burford’s
performance to its competitors should ensure that they are
comparing returns on an apples-to-apples basis.
▪ Return on invested capital (ROIC):
ROIC is a measure of financial performance calculated by
comparing the absolute amount of realisations from a
concluded asset relative to the amount of expenditure
incurred in funding that asset, expressed as a percentage
figure. ROIC is a measure of our ability to generate absolute
returns on our assets. Similar to our IRR calculations, when
we compute ROICs on the entire portfolio (or a subset of it),
we do so by taking the aggregate realisations relative to the
aggregate costs incurred, rather than a weighted average of
the individual asset ROICs. Some of our competitors express
their returns on a MOIC (multiple of invested capital) instead
of an ROIC basis. MOICs include the return of capital and
thus are 1x higher than ROICs. In other words, a 70% ROIC is
the same as a 1.7x MOIC.
▪ Weighted average life (WAL):
The WAL of one of our legal finance assets represents the
average length of time until we receive a cash realisation
from that asset weighted by the amount of that
realisation. WAL is, simply, how long our asset will be
outstanding on average.
We previously referred to “duration” of our legal finance
assets to give an indication of their tenor. Duration and WAL
are often used somewhat interchangeably in finance, but
technically we are analysing WAL (where time is weighted by
cash flows) rather than duration (where time is weighted by
the present value of those cash flows)
26
Burford Annual Report 2019
Strategic report
Governance
Financial statements
New content this year
As noted, we have enhanced our annual report by adding additional areas of disclosure. Among these are:
Business
▪ Detailed description of our products and services on
pages 16 to 21
▪ Reconciliation of cash receipts and other cash movements
on a Burford-only basis to the financial statements on
page 34
Organisation
▪ Corporate structure chart on page 28
▪ Senior management information on pages 79 to 80
▪ Compensation and related information on pages 81 to 82
Portfolio
▪ Additional metrics to measure the tenor of our portfolio
on pages 39 to 41
▪ More portfolio return sensitivities on pages 41 to 42
▪ Largest portfolio related exposures on page 47
▪ Portfolio realised loss statistics on page 55
Commitments, deployments and realisations
▪ Deployment histories by vintage on page 37
▪ Realisation histories by vintage on page 40
▪ Additional data and analyses of unfunded
commitments on pages 36 to 37 and in Note 30 of
the financial statements
Financials
▪ Portfolio movements (additions and realisations) and
income elements separated into capital provision-direct
and indirect categories on page 57 and in Note 6 of the
financial statements
▪ Break out of third-party interests that are included in our
consolidated financials on pages 90 to 93
▪ Additional information on resolution of due from
settlement receivables on pages 58 to 59 and separation
of due from settlement activity into capital provision-
direct and indirect categories
▪ Additional explanation of balance sheet and income
statement activity related to capital provision-indirect
assets, including details on hedging-related flows on
pages 49 to 50 and in Note 9 of the financial statements
Fair value
▪ Components of net realised gain both for current year and
since inception on page 62
▪ Discussion of fair value attributed to YPF-related assets
and an analysis of hypothetical outcomes on those assets
on pages 62 to 65
Terminology
▪ Glossary of terms on page 154 to 158
▪ Definitions on pages 24 to 26
Definitions
continued
▪ Internal rate of return (IRR):
Unlike our IRR and ROIC calculations, using the aggregate
IRR is a discount rate that makes the net present value of a
cash flows from the portfolio in making our portfolio level
series of cash flows equal to zero and is expressed as a
computations will not readily work with WAL computations
percentage figure. Burford computes IRR on concluded
because our funded assets are originated in different
(including partially concluded) legal finance assets by
timeframes. Instead, in calculating a portfolio WAL, we
treating that entire portfolio (or, when noted, a subset
compute a weighted average of the individual asset WALs.
thereof) as one undifferentiated pool of capital and
Historically, in doing this, we weighted the individual WALs
measuring inflows and outflows from that pool, allocating
(durations) by the costs deployed on the asset. In this report,
investment cost appropriately. Burford’s IRRs do not include
we are also providing portfolio WAL data weighted by the
unrealised gains.
realisations on the individual assets.
An alternative approach to computing IRRs that is also used
in our industry is to calculate IRRs on individual investment
outcomes and then to express portfolio-wide IRRs on a
weighted average (or even simple average) basis. Were we to
use this alternative method our IRRs would be considerably
higher (by orders of magnitude) due to the greater impact of
some very high IRR resolutions from successful assets with
short lives. For example, we have one asset where IRR was
1,497,414%, which alone would skew our returns on that
alternative calculation basis. Investors comparing Burford’s
performance to its competitors should ensure that they are
comparing returns on an apples-to-apples basis.
▪ Return on invested capital (ROIC):
ROIC is a measure of financial performance calculated by
comparing the absolute amount of realisations from a
concluded asset relative to the amount of expenditure
incurred in funding that asset, expressed as a percentage
figure. ROIC is a measure of our ability to generate absolute
returns on our assets. Similar to our IRR calculations, when
we compute ROICs on the entire portfolio (or a subset of it),
we do so by taking the aggregate realisations relative to the
aggregate costs incurred, rather than a weighted average of
the individual asset ROICs. Some of our competitors express
their returns on a MOIC (multiple of invested capital) instead
of an ROIC basis. MOICs include the return of capital and
thus are 1x higher than ROICs. In other words, a 70% ROIC is
the same as a 1.7x MOIC.
▪ Weighted average life (WAL):
The WAL of one of our legal finance assets represents the
average length of time until we receive a cash realisation
from that asset weighted by the amount of that
realisation. WAL is, simply, how long our asset will be
outstanding on average.
We previously referred to “duration” of our legal finance
assets to give an indication of their tenor. Duration and WAL
are often used somewhat interchangeably in finance, but
technically we are analysing WAL (where time is weighted by
cash flows) rather than duration (where time is weighted by
the present value of those cash flows)
In addition to these measures of cash returns and asset life, we
also refer to two other alternative performance measures in
this report:
▪ Assets under management (AUM):
Consistent with its status as a registered investment advisor
with the SEC, Burford reports publicly on its asset
management business on the basis of regulatory assets
under management. For the benefit of non-US investors, the
SEC’s definition of AUM may well differ from that used by
European asset managers. AUM, as we report it, means the
fair value of the capital invested in funds and individual
capital vehicles plus the capital that we are entitled to call
from investors in those funds and vehicles pursuant to the
terms of their capital commitments to those funds and
vehicles. Our AUM will fluctuate as we raise new funds and
other investment vehicles, and as existing funds and vehicles
mature and no longer represent sources of callable capital in
the future; there is no direct translation from AUM to asset
management income.
▪ Cash Receipts:
Cash receipts provides a measure of the cash that Burford’s
business generates during a given year. In particular, cash
receipts represents the cash generated from operations,
including cash proceeds from realised assets, before any
deployments into funding existing or new assets.
Cash receipts is calculated as the cash proceeds from our
capital provision assets, including cash proceeds from
related hedging assets, plus cash income from asset
management fees, services and other income. A more
specific analysis of cash receipts can be found on
pages 32 to 34.
26
Burford Annual Report 2019
Burford Annual Report 2019
27
Corporate structure
A global footprint
Burford is composed of its publicly traded parent company,
Burford Capital Limited (“BCL”), and a number of wholly owned
subsidiaries in various jurisdictions through which it conducts
its operations and makes its investments. Burford Capital LLC is
the principal operating entity in the US and Burford Capital (UK)
Limited is the principal operating entity in the UK. Those two
entities provide various corporate and investment advisory
services to other Group companies. BCL, the public parent,
does not have any operations or employees itself.
BCL was incorporated in Guernsey in September 2009. Initially,
we were established as a registered closed-ended collective
investment scheme. In October 2009, our ordinary shares
commenced trading on the London Stock Exchange’s AIM
market under the symbol “BUR”.
In late 2012, we altered our corporate structure by
deregistering our status as a registered closed-ended collective
investment scheme and reorganising to implement a new
Group structure incorporating certain of our wholly owned
subsidiaries. In connection with this reorganisation, we
acquired our investment adviser, Burford Group Limited,
through a cashless merger.
In 2011, we acquired Firstassist Legal Expenses Insurance, a
leading provider of litigation expenses insurance in the UK
which was the basis of our legacy adverse cost insurance
business, now in run-off. In 2015, we acquired Focus
Intelligence Ltd, a business intelligence firm that specialised in
investigative litigation and arbitration, asset tracing and
judgment enforcement; this acquisition formed the basis of
our asset recovery business. In December 2016, we acquired
GKC Holdings, LLC, a law-focused asset manager registered as
an investment adviser with the SEC. This acquisition added a
third-party asset management business to our structure to
expand the diversity of capital offerings to investing clients and
generate an asset management revenue stream.
Burford Capital Limited has a single class of ordinary shares
which are traded on the AIM market of the London Stock
Exchange. Subsidiaries have issued bonds traded on the Main
Market of the London Stock Exchange.
Burford Capital Limited
Guernsey Holding
Company
UK Holding Company
Asia
Investment
Subsidiaries
Burford Worldwide
Insurance Ltd
Burford Capital LLC
US Operating
Company
Investment
Subsidiaries
Burford Capital
Finance LLC
Bond issuer
Funds
manager
Investment
Subsidaries
Burford Capital
(UK) Limited
UK Operating
Company
Burford Capital plc
Bond issuer
28
Burford Annual Report 2019
Corporate structure
A global footprint
Burford is composed of its publicly traded parent company,
In 2011, we acquired Firstassist Legal Expenses Insurance, a
Burford Capital Limited (“BCL”), and a number of wholly owned
leading provider of litigation expenses insurance in the UK
subsidiaries in various jurisdictions through which it conducts
which was the basis of our legacy adverse cost insurance
its operations and makes its investments. Burford Capital LLC is
business, now in run-off. In 2015, we acquired Focus
the principal operating entity in the US and Burford Capital (UK)
Intelligence Ltd, a business intelligence firm that specialised in
Limited is the principal operating entity in the UK. Those two
investigative litigation and arbitration, asset tracing and
entities provide various corporate and investment advisory
judgment enforcement; this acquisition formed the basis of
services to other Group companies. BCL, the public parent,
our asset recovery business. In December 2016, we acquired
does not have any operations or employees itself.
GKC Holdings, LLC, a law-focused asset manager registered as
BCL was incorporated in Guernsey in September 2009. Initially,
we were established as a registered closed-ended collective
investment scheme. In October 2009, our ordinary shares
commenced trading on the London Stock Exchange’s AIM
market under the symbol “BUR”.
In late 2012, we altered our corporate structure by
deregistering our status as a registered closed-ended collective
investment scheme and reorganising to implement a new
Group structure incorporating certain of our wholly owned
subsidiaries. In connection with this reorganisation, we
acquired our investment adviser, Burford Group Limited,
through a cashless merger.
an investment adviser with the SEC. This acquisition added a
third-party asset management business to our structure to
expand the diversity of capital offerings to investing clients and
generate an asset management revenue stream.
Burford Capital Limited has a single class of ordinary shares
which are traded on the AIM market of the London Stock
Exchange. Subsidiaries have issued bonds traded on the Main
Market of the London Stock Exchange.
Burford Capital Limited
Guernsey Holding
Company
UK Holding Company
Asia
Investment
Subsidiaries
Burford Worldwide
Insurance Ltd
Burford Capital LLC
US Operating
Company
Investment
Subsidiaries
Burford Capital
Finance LLC
Bond issuer
Funds
manager
Investment
Subsidaries
Burford Capital
(UK) Limited
UK Operating
Company
Burford Capital plc
Bond issuer
Strategic report
Governance
Financial statements
Financial and
operational
review
Contents
30
Burford balance sheet only results
32
35
36
38
39
41
45
47
48
50
53
58
59
60
62
66
67
68
68
69
Cash generation
Current portfolio
Undrawn commitments
Capital provision-direct portfolio
Portfolio tenor
Portfolio returns
Details on the portfolio
Capital provision-indirect portfolio
Commitments
Deployments
Realisations
Due from settlement receivables
Fair value
Fair value data
YPF-related assets
Asset management
Other income
Operating expenses
Taxation
Capital management and liquidity
28
Burford Annual Report 2019
Burford Annual Report 2019
29
Financial and operational review
We have organised the topics in this financial and operational review in the way that we think about and manage Burford’s
business. First, we provide a set of financial statements for Burford-only, eliminating consolidated third-party interests and
adjusting for certain unusual items to provide a view of the underlying performance of Burford. Then, we address a series of
financial and operating topics. Most important is our ability to generate cash, so we describe that first. That cash derives from
returns on our portfolio, which we examine next. Those returns reflect the scale, scope and quality of our portfolio, so we provide
data on the portfolio after that. We construct our portfolio by making financing commitments on which we deploy capital that
ultimately turns into asset realisations, so we review each of those topics in turn. We do not manage Burford with an eye towards
fair value accounting, but it is something we have to live with, so we provide a section that walks through its impact on our
balance sheet and income, including a discussion of our YPF-related assets which have been the primary driver of our fair value
unrealised gains. Our asset management business has been growing in breadth and depth, so we provide some additional detail
on that business. Then, after reviewing other income and operating expenses, we lay out our approach to capital management
and liquidity.
At several points in this section, we provide comparisons with and references to data in (1) our financial statements and notes
(referred to as “FS Notes”), (2) our 3 February 2020 Update on 2019 Trading Performance (“February Trading Update”) and (3) our
asset data tables as available on our website (the “Website Tables”) and summarised in this section on pages 43 to 44 and 47.
Burford balance sheet only results
IFRS requires the consolidation of certain investments that contain third-party capital, principally including the Strategic Value
fund and the BOF-C fund, through which our sovereign wealth fund arrangement is conducted. In our view, it is confusing to
include the interests of investors other than Burford in our discussion of performance, and we have thus generally excluded the
non-Burford portion of such funds from our presentation of our financial performance. The tables below provide a full
reconciliation of the consolidated statement of comprehensive income and consolidated statement of financial position so that
investors are able to relate our performance discussion with our published accounts.
Statement of comprehensive income
31 December 2019
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
(15,318)
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
366,043
(91,402)
(9,495)
265,146
(39,622)
225,524
(13,417)
212,107
(17,525)
194,582
Consolidated
IFRS
$’000
Elimination of
third-party
*
interests
$’000
Other
adjustments
$’000
**
351,828
(35,048)
15,160
10,970
3,545
2,133
6,703
1,992
Burford-
only
$’000
316,780
26,130
3,545
2,133
6,070
2,052
–
356,710
–
–
–
–
–
–
–
–
4,657
(77,412)
9,495
–
14,152
279,298
–
(39,622)
14,152
239,676
–
(13,417)
14,152
226,259
–
(17,525)
14,152
208,734
–
–
(633)
60
15,318
(9,333)
9,333
–
–
–
–
–
–
–
–
* Elimination of third party interests is the net of the entities and adjustments and elimination figures shown on page 90 and in
Note 23 of the consolidated financial statements.
** Other adjustments exclude the impact of amortisation of intangible asset and of operating expenses incurred related to (i)
one-time expenses related to equity and listing matters and (ii) case-related legal fees not included in asset cost under IFRS,
and are shown to assist in understanding the underlying performance of the Company.
30
Burford Annual Report 2019
Statement of financial position
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Statement of comprehensive income
Financial liabilities at fair value through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Strategic report
Governance
Financial statements
Consolidated
IFRS
$’000
Elimination of
third-party
*
interests
$’000
Burford-
only
$’000
186,621
(18,158)
168,463
37,966
95,226
13,263
54,358
–
37,966
(95,226)
6,502
(35,369)
–
19,765
18,989
2,045,329
(211,339)
1,833,990
31,396
20,184
8,703
133,999
24,939
(31,367)
–
–
–
–
29
20,184
8,703
133,999
24,939
2,651,984
(384,957)
2,267,027
91,493
51,401
9,462
51,430
655,880
13,944
235,720
9,662
(91,493)
(51,401)
–
(435)
–
(5,908)
(235,720)
–
–
–
9,462
50,995
655,880
8,036
–
9,662
1,118,992
(384,957)
734,035
1,532,992
–
1,532,992
Third-party share of gains relating to interests in consolidated entities
(15,318)
* Elimination of third party interests is the net of the entities and adjustments and elimination figures shown on page 92 and in Note 23 of the consolidated
financial statements.
Financial and operational review
We have organised the topics in this financial and operational review in the way that we think about and manage Burford’s
business. First, we provide a set of financial statements for Burford-only, eliminating consolidated third-party interests and
adjusting for certain unusual items to provide a view of the underlying performance of Burford. Then, we address a series of
financial and operating topics. Most important is our ability to generate cash, so we describe that first. That cash derives from
returns on our portfolio, which we examine next. Those returns reflect the scale, scope and quality of our portfolio, so we provide
data on the portfolio after that. We construct our portfolio by making financing commitments on which we deploy capital that
ultimately turns into asset realisations, so we review each of those topics in turn. We do not manage Burford with an eye towards
fair value accounting, but it is something we have to live with, so we provide a section that walks through its impact on our
balance sheet and income, including a discussion of our YPF-related assets which have been the primary driver of our fair value
unrealised gains. Our asset management business has been growing in breadth and depth, so we provide some additional detail
on that business. Then, after reviewing other income and operating expenses, we lay out our approach to capital management
and liquidity.
At several points in this section, we provide comparisons with and references to data in (1) our financial statements and notes
(referred to as “FS Notes”), (2) our 3 February 2020 Update on 2019 Trading Performance (“February Trading Update”) and (3) our
asset data tables as available on our website (the “Website Tables”) and summarised in this section on pages 43 to 44 and 47.
Burford balance sheet only results
IFRS requires the consolidation of certain investments that contain third-party capital, principally including the Strategic Value
fund and the BOF-C fund, through which our sovereign wealth fund arrangement is conducted. In our view, it is confusing to
include the interests of investors other than Burford in our discussion of performance, and we have thus generally excluded the
non-Burford portion of such funds from our presentation of our financial performance. The tables below provide a full
reconciliation of the consolidated statement of comprehensive income and consolidated statement of financial position so that
investors are able to relate our performance discussion with our published accounts.
31 December 2019
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
Elimination of
Consolidated
third-party
Other
Burford-
IFRS
$’000
interests
*
adjustments
**
$’000
$’000
only
$’000
351,828
(35,048)
15,160
10,970
3,545
2,133
6,703
1,992
366,043
(91,402)
(9,495)
265,146
(39,622)
225,524
(13,417)
212,107
(17,525)
194,582
–
–
(633)
60
15,318
(9,333)
9,333
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
316,780
26,130
3,545
2,133
6,070
2,052
–
356,710
4,657
(77,412)
9,495
–
14,152
279,298
–
(39,622)
14,152
239,676
–
(13,417)
14,152
226,259
–
(17,525)
14,152
208,734
* Elimination of third party interests is the net of the entities and adjustments and elimination figures shown on page 90 and in
Note 23 of the consolidated financial statements.
** Other adjustments exclude the impact of amortisation of intangible asset and of operating expenses incurred related to (i)
one-time expenses related to equity and listing matters and (ii) case-related legal fees not included in asset cost under IFRS,
and are shown to assist in understanding the underlying performance of the Company.
30
Burford Annual Report 2019
Burford Annual Report 2019
31
Financial and operational review
continued
Cash generation
▪ Group-wide cash proceeds of $1 billion
▪ Balance sheet cash receipts of over $500 million for second year in a row
▪ Robust cash generation provides operational and financing flexibility
Burford’s balance sheet has historically generated significant cash flow, including in 2019, when cash receipts to the balance
sheet were $518 million and Group-wide cash receipts were $1 billion. These cash receipts were predominantly composed of
cash proceeds from asset realisations but also included income from asset management, interest and other income.
Cash receipts*
($ in millions)
Cash proceeds*:
Capital provision-direct
Capital provision-indirect**
Post-settlement finance
Asset management cash income
Services and other income
Total cash receipts
2019
Group-wide Balance sheet
SWF
Other funds
310
417
250
20
18
210
12
270
–
20
18
–
–
–
–
1,015
518
12
88
147
250
–
–
485
* The difference in cash receipts compared to the “Cash Proceeds” amounts in the 3 February 2020 Trading Update is due to the inclusion of services and
other income here. The Cash Proceeds table in the February Trading Update included Core Litigation Finance and Asset Recovery, which are combined
into capital provision-direct in the tables above. Complex Strategies from the February Trading Update table comprises capital provision-indirect in this
table, with the exception of $12 million of proceeds from a complex strategies asset that is included in capital provision-direct.
During 2019, Burford’s balance sheet cash receipts were essentially flat versus 2018 and at levels well above those in
previous years.
Cash receipts on Burford’s balance sheet
($ in millions)
Cash proceeds from capital provision-direct
Cash proceeds from capital provision-indirect**
Cash asset management income
Cash from services and other income
Cash receipts generated from operations
Annual cash receipts** – Burford balance sheet only
($ in millions)
2018
2019
287,537
210,115
217,979
269,688
13,991
6,490
20,521
17,504
525,997
517,828
526
518
378
230
159
2015
2016
2017
2018
2019
** Includes proceeds from hedging positions, which increased amounts for 2018 by $12m and for 2017 by $16m from what was previously reported.
32
Burford Annual Report 2019
Strategic report
Governance
Financial statements
Financial and operational review
continued
Cash receipts*
($ in millions)
Cash proceeds*:
Capital provision-direct
Capital provision-indirect**
Post-settlement finance
Asset management cash income
Services and other income
Total cash receipts
previous years.
($ in millions)
Cash receipts on Burford’s balance sheet
Cash proceeds from capital provision-direct
Cash proceeds from capital provision-indirect**
Cash asset management income
Cash from services and other income
Cash receipts generated from operations
Annual cash receipts** – Burford balance sheet only
($ in millions)
Cash generation
▪ Group-wide cash proceeds of $1 billion
▪ Balance sheet cash receipts of over $500 million for second year in a row
▪ Robust cash generation provides operational and financing flexibility
Burford’s balance sheet has historically generated significant cash flow, including in 2019, when cash receipts to the balance
sheet were $518 million and Group-wide cash receipts were $1 billion. These cash receipts were predominantly composed of
cash proceeds from asset realisations but also included income from asset management, interest and other income.
This significant level of cash receipts gives Burford the flexibility to meet ongoing deployments as well as operating and financing
cash needs. As we have previously indicated, we do not have control over the timing of our cash proceeds from asset
realisations. We do, however, benefit from the relatively short weighted average life (“WAL”) of our assets, which gives us some
comfort that cash proceeds will come in with some regularity. In particular, our capital provision-indirect portfolio, with a WAL of
less than one year, provides us with relatively consistent cash proceeds.
From these cash receipts, Burford funds its operating expenses, finance costs and dividends. During 2019, Burford’s balance
sheet generated more than three times as much cash as needed to cover those cash outflows, leaving significant cash available
for deployments into new legal finance assets. Burford did not raise external capital for the balance sheet in 2019.
* The difference in cash receipts compared to the “Cash Proceeds” amounts in the 3 February 2020 Trading Update is due to the inclusion of services and
other income here. The Cash Proceeds table in the February Trading Update included Core Litigation Finance and Asset Recovery, which are combined
into capital provision-direct in the tables above. Complex Strategies from the February Trading Update table comprises capital provision-indirect in this
table, with the exception of $12 million of proceeds from a complex strategies asset that is included in capital provision-direct.
During 2019, Burford’s balance sheet cash receipts were essentially flat versus 2018 and at levels well above those in
Group-wide Balance sheet
SWF
Other funds
2019
210
12
270
–
20
18
–
–
–
–
310
417
250
20
18
1,015
518
12
88
147
250
–
–
485
2018
2019
287,537
210,115
217,979
269,688
13,991
6,490
20,521
17,504
525,997
517,828
2019 cash bridge – Burford balance sheet only
($ in millions)
518
(82)
(39)
(28)
25
671
(465)
277
206
A
B
C
D
E
F
G
H
I
A Cash and cash management balance 1/1/19
B Cash receipts
C Operating expenses
Increase
Decrease
Total
D Finance costs
E Dividends
F Net change in payables
G Cash balance before deployments
H Deployments
I Cash and cash management balance 31/12/19
Burford has a consistent history of generating significant cash receipts and, therefore, substantial cash available for deployment.
Internally-generated cash available for redeployment – Burford balance sheet only
($ in millions)
Cash receipts generated from operations
Operating expenses
Finance costs
Cash available for deployment
2015
159
(26)
(9)
124
2016
230
(39)
(12)
179
2017
378
(52)
(23)
2018
526
(67)
(33)
2019
518
(82)
(39)
303
426
397
526
518
378
230
159
2015
2016
2017
2018
2019
** Includes proceeds from hedging positions, which increased amounts for 2018 by $12m and for 2017 by $16m from what was previously reported.
32
Burford Annual Report 2019
Burford Annual Report 2019
33
Financial and operational review
continued
Burford’s balance sheet has generated over $2 billion in cash receipts over its life. We have deployed this cash and additional
capital raised externally into new assets, as should be expected in a business that is growing.
Cash bridge from inception – Burford balance sheet only
($ in millions)
2,093
(362)
(127)
(150)
70
2,759
(166)
(1,329)
699
536
(1,058)
A
B
C
D
E
F
G
H
I
J
K
A Equity capital raised
B Debt capital raised
C Cash receipts
D Operating expenses
Interest expense
E
F Dividends
G Changes in receivables/payables
H Cash balance before deployments
I Acquisitions
J Deployments into realised assets
K Deployments into ongoing assets
L Ending cash
Increase
Decrease
Total
206
L
Data reconciliation
The following table provides investors with further information on how data in this section of the financial and operational review
is related to data in the financial statements notes.
Reconciliation between financial statements and cash receipts
2019
Item
Consolidated cash flow:
$’000
Source/Comment
Capital provision assets—proceeds
received
less: elimination of third-party
interests
Burford-only total
Proceeds received:
Capital provision-direct
less: warehousing proceeds
plus: refinancing proceeds
Adjusted capital provision-direct
proceeds:
Capital provision-indirect
plus: cash from margin/hedging
plus: proceeds held at fund level
Adjusted capital provision-indirect
proceeds:
Asset management income
less: increase in receivable
Asset management cash income
Cash from services
Insurance income
Cash management and bank interest
Services and other cash income
Cash receipts generated from
operations
491,252
From consolidated statement of cash flows
(80,407)
410,845
233,972
(33,078)
9,221
210,115
176,873
56,194
36,621
From FS note 8
Sum of capital provision-direct and indirect proceeds received in FS note 8
From FS note 8
Proceeds from assets held by Burford temporarily pending transfer to a managed fund, as
discussed in FS note 6
Proceeds from re-financed asset treated as a restructuring under IFRS standards
Table on page 32: $210 million of capital provision-direct on balance sheet
From FS note 8
Proceeds from hedging/margin transactions in the due from/to brokers lines of the balance
sheet (see chart on page 50)
Proceeds held at the fund level pending deployment
Table on page 32: $270 million of capital provision-indirect on balance sheet
From FS note 10
269,688
26,130
(5,609) Non-cash portion
20,521
1,123
10,311
6,070
17,504
Table on page 32: $20 million of asset management fees
From consolidated statement of cash flows
From Burford only income statement, adjusted by the decrease in receivable
From Burford only income statement
Table on page 32: $18 million of services and other cash income
517,828
Table on page 32: $518 million of total cash receipts on the balance sheet
34
Burford Annual Report 2019
Financial and operational review
continued
Burford’s balance sheet has generated over $2 billion in cash receipts over its life. We have deployed this cash and additional
capital raised externally into new assets, as should be expected in a business that is growing.
Cash bridge from inception – Burford balance sheet only
($ in millions)
2,093
(362)
(127)
(150)
70
2,759
(166)
(1,329)
(1,058)
206
L
A
B
C
D
E
F
G
H
I
J
K
A Equity capital raised
B Debt capital raised
C Cash receipts
D Operating expenses
E
Interest expense
F Dividends
I Acquisitions
J Deployments into realised assets
G Changes in receivables/payables
K Deployments into ongoing assets
H Cash balance before deployments
L Ending cash
Increase
Decrease
Total
The following table provides investors with further information on how data in this section of the financial and operational review
is related to data in the financial statements notes.
Reconciliation between financial statements and cash receipts
$’000
Source/Comment
491,252
From consolidated statement of cash flows
From FS note 8
From FS note 8
discussed in FS note 6
Sum of capital provision-direct and indirect proceeds received in FS note 8
Proceeds from assets held by Burford temporarily pending transfer to a managed fund, as
Proceeds from re-financed asset treated as a restructuring under IFRS standards
Table on page 32: $210 million of capital provision-direct on balance sheet
From FS note 8
Proceeds from hedging/margin transactions in the due from/to brokers lines of the balance
sheet (see chart on page 50)
Proceeds held at the fund level pending deployment
269,688
Table on page 32: $270 million of capital provision-indirect on balance sheet
26,130
From FS note 10
(5,609) Non-cash portion
Table on page 32: $20 million of asset management fees
From consolidated statement of cash flows
From Burford only income statement, adjusted by the decrease in receivable
From Burford only income statement
Table on page 32: $18 million of services and other cash income
(80,407)
410,845
233,972
(33,078)
9,221
210,115
176,873
56,194
36,621
20,521
1,123
10,311
6,070
17,504
699
536
Data reconciliation
2019
Item
Consolidated cash flow:
Capital provision assets—proceeds
received
interests
less: elimination of third-party
Burford-only total
Proceeds received:
Capital provision-direct
less: warehousing proceeds
plus: refinancing proceeds
Adjusted capital provision-direct
proceeds:
Capital provision-indirect
plus: cash from margin/hedging
plus: proceeds held at fund level
Adjusted capital provision-indirect
proceeds:
Asset management income
less: increase in receivable
Asset management cash income
Cash from services
Insurance income
Cash management and bank interest
Services and other cash income
Cash receipts generated from
Strategic report
Governance
Financial statements
Current portfolio
▪ Group-wide portfolio of $4.2 billion (66% annualised growth over past five years)
▪ Balance sheet portfolio of $2.7 billion (49% annualised growth over past five years)
Burford’s aim is to build a portfolio of legal finance assets that balances risk and return, manages asset lives appropriately and
assures diversification. Through the implementation of this consistent portfolio construction strategy over a decade of vintages,
Burford operates the industry’s largest diversified portfolio of legal finance assets by a considerable margin.
Burford counts each of its contractual relationships as an “asset”, although many such relationships are composed of multiple
underlying litigation matters that are often cross-collateralised rather than reliant on the performance of a single matter. So, while
Burford holds 151 “assets” directly and nine other assets indirectly through its investment in the Strategic Value Fund, there are
many more separate claims underlying the capital provision portfolio (and a single claim may well have multiple paths to a
recovery), although some of those claims relate to the same underlying legal theory and thus have some correlation.
Burford originates legal finance assets using a wide range of economic structures. The starting point in a single case asset is
typically an arrangement under which Burford will receive its capital back as a first dollar matter followed by some preferred
return on that capital along with a share of the ultimate recovery. Even in straightforward assets, the terms agreed will vary widely
based on our assessment of the risk and likely tenor of the matter. Moreover, the larger or more complex a matter, the more
likely it is to have an individually designed transactional structure to fit the needs of the matter, to accommodate what are often
multiple parties with economic interests and to align interests and incentivise rational economic behaviour. It is, therefore,
difficult to generalise about the financial terms of legal finance assets, although Burford underwrites all of its assets to have the
ability to produce desirable returns.
At 31 December 2019, the Group-wide portfolio was $4.2 billion, including funded cost, unrealised gain and undrawn
commitments. Of this amount, $2.7 billion was attributable to the balance sheet.*
Current portfolio – Group-wide
Current portfolio
As of 31 December 2019
($ in millions)
Capital provision-direct:
Deployed cost
+ Fair value adjustments
= Carrying value
+ Undrawn commitments
= Total
Capital provision-indirect:
Carrying value **
+ Undrawn commitments
= Total
Post-settlement:
Deployed cost
+ Fair value adjustments
= Carrying value
+ Undrawn commitments
= Total
Balance sheet
Funds
BOF-C
Total
877.3
772.1
1,649.4
911.7
2,561.1
424.7
83.0
507.7
307.6
815.3
85.1
7.1
92.2
152.4
244.6
1,387.1
862.2
2,249.3
1,371.7
3,621.0
184.6
0.0
184.6
104.9
0.0
104.9
0.0
0.0
0.0
0.0
0.0
218.7
16.6
235.3
63.3
298.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
289.5
0.0
289.5
218.7
16.6
235.3
63.3
298.6
operations
517,828
Table on page 32: $518 million of total cash receipts on the balance sheet
Total portfolio
2,745.7
1,218.8
244.6
4,209.1
* While some of our competitors inflate their numbers by discussing claim value or expected value, we discuss here
only Burford’s assets, ignoring our clients’ interests in the same assets.
** Does not include hedging-related assets of $92 million which are included on the balance sheet in lines other than capital
provision assets.
34
Burford Annual Report 2019
Burford Annual Report 2019
35
Financial and operational review
continued
The portfolio has grown steadily over the past several years, with a compound annual growth rate (CAGR) of 50% (Burford only)
and 66% (Group-wide) since 2015.
Total portfolio – Group-wide
($ in millions)
551
2015
Balance sheet
Funds
BOF-C
6 6 % C A G R
2,368
812
1,556
858
245
4,209
1,219
2,745
53
3,218
976
2,189
2016
2017
2018
2019
Undrawn commitments
▪ Only 35% of undrawn commitments are definitive obligations to fund
▪ Deployments on undrawn commitments remain gradual (median of 16% over past three years)
Although our realisations are neither controllable nor predictable, we do have significantly more visibility of and control over our
deployments. Although some portion of these deployments are on prior definitive commitments which we are obligated to fund,
a significant portion of deployments on prior commitments are discretionary, so that we have control over whether to fund.
Deployments on new potential commitments are entirely within our control, since we can decline to make the commitment in
the first instance if we do not want to deploy capital at that time.
Group-wide unfunded commitments outstanding at year end
As of 31 December 2019 (2018)
($ in millions)
Capital provision-direct:
Legal finance
Legal risk management
Capital provision-indirect:
Strategic Value fund
Post-settlement funds
Total unfunded commitments
Balance sheet
commitments
Fund
commitments
BOF-C
commitments
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
828.6
614.9
83.1
72.5
0.0
0.0
0.0
0.0
911.7
687.4
287.4
248.2
20.2
15.4
0.0
0.0
63.3
19.0
370.9
282.6
146.2
31.8
6.2
0.0
1,262.2
894.9
109.5
87.9
0.0
0.0
0.0
0.0
0.0
0.0
63.3
19.0
152.4
31.8
1,435.0
1,001.8
The table above shows $912 million of unfunded (undrawn) commitments attributable to the capital provision-direct portfolio on
Burford’s balance sheet. (Other undrawn commitments are the responsibility of funds and other capital pools, which plan
separately to be able to meet those commitments, typically by calling capital from investors.) Of that number, $83 million is
attributable to legal risk management, none of which we expect to need to fund and none of which would be required on any
sort of accelerated basis. The remaining $829 million relates to existing legal finance arrangements.
While that seems like a large number, there are three important points to bear in mind about undrawn commitments.
36
Burford Annual Report 2019
The portfolio has grown steadily over the past several years, with a compound annual growth rate (CAGR) of 50% (Burford only)
Financial and operational review
continued
and 66% (Group-wide) since 2015.
Total portfolio – Group-wide
($ in millions)
858
551
2015
Balance sheet
Funds
BOF-C
Undrawn commitments
245
4,209
1,219
2,745
53
3,218
976
2,189
6 6 % C A G R
2,368
812
1,556
2016
2017
2018
2019
▪ Only 35% of undrawn commitments are definitive obligations to fund
▪ Deployments on undrawn commitments remain gradual (median of 16% over past three years)
Although our realisations are neither controllable nor predictable, we do have significantly more visibility of and control over our
deployments. Although some portion of these deployments are on prior definitive commitments which we are obligated to fund,
a significant portion of deployments on prior commitments are discretionary, so that we have control over whether to fund.
Deployments on new potential commitments are entirely within our control, since we can decline to make the commitment in
the first instance if we do not want to deploy capital at that time.
Group-wide unfunded commitments outstanding at year end
As of 31 December 2019 (2018)
($ in millions)
Capital provision-direct:
Legal finance
Legal risk management
Capital provision-indirect:
Strategic Value fund
Post-settlement funds
Total unfunded commitments
Balance sheet
Fund
BOF-C
commitments
commitments
commitments
Total
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
828.6
614.9
83.1
72.5
0.0
0.0
0.0
0.0
911.7
687.4
287.4
248.2
20.2
15.4
0.0
0.0
63.3
19.0
370.9
282.6
146.2
31.8
6.2
0.0
1,262.2
894.9
109.5
87.9
0.0
0.0
0.0
0.0
0.0
0.0
63.3
19.0
152.4
31.8
1,435.0
1,001.8
The table above shows $912 million of unfunded (undrawn) commitments attributable to the capital provision-direct portfolio on
Burford’s balance sheet. (Other undrawn commitments are the responsibility of funds and other capital pools, which plan
separately to be able to meet those commitments, typically by calling capital from investors.) Of that number, $83 million is
attributable to legal risk management, none of which we expect to need to fund and none of which would be required on any
sort of accelerated basis. The remaining $829 million relates to existing legal finance arrangements.
While that seems like a large number, there are three important points to bear in mind about undrawn commitments.
Strategic report
Governance
Financial statements
First, our undrawn commitments can be divided into two categories: discretionary and definitive. Discretionary commitments are
those commitments where Burford retains a considerable degree of discretion over whether to advance capital and generally
would not suffer an adverse financial consequence from failing to do so. As an example, if we have committed to a law firm to
fund future new cases for them, that commitment would be subject to underwriting and approving those new cases; we would
not be obligated to provide funding unless we have given those approvals. Definitive commitments are those commitments
where Burford is contractually obliged to fund incremental capital and failure to do so without good reason (such as a negative
change in a case’s prospects) would typically come with adverse contractual consequences.
Of the $829 million of litigation finance commitments, $540 million (65%) are discretionary and $289 million (35%) are definitive.
Capital provision-direct unfunded commitments
Burford balance sheet only
31 December 2019
Unfunded commitments – legal finance
Definitive
Discretionary
Total
$’000
% of total
288,513
540,095
828,608
35
65
100
Second, we have good visibility into the timing of when definitive commitments will be drawn, and the ability to plan for those
draws. This visibility is partly because many of our agreements actually structure future draws on an explicit timetable or with
reference to case events, and partly because we have good insight into the timing of individual legal actions. For example, we
know that the median time to trial in the US federal courts was recently reported as 27.8 months, and has not been lower than
26.3 months in the last five years. Thus, we know that the significant portion of our funding that relates to a case’s trial in those
courts for a new matter won’t be drawn until 2022 at the earliest.
Indeed, the table below shows our year-by-year experience in the last three years; we have deployed a median of 16% of the
prior year’s unfunded commitments in the following year.
Capital provision-direct deployments on unfunded legal finance commitments
Burford balance sheet only
($ in millions)
Unfunded commitments as of 31 December
Deployed in following year (i.e. 2018 deployed in 2019)
Percent deployed
2016
296
47
16%
2017
503
152
30%
2018
615
94
15%
Three-year
median
16%
Third, the incidence of settlement means that not all of our commitments will in any event be drawn. Historically, we have ended
up deploying on average 89% of our commitments on concluded (fully and partially) matters, but it can take many years to reach
that level as shown in the chart below which looks at deployments on both ongoing and concluded assets:
Capital provision-direct cumulative deployments
as a % of vintage commitment
Burford balance sheet only
(%)
100
80
60
40
20
0
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
2013
2009
Average deployment on commitments for concluded (fully and partially) matters (89%)
2010
2014
2016
2012
2015
2011
2017
2018
All vintages
36
Burford Annual Report 2019
Burford Annual Report 2019
37
Financial and operational review
continued
Capital provision-direct portfolio
Before considering the performance of the legal finance assets in our capital provision-direct portfolio, it may be worth reviewing
the typical life of a litigation matter. While different legal fora have somewhat different approaches, this generic approach is
generally applicable.
Once a case is commenced, pre-trial activity begins, including discovery and pre-trial motions. Often, as the case develops
through this phase, one side or the other will conclude its position is not as strong as it thought, which can often lead to
settlement discussions. If a case doesn’t settle, it moves to trial and a judgment; again, settlement can often occur at or around
the trial phase. After a judgment has been entered, there is typically an appeal process (during which settlements can also occur)
before the judgment becomes final. This entire process can occur over the course of several years but, in some jurisdictions, can
take longer (or, in some lamentably small number of cases, be faster).
Capital provision-direct assets
Fully and partially concluded assets
From inception through 2019
Burford balance sheet only
($ in millions)
89% of
commitments are
deployed
$758
Commitments
$672
Deployments
* Average life weighted by recoveries
Adjudication-gains
21% of deployments
go to adjudication
and win in 3.4 years*
Adjudication-losses
11% of deployments
go to adjudication
and lose
$559
Recoveries
48% IRR
297% ROIC
$12
Recoveries
-84% ROIC
Settlement
68% of deployments
settle in 1.5 years*
$689
Recoveries
41% IRR
52% ROIC
Total
$1,260
Recoveries
88%
ROIC
31%
IRR
Of Burford’s concluded cases to date, 68% based on deployed cost have settled, while 32% have gone to adjudication (note that
we include assets sold within the adjudication category for purposes of this analysis). Returns are robust from settlements, but
strong return outperformance comes from asymmetric returns on judgments. This is not anything unusual nor are those
outperforming assets unique or non-repeatable; rather, it is the fundamental nature of the litigation process to produce dispersed
returns. And losses are a normal part of our business, but are well tolerated within our portfolio in light of our high returns in the
event of successful matters. It is inevitable that a small portion of our portfolio will deliver an outsized percentage of our returns.
Our underwriting process and deal structures are designed to put potential outperformers in the portfolio and make sure we get
significant returns if they go all the way to a positive judgment. The chart on the next page illustrates both the significance and
the normality of outsized returns in a ligation finance portfolio.
38
Burford Annual Report 2019
Financial and operational review
continued
Capital provision-direct portfolio
Before considering the performance of the legal finance assets in our capital provision-direct portfolio, it may be worth reviewing
the typical life of a litigation matter. While different legal fora have somewhat different approaches, this generic approach is
generally applicable.
Once a case is commenced, pre-trial activity begins, including discovery and pre-trial motions. Often, as the case develops
through this phase, one side or the other will conclude its position is not as strong as it thought, which can often lead to
settlement discussions. If a case doesn’t settle, it moves to trial and a judgment; again, settlement can often occur at or around
the trial phase. After a judgment has been entered, there is typically an appeal process (during which settlements can also occur)
before the judgment becomes final. This entire process can occur over the course of several years but, in some jurisdictions, can
take longer (or, in some lamentably small number of cases, be faster).
Capital provision-direct assets
Fully and partially concluded assets
From inception through 2019
Burford balance sheet only
($ in millions)
89% of
commitments are
deployed
$758
Commitments
$672
Deployments
* Average life weighted by recoveries
Adjudication-gains
21% of deployments
go to adjudication
and win in 3.4 years*
Adjudication-losses
11% of deployments
go to adjudication
and lose
$559
Recoveries
48% IRR
297% ROIC
$12
Recoveries
-84% ROIC
Settlement
68% of deployments
settle in 1.5 years*
$689
Recoveries
41% IRR
52% ROIC
Total
$1,260
Recoveries
88%
ROIC
31%
IRR
Of Burford’s concluded cases to date, 68% based on deployed cost have settled, while 32% have gone to adjudication (note that
we include assets sold within the adjudication category for purposes of this analysis). Returns are robust from settlements, but
strong return outperformance comes from asymmetric returns on judgments. This is not anything unusual nor are those
outperforming assets unique or non-repeatable; rather, it is the fundamental nature of the litigation process to produce dispersed
returns. And losses are a normal part of our business, but are well tolerated within our portfolio in light of our high returns in the
event of successful matters. It is inevitable that a small portion of our portfolio will deliver an outsized percentage of our returns.
Our underwriting process and deal structures are designed to put potential outperformers in the portfolio and make sure we get
significant returns if they go all the way to a positive judgment. The chart on the next page illustrates both the significance and
the normality of outsized returns in a ligation finance portfolio.
Strategic report
Governance
Financial statements
Concluded (fully and partially) capital provision-direct assets – Arrayed by ROIC (%)
Burford balance sheet only
($ in millions)
A
0% or less
ROIC
Deployed:
$103
15% of total
Profit:
($72)
(12%) of total
B
0 to 99%
ROIC
Deployed:
$449
67% of total
Profit:
$127
22% of total
Profits
C
100 to 199%
ROIC
Deployed:
$62
9% of total
Profit:
$83
14% of total
D
200% or greater
ROIC
Deployed:
$58
9% of total
Profit:
$450
76% of total
Total
Deployed:
$672
Profit:
$588
Cumulative weighted average ROIC 88%
Losses
B
C
D
Cases where the net loss was below $1m.
>700
500
400
300
200
100
0
-100
A
As discussed elsewhere, we reject the concept of considering our business without all of its successes, including the Petersen
case. However, even if one removes Petersen sales, we are still left with $221 million of profit from $51 million of deployments in
the >200% ROIC category, underlining the point that Burford regularly generates high returns in some of its matters.
Our business is not unique in relying upon a small number of assets for return outperformance. Certainly, venture capital fits that
model, though a typical venture capital portfolio will have a higher proportion of losing investments than we have experienced
and a generally longer tenor.
Portfolio tenor
▪ Concluded capital provision-direct portfolio WAL of 2.3 years weighted by recoveries (1.7 years weighted by deployments)
Given that Burford does not—and is not able to—provide forward guidance about cash flows, we instead provide here detailed
information about historical resolutions so that investors may make their own judgements about the likely timing of resolutions
from the current portfolio.
The reality of litigation, as discussed before, is that a majority of cases settle and pay proceeds in a relatively short period of time,
and a minority of Burford’s portfolio goes on to adjudication, which takes longer.
38
Burford Annual Report 2019
Burford Annual Report 2019
39
Financial and operational review
continued
The chart below shows the impact of those outcomes over Burford’s entire history of realisations since inception. At the most
basic level, this chart shows that a typical vintage in our portfolio returns all of the capital invested in two to three years after
commitment and then begins generating profits for years thereafter.
While we believe strongly that our Petersen investment is a part of Burford’s overall performance and should not be treated
separately, we have presented the chart below both with and without the impact of the secondary sales we have made of our
Petersen investment, since we think it is useful to consider the data in both ways.
Cumulative capital provision-direct
Realisations as a % of portfolio deployments by years from commitment
Burford balance sheet only
(%)
250
200
150
100
50
0
Yr0
WAL=2.92 years*
WAL=2.85 years*
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Portfolio
Portfolio excl. Petersen
Return of 100% of capital deployed
* From initial commitment to weighted average date of realisation, weighted by recoveries
Obviously, different vintages will perform differently, and the chart below shows each individual vintage on the same basis. As can
be seen, some vintages level off earlier while others produce spikes in recoveries later in their lives
Cumulative capital provision-direct
Realisations as a % of vintage deployments by years from commitment
Burford balance sheet only
(%)
500
450
400
350
300
250
200
150
100
50
0
Yr0
2009
Yr1
2010
2011
Yr2
2012
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
2013
2014
2015
2016
2017
2018
All vintages together
40
Burford Annual Report 2019
Financial and operational review
continued
Cumulative capital provision-direct
Realisations as a % of portfolio deployments by years from commitment
Burford balance sheet only
WAL=2.92 years*
WAL=2.85 years*
0
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Portfolio
Portfolio excl. Petersen
Return of 100% of capital deployed
* From initial commitment to weighted average date of realisation, weighted by recoveries
Obviously, different vintages will perform differently, and the chart below shows each individual vintage on the same basis. As can
be seen, some vintages level off earlier while others produce spikes in recoveries later in their lives
Cumulative capital provision-direct
Realisations as a % of vintage deployments by years from commitment
Burford balance sheet only
(%)
250
200
150
100
50
(%)
500
450
400
350
300
250
200
150
100
50
The chart below shows the impact of those outcomes over Burford’s entire history of realisations since inception. At the most
basic level, this chart shows that a typical vintage in our portfolio returns all of the capital invested in two to three years after
commitment and then begins generating profits for years thereafter.
While we believe strongly that our Petersen investment is a part of Burford’s overall performance and should not be treated
separately, we have presented the chart below both with and without the impact of the secondary sales we have made of our
Petersen investment, since we think it is useful to consider the data in both ways.
Note that the vintage cash flows and weighted average lives in the charts above are calculated from initial commitment dates. We
have historically presented weighted average life (or duration) data from the time of average deployment to the time of average
realisation, which has to date been about a half year shorter than measuring from initial commitment. Said another way, it
typically takes about a half a year to get to average deployment on a commitment since initial deployments of a portion of the
commitment are often followed by subsequent deployments that take place over several years. On that basis, we can look at the
historical weighted average lives (beginning at the point of average deployment) of the capital provision-direct portfolio,
weighted both by deployed cost (our historical method) and by recoveries:
Strategic report
Governance
Financial statements
Capital provision-direct
Weighted average life of concluded (fully and partially) portfolio
Burford balance sheet only
($ in millions)
2.3
1.9
348
1.9
1.6
534
1.6
1.5
784
2.1
1.7
1,081
2.3
1.7
1,260
2015
2016
2017
2018
2019
Investment recoveries since inception
WAL in years weighted by recoveries
WAL in years weighted by deployments
3.0
2.5
2.0
1.5
1.0
0.5
0.0
If we had done these weighted average life calculations on the “core litigation balance sheet portfolio” as presented (as
duration) in past years, the WAL at 31 December 2019 would have been 1.8 years weighted by deployments and 2.4 years
weighted by recoveries.
Burford’s capital provision-direct portfolio, though sizeable at this point, is still relatively young because of its rapid growth. As a
consequence, weighted average lives on the concluded portfolio in aggregate are likely shorter than they would be on a mature
portfolio because we have realised some of the shorter-tenor assets in our more recent, larger vintages while still being some
time away from realising the longer-tenor assets in those vintages.
Portfolio returns
▪ Concluded portfolio ROIC of 88% (93% on core litigation finance) and IRR of 31%
As of 31 December 2019, concluded assets in Burford’s balance sheet capital provision-direct portfolio had generated an ROIC of
88% and an IRR of 31% since Burford’s inception.
Capital provision-direct
Returns since inception from concluded (fully and partially) portfolio
Burford balance sheet only
(%)
70
ROIC %
28
IRR %
61
28
75
31
80
30
88
31
0
Yr0
Yr1
Yr2
2012
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
2009
2010
2011
2013
2014
2015
2016
2017
2018
All vintages together
2015
2016
2017
2018
2019
40
Burford Annual Report 2019
Burford Annual Report 2019
41
Financial and operational review
continued
As noted earlier in this report, we have changed somewhat the composition of the portfolio we are using in our return statistics
to encompass our asset recovery finance assets, our legal risk management assets and complex strategies assets other than
those included in our Strategic Value fund (which accounts for the considerable majority of such assets). If we had not made
those changes, but instead used the same concluded “core litigation finance” balance sheet assets as in past years, our ROIC
would have been 93% and our IRR 31% as of 31 December 2019 instead of an ROIC of 88% and an IRR of 31%. The main reason
for the difference in ROIC statistics is the inclusion in the broader data set of a small number of concluded assets which had low
ROICs but short lives and, therefore, little impact on the overall IRR.
Core litigation finance
Returns since inception from concluded (fully and partially) portfolio
Burford balance sheet only
(%)
70
ROIC %
28
IRR %
60
27
76
31
85
30
93
31
2015
2016
2017
2018
2019
We have applied a consistent definition of concluded matters for many years, and we do not consider cases to be concluded
(and therefore part of these concluded return statistics) until there is no longer any litigation risk remaining. Our concluded return
statistics are not intended to mirror our IFRS reporting; we do not include fair value in our returns, either positive or negative. That
will result in these return numbers not including the impact of positive developments until matters conclude, and it will also result
in these numbers not including the impact of negative developments while matters remain pending. We have a small number of
legal finance assets which are still ongoing (because the litigation has not run its course) yet we have written them off completely
under our fair value policy for IFRS financial statement purposes because events in the cases have been unfavourable. If we were
to consider the three such cases (representing $16 million in costs) in our portfolio at year end 2019 to be concluded, our ROIC
on our capital provision-direct portfolio would have been 83% and our IRR 29% at 31 December 2019 instead of an ROIC of 88%
and an IRR of 31%. This is of course a particularly conservative perspective as we are accelerating losses but not accelerating
gains, and we present it to show the overall quality of the portfolio.
For reasons that we addressed earlier, we do not believe it makes sense to exclude our highest-returning assets from our
return metrics in a business where we are currently originating new assets with the potential to generate outsized returns.
Nonetheless, in response to investor inquiries, we have in the past provided our returns data excluding our Petersen realisations;
at 31 December 2019, excluding proceeds from our sales of Petersen participations, our capital provision-direct ROIC would
have been 54% and our IRR 24% instead of an ROIC of 88% and an IRR of 31%.
42
Burford Annual Report 2019
Financial and operational review
continued
As noted earlier in this report, we have changed somewhat the composition of the portfolio we are using in our return statistics
to encompass our asset recovery finance assets, our legal risk management assets and complex strategies assets other than
those included in our Strategic Value fund (which accounts for the considerable majority of such assets). If we had not made
those changes, but instead used the same concluded “core litigation finance” balance sheet assets as in past years, our ROIC
would have been 93% and our IRR 31% as of 31 December 2019 instead of an ROIC of 88% and an IRR of 31%. The main reason
for the difference in ROIC statistics is the inclusion in the broader data set of a small number of concluded assets which had low
ROICs but short lives and, therefore, little impact on the overall IRR.
Returns since inception from concluded (fully and partially) portfolio
Core litigation finance
Burford balance sheet only
(%)
70
ROIC %
28
IRR %
60
27
76
31
85
30
93
31
2015
2016
2017
2018
2019
We have applied a consistent definition of concluded matters for many years, and we do not consider cases to be concluded
(and therefore part of these concluded return statistics) until there is no longer any litigation risk remaining. Our concluded return
statistics are not intended to mirror our IFRS reporting; we do not include fair value in our returns, either positive or negative. That
will result in these return numbers not including the impact of positive developments until matters conclude, and it will also result
in these numbers not including the impact of negative developments while matters remain pending. We have a small number of
legal finance assets which are still ongoing (because the litigation has not run its course) yet we have written them off completely
under our fair value policy for IFRS financial statement purposes because events in the cases have been unfavourable. If we were
to consider the three such cases (representing $16 million in costs) in our portfolio at year end 2019 to be concluded, our ROIC
on our capital provision-direct portfolio would have been 83% and our IRR 29% at 31 December 2019 instead of an ROIC of 88%
and an IRR of 31%. This is of course a particularly conservative perspective as we are accelerating losses but not accelerating
gains, and we present it to show the overall quality of the portfolio.
For reasons that we addressed earlier, we do not believe it makes sense to exclude our highest-returning assets from our
return metrics in a business where we are currently originating new assets with the potential to generate outsized returns.
Nonetheless, in response to investor inquiries, we have in the past provided our returns data excluding our Petersen realisations;
at 31 December 2019, excluding proceeds from our sales of Petersen participations, our capital provision-direct ROIC would
have been 54% and our IRR 24% instead of an ROIC of 88% and an IRR of 31%.
Strategic report
Governance
Financial statements
Summary asset portfolio
On our website, we provide a table with details on every asset (concluded and ongoing) that we have funded in our capital
provision-direct portfolio over our history. The updated table as of 31 December 2019 will be posted on the website at the time
of release of this report. A summary by vintage of the performance data in that table appears below:
Capital provision-direct assets
Burford balance sheet only
($ in millions)
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2009 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2010 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2011 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2012 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2013 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2014 Total
1. WAL of the vintage weighted by deployments
2. WAL of the vintage weighted by recoveries
Number of
assets
Commitment
amount
Deployed
costs
Recovered
proceeds
ROIC
IRR WAL – D1 WAL – R2
3
–
–
–
3
14
–
–
2
16
10
1
3
14
8
–
–
1
9
9
2
1
12
15
4
4
23
11.5
11.5
40.1
–
–
–
–
–
–
–
–
–
11.5
11.5
40.1
94.8
81.3
182.7
–
–
–
–
22.6
22.5
–
–
–
117.4
103.8
182.7
86.9
59.7
1.4
14.2
20.1
122.6
1.4
14.2
20.1
95.4
72.6
1.4
–
–
74.0
61.5
56.7
116.2
–
–
–
–
2.0
0.5
–
–
–
63.5
57.2
116.2
21.9
20.8
26.5
3.2
4.2
10.8
40.1
3.2
2.0
9.2
4.9
–
–
35.2
31.4
85.3
62.5
12.1
36.4
30.0
11.9
25.4
23.2
97.9
24.3
–
–
163.8
123.0
122.2
251%
32%
3.3
4.8
125%
21%
3.0
4.5
21%
8%
3.2
2.4
105%
41%
2.3
2.1
30%
18%
1.7
1.8
64%
32%
1.7
1.8
42
Burford Annual Report 2019
Burford Annual Report 2019
43
Financial and operational review
continued
Capital provision-direct assets
Burford balance sheet only continued
($ in millions)
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2015 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2016 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2017 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2018 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2019 Total
Overall total
Concluded
Partial realisation – concluded portion*
Total capital provision-direct
concluded portion
Partial realisation – ongoing portion*
Ongoing
Total capital provision-direct
ongoing portion
Total capital provision-direct
Number of
assets
Commitment
amount
Deployed
costs
Recovered
proceeds
ROIC
IRR WAL – D WAL – R
12
4
4
20
7
8
11
26
3
5
17
25
2
7
30
39
1
2
45
48
84
33
117
33
118
151
235
337%
181%
0.8
2.5
26%
19%
1.3
1.3
31%
35%
0.7
0.9
74.1
63.0
76.2
11.9
41.3
131.6
10.7
246.0
18.2
64.8
–
–
258.9
156.7
322.2
149.8
147.7
187.8
17.4
163.7
17.4
42.7
126.1
91.7
19.5
–
–
457.0
299.5
207.3
59.3
26.5
137.7
59.1
25.6
110.4
304.7
108.9
71.1
39.6
–
–
528.2
304.0
110.7
14.6
13.3
96.8
256.4
381.1
11.9
0.2
22.3
46%
33%
1.0
1.1
14.4
13.3
77.6
97.1
21.9
18.7
–
–
202.4
40.6
11.9
0.2
5.0
8%
19%
0.3
0.3
11.9
1.0
–
–
381.3
143.2
415.7
160.3
12.9
671.6
588.6
904.9
86.0
83.7
355.4
672.3
1,260.3
88%
31%
1.7
2.3
757.6
516.6
295.5
1,285.6
581.2
1,802.2
876.7
–
–
–
2,559.8
1,549.0
1,260.3
* As of 31 December 2019, there are 33 capital provision assets with partial realisations. We repeat the number with partial realisations in total capital
provision-direct concluded and total capital provision-direct ongoing.
44
Burford Annual Report 2019
Financial and operational review
continued
Capital provision-direct assets
Burford balance sheet only continued
Partial realised – concluded
Partial realised – ongoing
Partial realised – concluded
Partial realised – ongoing
Partial realised – concluded
Partial realised – ongoing
Partial realised – concluded
Partial realised – ongoing
($ in millions)
Concluded
Ongoing
2015 Total
Concluded
Ongoing
2016 Total
Concluded
Ongoing
2017 Total
Concluded
Ongoing
2018 Total
Concluded
Partial realised – concluded
Partial realised – ongoing
Ongoing
2019 Total
Overall total
Concluded
Partial realisation – concluded portion*
Total capital provision-direct
concluded portion
Partial realisation – ongoing portion*
Ongoing
Total capital provision-direct
ongoing portion
Total capital provision-direct
12
74.1
63.0
76.2
11.9
41.3
131.6
10.7
246.0
18.2
64.8
–
–
20
258.9
156.7
322.2
149.8
147.7
187.8
17.4
163.7
17.4
42.7
126.1
91.7
19.5
–
–
457.0
299.5
207.3
528.2
304.0
110.7
59.3
26.5
137.7
59.1
25.6
110.4
304.7
108.9
14.6
13.3
96.8
256.4
381.1
11.9
0.2
22.3
14.4
13.3
77.6
97.1
11.9
0.2
5.0
202.4
40.6
381.3
143.2
415.7
160.3
12.9
671.6
588.6
904.9
86.0
83.7
355.4
757.6
516.6
295.5
1,285.6
581.2
1,802.2
876.7
2,559.8
1,549.0
1,260.3
71.1
39.6
–
–
21.9
18.7
–
–
11.9
1.0
–
–
–
–
–
4
4
7
8
11
26
3
5
17
25
30
39
2
7
1
2
45
48
84
33
117
33
118
151
235
26%
19%
1.3
1.3
31%
35%
0.7
0.9
46%
33%
1.0
1.1
8%
19%
0.3
0.3
Strategic report
Governance
Financial statements
Number of
Commitment
Deployed
Recovered
assets
amount
costs
proceeds
ROIC
IRR WAL – D WAL – R
Details on the portfolio
The following chart shows the products and services we provide (as discussed further in the Burford’s Business section of this
report) that give rise to the assets in our capital provision-direct portfolio.
337%
181%
0.8
2.5
Total Group-wide portfolio (funded cost + unrealised gain + undrawn commitment) by product/service
As of 31 December 2019
($ in millions)
Single
Portfolio
Asset recovery
Legal risk
Total
Capital provision-direct
Balance sheet
BOF -C
Other
funds
Total
560.0
84.8
245.7
890.5
1,742.9
153.6
549.4 2,445.9
173.5
84.7
0.0
6.2
0.0
173.5
20.2
111.1
2,561.1
244.6
815.3 3,621.0
Note: There were no Complex Strategies assets in the capital provision-direct portfolio at period end
We classify cases by the jurisdiction in which they are pending (or, for arbitration, “seated” in the jurisdiction which establishes the
court regime and supervises the underlying arbitration) regardless of the nationality of the parties, and in the case of multinational
matters we classify them based on their predominant connection, if one can be discerned. When we have matters that simply
defy such categorisation, we have classified them as “global”. The following charts show a breakdown of commitments by dollar
amount by categorisation as of 31 December, 2019.
Although our business is global, the bulk of our commitments (and, correspondingly, our deployments and realisations) are
denominated in US dollars.
Capital provision-direct
Balance sheet commitments*
by geography
Capital provision-direct
Group-wide commitments*
by geography
North America 37%
Europe 35%
Global 24%
Australasia 3%
South America 1%
North America 42%
Europe 30%
Global 23%
Australasia 4%
South America 1%
Capital provision-direct
Balance sheet commitments*
by currency
Capital provision-direct
Group-wide commitments*
by currency
USD 72%
EUR 15%
GBP 11%
AUD 2%
USD 76%
EUR 12%
GBP 10%
AUD 2%
672.3
1,260.3
88%
31%
1.7
2.3
* As of 31 December 2019, there are 33 capital provision assets with partial realisations. We repeat the number with partial realisations in total capital
provision-direct concluded and total capital provision-direct ongoing.
* Commitments include deployed cost and undrawn commitments.
44
Burford Annual Report 2019
Burford Annual Report 2019
45
Financial and operational review
continued
These charts do not capture all of the currency risk to which the business is subject and are not intended to do so; they merely
show the currency in which our capital provision-direct commitments are written. While generally our returns are computed
based on that contractual currency (so that if we advance US dollars we are entitled to be repaid in US dollars), the underlying
litigation may expose us to currency risk. For example, if we finance an arbitration claim in which the underlying damages will be
assessed by the tribunal in local currency and if that currency devalues against the US dollar during the course of our investment,
our share of the underlying recovery would be worth less in US dollars (and we do not generally hedge that risk because of the
uncertainty both of outcome and timing of the underlying adjudication). However, we are often entitled to recover our principal
in the contractual currency regardless of underlying currency movements, so while the currency movement could reduce (or
increase) our profits, it would be less likely to affect the recovery of our US dollar principal.
The Group capital provision-direct portfolio encompasses 13 case types across 20 industries as classified by the Standard
Industrial Classification (SIC).
Capital provision-direct
Balance sheet commitments*
by case type
Capital provision-direct
Group-wide commitments*
by case type
Mixed Portfolio 29%
Antitrust 16%
Arbitration 12%
Asset Recovery 9%
IP 9%
Contract 7%
Federal Statutory 5%
Securities 4%
Bankruptcy/Insolvency 3%
Business Torts 3%
Other 2%
Regulatory 1%
Capital provision-direct
Balance sheet commitments*
by industry
Capital provision-direct
Group-wide commitments*
by industry
Mixed 41%
Utilities 7%
Capital Goods 6%
Insurance 6%
Banks 5%
Energy 5%
Software & Services 5%
Diversified Financials 4%
Legal Sevices 3%
Technology Hardware
& Equipment 3%
Food, Beverage & Tobacco 2%
Information Technology 2%
Materials 2%
Pharma, Biotech
& Life Sciences 2%
Real Estate 2%
Telecommunications
Services 2%
Automobiles
& Components 1%
Consumer Services 1%
Media & Entertainment 1%
* Commitments include deployed cost and undrawn commitments. Does not include unrealised gains.
46
Burford Annual Report 2019
Mixed Portfolio 28%
Antitrust 15%
IP 12%
Arbitration 10%
Contract 8%
Securities 6%
Asset Recovery 5%
Federal Statutory 5%
Business Torts 4%
Bankruptcy/Insolvency 3%
Tort 2%
Other 1%
Regulatory 1%
Mixed 36%
Insurance 7%
Diversified Financials 7%
Utilities 6%
Capital Goods 5%
Energy 5%
Software & Services 4%
Pharma, Biotech
& Life Sciences 4%
Materials 3%
Technology Hardware
& Equipment 3%
Banks 3%
Information Technology 3%
Food, Beverage & Tobacco 3%
Health Care Equipment
& Services 2%
Legal Services 2%
Automobiles
& Components 2%
Telecommunications
Services 2%
Media & Entertainment 1%
Real Estate 1%
Consumer Services 1%
Financial and operational review
continued
These charts do not capture all of the currency risk to which the business is subject and are not intended to do so; they merely
show the currency in which our capital provision-direct commitments are written. While generally our returns are computed
based on that contractual currency (so that if we advance US dollars we are entitled to be repaid in US dollars), the underlying
litigation may expose us to currency risk. For example, if we finance an arbitration claim in which the underlying damages will be
assessed by the tribunal in local currency and if that currency devalues against the US dollar during the course of our investment,
our share of the underlying recovery would be worth less in US dollars (and we do not generally hedge that risk because of the
uncertainty both of outcome and timing of the underlying adjudication). However, we are often entitled to recover our principal
in the contractual currency regardless of underlying currency movements, so while the currency movement could reduce (or
increase) our profits, it would be less likely to affect the recovery of our US dollar principal.
The Group capital provision-direct portfolio encompasses 13 case types across 20 industries as classified by the Standard
Industrial Classification (SIC).
Capital provision-direct
Balance sheet commitments*
by case type
Capital provision-direct
Group-wide commitments*
by case type
Capital provision-direct
Balance sheet commitments*
by industry
Capital provision-direct
Group-wide commitments*
by industry
Mixed Portfolio 29%
Antitrust 16%
Arbitration 12%
Asset Recovery 9%
IP 9%
Contract 7%
Federal Statutory 5%
Securities 4%
Bankruptcy/Insolvency 3%
Business Torts 3%
Other 2%
Regulatory 1%
Mixed 41%
Utilities 7%
Capital Goods 6%
Insurance 6%
Banks 5%
Energy 5%
Software & Services 5%
Diversified Financials 4%
Legal Sevices 3%
Technology Hardware
& Equipment 3%
Food, Beverage & Tobacco 2%
Information Technology 2%
Materials 2%
Pharma, Biotech
& Life Sciences 2%
Real Estate 2%
Telecommunications
Services 2%
Automobiles
& Components 1%
Consumer Services 1%
Media & Entertainment 1%
Mixed Portfolio 28%
Antitrust 15%
IP 12%
Arbitration 10%
Contract 8%
Securities 6%
Asset Recovery 5%
Federal Statutory 5%
Business Torts 4%
Bankruptcy/Insolvency 3%
Tort 2%
Other 1%
Regulatory 1%
Mixed 36%
Insurance 7%
Diversified Financials 7%
Utilities 6%
Capital Goods 5%
Energy 5%
Software & Services 4%
Pharma, Biotech
& Life Sciences 4%
Materials 3%
Technology Hardware
& Equipment 3%
Banks 3%
Information Technology 3%
Food, Beverage & Tobacco 3%
Health Care Equipment
& Services 2%
Legal Services 2%
Automobiles
& Components 2%
Telecommunications
Services 2%
Media & Entertainment 1%
Real Estate 1%
Consumer Services 1%
* Commitments include deployed cost and undrawn commitments. Does not include unrealised gains.
Strategic report
Governance
Financial statements
The claims underlying our legal finance assets are generally diverse. No single law firm accounted for more than 13% of our
Group-wide commitments (14% balance sheet only) and, with respect to that law firm, our commitments are spread amongst a
number of different lawyers and diverse cases, so that no single case with that law firm comprised more than 2% of Group-wide
commitments. However, our capital provision-direct portfolio does include certain related exposures where we have financed
different clients relative to the same or very similar claims, such that outcomes on these related exposures are likely to be
correlated. At 31 December 2019, our five largest related groups of exposures were:
Capital provision-direct portfolio
Five largest related exposures
by deployed cost at
31 December 2019
Industry
Insurance
Utilities
Case type
Geography
Federal Statutory North America
Arbitration
Europe
Food, beverage & tobacco Antitrust
North America
Energy
Software & services
Contract
Antitrust
North America
North America
Number
of assets
Number
of cases
Group-wide
deployed cost
$’000
Balance sheet
deployed cost
$’000
Balance sheet:
% of total capital
provision-direct
portfolio deployed cost
10
1
2
4
6
17
143,974
94,240
2
2
2
1
83,815
81,900
79,186
59,887
62,273
34,128
39,190
41,725
11
7
4
5
5
Capital provision-indirect portfolio
▪ Concluded portfolio return of 17% IRR
▪ WAL by recoveries of 7 months
We began deploying capital in our capital provision-indirect portfolio in 2017. To date we have originated 18 assets in this portfolio
of which nine have concluded. Those concluded assets have generated an overall ROIC of 8% and an IRR of 17% (without regard to
allocation between the balance sheet and the fund). Note that because of the shorter weighted average lives and lower risk of these
assets, ROICs will generally be lower than traditional litigation finance assets. In addition to direct investment returns, Burford earns
management and performance fees from these assets, increasing the balance sheet’s total returns from this portfolio.
Beginning with this reporting period, we are providing a table with details on every asset that we have funded in our capital
provision-indirect portfolio over our history. This table as of 31 December 2019 will be posted on our website at the time of
release of this report. A summary by vintage of the concluded performance data in that table appears below.
Capital provision-indirect portfolio
($ in millions) (includes hedging-related assets)
Number
of assets
Total
commitments
Total
deployed
Total
recovered
ROIC
IRR
WAL* Final life*
2017:
Concluded
Ongoing**
2017 vintage total
2018:
Concluded
Ongoing**
2018 vintage total
2019:
Concluded
Ongoing**
2019 vintage total
Total concluded
Recoveries above deployments
Total ongoing assets
6
1
7
2
5
7
1
3
4
9
9
362.1
362.1
387.3
7%
12%
0.7
1.3
48.8
48.8
41.8
410.9
410.9
429.1
130.2
130.2
149.1
15% 46%
0.4
0.4
320.4
320.4
450.6
450.6
127.6
276.7
65.4
65.4
68.2
4% 44%
0.1
0.2
203.2
203.2
268.6
268.6
129.0
197.2
557.7
557.7
604.6
8%
17%
0.6
1.0
46.9
572.4
572.4
298.4
Ongoing assets: deployments less recoveries to date
274.0
* WAL and final life are weighted by recoveries. Final life represents the time to conclusion of the matter, while WAL reflects the average time to receipt of
recovered proceeds.
** Capital provision-indirect ongoing investments may receive prepayments while the case is ongoing hence generating proceeds on investments that are
classified as ongoing.
46
Burford Annual Report 2019
Burford Annual Report 2019
47
Financial and operational review
continued
Both the cash flows and the accounting for investments in our capital provision-indirect portfolio are complex, and the
accounting tends to generate losses first and then gains later.
On a cash basis, we often receive significant amounts of our invested capital back before the matter concludes, derisking the
asset and enhancing our IRRs.
As an accounting matter, because we typically hedge our positions to remove market risk (all we are trying to take is litigation
risk), when we have an outstanding asset, both sides of the hedge flow through unrealised gains, but netting is not permitted so
we show both unrealised gains and unrealised losses. However, once our traded Level 1 asset becomes a Level 3 asset as it
proceeds to litigation, the gain/loss on the hedge is then realised even though the asset is not concluded but any gain/loss on the
long position remains in unrealised gains. Only when the asset concludes will the gain/loss on the long move to realised gains. As
a result of this accounting approach, we regularly have mismatches between realised and unrealised gains and losses, and the
bulk of our reported income relates to concluded matters as opposed to ongoing ones.
Commitments
▪ 19% increase in Group-wide commitments
▪ Exceeded $1.5 billion Group-wide for the first time
Burford builds its business by, first, making commitments to fund legal finance assets, which in turn generate deployments of our
capital, followed sometime later by a realisation of our capital (through settlements, judgments or sales of our entitlement) and
the return on it.
Across the Group, new funding commitments increased 19% to $1.6 billion (2018: $1.3 billion), reflecting robust demand for
Burford’s financing as well as the trend we have observed in recent years of rising asset sizes, a segment of the market where our
scale and financial strength provides competitive advantage.
Group-wide new commitments*
($ in millions)
1,403
675
728
53
1,326
512
761
1,573
196
651
726
378
2016
2017
2018
2019
206
2015
Burford balance sheet only
Funds
BOF-C
* Includes commitments for hedging–related assets which increased amounts for 2018 by $53 million and 2017 by $55 million over what was
previously reported.
Of these new commitments, the Burford balance sheet accounted for $726 million or 46%. While Burford’s balance sheet
commitment remained consistent with prior years, the new Burford Opportunity Fund (BOF) and the SWF arrangement (BOF-C),
both put in place in December 2018, enabled Burford to make more commitments overall. This outcome is consistent with
Burford’s goal of diversifying its funding sources to allow for further growth in the business while enabling the balance sheet to
increase its returns without having to advance every dollar of capital. Investors may notice in the case-specific data some
deviation from the investment allocation policy we announced at the time of the sovereign wealth fund transaction; the net
impact of that policy is generally to have eligible legal finance assets allocated 42% to the balance sheet, 33% to the sovereign
wealth fund and 25% to BOF. The reason for any deviation is generally because certain categories of legal finance assets are
excluded from the sovereign wealth fund’s participation for comity reasons, and when an exclusion applies, assets are instead
allocated 63% to the balance sheet and 37% to BOF. From time to time other deviations may also occur among the three capital
sources due to risk limits, historical participation in a prior transaction, concentration limits or other objective factors.
We anticipate that, during 2020, BOF will have become fully committed to fund assets. At that point, BOF could only take on new
commitments to the degree that it has recycled capital from recoveries on prior deployed assets. When BOF becomes fully
committed, BOF-C has agreed to increase its participation in each eligible transaction from 33% to 50%; as a consequence, the
effective portion committed to by Burford’s balance sheet will rise from 42% to 50% on those transactions.
48
Burford Annual Report 2019
Financial and operational review
continued
accounting tends to generate losses first and then gains later.
On a cash basis, we often receive significant amounts of our invested capital back before the matter concludes, derisking the
asset and enhancing our IRRs.
As an accounting matter, because we typically hedge our positions to remove market risk (all we are trying to take is litigation
risk), when we have an outstanding asset, both sides of the hedge flow through unrealised gains, but netting is not permitted so
we show both unrealised gains and unrealised losses. However, once our traded Level 1 asset becomes a Level 3 asset as it
proceeds to litigation, the gain/loss on the hedge is then realised even though the asset is not concluded but any gain/loss on the
long position remains in unrealised gains. Only when the asset concludes will the gain/loss on the long move to realised gains. As
a result of this accounting approach, we regularly have mismatches between realised and unrealised gains and losses, and the
bulk of our reported income relates to concluded matters as opposed to ongoing ones.
Commitments
▪ 19% increase in Group-wide commitments
▪ Exceeded $1.5 billion Group-wide for the first time
Burford builds its business by, first, making commitments to fund legal finance assets, which in turn generate deployments of our
capital, followed sometime later by a realisation of our capital (through settlements, judgments or sales of our entitlement) and
the return on it.
Across the Group, new funding commitments increased 19% to $1.6 billion (2018: $1.3 billion), reflecting robust demand for
Burford’s financing as well as the trend we have observed in recent years of rising asset sizes, a segment of the market where our
scale and financial strength provides competitive advantage.
Group-wide new commitments*
($ in millions)
1,403
675
728
53
1,326
512
761
1,573
196
651
726
2016
2017
2018
2019
378
206
2015
Burford balance sheet only
Funds
BOF-C
previously reported.
Of these new commitments, the Burford balance sheet accounted for $726 million or 46%. While Burford’s balance sheet
commitment remained consistent with prior years, the new Burford Opportunity Fund (BOF) and the SWF arrangement (BOF-C),
both put in place in December 2018, enabled Burford to make more commitments overall. This outcome is consistent with
Burford’s goal of diversifying its funding sources to allow for further growth in the business while enabling the balance sheet to
increase its returns without having to advance every dollar of capital. Investors may notice in the case-specific data some
deviation from the investment allocation policy we announced at the time of the sovereign wealth fund transaction; the net
impact of that policy is generally to have eligible legal finance assets allocated 42% to the balance sheet, 33% to the sovereign
wealth fund and 25% to BOF. The reason for any deviation is generally because certain categories of legal finance assets are
excluded from the sovereign wealth fund’s participation for comity reasons, and when an exclusion applies, assets are instead
allocated 63% to the balance sheet and 37% to BOF. From time to time other deviations may also occur among the three capital
sources due to risk limits, historical participation in a prior transaction, concentration limits or other objective factors.
We anticipate that, during 2020, BOF will have become fully committed to fund assets. At that point, BOF could only take on new
commitments to the degree that it has recycled capital from recoveries on prior deployed assets. When BOF becomes fully
committed, BOF-C has agreed to increase its participation in each eligible transaction from 33% to 50%; as a consequence, the
effective portion committed to by Burford’s balance sheet will rise from 42% to 50% on those transactions.
Both the cash flows and the accounting for investments in our capital provision-indirect portfolio are complex, and the
Group-wide commitments by type entered into during the year*
Strategic report
Governance
Financial statements
($ in millions)
Capital provision-direct
Capital provision-indirect**
Post-settlement
Total
Group-wide
total
Burford
balance sheet only
BOF-C
Other funds
2019
2018
2019
2018
2019
2018
2019
2018
955
739
319
419
299
168
1,573
1,326
530
491
196
270
–
–
726
761
55%
66%
61%
64%
0%
0%
46%
57%
196
53
–
–
–
–
196
53
21%
7%
0%
0%
0%
0%
13%
4%
229
195
123
149
299
168
651
512
24%
27%
39%
36%
100%
100%
41%
39%
* The following adjustments to the 3 February 2020 Trading Update Commitments table can be made to reconcile to this table: (1) Core Litigation Finance and Asset
Recovery plus $12 million in Complex Strategies commitments are combined into capital provision-direct; (2) Complex Strategies becomes capital provision-indirect
less $12 million in commitments that are included in capital provision-direct.
** Includes commitments for hedging-related assets, which increased amounts for 2018 by $53 million from what was previously reported.
Capital provision-direct
Commitments to fund legal finance assets where we provide our capital directly grew 29% in 2019, fuelled by continued strong
demand for capital across our range of offerings, including an increase in corporate monetisations. During 2019, we committed
to eight such monetisations in excess of $10 million. Capital provision-direct commitment growth in 2019 continued a multi-year
trend of robust increases in commitments in this area.
Capital provision-direct new commitments
Group-wide
($ in millions)
378
206
720
244
476
53
739
195
491
955
196
229
530
* Includes commitments for hedging–related assets which increased amounts for 2018 by $53 million and 2017 by $55 million over what was
Burford balance sheet only
Funds
BOF-C
2015
2016
2017
2018
2019
Capital provision-indirect
New commitments in our capital provision-indirect portfolio declined because the Strategic Value investment fund through
which we make those commitments was largely fully committed for much of the year, constraining its ability to make new
commitments. When the fund had resolutions during the year that freed up capacity, that capacity was soon committed again.
When we raised the Strategic Value fund in June 2017, it closed with $500 million in investor commitments, including a $150
million commitment from the Burford balance sheet. The Strategic Value fund structure allows limited partners to opt in or out of
each specific investment, and we are able to scale the balance sheet participation to absorb some of those opt-outs if desired. In
addition to our original commitment, we have the opportunity to take investment overages when available, which we have
exercised. Burford’s balance sheet is now the largest investor in the fund, with $184.6 million invested at 31 December 2019 out
of total fund assets on that date of $289.5 million.
48
Burford Annual Report 2019
Burford Annual Report 2019
49
Financial and operational review
continued
As noted elsewhere, in the strategy that we conduct in the Strategic Value fund that presently comprises the entirety of the
capital provision-indirect portfolio, we typically hedge away market risk. The margin we are required to post against those hedges
is included in the due from brokers line in our consolidated statement of financial position; it does not run through the capital
provision assets line on the balance sheet. Prior to 2019, we had not included margin cash flows in our commitments,
deployments or realisations from these assets. Beginning in 2019, we now include those margin cash flows in these statistics for
our capital provision-indirect assets to more accurately represent the cash flows in that strategy. Those margin cash flows were
not included in Burford’s 2018 and prior reporting; we have adjusted the commitments, deployments and realisations statistics in
this financial and operational review to reflect hedging-related assets for 2018 and 2017. The impact of these hedging-related
assets on these statistics can be seen from the charts below.
Hedge/margin commitments/deployments
($ in millions)
Hedge/margin realisations/proceeds
($ in millions)
92
38
54
55
30
25
53
20
33
2017
2018
2019
Burford balance sheet only
Funds
97
41
56
2019
37
21
16
2017
24
12
12
2018
Burford balance sheet only
Funds
Deployments
▪ Another year of deployments above $1 billion Group-wide
Group-wide new deployments – all types
($ in millions)
1,007
560
447
1,133
442
670
21
1,074
76
533
465
2017
2018
2019
127
2015
276
2016
Burford balance sheet only
Funds
BOF-C
Note: Includes deployments for hedging-related assets which increased amounts for 2018 by $53 million and 2017 by $55 million over what was previously
reported.
50
Burford Annual Report 2019
Financial and operational review
continued
As noted elsewhere, in the strategy that we conduct in the Strategic Value fund that presently comprises the entirety of the
capital provision-indirect portfolio, we typically hedge away market risk. The margin we are required to post against those hedges
is included in the due from brokers line in our consolidated statement of financial position; it does not run through the capital
provision assets line on the balance sheet. Prior to 2019, we had not included margin cash flows in our commitments,
deployments or realisations from these assets. Beginning in 2019, we now include those margin cash flows in these statistics for
our capital provision-indirect assets to more accurately represent the cash flows in that strategy. Those margin cash flows were
not included in Burford’s 2018 and prior reporting; we have adjusted the commitments, deployments and realisations statistics in
this financial and operational review to reflect hedging-related assets for 2018 and 2017. The impact of these hedging-related
assets on these statistics can be seen from the charts below.
Hedge/margin commitments/deployments
Hedge/margin realisations/proceeds
($ in millions)
($ in millions)
92
38
54
55
30
25
53
20
33
97
41
56
37
21
16
24
12
12
2017
2018
2019
Burford balance sheet only
Funds
2017
2018
2019
Burford balance sheet only
Funds
Deployments
▪ Another year of deployments above $1 billion Group-wide
Group-wide new deployments – all types
($ in millions)
1,007
560
447
1,133
442
670
21
1,074
76
533
465
2017
2018
2019
127
2015
276
2016
Burford balance sheet only
Funds
BOF-C
Note: Includes deployments for hedging-related assets which increased amounts for 2018 by $53 million and 2017 by $55 million over what was previously
reported.
Strategic report
Governance
Financial statements
Group-wide deployments by type*
($ in millions)
Capital provision-direct
Capital provision-indirect**
Post-settlement commitments
Total
Group-wide
total
501
554
319
419
254
160
1,074
1,133
2019
2018
2019
2018
2019
2018
2019
2018
Balance sheet
BOF-C
Other funds
269
366
196
304
–
–
465
670
54%
66%
61%
73%
0%
0%
43%
59%
76
21
–
–
–
–
76
21
15%
4%
0%
0%
0%
0%
7%
2%
156
167
123
115
254
160
533
442
31%
30%
39%
27%
100%
100%
50%
39%
* The following adjustments to the 3 February 2020 Trading Update Deployments table can be made to reconcile to this table: (1) Core Litigation Finance and Asset
Recovery plus $12 million in Complex Strategies deployments are combined into capital provision-direct; (2) Complex Strategies becomes capital provision-indirect
less $12 million in deployments that are included in capital provision-direct.
** Includes deployments for hedging-related assets, which increased amounts for 2018 by $53 million from what was previously reported.
Capital provision-direct
Group-wide capital provision-direct deployments in 2019 were consistent with 2018.
Burford experienced in 2019 the first full year of deployments against the revised capital allocation framework we announced in
December 2018 after concluding a new funding arrangement with a sovereign wealth fund and third-party institutional investors
in BOF. As such BOF and BOF-C played a significant role in funding deployments in the period, so that the balance sheet only
accounted for 54% of capital provision-direct deployments during 2019 compared to 66% in 2018. If the balance sheet had
comprised a similar percentage of the overall deployments as in 2018, Burford-only total deployments during 2019 would have
been $527 million, or 13% higher than they actually were. Given the attractive economics of these third-party funding structures,
especially the BOF-C arrangement where we receive 60% of investment profits while investing 33% of the investment capital, we
believe that our Burford-only profitability will ultimately be higher despite the lower level of balance sheet deployments.
Capital provision-indirect
Since deployments in our capital provision-indirect portfolio tend to occur at or shortly after the time of commitment, the lower
level of 2019 commitments in this area also led to a lower level of deployments than in 2018.
50
Burford Annual Report 2019
Burford Annual Report 2019
51
Financial and operational review
continued
Data reconciliation
The following table provides investors with further information on how data from this section is related to data in the financial
statements notes and website tables
Reconciliation between financial statements and deployments/(additions) table
2019
Item
Source/Comment
$’000
Consolidated cash flow:
Capital provision assets—funding
562,018
From consolidated statement of cash flows
less: elimination of third party interests
(173,196)
From FS note 6 - additions
Burford-only total additions
388,822
Sum of capital provision-direct and indirect additions in FS Note 6
Additions:
Capital provision-direct
272,016
From FS note 6 - additions
less: warehousing deployments
(12,362)
Deployments on assets held by Burford temporarily pending transfer to a managed fund
plus: refinancing additions
Adjusted capital provision-direct
additions:
9,221
Deployment on re-financed asset treated as a restructuring under IFRS standards
268,875
Table on page 51: $269 million of capital provision-direct balance sheet deployments
Capital provision-indirect
116,806
From FS note 6 - additions
plus: cash from margin/hedging
53,845
plus: deployments held at fund level
25,000
Deployments from hedging/margin transactions in the due from/to brokers lines of the
balance sheet (see chart on page 50)
Balance sheet portion of deployments made at fund level but not yet allocated to LPs
by period end
Adjusted capital provision-indirect
additions:
195,651
Table on page 51: $196 million of capital provision-indirect balance sheet deployments
Total balance sheet additions:
464,526
Table on page 51: $465 million of total balance sheet deployments
Reconciliation of deployments to change in deployed costs in the asset data tables:
2019
Item
Source/Comment
$’000
From the asset data tables:
Deployed cost:
Capital provision-direct at YE2019
less deployed cost on core balance sheet
litigation finance:
concluded investments at YE2018
ongoing investments at YE2018
less deployed cost on asset recovery
investments:
1,548,951
Total deployed cost from capital provision-direct asset performance table on page 44
(555,002)
(644,554)
Investment performance table on page 20 of 2018 Annual Report
Investment performance table on page 20 of 2018 Annual Report
concluded investment at YE2018
ongoing investments at YE2018
(10,728)
(35,500)
Investment performance table on page 39 of 2018 Annual Report
Investment performance table on page 39 of 2018 Annual Report
less deployed cost on complex strategies
assets
Change in deployed cost during 2019
on capital provision-direct assets
(34,273)
Prior complex strategies assets now included in capital provision-direct
268,875
Foots to adjusted capital provision-direct additions from above table
52
Burford Annual Report 2019
Strategic report
Governance
Financial statements
Realisations
▪ Group-wide realisations up 22%
Burford considers a legal finance asset to be concluded where there is no longer any litigation risk remaining, either because of
an agreed settlement or a final judgment. Upon conclusion, Burford records the legal finance asset, including both capital and
return, as having been realised. At that point, we book the amount due to us for our capital and return as either cash or a due
from settlement receivable. Cash from realisations during the year net of any change in due from settlement receivables
comprises our cash proceeds for the period.
Group-wide realisations
($ in millions)
841
304
537
1,028
545
21
461
621
317
304
2017
2018
2019
134
2015
176
2016
plus: deployments held at fund level
25,000
by period end
Balance sheet portion of deployments made at fund level but not yet allocated to LPs
Burford balance sheet only
Funds
BOF-C
Note: Includes realisations from hedging related assets, which increased amounts for 2018 by $24 million and for 2017 by $37 million from what was
previously reported.
Group-wide realisations by type*
2019 (2018)
($ in millions)
Capital provision-direct
Capital provision-indirect*
Post-settlement
Total
Group-wide
total
354
381
424
338
250
122
1,028
841
2019
2018
2019
2018
2019
2018
2019
2018
Balance sheet
Other funds
BOF-C
228
321
233
216
–
–
461
537
64%
84%
55%
64%
0%
0%
45%
64%
105
60
190
122
250
122
545
304
30%
16%
45%
36%
100%
100%
53%
36%
21
–
–
–
–
–
21
–
6%
0%
0%
0%
0%
0%
2%
0%
* Includes realisations from hedging positions, which increased amounts for 2018 by $24 million from what was previously reported.
Financial and operational review
continued
The following table provides investors with further information on how data from this section is related to data in the financial
Data reconciliation
statements notes and website tables
2019
Item
Consolidated cash flow:
Reconciliation between financial statements and deployments/(additions) table
$’000
Source/Comment
Capital provision assets—funding
562,018
From consolidated statement of cash flows
less: elimination of third party interests
(173,196)
From FS note 6 - additions
Burford-only total additions
388,822
Sum of capital provision-direct and indirect additions in FS Note 6
Additions:
Capital provision-direct
272,016
From FS note 6 - additions
less: warehousing deployments
(12,362)
Deployments on assets held by Burford temporarily pending transfer to a managed fund
plus: refinancing additions
9,221
Deployment on re-financed asset treated as a restructuring under IFRS standards
Adjusted capital provision-direct
additions:
268,875
Table on page 51: $269 million of capital provision-direct balance sheet deployments
Capital provision-indirect
116,806
From FS note 6 - additions
plus: cash from margin/hedging
53,845
balance sheet (see chart on page 50)
Deployments from hedging/margin transactions in the due from/to brokers lines of the
Adjusted capital provision-indirect
additions:
195,651
Table on page 51: $196 million of capital provision-indirect balance sheet deployments
Total balance sheet additions:
464,526
Table on page 51: $465 million of total balance sheet deployments
Reconciliation of deployments to change in deployed costs in the asset data tables:
$’000
Source/Comment
Capital provision-direct at YE2019
1,548,951
Total deployed cost from capital provision-direct asset performance table on page 44
2019
Item
From the asset data tables:
Deployed cost:
less deployed cost on core balance sheet
litigation finance:
concluded investments at YE2018
ongoing investments at YE2018
less deployed cost on asset recovery
investments:
(555,002)
(644,554)
Investment performance table on page 20 of 2018 Annual Report
Investment performance table on page 20 of 2018 Annual Report
concluded investment at YE2018
ongoing investments at YE2018
(10,728)
(35,500)
Investment performance table on page 39 of 2018 Annual Report
Investment performance table on page 39 of 2018 Annual Report
assets
(34,273)
Prior complex strategies assets now included in capital provision-direct
less deployed cost on complex strategies
Change in deployed cost during 2019
on capital provision-direct assets
268,875
Foots to adjusted capital provision-direct additions from above table
52
Burford Annual Report 2019
Burford Annual Report 2019
53
Financial and operational review
continued
Capital provision-direct
Since inception, from our capital provision-direct assets on our balance sheet, we have generated $1.3 billion in realisations from
117 concluded or partially concluded assets which had a deployed cost of $672 million, while we have $877 million in capital
deployed in ongoing assets.
Note that we continue to have a small number of ongoing assets in our older vintages. Given that we do not conclude our assets
until there is no longer any litigation risk remaining and that adjudications can take a long time, this is not surprising. Some of
these longer-dated assets may turn out to be successes. Others could be losses. We will not know until legal activity concludes.
Capital provision-direct realisations by vintage
Burford balance sheet only
($ in millions)
$1,260 in realisations to date
ROIC: 88%
IRR: 31%
$322
$40
$183
$23
$74
$34
$116
$1
$31
$11
$122
$49
$207
$111
$41
$13
$83
$134
$148
$175
$219
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Realisations
Investments in ongoing matters
$877 in ongoing investments
Realisations in capital provision-direct in 2019 were down 7% compared with the prior year. As with deployments, we saw a skew
towards Burford’s investment funds, with balance sheet realisations from capital provision-direct assets declining 29% while
investment fund realisations increased by 75%.
From our perspective, much of the volatility in capital provision-direct realisations is a timing issue. As we have long made clear,
we can neither predict nor control the timing of the generation of litigation returns. We finance large, complex commercial
claims. Our realisations come from their resolution. There is no “normal” for such claims; they are inherently idiosyncratic. We
have had cases resolve in less than a week, and we have matters from 2010 still going strong. That is the opportunity in our
business and it is why we are able to generate the returns we have historically delivered. We saw several drivers behind this timing
issue in 2019:
▪ Our portfolio consists of a relatively small number (151) of assets. Although a number of these assets (such as portfolio matters)
have multiple cases underlying them, the timing of realisations on those assets is idiosyncratic and unpredictable, depending as
it does on the legal process. As a consequence, it is entirely possible that we can go through a reporting period with relatively
little realisation activity even while the investment cases are progressing in a favourable manner.
▪ Certain types of cases take longer to mature than others; international arbitration and intellectual property cases in particular
can take quite a while to work through the legal process. As our mix of cases changes from vintage to vintage, this can impact
the expected life and realisation timing from that vintage. Since our pricing is designed to maintain our overall return levels
even if a case takes longer to pursue, we are largely indifferent to longer case lives.
54
Burford Annual Report 2019
Strategic report
Governance
Financial statements
▪ This idiosyncratic timing is also exacerbated by the relatively young overall life of our portfolio. Burford saw a dramatic increase
in commitments beginning in 2017. Deployments on that and subsequent vintages occur with a lag; based on our concluded
case history, it typically takes six months from initial commitment to have capital deployed on average and 1.5 years to have it
fully deployed. Then, from the point of average deployment, it takes 2.3 years on average (weighted by recoveries) for
realisation, meaning that a 2017 vintage commitment wouldn’t be expected to turn into a realisation for three years on
average—and there are significant deviations from the mean.
Despite the modest level of realisations from our capital provision-direct portfolio, we were pleased with the progress during
2019 of a number of our cases and look forward to favourable results as the portfolio continues to mature. Burford posted less
than $6 million in realised losses on cases concluded during 2019. As a percentage of average capital provision-direct assets at
cost during the year, that represented 0.7%, lower than in any year since our first full year of operations. We don’t present this as a
trend, but rather as affirmation that 2019 was simply a quiet year.
Capital provision-direct realised losses as a % of average portfolio
Burford balance sheet only
(%)
3.7
1.9
2.0
1.2
0.7
$877 in ongoing investments
2015
2016
2017
2018
2019
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Realisations
Investments in ongoing matters
Capital provision-indirect
Group-wide realisations from our capital provision-indirect assets rose 25% in 2019, again demonstrating the lower risk and
shorter duration of those investments.
Financial and operational review
continued
Capital provision-direct
deployed in ongoing assets.
Since inception, from our capital provision-direct assets on our balance sheet, we have generated $1.3 billion in realisations from
117 concluded or partially concluded assets which had a deployed cost of $672 million, while we have $877 million in capital
Note that we continue to have a small number of ongoing assets in our older vintages. Given that we do not conclude our assets
until there is no longer any litigation risk remaining and that adjudications can take a long time, this is not surprising. Some of
these longer-dated assets may turn out to be successes. Others could be losses. We will not know until legal activity concludes.
Capital provision-direct realisations by vintage
Burford balance sheet only
($ in millions)
$1,260 in realisations to date
ROIC: 88%
IRR: 31%
$322
$40
$183
$23
$74
$34
$116
$1
$31
$11
$122
$49
$207
$111
$41
$13
$83
$134
$148
$175
$219
Realisations in capital provision-direct in 2019 were down 7% compared with the prior year. As with deployments, we saw a skew
towards Burford’s investment funds, with balance sheet realisations from capital provision-direct assets declining 29% while
investment fund realisations increased by 75%.
From our perspective, much of the volatility in capital provision-direct realisations is a timing issue. As we have long made clear,
we can neither predict nor control the timing of the generation of litigation returns. We finance large, complex commercial
claims. Our realisations come from their resolution. There is no “normal” for such claims; they are inherently idiosyncratic. We
have had cases resolve in less than a week, and we have matters from 2010 still going strong. That is the opportunity in our
business and it is why we are able to generate the returns we have historically delivered. We saw several drivers behind this timing
issue in 2019:
▪ Our portfolio consists of a relatively small number (151) of assets. Although a number of these assets (such as portfolio matters)
have multiple cases underlying them, the timing of realisations on those assets is idiosyncratic and unpredictable, depending as
it does on the legal process. As a consequence, it is entirely possible that we can go through a reporting period with relatively
little realisation activity even while the investment cases are progressing in a favourable manner.
▪ Certain types of cases take longer to mature than others; international arbitration and intellectual property cases in particular
can take quite a while to work through the legal process. As our mix of cases changes from vintage to vintage, this can impact
the expected life and realisation timing from that vintage. Since our pricing is designed to maintain our overall return levels
even if a case takes longer to pursue, we are largely indifferent to longer case lives.
54
Burford Annual Report 2019
Burford Annual Report 2019
55
Financial and operational review
continued
Data reconciliation
The following table provides investors with further information on how data from the tables in this section relate to data
presented in the FS notes and the website data tables.
Reconciliation between financial statements and realisations/recoveries
2019
Item
Consolidated realisations:
Capital provision assets
$ 000
Source/Comment
539,359
From FS note 6 - realisations
less: elimination of third-party interests
(143,679)
From FS note 6 - realisations
Burford-only total realisations
395,680
Sum of capital provision-direct and indirect realisations in FS note 6
Realisations:
Capital provision-direct
218,807
From FS note 6 - realisations
plus: interest and other income
128
From FS note 6
plus: refinancing realisations
9,221
Realisation on re-financed asset treated as a restructuring under IFRS standards
Adjusted capital provision-direct
realisations:
Capital provision-indirect
228,156
176,873
Table on page 53: $228 million capital provision-direct realisations on balance sheet
From FS note 6 - realisations
plus: cash from margin/hedging
56,194
Proceeds from hedging/margin transactions in the due from/to brokers lines of the balance
shee as per chart on page 50
Adjusted capital provision-indirect
additions:
Total balance sheet realisations:
233,067
461,223
Table on page 53: $233 million capital provision-indirect realisations on balance sheet
Table on page 53: $461 million total realisations on balance sheet
Reconciliation of realisations to change in recoveries in the asset data tables:
2019
Item
From the asset data tables:
Recoveries:
Capital provision-direct at YE2019
less: core balance sheet litigation finance
investment recoveries at YE2018
plus: post conclusion recovery
adjustments
plus: warehousing realisations
less: asset recovery investment recoveries
at YE2018
less: recoveries on complex strategies
assets
Change in recoveries during 2019 on
capital provision-direct assets
$ 000
Source/Comment
1,260,338
Total investment recoveries from capital provision-direct asset performance table on page
44
(1,027,313)
Investment performance table on page 20 of 2018 Annual Report
16,248
33,078
(18,727)
Additions/subtractions to recoveries based on actual collection of due from settlement
assets
Realisations from assets held by Burford temporarily pending transfer to a managed fund, as
discussed in FS note 6
Investment performance table on page 39 of 2018 Annual Report
(35,468)
Prior complex strategies assets now included in capital provision-direct
228,156
Foots to adjusted capital provision-direct realisations from above table
56
Burford Annual Report 2019
Financial and operational review
continued
Data reconciliation
2019
Item
Consolidated realisations:
Capital provision assets
Realisations:
$ 000
Source/Comment
539,359
From FS note 6 - realisations
less: elimination of third-party interests
(143,679)
From FS note 6 - realisations
Burford-only total realisations
395,680
Sum of capital provision-direct and indirect realisations in FS note 6
Capital provision-direct
218,807
From FS note 6 - realisations
plus: interest and other income
128
From FS note 6
plus: refinancing realisations
9,221
Realisation on re-financed asset treated as a restructuring under IFRS standards
plus: cash from margin/hedging
56,194
shee as per chart on page 50
Proceeds from hedging/margin transactions in the due from/to brokers lines of the balance
Table on page 53: $228 million capital provision-direct realisations on balance sheet
From FS note 6 - realisations
Adjusted capital provision-direct
realisations:
Capital provision-indirect
Adjusted capital provision-indirect
additions:
Total balance sheet realisations:
228,156
176,873
233,067
461,223
Table on page 53: $233 million capital provision-indirect realisations on balance sheet
Reconciliation of realisations to change in recoveries in the asset data tables:
$ 000
Source/Comment
2019
Item
From the asset data tables:
Recoveries:
Capital provision-direct at YE2019
1,260,338
44
less: core balance sheet litigation finance
Total investment recoveries from capital provision-direct asset performance table on page
investment recoveries at YE2018
(1,027,313)
Investment performance table on page 20 of 2018 Annual Report
plus: post conclusion recovery
adjustments
16,248
assets
Additions/subtractions to recoveries based on actual collection of due from settlement
plus: warehousing realisations
33,078
discussed in FS note 6
Realisations from assets held by Burford temporarily pending transfer to a managed fund, as
less: asset recovery investment recoveries
at YE2018
assets
less: recoveries on complex strategies
Change in recoveries during 2019 on
(18,727)
Investment performance table on page 39 of 2018 Annual Report
(35,468)
Prior complex strategies assets now included in capital provision-direct
capital provision-direct assets
228,156
Foots to adjusted capital provision-direct realisations from above table
Strategic report
Governance
Financial statements
The following table provides investors with further information on how data from the tables in this section relate to data
presented in the FS notes and the website data tables.
Reconciliation between financial statements and realisations/recoveries
Realisations in the financial statement results
Financial results from capital provision asset realisations are presented on the face of the financial statements as well as in several
of the notes. Note 6 to the financial statements presents movements in the capital provision portfolio during the year, including
deployments (additions) and realisations. The following presents the roll-forward from Note 6 from 1 January 2019 to 31
December 2019 of the components of changes in Burford’s balance sheet only capital provision asset portfolio.
At 1 January 2019
Additions
Realisations
Income for the period
Transfer to investment subparticipation
Foreign exchange losses
At 31 December 2019
Burford-only
$’000
1,521,591
388,822
(395,680)
314,700
4,459
98
Burford-only
capital provision-
direct
$’000
Burford-only
capital provision-
indirect
$’000
1,289,548
272,016
232,043
116,806
(218,807)
(176,873)
302,075
12,625
4,459
98
–
–
1,833,990
1,649,389
184,601
In total, the capital provision portfolio on the balance sheet was largely self-funding during 2019, with realisations modestly
exceeding additions. The indirect portfolio saw more realisations than additions, while the direct portfolio was in a net addition
position. Note that Burford sold a participation in an asset during 2019 that, for accounting purposes, was recorded as a
realisation but included back in the portfolio as a subparticipation of $4.5 million; no gain was realised on this transaction. Also
included in capital provision-direct realisations during 2019 were $33 million of proceeds received from managed funds for
transactions that were warehoused by the balance sheet prior to transfer to the funds. Capital provision-direct realisations do not
include $9 million in proceeds received from an asset refinancing which was treated as a restructuring under IFRS standards.
Table on page 53: $461 million total realisations on balance sheet
The following table presents the components of income related to the Burford-only capital provision portfolio during 2019.
31 December 2019
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Fair value adjustment in the period
Income on capital provision assets
Interest and other income
Impairment of receivable
Realised gain on derivative financial liabilities
Loss on financial liabilities at fair value through profit and loss
Loss on equity security (note 7)
Loss on investment subparticipation
Total capital provision income
Burford-only
total
$’000
Burford-only
capital provision-
direct
$’000
Burford-only
capital provision-
indirect
$’000
128,424
(79,285)
265,561
314,700
128
(4,083)
7,000
(405)
(553)
(7)
120,522
(79,424)
260,977
302,075
128
(4,083)
7,000
(405)
(553)
(7)
7,902
139
4,584
12,625
–
–
–
–
–
_
316,780
304,155
12,625
During 2019, Burford recorded significant realised gains and an even greater level of unrealised gains in its capital provision
assets, with most of those gains occurring in the direct portfolio. During the year, Burford also recognised $7 million of income
on an expiring derivative associated with an asset that concluded in 2018. During 2019, we recorded impairments of $4 million,
of which $3 million was related to an intellectual-property-related receivable that we had received in settlement of a matter in
which the inventor’s death reduced its value and $1 million was related to an asset from a discontinued business line that was
transferred to other assets. As noted previously, realised gains in the indirect portfolio relate to concluded assets during the
period. Although significant amounts were recovered on ongoing indirect assets as well, gains are not realised on these assets
until they are concluded. Note that the fair value adjustment in the indirect portfolio largely pertains to interest accrued on
proceeds owed to Burford on certain assets.
56
Burford Annual Report 2019
Burford Annual Report 2019
57
Financial and operational review
continued
Due from settlement receivables
▪ Outstanding receivables below $20 million at year end 2019
When the underlying case has been concluded and a legal finance asset has been realised, we book the amount due to us for our
capital and return as a due from settlement receivable. In a substantial majority of situations, we are due cash and our receivable
is typically paid within the reporting period. In a small number of cases (typically where our client does not receive cash for the
settlement or judgment), we receive non-cash consideration, such as stock or some form of debt such as a mortgage or a loan.
The bottom line is that we are usually paid rapidly and in cash, and exceptions are outliers.
Due from settlement receivables
Capital provision-direct
Burford balance sheet only
For concluded (fully and partially) assets since inception as of 31 December 2019
Cash receivables:
Paid within the same annual period
Paid within 30 days of period end
Paid by the end of the next annual period
Paid in longer than one year
Current outstanding receivable
Non-cash consideration received:
Debts monetised into cash
Stock monetised into cash
Capital provision-indirect
Burford balance sheet only
For concluded (fully and partially) assets since inception as of 31 December 2019
Cash receivables:
Paid within the same annual period
Paid within 30 days of period end
Realisations
$’000 % Realisations
1,068,771
85%
21,300
83,130
23,866
18,989
43,658
624
1,260,338
2%
7%
2%
1%
3%
0%
Realisations
$’000 % Realisations
451,468
100%
1,592
0%
453,060
At 31 December 2019, Burford had on its balance sheet:
▪ $19 million of due from settlement receivables outstanding of which $4.5 million had been outstanding at 30 June 2019
▪ $29,000 of non-cash due from settlement assets on its books
Receivables from due from settlement of concluded legal finance assets were significantly lower than at 30 June 2019 when an
unusually high amount of receivables of $173 million were on the books arising from a significant amount of legal finance asset
realisations that had occurred immediately prior to the end of the first half. All but approximately $35 million of those receivables
were paid down during the third quarter of 2019; all but approximately $5 million were paid down by year end 2019.
58
Burford Annual Report 2019
Financial and operational review
continued
For concluded (fully and partially) assets since inception as of 31 December 2019
Due from settlement receivables
Capital provision-direct
Burford balance sheet only
Cash receivables:
Paid within the same annual period
Paid within 30 days of period end
Paid by the end of the next annual period
Paid in longer than one year
Current outstanding receivable
Non-cash consideration received:
Debts monetised into cash
Stock monetised into cash
Capital provision-indirect
Burford balance sheet only
Cash receivables:
Paid within the same annual period
Paid within 30 days of period end
For concluded (fully and partially) assets since inception as of 31 December 2019
At 31 December 2019, Burford had on its balance sheet:
▪ $19 million of due from settlement receivables outstanding of which $4.5 million had been outstanding at 30 June 2019
▪ $29,000 of non-cash due from settlement assets on its books
Receivables from due from settlement of concluded legal finance assets were significantly lower than at 30 June 2019 when an
unusually high amount of receivables of $173 million were on the books arising from a significant amount of legal finance asset
realisations that had occurred immediately prior to the end of the first half. All but approximately $35 million of those receivables
were paid down during the third quarter of 2019; all but approximately $5 million were paid down by year end 2019.
Strategic report
Governance
Financial statements
Due from settlement receivables
▪ Outstanding receivables below $20 million at year end 2019
When the underlying case has been concluded and a legal finance asset has been realised, we book the amount due to us for our
capital and return as a due from settlement receivable. In a substantial majority of situations, we are due cash and our receivable
is typically paid within the reporting period. In a small number of cases (typically where our client does not receive cash for the
settlement or judgment), we receive non-cash consideration, such as stock or some form of debt such as a mortgage or a loan.
The bottom line is that we are usually paid rapidly and in cash, and exceptions are outliers.
As due from settlement receivables are collected, they generate cash proceeds for Burford.
Capital provision due from settlements 2017 to 2019
Burford balance sheet only
($ in millions)
525,539
41
(493,236)
395,680
(2,955)
(410,845)
Realisations
$’000 % Realisations
1,068,771
85%
21,300
83,130
23,866
18,989
43,658
624
1,260,338
2%
7%
2%
1%
3%
0%
Realisations
$’000 % Realisations
451,468
100%
1,592
0%
453,060
4,765
A
B
C
D
37,109
E
F
G
H
18,989
I
A Balance at year end 2017
B Asset realisations 2018
C Interest and other adjustments
E Balance at year end 2018
G Interest and other adjustments
D Proceeds received 2018
F Asset realisations 2019
H Proceeds received 2019
Increase
Decrease
Total
I Balance at year end 2019
Fair value
▪ YPF-related assets are major driver of fair value
▪ Other fair value adjustments remain modest
Burford holds legal finance assets at invested cost until there is some objective event in the underlying litigation that would cause
a change in value, whereupon we are required under IFRS to reflect the market impact (up or down) of that objective event
through a fair value adjustment.
Applicable accounting standards
The relevant accounting standards provide:
IAS 32 — Financial instruments presentation defines a financial asset as any asset that is a contractual right to receive cash or
another financial asset from another entity. The ability to exercise a contractual right may be absolute, or it may be contingent on
the occurrence of a future event. Burford’s legal finance assets generally fall squarely within the definition of a financial asset.
IFRS 9 requires financial assets to be carried at (i) amortised cost, (ii) fair value through other comprehensive income, or (iii) fair
value through profit and loss. However, the first two of those three options require that the contractual terms must give rise on
specified dates to cash flows that are solely the payments of principal and interest on the principal amount outstanding. Burford’s
assets generally do not meet this condition and accordingly they are required to be measured at fair value through profit and loss.
This is not an option for Burford; it is an IFRS requirement.
Fair value process
Each Burford asset has a Burford professional who “owns” the asset. That owner monitors the asset on an ongoing basis and
provides monthly commentary about developments as part of a global reporting framework which is supplied to senior
management. A full confidential report on the status of each asset is prepared each quarter and provided to senior management
and the full Burford Board of Directors along with overall portfolio and risk reporting. At each half year, asset developments that
could give rise to valuation changes are also flagged at the management level and rolled up for consideration by senior
management and ultimately by Burford’s Valuation Committee pursuant to Burford’s valuation policy. In 2019, the Valuation
Committee consisted of the CEO, CIO, CFO, and the two senior executives who oversee the core legal finance teams in the US
and in the rest of the world. The entire valuation process is overseen by the Burford Board’s Audit Committee. Asset valuations
are within the scope of the interim review and the annual audit performed by the auditors in accordance with the relevant
standards; the auditors engage their specialty valuation team and have access to outside counsel.
58
Burford Annual Report 2019
Burford Annual Report 2019
59
Financial and operational review
continued
Valuation policy
Burford operates under a valuation policy that emphasises clarity and certainty and relies on objective events to drive
valuation changes.
For the vast majority of our legal finance assets, the objective events considered under the fair value policy relate to the litigation
process. When the objective event in question is a court ruling, Burford discounts heavily the potential impact of that ruling
commensurate with the remaining litigation risk. Our policy assigns valuation changes in fixed ranges based on, among
other things:
▪ a significant positive ruling or other objective event but where there is not yet a trial court judgment
▪ a favourable trial court judgment
▪ a favourable judgment on the first appeal
▪ the exhaustion of as-of-right appeals
▪ in arbitration cases, where there are limited opportunities for appeal, issuance of a tribunal award
The policy also calls for markdowns when there are objective negative events at various stages in a litigation.
In a small number of instances, we have the benefit of a secondary sale of a portion of an asset. When that occurs, we factor the
market evidence into our valuation process; the more robust the market testing of value is, the more weight we accord to the
market price.
Fair value data
Burford has a long history of modest fair value gains that have had a high degree of reliability in turning into realised gains.
In its entire 10-year history, Burford has only taken a total of $134 million of annual fair value adjustments (gains net of any losses)
on its capital provision-direct portfolio excluding fair value gains on YPF-related assets. Of those fair value gains, only $38 million
remain on Burford’s balance sheet today. Burford has only ever had one investment written up by more than $1 million that
resulted in an eventual loss. Put simply, Burford recognises relatively little unrealised gain in its core legal finance portfolio and
awaits realised gains for most of its income. Setting aside YPF-related assets, it should be noted that from the total pool of assets
on which it took those cumulative $134 million in annual fair value adjustments, Burford has generated over $1 billion of
recoveries and over $350 million in gains.
For the vast majority of our legal finance assets, where fair value is based on objective events in the legal process, valuation
changes have typically been both late in the life of the asset, as the legal process draws to a more certain conclusion, and modest
in amount.
The chart below illustrates both of these points. This chart shows the cumulative fair value adjustment on average across our fully
concluded capital provision-direct assets as a percentage of the ultimately realised value of the asset. What the chart shows is
that, on average, our fair value adjustment was only 4% of the ultimately realised value five years before the time of realisation,
growing to 27% of realised amount on average one year prior to realisation.
Timing and quantum of fair value changes of fully concluded capital provision-direct portfolio
Burford balance sheet only
(%) FV mark as a % of ultimately realised asset
27
4
7
11
9
5 years to
conclusion
4 years to
conclusion
3 years to
conclusion
2 years to
conclusion
1 year to
conclusion
60
Burford Annual Report 2019
Financial and operational review
continued
Valuation policy
valuation changes.
other things:
Burford operates under a valuation policy that emphasises clarity and certainty and relies on objective events to drive
For the vast majority of our legal finance assets, the objective events considered under the fair value policy relate to the litigation
process. When the objective event in question is a court ruling, Burford discounts heavily the potential impact of that ruling
commensurate with the remaining litigation risk. Our policy assigns valuation changes in fixed ranges based on, among
▪ a significant positive ruling or other objective event but where there is not yet a trial court judgment
▪ a favourable trial court judgment
▪ a favourable judgment on the first appeal
▪ the exhaustion of as-of-right appeals
▪ in arbitration cases, where there are limited opportunities for appeal, issuance of a tribunal award
The policy also calls for markdowns when there are objective negative events at various stages in a litigation.
In a small number of instances, we have the benefit of a secondary sale of a portion of an asset. When that occurs, we factor the
market evidence into our valuation process; the more robust the market testing of value is, the more weight we accord to the
market price.
Fair value data
Burford has a long history of modest fair value gains that have had a high degree of reliability in turning into realised gains.
In its entire 10-year history, Burford has only taken a total of $134 million of annual fair value adjustments (gains net of any losses)
on its capital provision-direct portfolio excluding fair value gains on YPF-related assets. Of those fair value gains, only $38 million
remain on Burford’s balance sheet today. Burford has only ever had one investment written up by more than $1 million that
resulted in an eventual loss. Put simply, Burford recognises relatively little unrealised gain in its core legal finance portfolio and
awaits realised gains for most of its income. Setting aside YPF-related assets, it should be noted that from the total pool of assets
on which it took those cumulative $134 million in annual fair value adjustments, Burford has generated over $1 billion of
recoveries and over $350 million in gains.
For the vast majority of our legal finance assets, where fair value is based on objective events in the legal process, valuation
changes have typically been both late in the life of the asset, as the legal process draws to a more certain conclusion, and modest
in amount.
The chart below illustrates both of these points. This chart shows the cumulative fair value adjustment on average across our fully
concluded capital provision-direct assets as a percentage of the ultimately realised value of the asset. What the chart shows is
that, on average, our fair value adjustment was only 4% of the ultimately realised value five years before the time of realisation,
growing to 27% of realised amount on average one year prior to realisation.
Timing and quantum of fair value changes of fully concluded capital provision-direct portfolio
Burford balance sheet only
(%) FV mark as a % of ultimately realised asset
27
4
7
11
9
5 years to
conclusion
4 years to
conclusion
3 years to
conclusion
2 years to
conclusion
1 year to
conclusion
Strategic report
Governance
Financial statements
Further evidence of the reasonableness of our fair value approach can be found by examining how our fair value marks
compared with realised amounts in our concluded capital provision-direct assets to date.
▪ 33% of profit on successes taken as fair value gains
▪ 49% of losses taken as fair value write downs
Realised profits/(loss) of fully concluded capital provision-direct assets
Burford balance sheet only
($ in millions)
Profit > $1.0m
Losses > $1.0m
Results < $1.0m**
Total concluded
* Dollar-weighted by gain or loss
Percent*
Total realised
profit/(loss)
Total FV
write-ups/downs
FV mark %
of realised
profits /(loss)
Number
of assets
85%
15%
0%
382.9
(66.3)
(0.3)
125.3
(32.6)
(0.9)
33%
49%
N/A
100%
316.3
91.8
29%
44
16
24
84
** These 24 investments had realised profits/(loss) and fair value write ups/downs of less than $1 million both individually and in the aggregate
However, this general approach to fair value has been disrupted by Burford’s YPF-related assets–its financing of the Petersen and
Eton Park claims. Burford has sold 38.75% of its interest in the proceeds of the Petersen claim for $236 million in cash in a series
of third-party transactions over the past three years. As those transactions have increased in size and number of participants, they
have become increasingly relevant to the fair value of the YPF-related assets under the accounting standards, and they have
obliged Burford to record meaningful amounts of unrealised gain given the significant acceleration in implied value from the
transactions.
Burford’s most recent sale of a portion of its proceeds of its Petersen entitlement in June 2019 was part of a $148 million
placement to a number of institutional investors*, of which Burford sold $100 million and other third-party holders sold the
remaining portion. Given the size of this latest sale and the participation of a meaningful number of third-party institutional
investors, Burford has concluded that its YPF-related assets at year end 2019 should be appropriately marked solely based on this
market transaction without including in its consideration of fair value any litigation-related information. This does not imply that
these assets will henceforth be carried based on trading in the secondary market for the Petersen interests.
As a consequence, and as an exception to the usual rule that Burford cannot disclose individual matters’ fair values given the use
of privileged and protected information in the assessment of those values, Burford can disclose the following information to
assist investors in understanding the impact of the YPF-related assets:
▪ The carrying value of Burford’s YPF-related assets on its balance sheet (both Petersen and Eton Park combined) was $773
million at 31 December 2019 including $734 million of unrealised gain
▪ During 2019, the capital provision income from the YPF-related assets was $188 million, consisting of realised gains relative to
cost of $98 million, previous unrealised gains transferred to realised gains of $(78) million and fair value adjustment in the
period of $168 million
Otherwise, as explained elsewhere in this report, in order to protect client confidentiality and legal privilege, Burford cannot
provide its fair value valuations on individual legal finance assets, nor can we provide data that would allow inference of
those valuations.
Burford’s YPF-related assets have been clear successes to date. From an investment on its balance sheet of less than $50 million,
Burford has realised cash proceeds of $236 million and has assets on its books at 31 December 2019 with a fair value of $773
million representing in total over $1 billion in realised and unrealised value to date.
* Although we do not disclose transactions of our managed funds given confidentiality restrictions, press reports have suggested that BOF was one of these
institutional investors, purchasing $30 million in the placement. If any such transaction were to have occurred between Burford and one of its funds, it
would only have been with the approval of the Fund’s Limited Partner Advisory Committee and at a price set by the other third-party investors. Indeed, the
press reporting also noted that (i) the Limited Partner Advisory Committee in a Burford fund made the decision to participate in the Petersen sale; (ii)
Burford did not - and could not, under US law - make the investment decision for the LPs; they made it on their own; and (iii) there was more than enough
demand to close a full-sized Petersen deal without any fund participation.
60
Burford Annual Report 2019
Burford Annual Report 2019
61
Financial and operational review
continued
The tables below show the proportion of unrealised gains contained in our balance sheet asset and illustrates that the bulk of
these gains are related to our YPF-related assets.
The table below breaks down our historical fair value gains into “gross” and “net,” showing each year our total balance sheet fair
value component and the division of the year’s movements into new unrealised gains and the reversal of prior years’ gains as
matters turn into realised gains.
Unrealised gains on capital provision assets (direct and indirect) on Burford’s balance sheet
($ in millions)
Unrealised gain as at 1
January
FV adjustment in the period
Previous unrealised (gains)/
losses transferred to realised
(gains)/losses
FV movement (net of
transfers to realisations)
Unrealised gain as at 31
December
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
4
8
8
10
18
29
41
18
60
40
82
100
169
233
352
315
590
265
1,022
(4)
–
(6)
1
(18)
(13)
(50)
(77)
(79)
(246)
4
8
10
23
19
22
87
183
238
186
776
18
41
60
82
169
352
590
776
4
–
4
4
Since the beginning of 2015, YPF-related assets accounted for:
$878 million in fair value adjustments, less
$144 million in previous unrealised gains transferred to realisations, resulting in
$734 million in fair value movement net of transfers
Summary of components of carrying value at 31 December 2019
Burford balance sheet only
($ in millions)
Capital provision direct:
YPF-related assets
Other assets
Total:
Capital provision indirect:
Total capital provision assets:
Deployed
Cost
Unrealised
Gain
Carrying
Value
39
838
877
181
1,058
734
38
772
4
776
773
876
1,649
185
1,834
YPF-related assets
▪ Provided funding for future growth and returns
▪ Generated over $1 billion in value for Burford to date
Burford is constrained from discussing ongoing matters for a number of reasons:
▪ Clients tend not to wish their litigation to be discussed publicly, and we are generally subject to contractual confidentiality
obligations to our clients
▪ Burford is regularly the recipient of information subject to various litigation privileges, and would risk waiving our clients’
protection should we discuss such information (or anything derived from it)
▪ Courts and tribunals universally dislike public statements about ongoing matters, and often forbid them—and much as we
appreciate investor interest, we think it is better to win cases and not anger judges than meet investor demand for mid-
case updates
We are, however, able to say somewhat more about our YPF-related claims simply because of the substantial amount of material
about those claims that is freely in the public domain, although we are constrained from discussing legal strategy or anticipating
future events.
62
Burford Annual Report 2019
Financial and operational review
continued
The tables below show the proportion of unrealised gains contained in our balance sheet asset and illustrates that the bulk of
these gains are related to our YPF-related assets.
The table below breaks down our historical fair value gains into “gross” and “net,” showing each year our total balance sheet fair
value component and the division of the year’s movements into new unrealised gains and the reversal of prior years’ gains as
matters turn into realised gains.
Unrealised gains on capital provision assets (direct and indirect) on Burford’s balance sheet
($ in millions)
Unrealised gain as at 1
January
FV adjustment in the period
Previous unrealised (gains)/
losses transferred to realised
(gains)/losses
FV movement (net of
transfers to realisations)
Unrealised gain as at 31
December
4
8
4
8
4
–
4
4
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
8
10
18
29
41
18
60
40
82
100
169
233
352
315
590
265
1,022
(4)
–
(6)
1
(18)
(13)
(50)
(77)
(79)
(246)
10
23
19
22
87
183
238
186
776
18
41
60
82
169
352
590
776
Since the beginning of 2015, YPF-related assets accounted for:
$878 million in fair value adjustments, less
$144 million in previous unrealised gains transferred to realisations, resulting in
$734 million in fair value movement net of transfers
Summary of components of carrying value at 31 December 2019
Burford balance sheet only
($ in millions)
Capital provision direct:
YPF-related assets
Other assets
Total:
Capital provision indirect:
Total capital provision assets:
YPF-related assets
Deployed
Unrealised
Cost
Gain
Carrying
Value
39
838
877
181
1,058
734
38
772
4
776
773
876
1,649
185
1,834
▪ Provided funding for future growth and returns
▪ Generated over $1 billion in value for Burford to date
Burford is constrained from discussing ongoing matters for a number of reasons:
▪ Clients tend not to wish their litigation to be discussed publicly, and we are generally subject to contractual confidentiality
obligations to our clients
▪ Burford is regularly the recipient of information subject to various litigation privileges, and would risk waiving our clients’
protection should we discuss such information (or anything derived from it)
▪ Courts and tribunals universally dislike public statements about ongoing matters, and often forbid them—and much as we
appreciate investor interest, we think it is better to win cases and not anger judges than meet investor demand for mid-
case updates
future events.
We are, however, able to say somewhat more about our YPF-related claims simply because of the substantial amount of material
about those claims that is freely in the public domain, although we are constrained from discussing legal strategy or anticipating
Strategic report
Governance
Financial statements
Burford has funded two claims relating to Argentina’s renationalisation of YPF, the Argentine energy company. Both are claims by
significant former YPF shareholders that YPF and Argentina breached their obligations under YPF’s by-laws to buy out all other
shareholders when Argentina renationalised YPF by expropriating a majority of its shares. According to YPF’s by-laws, Argentina
was required to tender for the 49% of shares that it did not expropriate when it re-took control of YPF in 2012. YPF’s by-laws set
out a formula for calculating the price that Argentina should have paid for those shares. The formula is objective and relies on
inputs such as corporate earnings and historical share trading prices. Specifically, the relevant formula calculates share value by
taking the highest P/E ratio over the two years prior to Argentina providing notice of the expropriation and multiplying it by the
last twelve-month earnings.
▪ If one uses as the operative date the moment when Argentina notified the public that it was planning to expropriate YPF shares
(January 2012) the value of the Petersen shares under the formula exceeds $9 billion
▪ Defendants might argue that the court should instead use the date when Argentina actually took control of the company
several months later (April 2012) to try to reduce the value of Petersen’s shares below $6 billion
The date selected may not be the only variable that would go into the calculation of damages; other factors might include such
matters as an addition for pre-judgment interest running from 2012. We do not mean to address all the variables or engage in an
exhaustive damages analysis in this forum, but rather simply to show how a mechanical application of the by-laws might work.
Naturally, litigation must be evaluated on the basis of a possible discounted settlement, but here Repsol’s experience is
instructive, as Argentina settled with Repsol (whose 51% YPF ownership stake Argentina expropriated in 2012) for around 50 cents
on the dollar of equity value.
Burford has two assets based on claims relating to Argentina’s renationalisation of YPF:
The first is with respect to claims brought by two Spanish companies, both in insolvency proceedings (the Petersen companies,
or “Petersen”), which owned about 100 million YPF shares prior to its renationalisation.
▪ Burford has thus far invested $20.2 million in the Petersen claims
▪ Burford is entitled to 70% of the proceeds recovered from the Petersen claims, less contracted amounts due to law firms
▪ Burford therefore expects to retain 58-59% of proceeds net of those expenses
▪ Burford has already sold 38.75% of its entitlement in the Petersen claims to other investors for total cash proceeds of
$236 million
▪ Burford is contractually obliged to retain a majority interest in its entitlement throughout the pendency of the case
The second is with respect to claims brought by Eton Park, a major US hedge fund, which owned about 12 million YPF shares
prior to its renationalisation.
▪ Burford has thus far invested $26 million in the Eton Park claims, which are essentially identical to the Petersen claims and
following the same US litigation path
▪ Burford is entitled to approximately 75% of the proceeds recovered from the Eton Park claims
▪ Burford has not sold any of its interest in the Eton Park matter
Both the Petersen and the Eton Park claims against Argentina and YPF are pending in US federal court in the Southern District of
New York, the same court in which Repsol brought its claims against Argentina over the YPF renationalisation.
Over the past several years, Argentina and YPF have been focused on collateral matters in the Petersen litigation and have been
trying to avoid the jurisdiction of the US courts by invoking a piece of US legislation, the Foreign Sovereign Immunities Act
(“FSIA”), which regulates when foreign sovereigns may be sued in US court. Petersen won on the application of the FSIA before
the trial court, meaning that the trial court would retain the case and proceed with the underlying litigation. Argentina and YPF
appealed that decision to the intermediate appellate court, the US Court of Appeals for the Second Circuit, which they were
entitled to do as of right. A three-judge panel of the Second Circuit rejected the appeal in July 2018. Argentina and YPF then
petitioned all 13 judges of the Second Circuit to hear the case all together, which they rapidly and unanimously declined to do,
without even calling for a response from Petersen. That brought to an end Argentina’s appeals as of right. However, Argentina
asked the Supreme Court of the United States, the highest court in the US, to hear its further appeal on the FSIA issues. The
Supreme Court called for the views of the Solicitor-General of the United States, which recommended against the Court hearing
the case. In June 2019, the US Supreme Court rejected the case, ending the FSIA arguments permanently. The case has now
returned to the trial court for merits proceedings. Argentina and YPF have answered the case and the trial-level litigation process
is ongoing.
62
Burford Annual Report 2019
Burford Annual Report 2019
63
Financial and operational review
continued
In the context of these claims, weakness in Argentina’s currency should be irrelevant—Petersen and Eton Park held US dollar-
denominated ADRs traded on the New York Stock Exchange and any judgment should be rendered in US dollars based on the
formula inputs in 2012 at the time Argentina breached its obligations; this judgment should be enforceable in the US and in many
other countries against assets Argentina and YPF hold in those countries. Note that individual litigation and arbitration matters
operate differently than sovereign debt in that there is no framework established by a debt agreement that can constrain or delay
creditors’ rights. A claimant like Petersen is entitled to take advantage of the full range of global enforcement options once it has
a judgment in hand. That process operates entirely separately from any kind of sovereign debt resolution process. It should be
noted that both the Macri and Kirchner governments have regularly settled international litigation and arbitration disputes—
indeed, it was the Kirchner government that settled the Repsol/YPF dispute.
Of course, litigation risk is present in the Petersen claim as in any litigation matter, and it is possible that the claim will lose or
produce no recovery.
Given the potential magnitude of the YPF claims and Burford’s sizeable interest in them, Burford could receive significant returns
should these claims result in a settlement or judgment. The following table presents Burford’s potential proceeds through a range
of settlement/judgment amounts broadly around the values discussed above. The table represents hypothetical scenarios and is
not presented as a projection of any particular outcome, and no assurance of any outcome can be provided.
Potential entitlements from various hypothetical outcomes
($ in millions) – all amounts are approximate
Petersen
Equivalent to
level of
Repsol
settlement
Midpoint of
by-laws
formula range
Assumed value of total Petersen claim
2,500
5,000
7,500
10,000
12,500
Gross entitlement
(before legal fees and sales)
less: approximate expenses
Entitlement before sales*:
Burford net entitlement after sales:
70%
11–12%
58–59%
61.25%
Eton Park
1,450
900
2,900
1,800
4,400
2,700
5,900
3,600
7,400
4,500
Implied value of total Eton Park claim
12%
300
600
900
1,200
1,500
based on Petersen claim value above
Burford net entitlement after expenses
approximately:
Total YPF-related net entitlement
to Burford:
75%
200
450
650
900
1,100
$1,100
$2,250
$3,350
$4,500
$5,600
* When we have sold participations in Burford’s entitlement to proceeds in Petersen to institutional investors, we have sold shares in this entitlement. We
have not sold participations in our potential proceeds from the Eton Park claims.
The reasonableness of these scenarios is confirmed by Burford’s most recent secondary market transaction in its entitlement to
Petersen proceeds. The price of the last sale implied a value of $1 billion for Burford’s entitlement, which in turn suggests that
gross proceeds of $1.7 billion would need to be recovered for the buyers to break even. Thus, that price suggests that
sophisticated institutional investors, having done their own independent diligence, believe that gross proceeds well above that
level are likely to be received (to allow for profit and passage of time).
Burford from time to time sells participations in its entitlements in certain legal finance assets in its portfolio, as a means of risk
and liquidity management and more broadly to encourage development of a more active secondary market for legal finance
assets. During 2019, we executed sales of participations in its entitlements in two of our legal finance assets, including the sale of
a portion of our Petersen investment.
Beginning in 2016, Burford began a program of selling participations in the proceeds of its Petersen entitlement to institutional
investors as a means of de-risking its exposure to an asset that had grown significantly in value. Over the course of four such
sales, we have received $236 million of proceeds. At 31 December 2019, Burford’s balance sheet retained 61.25% of the Petersen
entitlement and 100% of the Eton Park entitlement.
64
Burford Annual Report 2019
Strategic report
Governance
Financial statements
Original
Investment
Sale of
10% interest
for $40m
Sale of
additional
15%
interest for
$66m
Petersen secondary market sales and implied entitlement valuation*
($ in millions)
Sale of
additional
3.75%
for $30m
800
71%
June
2018
Sale of
additional
10% interest
for $100m
1,000
61%
June
2019
400
90%
Late 2016-
Early 2017
440
75%
June
2017
17
2015
Burford ownership
Owned by investors
* Figures indicated on top of the bar charts are implied entitlement valuation
Financial and operational review
continued
In the context of these claims, weakness in Argentina’s currency should be irrelevant—Petersen and Eton Park held US dollar-
denominated ADRs traded on the New York Stock Exchange and any judgment should be rendered in US dollars based on the
formula inputs in 2012 at the time Argentina breached its obligations; this judgment should be enforceable in the US and in many
other countries against assets Argentina and YPF hold in those countries. Note that individual litigation and arbitration matters
operate differently than sovereign debt in that there is no framework established by a debt agreement that can constrain or delay
creditors’ rights. A claimant like Petersen is entitled to take advantage of the full range of global enforcement options once it has
a judgment in hand. That process operates entirely separately from any kind of sovereign debt resolution process. It should be
noted that both the Macri and Kirchner governments have regularly settled international litigation and arbitration disputes—
indeed, it was the Kirchner government that settled the Repsol/YPF dispute.
Of course, litigation risk is present in the Petersen claim as in any litigation matter, and it is possible that the claim will lose or
produce no recovery.
Given the potential magnitude of the YPF claims and Burford’s sizeable interest in them, Burford could receive significant returns
should these claims result in a settlement or judgment. The following table presents Burford’s potential proceeds through a range
of settlement/judgment amounts broadly around the values discussed above. The table represents hypothetical scenarios and is
not presented as a projection of any particular outcome, and no assurance of any outcome can be provided.
Potential entitlements from various hypothetical outcomes
($ in millions) – all amounts are approximate
Equivalent to
level of
Repsol
settlement
Midpoint of
by-laws
formula range
Assumed value of total Petersen claim
2,500
5,000
7,500
10,000
12,500
Gross entitlement
(before legal fees and sales)
less: approximate expenses
Entitlement before sales*:
Burford net entitlement after sales:
70%
11–12%
58–59%
61.25%
Petersen
Eton Park
based on Petersen claim value above
Burford net entitlement after expenses
Total YPF-related net entitlement
to Burford:
1,450
900
2,900
1,800
4,400
2,700
5,900
3,600
7,400
4,500
Implied value of total Eton Park claim
12%
300
600
900
1,200
1,500
approximately:
75%
200
450
650
900
1,100
$1,100
$2,250
$3,350
$4,500
$5,600
* When we have sold participations in Burford’s entitlement to proceeds in Petersen to institutional investors, we have sold shares in this entitlement. We
have not sold participations in our potential proceeds from the Eton Park claims.
The reasonableness of these scenarios is confirmed by Burford’s most recent secondary market transaction in its entitlement to
Petersen proceeds. The price of the last sale implied a value of $1 billion for Burford’s entitlement, which in turn suggests that
gross proceeds of $1.7 billion would need to be recovered for the buyers to break even. Thus, that price suggests that
sophisticated institutional investors, having done their own independent diligence, believe that gross proceeds well above that
level are likely to be received (to allow for profit and passage of time).
Burford from time to time sells participations in its entitlements in certain legal finance assets in its portfolio, as a means of risk
and liquidity management and more broadly to encourage development of a more active secondary market for legal finance
assets. During 2019, we executed sales of participations in its entitlements in two of our legal finance assets, including the sale of
a portion of our Petersen investment.
Beginning in 2016, Burford began a program of selling participations in the proceeds of its Petersen entitlement to institutional
investors as a means of de-risking its exposure to an asset that had grown significantly in value. Over the course of four such
sales, we have received $236 million of proceeds. At 31 December 2019, Burford’s balance sheet retained 61.25% of the Petersen
entitlement and 100% of the Eton Park entitlement.
Although Burford sold participations in the proceeds of our Petersen entitlement primarily to lower its exposure to the YPF assets
and harvest some of its gains, we have also been able to use proceeds from these sales to accelerate the growth of the business.
Burford underwent a “paradigm shift” in 2017 that fuelled significant growth. Aided in part by its purchase of GKC in late 2016,
Burford more than tripled its overall level of Group-wide commitments in 2017 compared to 2016 and has continued to grow
from there. This growth included significant business-line additions in complex strategies and in asset management, as well as a
continued build of the capital provision-direct portfolio. That portfolio more than doubled to $877 million at cost on the balance
sheet at 31 December 2019 from $387 million at cost at 31 December 2016, when it was essentially Burford’s only business.
These growth initiatives were, however, not expected to generate immediate profits. Although its complex strategies assets
produce modest profits in a relatively short time frame, Burford’s asset management profitability is largely deferred until
performance fees can be recognised late in the funds’ lives, given the European fee structure on many of its funds. New on-
balance sheet commitments in legal finance assets also take time to deploy and even more time to conclude and turn into
realisations. Therefore, much of the business growth over the past several years was not expected to produce significant returns
until future years.
Given the return lags in several of its key business lines, Burford ordinarily would have had only the profits from a much smaller
pre-2017 portfolio to fund our growth over the past several years, which would have likely constrained this growth significantly.
That is where the success of Petersen and the YPF-related assets came in. Because we were able to generate significant cash
realisations by selling participations in Petersen, we had adequate profitability and funding to build out our infrastructure and
invest in the growth that brings us to where we are today.
At this stage, three years after the “paradigm shift,” we have built a successful asset management business that earns cash
management fees but, importantly, is positioned to benefit in the future from significant performance fees on the funds we
manage, including through our SWF arrangement. We have a successful on-balance sheet participation in our Strategic Value
Fund which is generating attractive returns in a short-duration strategy. And most importantly, we have built up an on-balance
sheet portfolio of capital provision-direct assets that are beginning to season and, given the deployment and realisation lags with
those assets, should begin to produce attractive realisations over the coming years. As that happens, though we still look forward
to further returns from the YPF-related assets in the future, our ongoing profitability will be driven more by the returns on the rest
of the portfolio, as well as our other business lines.
One other point that is worth addressing relates to our fair value marks. As should be obvious from the disclosure of the YPF-
related marks, the fair value adjustments on the remainder of the capital provision-direct portfolio net to a relatively modest $38
million. That should not be surprising given how our fair value policy works on the vast majority of our assets. We only mark
based on objective events and, then, only to a modest degree. It is really only when an investment has succeeded at trial and,
especially, on appeal when the marks become meaningful. Therefore, assets tend to have significant fair value marks only late in
their lives as they are drawing near to conclusion; we have included data elsewhere in this section that illustrate this point. Given
that our capital provision-direct portfolio is relatively young (because of the growth over the past three years), it should not be
expected to have significant fair value marks at this stage, though these marks could begin to occur as the portfolio seasons in
the coming years. We remain confident that this portfolio will ultimately perform in a manner consistent with our history, though
the timing is always uncertain and it could certainly take longer for realisations to occur than we would expect. For context, it is
important to remember that, excluding Petersen, we have generated over $1 billion of realisations from concluded and partially
concluded capital provision-direct assets on our balance sheet, with a 24% IRR and a 54% ROIC.
64
Burford Annual Report 2019
Burford Annual Report 2019
65
Financial and operational review
continued
Asset management
▪ AUM of $2.9 billion
▪ Asset management income grew by 65%
Burford believes it is the largest asset manager focused on the legal finance sector with assets under management of $2.9 billion.
We currently manage eight funds, in addition to certain “sidecar” funds pertaining to specific assets.
Key statistics on Burford’s managed funds
As of 31 December 2019
($ in millions)
BCIM Partners I LP
(“Partners I”)
Strategy
Litigation
finance
Investor
commitments
closed
Asset
commitments
to date
Asset
deployments
to date
Fee structure
(management/
performance)1
Waterfall
Investment period (end)
45.50
42.26
30.94
2%/15% European
1/3/2015
BCIM Partners II LP
(“Partners II”)
Litigation
finance
259.83
252.62
174.86
Class A:
2%/20%
Class B:
0%/50%
European
15/12/2015
BCIM Partners III LP
(“Partners III”)
Litigation
finance
Burford Opportunity
Fund LP & Burford
Opportunity Fund B LP
(“BOF”)
BCIM Credit
Opportunities LP
(“COLP”)
Burford Alternative
Income Fund LP
(“BAIF”)
BCIM Strategic Value
Master Fund LP
(“Strategic Value”)2
Litigation
finance
Post-
settlement
Post-
settlement
Merger
appraisal
412.00
443.99
277.02
2%/20% European
1/1/2020 (Ceased
commitments to
new investments
in Q4 2018 due to
capacity)
299.99
306.93
167.68
2%/20% European
31/12/2021
488.23
699.12
694.57
1% on
unfunded/2%
on funded and
20% incentive European
30/9/2019 (Stopped
in Q4 2018 due to
capacity/BAIF)
297.25
401.72
337.03
1.5%/10% European
4/4/2022
500.00
1,163.65
1,163.65
2%/20% American
Evergreen
Burford Opportunity
Fund C LP (“BOF-C”)
Litigation
finance
Totals
667.00
248.84
96.51
2,969.80
3,559.13
2,942.27
Expense
reimbursement
+ profit split
Hybrid
31/12/2022
1. Management fees are paid to Burford Capital Investment Management for investment management and advisory services provided to the funds. The management fee
rates shown are annualised and applied to an asset or commitment base which typically varies between a fund’s investment period and any subsequent periods in the
fund term. As of 31 December 2019, Partners I, Partners II, Partners III, and COLP are no longer earning management fees. Performance fees represent carried interest
applied to LP distributions after the return of capital contributions and preferred returns.
2. Includes amounts related to BCIM SV SMA I LLC which invests alongside BCIM Strategic Value Master Fund LP.
66
Burford Annual Report 2019
Financial and operational review
continued
Asset management
▪ AUM of $2.9 billion
▪ Asset management income grew by 65%
Key statistics on Burford’s managed funds
As of 31 December 2019
($ in millions)
BCIM Partners I LP
(“Partners I”)
Litigation
finance
Burford believes it is the largest asset manager focused on the legal finance sector with assets under management of $2.9 billion.
We currently manage eight funds, in addition to certain “sidecar” funds pertaining to specific assets.
Investor
Asset
Asset
Fee structure
commitments
commitments
deployments
(management/
Strategy
closed
to date
to date
performance)1
Waterfall
Investment period (end)
45.50
42.26
30.94
2%/15% European
1/3/2015
BCIM Partners II LP
(“Partners II”)
Litigation
finance
259.83
252.62
174.86
0%/50%
European
15/12/2015
Class A:
2%/20%
Class B:
412.00
443.99
277.02
2%/20% European
capacity)
1/1/2020 (Ceased
commitments to
new investments
in Q4 2018 due to
(“BOF”)
finance
299.99
306.93
167.68
2%/20% European
31/12/2021
settlement
488.23
699.12
694.57
20% incentive European
capacity/BAIF)
1% on
unfunded/2%
on funded and
30/9/2019 (Stopped
in Q4 2018 due to
settlement
297.25
401.72
337.03
1.5%/10% European
4/4/2022
BCIM Partners III LP
(“Partners III”)
Litigation
finance
Burford Opportunity
Fund LP & Burford
Opportunity Fund B LP
Litigation
BCIM Credit
Opportunities LP
(“COLP”)
Burford Alternative
Income Fund LP
(“BAIF”)
Post-
Post-
BCIM Strategic Value
Master Fund LP
(“Strategic Value”)2
Merger
appraisal
Burford Opportunity
Fund C LP (“BOF-C”)
Litigation
finance
Totals
2,969.80
3,559.13
2,942.27
1. Management fees are paid to Burford Capital Investment Management for investment management and advisory services provided to the funds. The management fee
rates shown are annualised and applied to an asset or commitment base which typically varies between a fund’s investment period and any subsequent periods in the
fund term. As of 31 December 2019, Partners I, Partners II, Partners III, and COLP are no longer earning management fees. Performance fees represent carried interest
applied to LP distributions after the return of capital contributions and preferred returns.
2. Includes amounts related to BCIM SV SMA I LLC which invests alongside BCIM Strategic Value Master Fund LP.
Strategic report
Governance
Financial statements
Our Asset Management business continued to grow in 2019, with total AUM of $2.9 billion at 31 December 2019 compared to
$2.5 billion at 31 December 2018. This growth occurred across the range of strategies we employ in our managed funds.
In part because of the growth in assets under management, asset management income grew by 65% in 2019. Asset management
income is reported as income is earned; management fees are generally paid quarterly.
Assets under management
Group-wide
($ in billions)
Asset management income
Burford balance sheet only
($ in millions)
2.9
2.5
1.7
26.1
7.1
18.4
0.6
15.6
2.7
12.9
15.8
1.8
14.0
2017
2018
2019
2017
Management fees
2018
2019
Performance fees
BOF-C income
One common feature across the current funds other than the Strategic Value fund and BOF-C is the use of a so-called
“European” structure for the payment of performance fees, in that the manager is not paid any performance fees until fund
investors have had their entire capital investment repaid, as opposed to performance fees being paid on profitable resolutions as
they occur (referred to as an “American” structure). The impact of this European structure is to delay the receipt of performance
fees, and thus while many fund assets have already successfully and profitably concluded, leading to a steadily growing
expectation of performance fees, few of those performance fees have yet been paid. Performance fees are recognised when a
reliable estimate of the fee can be made and it is highly unlikely that a significant reversal of the amount will occur.
Other income
We have moved our very successful after-the-event insurance business, now in run-off, into other income. Its income continues
to fall, as expected. Other components of other income rose nicely during the year, including a 29% increase in our asset
recovery fee-for-service business.
500.00
1,163.65
1,163.65
2%/20% American
Evergreen
667.00
248.84
96.51
+ profit split
Hybrid
31/12/2022
Expense
reimbursement
Other income
Burford balance sheet only
($ in 000s)
10,406
6,070
3,545
1,467
2,133
1,650
2,052
(1,473)
2018
2019
Insurance
Cash mgmt/interest
Asset recovery
fee for service
Other
66
Burford Annual Report 2019
Burford Annual Report 2019
67
Financial and operational review
continued
Operating expenses
▪ Operating expenses up but by less than growth of business
Burford-only operating expenses in 2019 increased but at a smaller rate of increase, 18% on an adjusted basis, than our growth in
Group-wide portfolio assets, up 29%.
Burford expenses its operating costs as they are incurred. We don’t capitalise them as part of our capital provision portfolio. Moreover,
we perform virtually all of our asset origination activities internally, with our own staff, as opposed to outsourcing diligence or legal
work. Thus, we do not add external costs to our asset balances as opposed to expensing them. As a result, the operating expenses
shown on our accounts are essentially what we are actually spending in cash each year to operate the business.
The bulk of our operating expenses relate to employee compensation, which has increased as we have grown our business and
our staff. We continue to balance the desirability of investing in the growth of the business and maintaining prudent levels of
spending. Even if we were to see dramatic increases in operating expenses, which we do not expect, we remain well below the
cost levels of many peer specialty finance firms.
Although operating expenses have been increasing, they have remained at reasonable levels relative to the general growth of
Burford’s business, as indicated for instance by our Group-wide portfolio size.*
Adjusted operating expenses
Burford balance sheet only
($ in millions)
25%
26
4.72%
24%
39
4.55%
2015
2016
52
15%
2.20%
2017
65
16%
2.02%
2018
77
22%
1.83%
2019
Operating expenses
Operating expenses as a % of total Group-wide portfolio assets
Operating expenses as a % of income
Taxation
Burford paid cash taxes during 2019 of $694,000 (2018: $2,273,000). Burford’s gradual progression from a tax-free fund prior to
2012 to a multinational taxpayer was altered somewhat by the GKC acquisition in 2016. Under US tax law, given that GKC had
very few tangible assets, the bulk of the acquisition price of $160 million was characterised as goodwill and other intangible
assets for US tax purposes, and those assets are amortised for tax purposes, significantly reducing future US taxable income for
some years while the tax benefit of that amortisation is used over time. The value of that tax offset has been impacted by the
2017 passage of tax reform legislation in the US that lowered US corporate tax rates substantially.
Burford continues to maintain a significant net deferred tax asset on its balance sheet. This is primarily attributable to future
benefits from net operating losses and compensation and benefits expenses, net of the GKC intangibles amortisation and net
unrealised gains/losses. The 2017 US legislation also enacted significant limitations on interest deductibility and the Group has
not recognised a deferred tax asset for the currently unused interest deductions. We do expect to obtain some relief for the
interest limitations from the CARES Act recently signed into law in the US.
We believe that our tax cost will remain below our expected future run-rate level for some time while we continue to reap
the benefit of the US tax amortisation and the deferred tax asset, although there will be annual variations, as is the case in
2019. Once those benefits are exhausted, we will expect long-term tax rates for our business to ultimately land
in the low teens.
* During 2019, we incurred unusual operating expenses totalling $4.7 million (2018: $1.7 million) related to (i) one-time expenses related to equity and listing
matters and (ii) case-related legal fees not included in asset costs. In presenting our operating expense trends, we have adjusted our operating expenses to exclude
those items.
68
Burford Annual Report 2019
Financial and operational review
continued
Operating expenses
▪ Operating expenses up but by less than growth of business
Group-wide portfolio assets, up 29%.
Burford-only operating expenses in 2019 increased but at a smaller rate of increase, 18% on an adjusted basis, than our growth in
Burford expenses its operating costs as they are incurred. We don’t capitalise them as part of our capital provision portfolio. Moreover,
we perform virtually all of our asset origination activities internally, with our own staff, as opposed to outsourcing diligence or legal
work. Thus, we do not add external costs to our asset balances as opposed to expensing them. As a result, the operating expenses
shown on our accounts are essentially what we are actually spending in cash each year to operate the business.
The bulk of our operating expenses relate to employee compensation, which has increased as we have grown our business and
our staff. We continue to balance the desirability of investing in the growth of the business and maintaining prudent levels of
spending. Even if we were to see dramatic increases in operating expenses, which we do not expect, we remain well below the
cost levels of many peer specialty finance firms.
Although operating expenses have been increasing, they have remained at reasonable levels relative to the general growth of
Burford’s business, as indicated for instance by our Group-wide portfolio size.*
Adjusted operating expenses
Burford balance sheet only
($ in millions)
25%
26
4.72%
24%
39
4.55%
2015
2016
52
15%
2.20%
2017
65
16%
2.02%
2018
77
22%
1.83%
2019
Operating expenses
Operating expenses as a % of total Group-wide portfolio assets
Operating expenses as a % of income
Taxation
Burford paid cash taxes during 2019 of $694,000 (2018: $2,273,000). Burford’s gradual progression from a tax-free fund prior to
2012 to a multinational taxpayer was altered somewhat by the GKC acquisition in 2016. Under US tax law, given that GKC had
very few tangible assets, the bulk of the acquisition price of $160 million was characterised as goodwill and other intangible
assets for US tax purposes, and those assets are amortised for tax purposes, significantly reducing future US taxable income for
some years while the tax benefit of that amortisation is used over time. The value of that tax offset has been impacted by the
2017 passage of tax reform legislation in the US that lowered US corporate tax rates substantially.
Burford continues to maintain a significant net deferred tax asset on its balance sheet. This is primarily attributable to future
benefits from net operating losses and compensation and benefits expenses, net of the GKC intangibles amortisation and net
unrealised gains/losses. The 2017 US legislation also enacted significant limitations on interest deductibility and the Group has
not recognised a deferred tax asset for the currently unused interest deductions. We do expect to obtain some relief for the
interest limitations from the CARES Act recently signed into law in the US.
We believe that our tax cost will remain below our expected future run-rate level for some time while we continue to reap
the benefit of the US tax amortisation and the deferred tax asset, although there will be annual variations, as is the case in
2019. Once those benefits are exhausted, we will expect long-term tax rates for our business to ultimately land
in the low teens.
Strategic report
Governance
Financial statements
Capital management and liquidity
Burford is a rapidly growing business that invests in medium-duration assets. By definition, if our growth rate in a year exceeds
the realisations from prior years’ assets, we will need incremental capital. This sort of capital dynamic is typical for growing
companies. It is also something entirely within Burford’s control, in that we could simply slow its growth should we wish to
access less expansion capital, although we believe that would not maximise shareholder value in the long term. Burford has
instead elected a growth strategy while at the same time maintaining a strong balance sheet and also making use of a large
family of private investment funds and our significant strategic capital arrangement with a sovereign wealth fund.
A key part of our capital management strategy involves maintaining significant liquidity. Burford closed 2019 with $206.4 million
of cash and cash management investments on our balance sheet.* That was not unusual in that we tend to keep relatively
sizeable amounts of cash on our balance sheet since the timing of inflows our business is unpredictable. We typically have
more visibility on our deployments, especially those against potential new commitments which we can decide not to pursue at
any point.
Liquidity
Burford balance sheet only
At year end ($ in millions)
185
140
45
2015
Cash management assets
Cash
277
41
236
206
38
168
169
158
11
131
40
91
2016
2017
2018
2019
Burford has issued over the past several years four unsecured bonds in the UK bond market, totalling almost $700 million in
proceeds at the time they were converted to US dollars. Three of these bonds are Sterling denominated; one is in US dollars. In
planning their issuance, we have purposely constructed a set of laddered maturities with an overall weighted average maturity
well in excess of the expected weighted average life of our legal finance assets. We have also sized these issues so that any single
year’s maturity amount is significantly less than our historical annual rate of legal finance asset realisations, which we believe
assures that we will have more than sufficient liquidity to repay these bonds should we choose not to refinance them.
Maturity of debt outstanding as of 31 December 2019
Burford balance sheet
(Converted to USD at 31 December 2019 exchange rates) ($ in millions)
WAL of debt: 5.4 years
WAL of capital provision-direct assets: 2.3 years*
119
132
231
180
2022
2023
2024
2025
2026
Current debt as of 31 December 2019
* Weighted by recoveries
* We reported $192 million of liquidity at year end in the 3 February 2020 Trading Update, $14 million less than the $206 million reported in our audited financials. The
difference reflected $14 million in cash that was in transit from the Strategic Value Fund to the balance sheet over year end. Pending full audit resolution, for purposes
of the February Trading Update, we assumed that cash would be deemed to belong to the fund, though ultimately it was deemed to belong to the balance sheet.
* During 2019, we incurred unusual operating expenses totalling $4.7 million (2018: $1.7 million) related to (i) one-time expenses related to equity and listing
matters and (ii) case-related legal fees not included in asset costs. In presenting our operating expense trends, we have adjusted our operating expenses to exclude
those items.
68
Burford Annual Report 2019
Burford Annual Report 2019
69
Financial and operational review
continued
Outstanding debt issues as of 31 December 2019
Issuance date
($ in millions)
19 August 2014
19 April 2016
1 June 2017
12 February 2018
Maturity date
19 August 2022
26 October 2024
1 December 2026
12 August 2025
Principal Amount (as issued)
(in millions)
Principal in US$ at
31 December 2019 Exchange Rate
(in millions)
90
100
175
180
119
132
231
180
We manage our balance sheet with relatively low levels of leverage. Our debt issues contain one significant financial covenant,
which is a leverage ratio requirement that we maintain a consolidated level of net debt (debt less cash) at less than 50% of our
level of tangible assets (total assets less intangibles). At 31 December 2019, our leverage ratio on this basis was 17%, significantly
lower than required.
We maintained a high interest coverage ratio (earnings before interest, taxes, depreciation and amortisation divided by finance
costs) despite lower profit during 2019.
Consolidated net debt/tangible assets
(%)
Interest coverage ratio
($ in millions)
50%
11.9
355
8.3
8.8
289
277
7.0
9.2
23%
15%
17%
125
77
2017
2018
2019
2015
2016
2017
2018
2019
Net debt as a percentage of tangible assets
Covenant level
EBITDA
EBITDA as multiple of finance costs
We expect from time to time to issue additional debt, depending on our liquidity needs, capital deployment prospects and market
conditions. Although we have historically issued only in the UK bond market and may continue to do so in the future, we may
access other, deeper corporate bond markets. To that end, in 2019, we applied for and received unsecured debt ratings which
are available on our website.
70
Burford Annual Report 2019
Financial and operational review
continued
Outstanding debt issues as of 31 December 2019
Issuance date
($ in millions)
19 August 2014
19 April 2016
1 June 2017
12 February 2018
Maturity date
19 August 2022
26 October 2024
1 December 2026
12 August 2025
Principal Amount (as issued)
31 December 2019 Exchange Rate
(in millions)
90
100
175
180
Principal in US$ at
(in millions)
119
132
231
180
We manage our balance sheet with relatively low levels of leverage. Our debt issues contain one significant financial covenant,
which is a leverage ratio requirement that we maintain a consolidated level of net debt (debt less cash) at less than 50% of our
level of tangible assets (total assets less intangibles). At 31 December 2019, our leverage ratio on this basis was 17%, significantly
lower than required.
costs) despite lower profit during 2019.
We maintained a high interest coverage ratio (earnings before interest, taxes, depreciation and amortisation divided by finance
Consolidated net debt/tangible assets
(%)
Interest coverage ratio
($ in millions)
50%
11.9
355
8.3
8.8
289
277
7.0
9.2
23%
15%
17%
125
77
2017
2018
2019
2015
2016
2017
2018
2019
Net debt as a percentage of tangible assets
Covenant level
EBITDA
EBITDA as multiple of finance costs
We expect from time to time to issue additional debt, depending on our liquidity needs, capital deployment prospects and market
conditions. Although we have historically issued only in the UK bond market and may continue to do so in the future, we may
access other, deeper corporate bond markets. To that end, in 2019, we applied for and received unsecured debt ratings which
are available on our website.
Strategic report
Governance
Financial statements
Risk management
A strong risk management culture
Burford’s business is rooted in the effective management of risk. We are both a provider of capital
for and an asset manager of legal finance assets. We take risks in order to provide attractive returns
to our investors. This means that risk management has to be embedded in everything that we do.
Framework
The Board oversees Burford’s risk management and internal
control systems. In conjunction with the strategy set by the
Group, the Board forms the risk appetite, determines the type
and tolerance levels of significant risks it is prepared to take
and ensures that judgements and decisions are taken that
promote the success of the business. The Board also monitors
actual or potential conflicts of interest while avoiding
unnecessary risks and maintaining adequate capital and
liquidity. Burford’s risk management culture is critical to the
effectiveness of its risk management framework.
Burford’s risk appetite policy is founded on a set of robust and
comprehensive financing and asset management procedures
as well as a conservative approach to capital and liquidity
management. The key risks are identified through our
consideration of our strategy, external risk factors, the
operating environment for our businesses and an analysis of
individual processes and procedures. At each Board meeting
these principal risks are reviewed and updated.
The Board’s review of key risks focuses on identifying those
risks that could threaten the business model or the future
performance, capital or liquidity of the business. Risks are
screened for the potential impact of external developments,
regulatory expectations and, as the legal finance industry
leader, market standards. The Directors confirm that the
Group’s principal risks were evaluated effectively throughout
the year.
Assets
As applied to its portfolio of legal finance assets, Burford
manages risk by employing a disciplined, comprehensive,
multi-stage process to evaluate potential assets, in which it
benefits from the judgement and experience of Burford’s
highly qualified team of experienced lawyers and finance
professionals. Burford also uses an internal, proprietary risk
tool to assess risk during the asset assessment process and
regularly thereafter once financing has been made and
engages in substantial portfolio management activities
applying a risk-based approach. Burford believes that its
approach to risk management has enabled it to improve
materially on results in challenging situations where a
more conventional approach would likely have led to
diminished performance.
Enterprise
Burford regularly considers business and systemic risk in its
operating units and overall. We have long been focused on
operational risk and have a system of internal controls
designed to protect and enhance the integrity of our internal
processes and data. Among other steps, we have a dedicated
functional team focused on the implementation of our
operational controls and data management.
Moreover, Burford is fundamentally a business run by
experienced lawyers, including some who have functioned in
senior legal roles in major global corporations. The challenge
in many businesses is reining in individuals who take on
unacceptable or ill-considered risk, and it is the function of the
lawyers to hold those reins. At Burford, we have a business run
by people accustomed to that role. Burford’s culture is a
disciplined, risk-focused one, augmented by an eight-member
in-house legal and compliance team. In addition to our
ongoing risk management activities within the business, a
comprehensive risk presentation is made to the Board at each
quarterly meeting.
Technology
As a species of risk, IT and cybersecurity risk require their own
dedicated discussion.
Burford is always alert to the risk associated with the
dissemination of its confidential information publicly, especially
as that information contains highly sensitive client litigation
information. We have also focused on the risk associated with
attacks on our financial systems. Happily, we have never had a
widespread data breach, but we have protocols in place should
one occur.
From our inception, Burford has been sensitive to these
issues and has operated on an entirely cloud-based platform.
Our data does not sit on our own servers, but rather on the
servers of world-class technology companies. While that
is no guarantee of perfect security, it is probably as close
as one can come in this day and age. The use of those
platforms also comes with state-of-the-art, built-in disaster
recovery protection.
70
Burford Annual Report 2019
Burford Annual Report 2019
71
Risk management
continued
However, data security is much more than protecting data
against invasive hacking. Human error and inattention is
arguably a greater risk than sophisticated penetration attacks.
Thus, we engage in a variety of training and testing, and we
also introduce restrictions on technology use designed to
minimise those risks. We regularly review best practices from
both the legal and the financial services industries and are
engaged in a program of continuous improvement. We have
an internal cybersecurity committee, composed of senior
representatives of all our offices, and we regularly benchmark
and audit our performance against peer norms, including
those promulgated by the US Securities and Exchange
Commission and best practices identified in the legal and the
financial services industries.
Finally, we strive to create a pervasive culture of information
technology security, focusing particularly on the tone set from
the top when it comes to these issues. Burford’s senior
management regularly spends time on these issues and
communicates their importance to all staff.
In addition to data security, we are focused on privacy and are
sensitive to the various obligations we face in that regard.
Given that Burford does not deal with consumers and is purely
a corporate business, the burdens on us are far less than on
businesses amassing considerable personal data. Burford
also has procedures in place to address conflicts of interest;
those procedures have operated effectively in the period
under review.
Financial controls
Burford operates an extensive and sophisticated finance
function, with 17 dedicated finance staff including eight with
public accounting qualifications located throughout the
business and present in all three of our large offices. By having
the finance team embedded in the business and privy to asset
financing activity, we gain considerable control benefits in
addition to a more effective operation. It bears remembering
that Burford makes a relatively small number of investments
each year, closing only a couple of new legal finance assets
per week on average. Thus there is abundant opportunity for
the finance team to be intimately familiar with the activity in
the business.
We also have an extensive system of internal controls around
access to payment systems and the release of payments. For
example, for any payment, regardless of size, to be released,
that payment must be created in our internal systems by one
of several team members, none of whom have the authority to
release payments, and then the payment’s release must be
authorised by two other team members separately, neither of
whom is able to create a payment. Thus, at least three different
people from two different groups are required to provide
sign-off before a single dollar leaves Burford’s hands.
Moreover, payments are not even created without a formal
process of approval, with investment payments being
circulated widely among and approved by the underwriting
team. Senior executives in the business, including the Chief
Executive Officer and the Chief Investment Officer, do not
have access to our payment systems and cannot create or
release payments as a control matter.
72
Burford Annual Report 2019
Ultimately the Board is responsible for ensuring the adequacy
of Burford’s controls. The Board confirms that Burford’s risk
management and internal control systems are operating
effectively and that material controls did in fact operate
effectively throughout the year.
Foreign exchange
Burford is a US dollar reporting business with the considerable
majority of its operations occurring in dollar-denominated
activities. We also pay our dividends in US dollars. However,
our first three bond issues, totaling £365 million, are
denominated in Sterling and thus Burford is exposed to
currency risk. Burford also has a minority of its investments
denominated in currencies other than US dollars. Burford
generally does not hedge its currency exposure although its
exposure to different currencies, especially Sterling, does
provide a degree of natural hedging.
Brexit
Burford does not anticipate any negative impact from Brexit.
Indeed, Brexit creates uncertainty, and uncertainty is generally
good for the legal sector as it drives demand for services and
creates disputes, so from that perspective Brexit may be
positive for Burford. It is possible that Brexit will pose a risk to
London’s prominence as a global litigation centre, but that is of
no moment to us as we are perfectly happy doing
transnational litigation and arbitration all over the world and
already do so in Europe and elsewhere. In fact, moving some
dispute resolution from London to Europe is arguably also
good for us as adverse costs are less of an issue in Europe as
opposed to the often prohibitive nature of them in England.
Regulation
We are often asked about regulation, or more precisely the
potential for expanded regulation of this business in a way that
would be harmful to it. We do not see that as a likely prospect
in the current environment.
We are of course already regulated in a number of different
ways. The US Securities and Exchange Commission regulates
our investment management business. The UK Financial
Conduct Authority regulates our legacy insurance business.
The Guernsey Financial Services Commission regulates our
new insurance business. The FCA passes on our debt
prospectuses for our London Stock Exchange Main Market-
traded debt. AIM and our Nominated Adviser regulate our
activities as a public company. And we are of course subject to
a myriad of laws and regulations, ranging from the Bribery Act
and the Foreign Corrupt Practices Act to Anti-Money
Laundering and Know Your Customer regulations in
many jurisdictions.
Risk management
continued
However, data security is much more than protecting data
Ultimately the Board is responsible for ensuring the adequacy
against invasive hacking. Human error and inattention is
of Burford’s controls. The Board confirms that Burford’s risk
arguably a greater risk than sophisticated penetration attacks.
management and internal control systems are operating
Thus, we engage in a variety of training and testing, and we
effectively and that material controls did in fact operate
also introduce restrictions on technology use designed to
effectively throughout the year.
minimise those risks. We regularly review best practices from
both the legal and the financial services industries and are
engaged in a program of continuous improvement. We have
Foreign exchange
an internal cybersecurity committee, composed of senior
Burford is a US dollar reporting business with the considerable
representatives of all our offices, and we regularly benchmark
majority of its operations occurring in dollar-denominated
and audit our performance against peer norms, including
activities. We also pay our dividends in US dollars. However,
those promulgated by the US Securities and Exchange
our first three bond issues, totaling £365 million, are
Commission and best practices identified in the legal and the
denominated in Sterling and thus Burford is exposed to
Burford operates an extensive and sophisticated finance
function, with 17 dedicated finance staff including eight with
public accounting qualifications located throughout the
business and present in all three of our large offices. By having
the finance team embedded in the business and privy to asset
Regulation
financial services industries.
Finally, we strive to create a pervasive culture of information
technology security, focusing particularly on the tone set from
the top when it comes to these issues. Burford’s senior
management regularly spends time on these issues and
communicates their importance to all staff.
In addition to data security, we are focused on privacy and are
sensitive to the various obligations we face in that regard.
Given that Burford does not deal with consumers and is purely
a corporate business, the burdens on us are far less than on
businesses amassing considerable personal data. Burford
also has procedures in place to address conflicts of interest;
those procedures have operated effectively in the period
under review.
Financial controls
financing activity, we gain considerable control benefits in
addition to a more effective operation. It bears remembering
that Burford makes a relatively small number of investments
each year, closing only a couple of new legal finance assets
per week on average. Thus there is abundant opportunity for
the finance team to be intimately familiar with the activity in
the business.
We also have an extensive system of internal controls around
access to payment systems and the release of payments. For
example, for any payment, regardless of size, to be released,
that payment must be created in our internal systems by one
of several team members, none of whom have the authority to
release payments, and then the payment’s release must be
authorised by two other team members separately, neither of
whom is able to create a payment. Thus, at least three different
people from two different groups are required to provide
sign-off before a single dollar leaves Burford’s hands.
Moreover, payments are not even created without a formal
process of approval, with investment payments being
circulated widely among and approved by the underwriting
team. Senior executives in the business, including the Chief
Executive Officer and the Chief Investment Officer, do not
have access to our payment systems and cannot create or
release payments as a control matter.
currency risk. Burford also has a minority of its investments
denominated in currencies other than US dollars. Burford
generally does not hedge its currency exposure although its
exposure to different currencies, especially Sterling, does
provide a degree of natural hedging.
Brexit
Burford does not anticipate any negative impact from Brexit.
Indeed, Brexit creates uncertainty, and uncertainty is generally
good for the legal sector as it drives demand for services and
creates disputes, so from that perspective Brexit may be
positive for Burford. It is possible that Brexit will pose a risk to
London’s prominence as a global litigation centre, but that is of
no moment to us as we are perfectly happy doing
transnational litigation and arbitration all over the world and
already do so in Europe and elsewhere. In fact, moving some
dispute resolution from London to Europe is arguably also
good for us as adverse costs are less of an issue in Europe as
opposed to the often prohibitive nature of them in England.
We are often asked about regulation, or more precisely the
potential for expanded regulation of this business in a way that
would be harmful to it. We do not see that as a likely prospect
in the current environment.
We are of course already regulated in a number of different
ways. The US Securities and Exchange Commission regulates
our investment management business. The UK Financial
Conduct Authority regulates our legacy insurance business.
The Guernsey Financial Services Commission regulates our
new insurance business. The FCA passes on our debt
prospectuses for our London Stock Exchange Main Market-
traded debt. AIM and our Nominated Adviser regulate our
activities as a public company. And we are of course subject to
a myriad of laws and regulations, ranging from the Bribery Act
and the Foreign Corrupt Practices Act to Anti-Money
Laundering and Know Your Customer regulations in
many jurisdictions.
Strategic report
Governance
Financial statements
Beyond those regulations, we are subject to an unusual—but
very comprehensive—level of regulation because of our
activities within the justice system. Courts have inherent power
to regulate within the matters before them, and unlike
agency-based regulation which is based on rules and spot-
checking, litigation comes with 100% regulatory oversight in
that every single matter is put before a judge—and judges are
not shy to exercise that inherent power when it is warranted.
Thus, there is clear protection for clients when litigation
finance providers overreach,
Regulation is also a matter that varies by jurisdiction. For
example, the US has a long tradition of not regulating non-
bank finance providers who deal with corporate clients, as
Burford does. Most states have quite a clear ceiling above
which sophisticated parties like Burford and its corporate
clients are free to contract without regulatory oversight; for
example, in New York, that point is when the capital provision
exceeds $500,000, well below Burford’s smallest investment.
On the other hand, the UK does engage in some regulation of
litigation finance conduct, as expressed in a Code of Conduct
promulgated by the Association of Litigation Funders, a
self-regulatory body that operates under the auspices of the
Ministry of Justice and of which Burford was a founder. In
Australia, there are specific conflicts of interest rules for
litigation funders to follow. Some newer entrants to the
market, such as Singapore and Hong Kong, have also enacted
regulatory regimes largely focused on capital adequacy and
constraining abusive behaviour.
There is no question that some big business lobbyists have
added litigation finance to the long list of litigation-related
items to which they are opposed. However, we have not seen
any indication that there is any groundswell of support for
regulation of this sector; ongoing discussion tends to be
around subsidiary issues such as disclosure and capital
adequacy. In the US, state and federal legislatures as well as the
federal courts have generally declined to impose new
regulations on commercial litigation finance. Even if there
were support for additional regulation, it seems probable that
such regulation would create a further barrier to entry for
others and thus protect Burford’s market position.
Nevertheless, we engage in a constant level of activity around
monitoring and engagement on regulatory initiatives.
COVID-19
It’s clear that a significant human tragedy is unfolding that is
causing extraordinary disruption to business. We took early
measures to move our staff to remote working and we are
operating well and continuing to engage with our clients.
Based on history, disruptions tend to lead to disputes, and we
are ready to work with our clients to finance those disputes as
they arise.
COVID-19 and the likely ensuing economic downturn presents
considerably less risk to Burford’s business than many other
companies, and in many ways also creates the likelihood of
business opportunities going forward.
We set out here the various potential risks to the business
associated with COVID-19 and our assessment of each risk.
We then comment on the landscape for future opportunities.
Risks
The progress of existing litigation matters may be delayed
because of COVID-19, slowing Burford’s realisations.
As a general matter, courts and arbitral tribunals remain in
operation and continue to render decisions. Courts recognise
the importance of the societal role they play and are trying
valiantly to remain in operation notwithstanding the
coronavirus. For example, the Lord Chief Justice of England
and Wales has said that “it is of vital importance that the
administration of justice does not grind to a halt”.
In general, the status of the courts (including arbitral tribunals)
is as follows:
▪ Courts are open to receive new filings in new and
existing cases
▪ Courts are continuing to hold hearings and non-jury trials,
usually using video conferencing technology
▪ Courts are continuing to issue decisions
▪ Jury trials have been suspended
▪ Pre-trial discovery requiring travel or in-person attendance
(such as witness depositions) is being postponed
The net result of this is that some cases will proceed in the
ordinary course, especially those that are less dependent on
witness testimony and do not require a jury trial, whereas other
cases will inevitably experience some delay and disruption.
Burford does not expect the delays to have a permanent
negative impact on its business; unlike many other businesses,
delay for us is simply deferral as opposed to loss of income,
and indeed in many instances the risk of delay lies on our
counterparty and not on Burford, with Burford’s terms often
increasing as time passes. However, it is reasonable to expect
that cash proceeds from litigation resolutions will be lower in
the near term as the courts work through these issues.
Burford also does not expect the delays to have an impact on
asset valuation. Burford only adjusts values based on objective
events in the underlying litigation, not based on time.
In a period of constrained liquidity, defendants may be less
willing to settle litigation matters, extending duration and
increasing risk.
While settlement is a normal part of litigation, we do not
assume that any of our matters will settle, both when we
evaluate their risk and when we plan for their capital outlay and
returns. We also generate significantly higher profits when
matters do not settle and proceed to adjudication. However,
even in a downturn, it simply is highly unlikely that settlements
will cease; settlement is a way for companies to manage
litigation risk, and the consequences of not settling in many
instances are simply too risky for businesses even in a period of
tight liquidity.
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Burford Annual Report 2019
73
Risk management
continued
Defendants may become insolvent, which could impact the
timing and quantum litigation recoveries.
The ultimate payor in much of Burford’s litigation is either (i) a
government or a state-owned entity; (ii) an insurer; or (iii) a
large company in an industry less likely to be rendered
insolvent by this economic disruption. For example, Burford
does not have material cases against defendants in the travel
and hospitality industries; we provide a breakdown of the
industries relevant to our litigation matters on page 46 of this
annual report. As a result, Burford does not presently believe
that its existing portfolio is likely to be materially negatively
affected by defendant insolvency, although the full impact of
the COVID-19 economic disruption is not yet known. To the
extent that defendants in Burford matters do become
insolvent, the impact of a defendant’s insolvency on pending
litigation is very difficult to predict and is not only case specific
but dependent on the insolvency process in the country in
issue; for example, in the United States, entry into a corporate
restructuring via Chapter 11 of the Bankruptcy Code does not
eliminate litigation claims but is likely to delay them, whereas in
countries that proceed directly to liquidation a pending claim is
more likely to be settled at a lower value than might have been
the case had the defendant remained solvent. In general,
however, other than in insolvencies where there is no recovery
for anyone but secured creditors, Burford would still expect to
see a recovery, but that recovery is likely to be delayed and
could well be reduced in size during the restructuring or
liquidation process. This risk is mitigated by deal structures in a
significant number of Burford’s litigation matters that protect
Burford’s expected return in the event of a reduced recovery.
Burford’s clients may become distressed or insolvent, creating
the need to engage in a restructuring negotiation or process.
As Burford’s portfolio has evolved, a much larger portion of its
investments are with large companies or law firms with low
insolvency risk or in asset purchases where counterparty risk is
not a factor. In a significant number of its investments, Burford
is a secured creditor with respect to the litigation it is financing,
and the litigation is a valuable contingent asset the recovery of
which is in the best interest of the counterparty’s stakeholders.
As a result it is unlikely that the financial distress or insolvency
of one of Burford’s counterparties would interfere with the
continued progress of the litigation matter.
The pace of new business may be slower because
of COVID-19.
We do believe that working remotely and social distancing
are likely to slow the generation of new business while
those measures remain in place. However, as discussed
below, we also believe that there will be very substantial
opportunity for Burford once lawyers and clients return to
working more normally.
74
Burford Annual Report 2019
Market conditions may restrict access to capital for Burford.
While Burford generates considerable organic cash each year
for reinvestment, Burford also relies on the availability of
external capital–both corporate debt and fund capital–to
maximise its growth prospects. While that capital may be in
short supply at present, Burford’s historical experience
suggests that investors will soon realise the benefits of
Burford’s uncorrelated cash flows and the opportunities that
will present themselves and will make capital available, but
there is no guarantee of that occurring. Should Burford not
have access to external capital, its growth could be curtailed.
Opportunities
COVID-19 itself will generate many disputes over allocation of
responsibility, the limits of force majure and other legal issues.
COVID-19 has disrupted a vast number of contractual and
other arrangements and there will inevitably be significant
litigation over the allocation of responsibility, including
questions such as the scope of business interruption insurance
and the limits of the force majure doctrine.
Further litigation will be generated by the economic
downturn we expect to occur.
Economic downturns produce litigation claims. Burford saw
considerable opportunity following the 2008-09 financial crisis
and expects to see significant amounts of litigation, and
meaningful demands for capital, over the next several years.
Businesses with existing or future claims are likely to be
liquidity constrained and in need of capital.
We have historically found that periods of tight liquidity lead
businesses to seek alternatives to spending their own capital
on litigation matters, and we anticipate an uptick in demand
for our capital, both to finance litigation expenses and to
monetise positions.
Some of our competitors are likely to close or reduce
operations.
Some of our competitors rely on capital from only one or two
private sources, and we are already hearing market intelligence
that suggests that some of those sources have stopped
providing capital to new opportunities.
Market entry is likely to lessen.
We are likely to embark on a challenging fundraising
environment, which will make it harder–or impossible–for new
entrants to raise capital to enter this industry.
Investors tend to find uncorrelated cash flows of the
type generated by Burford to be attractive during
economic downturns.
Burford’s cash flows are uncorrelated to market conditions or
economic activity; they arise solely from litigation resolutions.
Historically, investors have found such uncorrelated cash flows
attractive in periods of economic uncertainty.
Strategic report
Governance
Financial statements
Governance
Contents
76
Board of Directors
79
81
83
88
Senior management
Compensation
Corporate governance report
Directors’ report
Risk management
continued
Defendants may become insolvent, which could impact the
Market conditions may restrict access to capital for Burford.
timing and quantum litigation recoveries.
While Burford generates considerable organic cash each year
The ultimate payor in much of Burford’s litigation is either (i) a
for reinvestment, Burford also relies on the availability of
government or a state-owned entity; (ii) an insurer; or (iii) a
external capital–both corporate debt and fund capital–to
large company in an industry less likely to be rendered
maximise its growth prospects. While that capital may be in
insolvent by this economic disruption. For example, Burford
short supply at present, Burford’s historical experience
does not have material cases against defendants in the travel
suggests that investors will soon realise the benefits of
and hospitality industries; we provide a breakdown of the
Burford’s uncorrelated cash flows and the opportunities that
industries relevant to our litigation matters on page 46 of this
will present themselves and will make capital available, but
annual report. As a result, Burford does not presently believe
there is no guarantee of that occurring. Should Burford not
that its existing portfolio is likely to be materially negatively
have access to external capital, its growth could be curtailed.
affected by defendant insolvency, although the full impact of
the COVID-19 economic disruption is not yet known. To the
extent that defendants in Burford matters do become
insolvent, the impact of a defendant’s insolvency on pending
litigation is very difficult to predict and is not only case specific
but dependent on the insolvency process in the country in
issue; for example, in the United States, entry into a corporate
restructuring via Chapter 11 of the Bankruptcy Code does not
eliminate litigation claims but is likely to delay them, whereas in
countries that proceed directly to liquidation a pending claim is
more likely to be settled at a lower value than might have been
the case had the defendant remained solvent. In general,
however, other than in insolvencies where there is no recovery
for anyone but secured creditors, Burford would still expect to
see a recovery, but that recovery is likely to be delayed and
could well be reduced in size during the restructuring or
liquidation process. This risk is mitigated by deal structures in a
significant number of Burford’s litigation matters that protect
Burford’s expected return in the event of a reduced recovery.
Burford’s clients may become distressed or insolvent, creating
the need to engage in a restructuring negotiation or process.
As Burford’s portfolio has evolved, a much larger portion of its
investments are with large companies or law firms with low
insolvency risk or in asset purchases where counterparty risk is
not a factor. In a significant number of its investments, Burford
is a secured creditor with respect to the litigation it is financing,
and the litigation is a valuable contingent asset the recovery of
which is in the best interest of the counterparty’s stakeholders.
As a result it is unlikely that the financial distress or insolvency
of one of Burford’s counterparties would interfere with the
continued progress of the litigation matter.
The pace of new business may be slower because
of COVID-19.
We do believe that working remotely and social distancing
are likely to slow the generation of new business while
those measures remain in place. However, as discussed
below, we also believe that there will be very substantial
opportunity for Burford once lawyers and clients return to
working more normally.
Opportunities
COVID-19 itself will generate many disputes over allocation of
responsibility, the limits of force majure and other legal issues.
COVID-19 has disrupted a vast number of contractual and
other arrangements and there will inevitably be significant
litigation over the allocation of responsibility, including
questions such as the scope of business interruption insurance
and the limits of the force majure doctrine.
Further litigation will be generated by the economic
downturn we expect to occur.
Economic downturns produce litigation claims. Burford saw
considerable opportunity following the 2008-09 financial crisis
and expects to see significant amounts of litigation, and
meaningful demands for capital, over the next several years.
Businesses with existing or future claims are likely to be
liquidity constrained and in need of capital.
We have historically found that periods of tight liquidity lead
businesses to seek alternatives to spending their own capital
on litigation matters, and we anticipate an uptick in demand
for our capital, both to finance litigation expenses and to
monetise positions.
Some of our competitors are likely to close or reduce
operations.
Some of our competitors rely on capital from only one or two
private sources, and we are already hearing market intelligence
that suggests that some of those sources have stopped
providing capital to new opportunities.
Market entry is likely to lessen.
We are likely to embark on a challenging fundraising
environment, which will make it harder–or impossible–for new
entrants to raise capital to enter this industry.
Investors tend to find uncorrelated cash flows of the
type generated by Burford to be attractive during
economic downturns.
Burford’s cash flows are uncorrelated to market conditions or
economic activity; they arise solely from litigation resolutions.
Historically, investors have found such uncorrelated cash flows
attractive in periods of economic uncertainty.
74
Burford Annual Report 2019
Burford Annual Report 2019
75
Board of Directors
We are managed by our Board of Directors. All four directors are independent
non-executives and have been directors since our inception. The Board’s
composition is dictated by the provisions of Burford’s articles, which limit the
proportion of US and UK persons that can be directors.
Sir Peter Middleton GCB
Chairman
Hugh Steven Wilson
Deputy Chairman
David Lowe OBE
Non-executive Director
Charles Parkinson
Non-executive Director
Sir Peter Middleton, 85, was
previously UK Chairman of
Marsh & McLennan
Companies, Chairman of
Marsh Ltd, Chairman of
Mercer Ltd, Chairman of the
Centre for Effective Dispute
Resolution, Chairman of
Camelot Group PLC and
Group Chairman of Barclays
Bank PLC; a Director,
Chairman and Deputy
Chairman of United Utilities;
and a board member of OJSC
Mobile Telesystems, Bass PLC
and General Accident (later
CGU). He was also President
of the British Bankers
Association and a member of
the National Institute for
Economic Research.
Mr. Wilson, 72, spent more
than thirty years at Latham &
Watkins, one of the world's
largest law firms, where he
was Global Co-Chair of the
Mergers and Acquisitions
Practice Group and chairman
of both the National Litigation
Department and the National
Mergers and Acquisitions
Litigation Practice Group. He
then joined Tennenbaum
Capital Partners, a US-based
private investment business,
as Managing Partner and also
served as the Chief Executive
Officer of multiple registered
investment companies within
the Tennenbaum Capital
Group. After his retirement,
Mr. Wilson continued to serve
as a Senior Adviser to
Tennenbaum through its
acquisition by BlackRock.
Mr. Wilson has served as
Chairman and a director of
numerous public and
private companies.
Mr. Lowe, 83, was, until his
2011 retirement, Senior Jurat
of the Royal Court of
Guernsey. Previously, Mr.
Lowe served as Chief
Executive of Bucktrout &
Company Limited. He is a
former director of Lazard and
Chairman of Barclays Capital
in Guernsey and was a
director of Bailiwick
Investments Limited. Mr.
Lowe was awarded the OBE
for his services to the Royal
Court of Guernsey and is a
fellow of the Royal
Entomological Society.
Mr. Parkinson, 66, is a director
of two private Guernsey
investment companies,
Mapeley Limited (owned by
the Fortress Investment
Group) and Aqua Resources
Fund Limited. Mr. Parkinson is
currently the president of the
Committee for Economic
Development in the States of
Guernsey and was previously
president of the States
Trading Supervisory Board.
Mr. Parkinson was also a
director of Bailiwick
Investments Limited, which is
quoted on The International
Stock Exchange. Mr.
Parkinson is a past partner
and director of PKF
(Guernsey) Limited,
accountants and fiduciaries.
Mr. Parkinson is also a
qualified barrister and a
member of the Institute of
Chartered Accountants in
England and Wales.
76
Burford Annual Report 2019
Board of Directors
We are managed by our Board of Directors. All four directors are independent
non-executives and have been directors since our inception. The Board’s
composition is dictated by the provisions of Burford’s articles, which limit the
proportion of US and UK persons that can be directors.
Sir Peter Middleton GCB
Hugh Steven Wilson
Chairman
Deputy Chairman
David Lowe OBE
Non-executive Director
Charles Parkinson
Non-executive Director
Sir Peter Middleton, 85, was
Mr. Wilson, 72, spent more
Mr. Lowe, 83, was, until his
Mr. Parkinson, 66, is a director
previously UK Chairman of
than thirty years at Latham &
2011 retirement, Senior Jurat
of two private Guernsey
Marsh & McLennan
Watkins, one of the world's
of the Royal Court of
investment companies,
Companies, Chairman of
largest law firms, where he
Guernsey. Previously, Mr.
Mapeley Limited (owned by
Marsh Ltd, Chairman of
was Global Co-Chair of the
Lowe served as Chief
the Fortress Investment
Mercer Ltd, Chairman of the
Mergers and Acquisitions
Executive of Bucktrout &
Group) and Aqua Resources
Centre for Effective Dispute
Practice Group and chairman
Company Limited. He is a
Fund Limited. Mr. Parkinson is
Resolution, Chairman of
Camelot Group PLC and
of both the National Litigation
former director of Lazard and
currently the president of the
Department and the National
Chairman of Barclays Capital
Committee for Economic
Group Chairman of Barclays
Mergers and Acquisitions
in Guernsey and was a
Bank PLC; a Director,
Chairman and Deputy
Litigation Practice Group. He
director of Bailiwick
then joined Tennenbaum
Investments Limited. Mr.
president of the States
Chairman of United Utilities;
Capital Partners, a US-based
Lowe was awarded the OBE
Trading Supervisory Board.
and a board member of OJSC
private investment business,
for his services to the Royal
Mr. Parkinson was also a
Mobile Telesystems, Bass PLC
as Managing Partner and also
Court of Guernsey and is a
director of Bailiwick
Development in the States of
Guernsey and was previously
and General Accident (later
served as the Chief Executive
fellow of the Royal
CGU). He was also President
Officer of multiple registered
Entomological Society.
of the British Bankers
investment companies within
Association and a member of
the Tennenbaum Capital
the National Institute for
Group. After his retirement,
Economic Research.
Mr. Wilson continued to serve
as a Senior Adviser to
Tennenbaum through its
acquisition by BlackRock.
Mr. Wilson has served as
Chairman and a director of
numerous public and
private companies.
Investments Limited, which is
quoted on The International
Stock Exchange. Mr.
Parkinson is a past partner
and director of PKF
(Guernsey) Limited,
accountants and fiduciaries.
Mr. Parkinson is also a
qualified barrister and a
member of the Institute of
Chartered Accountants in
England and Wales.
Strategic report
Governance
Financial statements
New directors
Burford intends to propose the election of CEO Christopher
Bogart and two new independent directors for shareholder
consideration at its forthcoming Annual General Meeting
(AGM) on 13 May 2020. If elected, the new directors, all of
whom have agreed to serve, would join the Board immediately.
As previously disclosed, David Lowe will be retiring from the
Board at the 2020 AGM. The new independent directors are:
▪ Robert Gillespie (65) was most recently the Director General
of the UK Takeover Panel. He had a lengthy career as an
investment banker, spending more than 25 years at UBS and
its predecessors in a range of senior positions including Vice
Chairman; Chief Executive Officer, EMEA; and Joint Global
Head of Investment Banking, while also serving on the
Group Managing Board and the Management Committee for
many years. Mr. Gillespie started his career as a Chartered
Accountant at PwC. He is currently a director of Royal Bank
of Scotland plc, NatWest Holdings Ltd and Ulster Bank Ltd
and is the Chairman of Boat Race Company Ltd. He has
previously served as a director of Citizens Financial Group,
Ashurst LLP, the law firm, and as chairman of Somerset
House Trust and the Council of Durham University, from
which he graduated with a degree in economics.
▪ John Sievwright (65) is the former Chief Operating Officer
– International of Merrill Lynch. Mr. Sievwright had a 20-year
career with Merrill Lynch with a range of global leadership
positions, including Chief Operating Officer – Global
Markets and Investment Banking, President and Chief
Operating Officer, Merrill Lynch Japan, and Head of Global
Futures and Options (during which time he also served as
the President of the Futures Industry Association). Prior to
Merrill Lynch, Mr. Sievwright held finance and accounting
functions at Bankers Trust and the Bank of Tokyo. He began
his career as an auditor at Ernst & Young and qualified as a
Chartered Accountant. He has an MA in accountancy and
economics from the University of Aberdeen. Mr. Sievwright
also serves as a trustee and chairman of the audit committee
for a number of Aberdeen Standard Investments funds, and
has previously served as the senior independent director and
chairman of the audit and risk committee at ICAP plc (now
NEX Group plc) and the senior independent director and
chairman of the audit committee of FirstGroup plc.
Messrs Gillespie and Sievwright are both independent of
Burford and have no prior connections to the Company of any
kind. Both Messrs Gillespie and Sievwright are qualified to serve
on the Audit Committee and both will be appointed to it,
resulting in a majority of the Audit Committee immediately
being composed of new directors.
Gender diversity on our Board
Burford is sensitive to the fact that its Board remains, with
these new appointments, entirely male, which is not our desire
and is inconsistent with the significant level of gender diversity
in the business. In fact, Burford approached a number of
potential women directors as part of its nominating process,
but the suitably qualified female candidates that Burford
identified were unable to accept the appointment for a variety
of reasons, including conflicts and capacity. Burford will use its
best efforts to ensure that its 2021 appointment discussed
below will be a woman.
Chairmanship
As previously announced, Sir Peter Middleton GCB, Burford’s
Chairman, will retire from the Board at Burford’s 2021 AGM. At
that time, Deputy Chairman Steve Wilson will be appointed
Chairman. Mr. Wilson would serve as Chairman for three years
and then retire from the Board at the 2024 AGM. Mr. Wilson
has served as Burford’s Deputy Chairman since Burford’s
founding in 2009 and chairs Burford’s Remuneration and
Nomination Committees.
Although Burford is not subject to the UK Corporate
Governance Code (the “Code”), it is nonetheless sensitive to
the Code’s corporate governance framework and is aware that
Mr. Wilson’s length of service on the Burford board would
ordinarily disqualify him from being appointed Chairman under
the code. However, the Code explicitly provides for an
exception for effective succession planning which we believe
would be relevant here were the Code to be applicable.
Burford began its existence by going public and raising capital.
Burford did not have an operating business prior to its IPO in
late 2009, and the industry in which it operated was nascent at
best. Thus, much of Burford’s activity during the past decade
has consisted of developing its current operating business and
expanding its industry, which it leads. Burford’s non-executive
directors were key participants in that successful undertaking
and developed a deep understanding of Burford’s business
given their roles in helping to build it from scratch. Burford also
operates as an industry of one when it comes to larger public
companies, and there is not a wide pool of talent available with
relevant experience. In Burford’s view it was correct to retain
its original slate of directors throughout its formative years as
opposed to earlier board rotation, which would have deprived
the business of the accumulated knowledge and wisdom of its
directors just as the business’ growth was accelerating.
76
Burford Annual Report 2019
Burford Annual Report 2019
77
Board of Directors
continued
Burford has now reached the stage where the Board takes a
more strategic and oversight role rather than operational role,
and it is appropriate to begin rotating the Board and adding
new directors since deep industry knowledge is less critical.
However, we believe strongly that it would be a mistake to
engage in wholesale turnover of the Board without a period of
transition as contemplated by the Code, and we believe three
years of Mr. Wilson’s Chairmanship is an appropriate period
of transition.
Audit Committee
Presently, the Burford Audit Committee is composed of
Charles Parkinson (Chairman) and David Lowe (who is retiring
at the 2020 AGM). As noted above, Messrs Gillespie and
Sievwright will join the Audit Committee immediately upon
their election to the Board, meaning that the Audit Committee
will have a majority of new directors. However, we believe that
the Audit Committee similarly requires a transition period,
which we propose to create by having Mr. Parkinson continue
for three years commencing at the 2020 AGM, following
which he will retire from the Board.
Further appointments
Burford intends to continue to refresh its Board and expects to
nominate a further new independent director prior to the 2021
AGM. We intend to present to shareholders some proposed
amendments to our Articles, including a proposal to relax
somewhat the residency requirements for directors and permit
Burford to add another US director. If shareholders approve
those amendments, we would then nominate a further new
director from the US at or before the 2021 AGM, as well as
adding future new directors to maintain at least a five
person Board.
Board independence
Burford’s Board currently and under its proposed future
configurations satisfies the independence rules to which it
is subject.
Burford is conscious that the UK Corporate Governance Code
treats Messrs Middleton, Wilson and Parkinson as non-
independent directors given their tenure on the Board and that
Mr. Bogart is non-independent given his executive position.
Despite not being subject to the UK Code, Burford recognises
investor interest in it as a governance benchmark; with the
implementation of the above plans, Burford’s Board would
have the composition noted in the table below and would
be on a defined path to coming into compliance with the
UK Code.
As noted above, Burford believes that any more rapid
progression to a majority-independent Board would have a
detrimental impact on Burford’s governance by depriving the
Board of a period of transition with experienced directors
whose cumulative knowledge and insight brings considerable
value to the Company.
Following
AGM in
Total number
of directors
Independent
under the
UK Code
Non-
independent
under the
UK Code
2020
2021
2022
2023
2024
6
6
6
5
5
2
3
3
3
4
4
3
3
2
1
78
Burford Annual Report 2019
Board of Directors
continued
Burford has now reached the stage where the Board takes a
more strategic and oversight role rather than operational role,
and it is appropriate to begin rotating the Board and adding
new directors since deep industry knowledge is less critical.
However, we believe strongly that it would be a mistake to
engage in wholesale turnover of the Board without a period of
transition as contemplated by the Code, and we believe three
years of Mr. Wilson’s Chairmanship is an appropriate period
of transition.
Audit Committee
Presently, the Burford Audit Committee is composed of
Charles Parkinson (Chairman) and David Lowe (who is retiring
at the 2020 AGM). As noted above, Messrs Gillespie and
Sievwright will join the Audit Committee immediately upon
their election to the Board, meaning that the Audit Committee
will have a majority of new directors. However, we believe that
the Audit Committee similarly requires a transition period,
which we propose to create by having Mr. Parkinson continue
for three years commencing at the 2020 AGM, following
which he will retire from the Board.
Further appointments
Burford intends to continue to refresh its Board and expects to
nominate a further new independent director prior to the 2021
2020
AGM. We intend to present to shareholders some proposed
amendments to our Articles, including a proposal to relax
somewhat the residency requirements for directors and permit
Burford to add another US director. If shareholders approve
those amendments, we would then nominate a further new
director from the US at or before the 2021 AGM, as well as
adding future new directors to maintain at least a five
2021
2022
2023
2024
person Board.
Board independence
Burford’s Board currently and under its proposed future
configurations satisfies the independence rules to which it
is subject.
Burford is conscious that the UK Corporate Governance Code
treats Messrs Middleton, Wilson and Parkinson as non-
independent directors given their tenure on the Board and that
Mr. Bogart is non-independent given his executive position.
Despite not being subject to the UK Code, Burford recognises
investor interest in it as a governance benchmark; with the
implementation of the above plans, Burford’s Board would
have the composition noted in the table below and would
be on a defined path to coming into compliance with the
UK Code.
As noted above, Burford believes that any more rapid
progression to a majority-independent Board would have a
detrimental impact on Burford’s governance by depriving the
Board of a period of transition with experienced directors
whose cumulative knowledge and insight brings considerable
value to the Company.
Following
AGM in
Total number
of directors
Non-
Independent
independent
under the
UK Code
under the
UK Code
6
6
6
5
5
2
3
3
3
4
4
3
3
2
1
Strategic report
Governance
Financial statements
Management team
Senior management
Our senior management is comprised of the eight members of our Management Committee:
Christopher Bogart
Chief Executive
Officer
Jonathan Molot
Chief Investment
Officer
Craig Arnott
Deputy Chief Investment
Officer
Jim Kilman
Chief Financial
Officer
Before co-founding Burford, Mr.
Bogart, 54, held numerous senior
executive positions with Time
Warner. As Executive Vice
President & General Counsel of
Time Warner Inc, he managed
one of the largest legal functions
in the world. He also served as
Chief Executive Officer of Time
Warner Cable Ventures and one
of four senior executives
operating Time Warner Cable,
with $9 billion in revenue and
30,000 employees, and as Chief
Executive Officer of Time Warner
Entertainment Ventures.
Mr. Bogart came to Time Warner
from Cravath Swaine & Moore,
where he was a litigator
representing companies such as
IBM, GE and Time Warner. He has
also served as Chief Executive
Officer of Glenavy Capital, an
international investment firm
whose projects included Churchill
Ventures, a publicly traded media
and technology investment
vehicle of which he also served as
Chief Executive Officer, as well as
the Glenavy Arbitration
Investment Fund, a pioneering
litigation finance vehicle. He
began his professional career as
an investment banker with what is
now JPMorgan Chase.
Mr. Bogart earned his law degree
with distinction from the Faculty
of Law of the University of
Western Ontario, where he was
the gold medalist. He clerked for
the Chief Justice of Ontario.
Prior to co-founding Burford, Mr.
Molot, 53, founded Litigation Risk
Solutions, a business that assists
hedge funds, private equity funds,
investment banks, insurance
companies and insurance brokers
to develop litigation risk transfers
where lawsuits threaten to
interfere with M&A and private
equity deals.
In addition to his role at Burford,
Mr. Molot is a Professor of Law at
Georgetown University. Mr. Molot
has taught on litigation risk
management and finance at
Harvard Law School, Georgetown
University Law Center and
George Washington University
Law School.
Mr. Molot served as counsel to
the economic policy team on the
Obama-Biden Presidential
Transition Team and as a senior
advisor in the Treasury
Department at the start of the
Obama Administration. He
practiced law at Cleary Gottlieb in
New York and at Kellogg Hansen
in Washington, DC.
Mr. Molot earned his BA magna
cum laude from Yale College and
his JD magna cum laude from
Harvard Law School, where he
was Articles Co-Chair of the
Harvard Law Review and won the
Sears Prize, awarded to the two
top-performing students in a
class of over 500. He clerked for
US Supreme Court Justice
Stephen Breyer.
Mr. Kilman was appointed Chief
Financial Officer in August 2019,
having previously served as Senior
Advisor since 2017. Prior to
joining Burford, Mr. Kilman, 59,
was Vice Chairman of Investment
Banking at Morgan Stanley, where
he served as Burford’s investment
banker. He spent 32 years in the
investment banking business,
including senior roles at Goldman
Sachs, ABN AMRO and
PaineWebber. Following his
retirement from Morgan Stanley
in 2016, he founded and became
Chief Executive Officer of
KielStrand Capital, a family office.
Mr. Kilman currently serves as a
Trustee of the MFS Mutual Funds,
Boston, MA, and has served on
several other public and private
corporate boards previously.
Mr. Kilman earned his MA and a
BA in Economics from Yale
University.
Prior to joining Burford in 2016,
Mr. Arnott, 53, was a barrister at
Sixth Floor Selborne and
Wentworth Chambers in Sydney.
Previously, he was a Partner and
Head of Competition/Antitrust
Law in London at the
international law firm Fried Frank.
During his time at Fried Frank, Mr.
Arnott oversaw many significant
transactions, serving as counsel
to the pharmaceuticals company
Merck in its acquisition of
Schering-Plough and as
European Counsel to Delta & Pine
Land during its acquisition by
Montsanto. Before his time at
Fried Frank, Mr. Arnott worked at
Cravath Swaine & Moore in New
York, Gilbert + Tobin in Sydney
and Ashurst in London.
Mr. Arnott earned his BCL and
DPhil from the University of
Oxford, where he is an alumnus
of Ballilol College and a Rhodes
Scholar. He graduated at the
University of Queensland with
First Class Honours in both his
Law and Arts degrees, with the
University Medals in both. He
clerked for the Honorable W.
Pincus of the Federal Court of
Australia.
78
Burford Annual Report 2019
Burford Annual Report 2019
79
Senior management
continued
Mark Klein
Chief Administrative Officer
and General Counsel
Elizabeth O’Connell CFA
Chief Strategy
Officer
David Perla
Co-Chief Operating
Officer
Aviva Will
Co-Chief Operating
Officer
Prior to joining Burford in 2017,
Mr. Klein, 52, spent 13 years at
UBS in a wide range of corporate
roles, including as Managing
Director and General Counsel of
its infrastructure and private
equity business. Most recently, he
was a General Counsel and Chief
Compliance Officer at Marketfield
Asset Management, a large
US-registered investment adviser.
Prior to that, Mark was General
Counsel and Chief Compliance
Officer at NewGlobe Capital, a
registered investment adviser. Mr.
Klein began his career at Weil,
Gotshal & Manges.
Mr. Klein earned his JD from New
York University School of Law.
Prior to joining Burford in 2018,
Mr. Perla, 50, served as President
of Bloomberg BNA Legal Division/
Bloomberg Law, where he
oversaw Bloomberg BNA’s legal
and related products, including its
flagship Bloomberg Law
enterprise legal news, information
and tools platform. Previously, Mr.
Perla co-founded and was
co-CEO and a director of
Pangea3, the top-ranked global
legal process outsourcing
provider. Pangea3 was acquired
by Thomson Reuters in 2010 and
grew to over 1,000 employees
globally under Mr. Perla’s
leadership. Before launching
Pangea3, he was Vice President
of Business & Legal Affairs for
Monster.com. Mr. Perla began his
career in the New York office of
Katten Muchin.
Mr. Perla earned both his BA and
JD from the University of
Pennsylvania.
Prior to joining Burford in 2010,
Ms. Will, 51, was a senior litigation
manager and Assistant General
Counsel at Time Warner Inc,
where she managed a portfolio of
significant antitrust, intellectual
property and complex
commercial litigation. She was
also the company’s Chief
Antitrust and Regulatory Counsel,
advising senior management on
antitrust risk and overseeing all
government antitrust
investigations and merger
clearances worldwide. Ms. Will
also served as the Assistant
Secretary for the company,
managing corporate compliance
and governance for the company
and Board. Prior to joining Time
Warner, Ms. Will was a senior
litigator at Cravath, Swaine &
Moore.
Ms. Will earned her JD cum laude
from Fordham University School
of Law, where she was the
Writing & Research Editor of the
Fordham Law Review and a
member of the Order of the Coif.
She earned her BA from
Columbia University. She clerked
for the Honorable Stewart G.
Pollock on the New Jersey
Supreme Court.
One of Burford's founders, Ms.
O'Connell assumed the role of
Chief Strategy Officer in August
2019, having previously served as
its Chief Financial Officer and as a
Managing Director responsible
for overseeing the company's
finance function and investor
relations. Prior to Burford’s
founding, Ms. O’Connell, 53, was
a Managing Director and Chief
Financial Officer of Glenavy
Capital, an international
investment firm and a founding
shareholder of Burford. Ms.
O’Connell was also the Chief
Financial Officer of Churchill
Ventures Limited, a technology
and media company listed on the
American Stock Exchange.
Earlier in her career, Ms.
O’Connell was a senior Equity
Syndicate Director at Credit
Suisse. Before that, she spent the
bulk of her investment banking
career at Salomon Brothers (later
Citigroup) . She began her
finance career in foreign
exchange sales at Bank of
America. Ms. O’Connell is a
Chartered Financial Analyst.
Ms. O’Connell earned her MBA in
finance from The University of
Western Ontario Richard Ivey
School of Business and her BA
from The University of Western
Ontario. Ms. O’Connell has been
married to Christopher Bogart,
Burford’s Chief Executive Officer,
since 1992.
80
Burford Annual Report 2019
Senior management
continued
Mark Klein
Elizabeth O’Connell CFA
David Perla
Chief Administrative Officer
Chief Strategy
Co-Chief Operating
Co-Chief Operating
and General Counsel
Officer
Officer
Aviva Will
Officer
Prior to joining Burford in 2017,
One of Burford's founders, Ms.
Prior to joining Burford in 2018,
Prior to joining Burford in 2010,
Mr. Klein, 52, spent 13 years at
O'Connell assumed the role of
Mr. Perla, 50, served as President
Ms. Will, 51, was a senior litigation
UBS in a wide range of corporate
Chief Strategy Officer in August
of Bloomberg BNA Legal Division/
manager and Assistant General
roles, including as Managing
2019, having previously served as
Bloomberg Law, where he
Counsel at Time Warner Inc,
Director and General Counsel of
its Chief Financial Officer and as a
oversaw Bloomberg BNA’s legal
where she managed a portfolio of
its infrastructure and private
Managing Director responsible
and related products, including its
significant antitrust, intellectual
equity business. Most recently, he
for overseeing the company's
flagship Bloomberg Law
property and complex
was a General Counsel and Chief
finance function and investor
enterprise legal news, information
commercial litigation. She was
Compliance Officer at Marketfield
relations. Prior to Burford’s
and tools platform. Previously, Mr.
also the company’s Chief
Asset Management, a large
founding, Ms. O’Connell, 53, was
Perla co-founded and was
US-registered investment adviser.
a Managing Director and Chief
co-CEO and a director of
Antitrust and Regulatory Counsel,
advising senior management on
Prior to that, Mark was General
Financial Officer of Glenavy
Pangea3, the top-ranked global
antitrust risk and overseeing all
Counsel and Chief Compliance
Capital, an international
legal process outsourcing
government antitrust
Officer at NewGlobe Capital, a
investment firm and a founding
provider. Pangea3 was acquired
investigations and merger
registered investment adviser. Mr.
shareholder of Burford. Ms.
by Thomson Reuters in 2010 and
clearances worldwide. Ms. Will
Klein began his career at Weil,
Gotshal & Manges.
O’Connell was also the Chief
Financial Officer of Churchill
grew to over 1,000 employees
globally under Mr. Perla’s
also served as the Assistant
Secretary for the company,
Mr. Klein earned his JD from New
York University School of Law.
Ventures Limited, a technology
leadership. Before launching
managing corporate compliance
and media company listed on the
Pangea3, he was Vice President
and governance for the company
American Stock Exchange.
of Business & Legal Affairs for
and Board. Prior to joining Time
Earlier in her career, Ms.
O’Connell was a senior Equity
Syndicate Director at Credit
Monster.com. Mr. Perla began his
Warner, Ms. Will was a senior
career in the New York office of
litigator at Cravath, Swaine &
Katten Muchin.
Moore.
Suisse. Before that, she spent the
Mr. Perla earned both his BA and
Ms. Will earned her JD cum laude
bulk of her investment banking
JD from the University of
from Fordham University School
career at Salomon Brothers (later
Pennsylvania.
of Law, where she was the
Writing & Research Editor of the
Fordham Law Review and a
member of the Order of the Coif.
She earned her BA from
Columbia University. She clerked
for the Honorable Stewart G.
Pollock on the New Jersey
Supreme Court.
Citigroup) . She began her
finance career in foreign
exchange sales at Bank of
America. Ms. O’Connell is a
Chartered Financial Analyst.
Ms. O’Connell earned her MBA in
finance from The University of
Western Ontario Richard Ivey
School of Business and her BA
from The University of Western
Ontario. Ms. O’Connell has been
married to Christopher Bogart,
Burford’s Chief Executive Officer,
since 1992.
Strategic report
Governance
Financial statements
Compensation
Our employees
As of 31 December 2019, we had a total of 129 full-time
employees located in the US, the UK, Singapore and Australia.
Our team is multi-disciplinary and includes a number of senior
finance and investment professionals, but is notable for those
staff members with corporate litigation experience bringing to
bear many hundreds of years of collective experience.
Compensation
Directors
Our four independent non-executive directors receive fees for
their board and committee service and for board service to
Burford’s affiliates. During 2019, the fees received by our
directors were:
Sir Peter Middleton GCB
Hugh Steven Wilson
David Charles Lowe OBE
Charles Nigel Kennedy Parkinson
Directors – total
2019 fees
$’000
189
125
85
85
484
Compensation philosophy and annual bonus
Burford’s people are inherently expensive given their
backgrounds at the world’s leading law and finance firms; that
expense is exacerbated by the need to locate many of our
people in centres such as New York and London. To maintain
the quality of its financing decisions and obtain people capable
of meeting Burford’s needs is expensive and requires Burford
to compete with top-tier law firms, investment banks, asset
managers and large companies for its talent. To be
competitive, Burford needs to pay according to those market
expectations. That often results in compensation packages in
excess of what would normally be seen at UK public operating
companies. That is particularly true of Burford’s senior
management, all of whom could obtain multi-million dollar
compensation packages at law firms or investment banks. (For
example, multiple law firms pay their high-performing partners
more than $10 million per year in cash.) While we recognise
that this approach to compensation may diverge from the UK
public norm, it is the only way to run this business.
We consider a number of factors when determining employee
bonus compensation, including case performance and cash
generation, business profitability, new business and portfolio
progress. We do not include non-cash metrics like fair value in
our compensation assessments, and the more senior a person
is at Burford, the more their compensation will be based on
Burford’s performance, until reaching our CEO and CIO whose
compensation is entirely based on Burford’s cash performance.
Burford’s 2019 bonuses were set in February and paid in early
March 2020.
Burford’s success is dependent on the quality of its people.
To make high-quality financing decisions about complex
legal assets requires world-class lawyers supported by finance
and other professionals. Compensation is by far Burford’s
largest expense.
LTIP
In 2016, shareholders approved a Long-Term Incentive Plan
(“LTIP”) and we have added grants under that plan to our
compensation mix, which creates additional alignment
between the team and public shareholders given that it
requires attainment of various corporate performance targets.
It also creates a long-term retention vehicle. We made an
initial LTIP grant to every employee in the business at the time
of the plan’s inception, and we make grants to virtually all new
employees as they join. We also use annual LTIP grants as a
further compensation vehicle for certain of our employees. All
LTIP grants come with performance criteria, three-year cliff
vesting and clawbacks for malus. The plan has a cap of 10% of
Burford’s shares over a ten year period; after three years, we
have used less than 1%. At 31 December 2019, there were
1,347,526 shares outstanding in the LTIP program. At that date,
there were 402,266 LTIP shares scheduled to be fully vested
(assuming performance measures are met) and distributed to
participants in 2020, which will be the first distribution from
the LTIP plan. We had previously announced an intention to
purchase on the open market shares for the 2020 LTIP
distribution to employees. However, given a desire to preserve
our liquidity for deployment in the business, we now plan to
issue new shares to satisfy this distribution.
Carry Pools plan
In 2018, Burford began operating a phantom carry or “Carry
Pools” plan arrangement where a small slice (5% or less) of
certain pools of assets originated in a calendar year are
included in separate legal entities, the Carry Pools. The Carry
Pools provide employees with direct alignment to the cash
performance of Burford's assets. Certain employees may be
invited to participate in a profits interest arrangement under
which a significant portion of the cash profits in the Carry
Pools are available for allocation to those employees. Those
employees who participate in such arrangements pay full
market value for the interests at the time of acquisition with
funds loaned to them by Burford. The profits interest is not
remuneration for services provided to the Group.
Retirement savings
Burford offers to its US employees a defined contribution
retirement plan (“Retirement Plan”) where employees make
pre-tax or Roth contributions to a retirement savings account
and the company makes a corresponding contribution to their
accounts. A similar arrangement is in effect for UK employees.
80
Burford Annual Report 2019
Burford Annual Report 2019
81
Compensation
continued
Senior management
Compensation paid or accrued for 2019 (including cash bonus
and other incentive compensation for 2019 that was paid in
2020) for our senior management – the eight members of our
Management Committee shown on pages 79 to 80 – as a
group is set forth below:
Salary
Cash bonus
LTIP granted
Company contribution to Retirement Plan
Total compensation
Senior management
2019
$’000
4,666
9,150
7,550
106
21,472
For both our senior management and our employees overall,
our general compensation philosophy is team-based rather than
individual as we believe that investing in this asset class benefits
from a team approach and not from assigning individual
ownership of and responsibility for individual investments. Our
compensation programs are designed to incentivise
performance and retention. For many of our employees, the
primary forms of compensation are base salaries and
performance-based annual bonuses; the more senior an
employee, the more their compensation reflects corporate
performance. This compensation mix in part reflects the origins
of our team members, who typically hail from law firms and
financial firms that also use this compensation approach. A
number of our employees also participate in our stock-based
long-term incentive plan and our 401(k) plan, as discussed
below. In addition, Burford offers the opportunity to select
employees to participate in the Carry Pool Plan and to all eligible
employees to invest in the Company’s private investment funds
on a fee-less basis.
CEO/CIO compensation
In addition to its disclosure of aggregate compensation for the
Management Committee, Burford is voluntarily disclosing the
details of the compensation arrangements for Christopher
Holdings of directors and senior management
Bogart and Jonathan Molot, Burford’s Chief Executive Officer
and Chief Investment Officer, respectively.
Messrs Bogart and Molot are employed under identical
employment agreements that expire on 31 December 2021,
which renew automatically for successive one-year periods
thereafter if neither the Company nor the relevant executive
provides notice of an intent to terminate the agreement. Messrs
Bogart and Molot receive identical compensation reflecting their
roles as joint founders and leaders of Burford’s business, and
both report directly to Burford’s Board of Directors. Each of
those agreements provides for a base salary of $950,000 and an
annual bonus tied to Burford’s income excluding the impact of
any fair value adjustments. For 2019, $2,250,000 was paid to
each executive as the cash portion of the annual bonus and
$750,000 will be granted in LTIP awards when Burford makes its
annual LTIP grants in the next few weeks.
Messrs Bogart and Molot have committed to use their
entire 2019 bonuses, after tax, to purchase Burford securities in
the market.
Messrs Bogart and Molot are also participants in the 401(k)
plan and the Carry Pool Plans. In 2019, each executive
contributed to the 401(k) plan and the company made a
matching contribution of $11,200 for each of them. They each
received a payment of $2,782 in 2019 from the Carry Pools.
Messrs Bogart and Molot also take advantage of the opportunity
offered to all eligible Burford employees to invest in the
company’s private investment funds on a fee-less basis. Each
executive’s total commitments to such funds is $2,000,000.
Shareholdings
Our Chief Executive Officer and our Chief Investment Officer, as
founders of the business, have significant shareholdings in
Burford, with approximately 4% of our shares each. In addition,
our directors and our senior management also own shares in
Burford, either directly or through participation in our LTIP
program. Burford has a policy that requires senior management
to each hold shares in Burford equal in value to at least three
times their annual base salary. Some of our directors also own
bonds that Burford has issued, or invest in funds that Burford
manages. Detail is provided in the table below.
Directors
Sir Peter Middleton, GCB
Hugh Steven Wilson
David Charles Lowe OBE
Charles Nigel Kennedy Parkinson
Directors—total
Senior management
Christopher Bogart
Jonathan Molot
Senior management as a group
1. Includes shares owned directly and through the LTIP.
Shares owned1
% of shares
outstanding
Bonds owned
(principal amount)
Commitments to
managed funds
100,000
254,410
200,000
8,000
562,410
8,910,037
9,500,000
19,278,897
–
0.1
0.1
–
0.3
4.1
4.3
8.8
$280,000
£300,000
$1,500,000
$50,000
$677,710
$1,550,000
$2,000,000
$2,000,000
$4,975,000
82
Burford Annual Report 2019
Compensation
continued
Senior management
Compensation paid or accrued for 2019 (including cash bonus
and other incentive compensation for 2019 that was paid in
2020) for our senior management – the eight members of our
Management Committee shown on pages 79 to 80 – as a
group is set forth below:
Senior management
Salary
Cash bonus
LTIP granted
Company contribution to Retirement Plan
Total compensation
For both our senior management and our employees overall,
our general compensation philosophy is team-based rather than
individual as we believe that investing in this asset class benefits
from a team approach and not from assigning individual
ownership of and responsibility for individual investments. Our
compensation programs are designed to incentivise
performance and retention. For many of our employees, the
primary forms of compensation are base salaries and
2019
$’000
4,666
9,150
7,550
106
21,472
Bogart and Jonathan Molot, Burford’s Chief Executive Officer
and Chief Investment Officer, respectively.
Messrs Bogart and Molot are employed under identical
employment agreements that expire on 31 December 2021,
which renew automatically for successive one-year periods
thereafter if neither the Company nor the relevant executive
provides notice of an intent to terminate the agreement. Messrs
Bogart and Molot receive identical compensation reflecting their
roles as joint founders and leaders of Burford’s business, and
both report directly to Burford’s Board of Directors. Each of
those agreements provides for a base salary of $950,000 and an
annual bonus tied to Burford’s income excluding the impact of
any fair value adjustments. For 2019, $2,250,000 was paid to
each executive as the cash portion of the annual bonus and
$750,000 will be granted in LTIP awards when Burford makes its
annual LTIP grants in the next few weeks.
Messrs Bogart and Molot have committed to use their
entire 2019 bonuses, after tax, to purchase Burford securities in
the market.
Messrs Bogart and Molot are also participants in the 401(k)
plan and the Carry Pool Plans. In 2019, each executive
contributed to the 401(k) plan and the company made a
matching contribution of $11,200 for each of them. They each
received a payment of $2,782 in 2019 from the Carry Pools.
performance-based annual bonuses; the more senior an
Messrs Bogart and Molot also take advantage of the opportunity
employee, the more their compensation reflects corporate
offered to all eligible Burford employees to invest in the
performance. This compensation mix in part reflects the origins
company’s private investment funds on a fee-less basis. Each
of our team members, who typically hail from law firms and
executive’s total commitments to such funds is $2,000,000.
financial firms that also use this compensation approach. A
number of our employees also participate in our stock-based
long-term incentive plan and our 401(k) plan, as discussed
below. In addition, Burford offers the opportunity to select
Shareholdings
employees to participate in the Carry Pool Plan and to all eligible
founders of the business, have significant shareholdings in
employees to invest in the Company’s private investment funds
Burford, with approximately 4% of our shares each. In addition,
Our Chief Executive Officer and our Chief Investment Officer, as
on a fee-less basis.
CEO/CIO compensation
In addition to its disclosure of aggregate compensation for the
Management Committee, Burford is voluntarily disclosing the
details of the compensation arrangements for Christopher
Holdings of directors and senior management
our directors and our senior management also own shares in
Burford, either directly or through participation in our LTIP
program. Burford has a policy that requires senior management
to each hold shares in Burford equal in value to at least three
times their annual base salary. Some of our directors also own
bonds that Burford has issued, or invest in funds that Burford
manages. Detail is provided in the table below.
Shares owned1
% of shares
outstanding
Bonds owned
(principal amount)
Commitments to
managed funds
Directors
Sir Peter Middleton, GCB
Hugh Steven Wilson
David Charles Lowe OBE
Charles Nigel Kennedy Parkinson
Directors—total
Senior management
Christopher Bogart
Jonathan Molot
Senior management as a group
1. Includes shares owned directly and through the LTIP.
100,000
254,410
200,000
8,000
562,410
8,910,037
9,500,000
19,278,897
–
0.1
0.1
–
0.3
4.1
4.3
8.8
$280,000
£300,000
$1,500,000
$50,000
$677,710
$1,550,000
$2,000,000
$2,000,000
$4,975,000
Strategic report
Governance
Financial statements
Corporate governance report
Good standards of business conduct, integrity and ethical
behaviour: The Board is subject to Burford’s various integrity
policies, including with regard to conflicts of interest, self-
dealing and fiduciary duties.
Accountability for Burford’s position and prospects: At its
in-person quarterly meetings, the Board is presented with
materials so it can meaningfully assess Burford’s performance,
measure the impact of the businesses’ strategy and evaluate its
position. Burford has a significant professional finance function
that provides detailed management reporting and also
prepares financial statements pursuant to International
Financial Reporting Standards. The Board is in regular contact
with Ernst & Young, Burford’s auditors. The Board has ultimate
responsibility for Burford’s objectives and business plans.
Board oversight of risk management: As discussed in depth,
the Board maintains oversight of risk by way of a
comprehensive risk presentation at every quarterly Board
meeting. Burford has a robust management team focused on
risk, including a Chief Compliance Officer, a General Counsel
and a number of other in-house lawyers. In addition dozens of
the businesses’ professional staff are lawyers, including many
of the businesses’ most senior managers.
Timely and balanced disclosure and reporting: The Board
ensures appropriate and timely reporting pursuant to all
applicable obligations.
Fair and responsible remuneration: The Remuneration
Committee of the Board reviews and approves compensation
for all employees and appointees. The Remuneration
Committee is responsible for setting Burford’s remuneration
policy which is consistent with effective risk management.
Effective shareholder relations: The Board’s general practice is
to disclose publicly adequate materials relevant to Burford’s
performance whenever necessary or practical. The Board
provides the AGM as a forum for shareholders to exercise their
rights as well as supervises a robust investor relations program.
Burford’s adoption of the Code is current as of the date of the
release of this annual report and is reviewed as part of the
Company’s annual reporting process. There are no material
departures from Burford’s obligations under the Code.
Governance
Policies
Burford has throughout its history adopted and complied with
the Guernsey Finance Sector Code of Corporate Governance
(the “Code”), and our compliance has been the subject of
regular reporting to, and oversight by, the Board.
A summary of Burford’s compliance aligned with the Code’s
provisions includes:
Effective responsible board: The Board holds an in-person
meeting every quarter during which it reviews thoroughly all
aspects of the businesses’ strategy and performance; the
directors spend at least one evening and one full day together
for each meeting, and every director attended all such
meetings held in 2019 with the exception of David Lowe who
missed the November 2019 meeting due to hospitalisation.
Burford’s Chief Executive Officer and Chief Investment Officer
participated in the entirety of each board meeting (other than
the closed session discussed below), joined as appropriate by
other senior members of management. The Board reviews its
performance and director compensation annually and
regularly discusses succession planning and management
oversight. The Board meets in closed session without
management present at each of its meetings.
The Board also operates through four committees composed
entirely of independent directors, Audit (Parkinson (Chair) and
Lowe), Investment (Lowe (Chair) and Parkinson), Remuneration
(Wilson (Chair), Middleton, Lowe and Parkinson) and
Nomination (Wilson (Chair), Middleton, Lowe and Parkinson),
all of which meet throughout the year as required. The
Remuneration Committee reviews and approves
compensation and LTIP awards for all staff. The Audit
Committee plays an active role, not only in overseeing the
audit process and managing non-audit services to ensure the
continued independence of the auditors, but also in addressing
investment valuations, an area of key judgement for the
business. Sir Peter Middleton also chairs the Board of Burford
Capital Holdings (UK) Limited, a significant Burford subsidiary,
to ensure non-executive oversight.
Collective responsibility of the directors: Burford’s directors
are experienced and collectively well-versed in the legislative
and regulatory environment in which Burford operates. They
are provided with relevant information in a timely manner
(including a daily business update) and kept abreast of relevant
information so that they can discharge their duties. The Board
has overall responsibility for Burford’s governance, strategy,
risk management and key policies and engages in robust
scrutiny of the business and its investment portfolios. The
Board regularly evaluates its own performance and discusses
improvements to its structure and processes.
82
Burford Annual Report 2019
Burford Annual Report 2019
83
Corporate governance report
continued
Performance
The Board is responsible for Burford’s corporate governance.
In order to progress Burford’s objectives, the Board meets
regularly and is responsible for organising and directing
Burford in a way that promotes its success. The Board is
provided with full and timely access to all relevant information.
The principal matters considered by Burford’s Board in
2019 included:
▪ Burford’s strategy, related key performance measures and
annual budget
▪ Regular reports from the Chief Executive Officer
▪ Reviews and updates on Burford’s businesses and functions
▪ Reports and updates on the investment portfolio and
specific investments
▪ Regular reports from the Board’s committees
▪ Remuneration and pension matters including reward
philosophy and strategy
▪ Recommendations of the Audit Committee on the fair value
of investments
▪ The Annual Report & Accounts, the Interim Report and other
ad hoc updates
▪ Capital management strategy, dividend policy and dividends
▪ Enterprise capability and individual succession plans
In addition, the Board undertook steps in the year to evolve
governance of Burford. These included discussing, analysing
and approving Burford’s plan to procure a secondary listing
on a US exchange; detailing succession plans for David Lowe,
who will retire at the 2020 AGM, and Sir Peter Middleton,
who will retire at the 2021 AGM; and appointing Jim Kilman
to succeed Elizabeth O’Connell in the role of Chief
Financial Officer.
Burford has an established organisational structure with clearly
defined lines of responsibility to and delegation of authority
by the Board. Details of the Group’s risk management
framework are described in the Risk Management section
on pages 71 to 74.
Corporate responsibility
We summarise in this section a view of Burford through the
lens of environmental, social and governance (“ESG”) factors.
In creating this summary, we have relied on guidance on the
integration of ESG into investor reporting and communication
from a number of sources, and we have had reference to the
United Nations-supported Principles for Responsible
Investment, to which many of our investors are signatories, the
influence of which has been seen in the amendments to the
UK Stewardship Code.
To set some context for Burford’s reporting it must be
remembered that Burford is a finance firm with a small
workforce of 129 people. All our employees are “knowledge
workers”. Burford does not manufacture or produce anything
tangible and its entire physical footprint is contained in
relatively small offices that house our employees, their
technology and their files—and little else. The tools of our
trade are words and numbers, telephones and computers. We
are not participants in any global supply chain. Thus, many ESG
factors that are of deep concern with respect to other
multinationals simply do not apply to Burford.
We would note that lawyers are regularly at the forefront of
social change, and Burford’s team is no exception. Many of our
lawyers have litigated—often pro bono—some of the most
significant social issues of the day and continue to be involved
in such issues while at Burford. Indeed, Burford is a paradigm
of a firm with deep focus on ESG issues simply by virtue of
who we are, what we do and our culture.
We do not believe in focusing on ESG issues simply because
investors are, but as they make sense for us as a business
matter. An example of our approach is found in The Equity
Project, a groundbreaking initiative we have designed and
implemented to help close the gender gap in law by providing
an economic incentive for change through a $50 million pool
of capital earmarked for financing commercial litigation
matters led by women. The Equity Project is discussed in
greater detail on page 22 of this report.
We now discuss in more detail Burford’s approach to the
12 ESG themes set forth in the FTSE Russell ESG model. As
investor reporting expectations continue to develop, Burford
will adapt its annual reporting accordingly.
84
Burford Annual Report 2019
Corporate governance report
continued
Performance
The Board is responsible for Burford’s corporate governance.
In order to progress Burford’s objectives, the Board meets
regularly and is responsible for organising and directing
Burford in a way that promotes its success. The Board is
provided with full and timely access to all relevant information.
The principal matters considered by Burford’s Board in
Corporate responsibility
We summarise in this section a view of Burford through the
lens of environmental, social and governance (“ESG”) factors.
In creating this summary, we have relied on guidance on the
integration of ESG into investor reporting and communication
from a number of sources, and we have had reference to the
United Nations-supported Principles for Responsible
Investment, to which many of our investors are signatories, the
influence of which has been seen in the amendments to the
2019 included:
annual budget
▪ Burford’s strategy, related key performance measures and
UK Stewardship Code.
▪ Regular reports from the Chief Executive Officer
▪ Reviews and updates on Burford’s businesses and functions
▪ Reports and updates on the investment portfolio and
specific investments
▪ Regular reports from the Board’s committees
▪ Remuneration and pension matters including reward
philosophy and strategy
▪ Recommendations of the Audit Committee on the fair value
▪ The Annual Report & Accounts, the Interim Report and other
of investments
ad hoc updates
▪ Capital management strategy, dividend policy and dividends
▪ Enterprise capability and individual succession plans
In addition, the Board undertook steps in the year to evolve
governance of Burford. These included discussing, analysing
and approving Burford’s plan to procure a secondary listing
on a US exchange; detailing succession plans for David Lowe,
To set some context for Burford’s reporting it must be
remembered that Burford is a finance firm with a small
workforce of 129 people. All our employees are “knowledge
workers”. Burford does not manufacture or produce anything
tangible and its entire physical footprint is contained in
relatively small offices that house our employees, their
technology and their files—and little else. The tools of our
trade are words and numbers, telephones and computers. We
are not participants in any global supply chain. Thus, many ESG
factors that are of deep concern with respect to other
multinationals simply do not apply to Burford.
We would note that lawyers are regularly at the forefront of
social change, and Burford’s team is no exception. Many of our
lawyers have litigated—often pro bono—some of the most
significant social issues of the day and continue to be involved
in such issues while at Burford. Indeed, Burford is a paradigm
of a firm with deep focus on ESG issues simply by virtue of
who we are, what we do and our culture.
who will retire at the 2020 AGM, and Sir Peter Middleton,
We do not believe in focusing on ESG issues simply because
who will retire at the 2021 AGM; and appointing Jim Kilman
investors are, but as they make sense for us as a business
to succeed Elizabeth O’Connell in the role of Chief
Financial Officer.
Burford has an established organisational structure with clearly
defined lines of responsibility to and delegation of authority
by the Board. Details of the Group’s risk management
framework are described in the Risk Management section
on pages 71 to 74.
matter. An example of our approach is found in The Equity
Project, a groundbreaking initiative we have designed and
implemented to help close the gender gap in law by providing
an economic incentive for change through a $50 million pool
of capital earmarked for financing commercial litigation
matters led by women. The Equity Project is discussed in
greater detail on page 22 of this report.
We now discuss in more detail Burford’s approach to the
12 ESG themes set forth in the FTSE Russell ESG model. As
investor reporting expectations continue to develop, Burford
will adapt its annual reporting accordingly.
Strategic report
Governance
Financial statements
Environmental
Climate change
As inhabitants of the planet, Burford and its employees are
deeply concerned about climate change and its accelerating
impact on the world in which we all live.
While Burford has much less impact on climate change than
many companies, we nonetheless are focused on what we can
do. A key initiative at Burford is to try to limit our carbon
footprint. We make extensive and increasing use of
videoconferencing to minimise physical travel, and when we do
travel, we endeavour to do so efficiently and to combine
multiple initiatives into a single trip. We emphasise choices such
as ridesharing in preference to higher footprint activities such
as rental cars.
In our offices, we are sensitive to environmental issues. Our
Chicago office is located in a LEED (“Leadership in Energy and
Environmental Design”) Platinum building. The New York office
we moved into in 2019 conserves energy by halting heating
ventilation and air conditioning overnight. London presents
greater challenges in terms of environmentally-efficient
buildings for tenants of our size and budget, but our new office
there has led environmental stewardship efforts by driving a
new recycling initiative between building management, other
tenants and the municipal authority. As a general matter,
however, Burford is not a sufficiently large tenant to control any
of the building systems or operations where our offices are
located and thus we are reliant on our landlords; nor are we
able to obtain actual data about our own activity levels around
items such as emissions.
Pollution and resources
Burford has two approaches to combating pollution.
First, we discourage the creation of potentially polluting
materials. In our business, that means mostly paper. This is an
excellent example of a valuable ESG theme arising out of a
sound business justification separate and apart from its societal
benefits. We strongly discourage printing of materials and
encourage our employees to work on-screen with digital
copies. There are cost and environmental benefits to such an
approach, to be sure, in that we use less paper, less toner and
require fewer printers, but there are also core security benefits;
printing the kind of routinely sensitive material with which we
work increases the risk of disclosure of that material.
Second, we operate a robust recycling program in each of our
offices and we discourage single-use items such as plastic
water bottles; we have installed water filtration systems in each
office instead.
Water use
Our only water use is in-office bathroom and drinking use. As
part of our tenancy in LEED-certified buildings, our bathrooms
use less water than traditional fixtures.
Biodiversity
This theme has little relevance to Burford’s business.
Social
Human capital and labour standards
Burford’s team is one of its key competitive advantages, and
we expend considerable effort to create an environment that is
appealing to the kind of people we recruit and to continue
their development once employed. Competitive compensation
is certainly an important part of that dynamic, but so too is a
collaborative environment and mutual respect.
We also devote considerable resources to training and
developing our team, especially as incoming employees are
generally coming into the legal finance industry from adjacent
industries for the first time—and indeed that is a limitation on
our growth, as we believe that there is a limit to the number of
people we can properly assimilate at any given time in light of
the need to develop and inculcate them in not only Burford’s
approach but the fundamentals of the industry.
We also have a workforce with significant diversity across
many differing metrics. We emphasise this not merely because
we believe that diversity is a social good, but because it helps
our investment decision-making. Fundamentally, our business
is about trying to predict litigation outcomes. Those outcomes
are determined by a wide range of people from differing
backgrounds and with built-in predilections based on their
own backgrounds and experiences. We will do a better job of
predicting outcomes if we can field diverse teams who will
consider possible investments from multiple perspectives.
When it comes to gender diversity, Burford has a long track
record of having a substantial population of senior women. We
have a much flatter organisational structure than many firms
and, as a result, the Hampton-Alexander test does not fit us
particularly well. However, taking the intent of the test and
applying it to Burford, we stand at 35% women in leadership
(13 of 37 executives). Moreover, we have a significant number
of very senior women at Burford: The Chief Strategy Officer,
Co-Chief Operating Officer, Chief Marketing Officer, Managing
Director & Chief Innovation Officer, Chief Compliance Officer,
Deputy General Counsel, Director of Global Public Policy and
Managing Director-Litigation Finance IP roles are all filled
by women. The heads of our New York and Chicago offices
are both women. We also have 22, or 37%, women in the
grade at the level of Vice President and higher, with at least
two women at each level. Globally, women represent 42%
of our full-time employees.
But gender is not our sole focus. We actively seek individuals
with other differing backgrounds and life experience, and
create an environment where all are welcome. For example,
we have a number of LGBT employees, including in senior
positions, and we have parental leave and other policies that
accommodate the diversity of lifestyles present in our firm. We
seek out people with multicultural or multijurisdictional
experience and have many people who are multilingual or
have professional qualifications in more than one country.
When hiring, we actively consider diversity in all of its forms,
including but not limited to gender and race.
84
Burford Annual Report 2019
Burford Annual Report 2019
85
Corporate governance report
continued
As Burford has grown, we have focused on management
depth, succession planning and the removal of key-person
risk, and we are very pleased with our progress. We have a
deep bench of experienced, sophisticated managers and we
have been able to create redundancy across the organisation,
along with a substantial record of promoting from within.
Indeed, we just announced 12 internal promotions as part of
our annual review process.
Burford has historically enjoyed quite low employee turnover
after employees have been with us for a period of time. We
consider training and development to be essential to attract
and retain people of the highest calibre and we invest
significantly in this area. Our performance management
processes, career coaching and tailored training opportunities
enable our people to develop and grow core skills, increase
technical competence and develop into future leaders. There
can, however, be an assimilation period upon joining Burford
that does lead to some turnover, as we are generally hiring
people who have not before previously done legal finance, and
some recruits ultimately do not find a fit. Of the 53 employees
who worked at Burford for at least three years, only five left
during 2019.
Burford engages in a number of practices around employee
engagement and development. We remain a small
organisation. The senior management team knows personally
every employee. We regularly hold events to which every
employee is invited and we conduct Q&A sessions with senior
management. We have an entrepreneurial culture where
anyone is welcome to email the CEO about anything. But we
also do more traditional things, like annual 360° performance
reviews during which we actively solicit feedback about the
business and its initiatives. And, of course, we have channels
for reporting misconduct or other workplace issues.
Employees are asked to escalate any known or suspected
compliance policy violations or misconduct to the Chief
Compliance Officer or, if they prefer, employees have the
option to call or email a hotline (which is administered by a
third party) on an anonymous basis. Burford also maintains a
global anti-retaliation and whistleblower policy. Nothing in the
policy prohibits an employee from reporting potential
violations of law or regulation directly to a government agency.
Retaliation of any type against an individual who reports any
suspected misconduct or assists in the investigation of
misconduct is strictly prohibited.
We are proud to have assembled what is arguably the leading
and most experienced team in the legal finance industry. Not
only do we bring hundreds of years and billions of dollars of
litigation experience, but our team is multidisciplinary as well,
with senior and experienced finance and investment
professionals—a critical component in any investment
decision making undertaking. We would encourage
shareholders to visit our website to review the biographies
of all of our team members.
Health and safety
Burford does not face many traditional health and safety issues
in its workplace given the nature of its business. We have never
had a material workplace accident or injury.
However, we are focused on employee health and wellness.
To that end, because the US does not have a national
healthcare scheme, Burford offers its US employees and their
families a package of benefits that includes fully-paid health
insurance and a contribution to a US device called a “health
savings account” that can be used to pay for uninsured
medical expenses. The economics of US healthcare are such
that healthcare costs can be a source of very considerable
stress and distraction for employees, and we are pleased to be
able to offer this benefit to remove those strains—and to
ensure that nothing stands in the way of employees obtaining
medical care.
As to benefits more broadly, we offer competitive benefit plans
in each of the countries where we operate, and those plans are
offered to all employees across the business.
Customer responsibility
Clients are at the heart of Burford’s business and it is a measure
of our management of client relationships that 70% of initial
clients return for incremental transactional business. We
inculcate a culture of client-focused business. We seek to add
real value to our interactions with clients and to work together
to maximise successful outcomes. We strive for clarity and
fairness in our dealings with clients, including clear and
straightforward legal documents and honest appraisals of the
investment prospects of potential matters.
Human rights and community
While not the typical ESG discussion around this theme,
Burford does have an unusual take on this issue. Our capital
can change outcomes in litigation matters, and in particular
our capital can create outcomes that may be legally correct
but challenging when viewed through a broader lens. Said
another way, how do we decide whether there are cases we
will elect not to finance, even if their merits are strong and they
are likely to prevail and generate returns?
That is a core function for our Commitment Committee. We
not only consider legal and economic analysis, but also the
holistic viewpoint of a potential legal finance asset. As just one
example, Burford refrains from financing litigation against
impoverished small states, even when the underlying cases
may well have merit, because we do not wish to put those
governments in a position of having to reduce essential
services to their populations in order to satisfy our returns.
We also consider carefully the underlying claims and their
societal impact. This is less commonly an issue with corporate
claimants as those companies tend to be defendants rather
than plaintiffs. Nonetheless, the issues are very much front of
mind when we review potential investments.
86
Burford Annual Report 2019
Corporate governance report
continued
As Burford has grown, we have focused on management
Health and safety
depth, succession planning and the removal of key-person
risk, and we are very pleased with our progress. We have a
deep bench of experienced, sophisticated managers and we
have been able to create redundancy across the organisation,
along with a substantial record of promoting from within.
Indeed, we just announced 12 internal promotions as part of
our annual review process.
Burford has historically enjoyed quite low employee turnover
after employees have been with us for a period of time. We
consider training and development to be essential to attract
and retain people of the highest calibre and we invest
significantly in this area. Our performance management
processes, career coaching and tailored training opportunities
enable our people to develop and grow core skills, increase
technical competence and develop into future leaders. There
can, however, be an assimilation period upon joining Burford
that does lead to some turnover, as we are generally hiring
people who have not before previously done legal finance, and
some recruits ultimately do not find a fit. Of the 53 employees
who worked at Burford for at least three years, only five left
during 2019.
Burford engages in a number of practices around employee
engagement and development. We remain a small
organisation. The senior management team knows personally
every employee. We regularly hold events to which every
employee is invited and we conduct Q&A sessions with senior
management. We have an entrepreneurial culture where
anyone is welcome to email the CEO about anything. But we
also do more traditional things, like annual 360° performance
reviews during which we actively solicit feedback about the
business and its initiatives. And, of course, we have channels
for reporting misconduct or other workplace issues.
Employees are asked to escalate any known or suspected
compliance policy violations or misconduct to the Chief
Compliance Officer or, if they prefer, employees have the
option to call or email a hotline (which is administered by a
third party) on an anonymous basis. Burford also maintains a
global anti-retaliation and whistleblower policy. Nothing in the
policy prohibits an employee from reporting potential
violations of law or regulation directly to a government agency.
Retaliation of any type against an individual who reports any
suspected misconduct or assists in the investigation of
misconduct is strictly prohibited.
We are proud to have assembled what is arguably the leading
and most experienced team in the legal finance industry. Not
only do we bring hundreds of years and billions of dollars of
litigation experience, but our team is multidisciplinary as well,
with senior and experienced finance and investment
professionals—a critical component in any investment
decision making undertaking. We would encourage
shareholders to visit our website to review the biographies
of all of our team members.
Burford does not face many traditional health and safety issues
in its workplace given the nature of its business. We have never
had a material workplace accident or injury.
However, we are focused on employee health and wellness.
To that end, because the US does not have a national
healthcare scheme, Burford offers its US employees and their
families a package of benefits that includes fully-paid health
insurance and a contribution to a US device called a “health
savings account” that can be used to pay for uninsured
medical expenses. The economics of US healthcare are such
that healthcare costs can be a source of very considerable
stress and distraction for employees, and we are pleased to be
able to offer this benefit to remove those strains—and to
ensure that nothing stands in the way of employees obtaining
medical care.
As to benefits more broadly, we offer competitive benefit plans
in each of the countries where we operate, and those plans are
offered to all employees across the business.
Customer responsibility
Clients are at the heart of Burford’s business and it is a measure
of our management of client relationships that 70% of initial
clients return for incremental transactional business. We
inculcate a culture of client-focused business. We seek to add
real value to our interactions with clients and to work together
to maximise successful outcomes. We strive for clarity and
fairness in our dealings with clients, including clear and
straightforward legal documents and honest appraisals of the
investment prospects of potential matters.
Human rights and community
While not the typical ESG discussion around this theme,
Burford does have an unusual take on this issue. Our capital
can change outcomes in litigation matters, and in particular
our capital can create outcomes that may be legally correct
but challenging when viewed through a broader lens. Said
another way, how do we decide whether there are cases we
will elect not to finance, even if their merits are strong and they
are likely to prevail and generate returns?
That is a core function for our Commitment Committee. We
not only consider legal and economic analysis, but also the
holistic viewpoint of a potential legal finance asset. As just one
example, Burford refrains from financing litigation against
impoverished small states, even when the underlying cases
may well have merit, because we do not wish to put those
governments in a position of having to reduce essential
services to their populations in order to satisfy our returns.
We also consider carefully the underlying claims and their
societal impact. This is less commonly an issue with corporate
claimants as those companies tend to be defendants rather
than plaintiffs. Nonetheless, the issues are very much front of
mind when we review potential investments.
Strategic report
Governance
Financial statements
We endeavour to be good citizens within the legal
communities in which we operate, and we support a variety of
initiatives. For example, we are a member of the Justice 60, a
group of 60 key supporters of JUSTICE, a longstanding
all-party law reform and human rights organisation working to
strengthen the justice system—administrative, civil and
criminal—in the UK. We are also supporters of the work of the
RAND Institute for Civil Justice, which is dedicated to making
the US civil justice system more efficient and more equitable
by supplying government and private decision-makers and the
public with the results of objective, empirically based, analytic
research. Its research analyses trends and outcomes, identifies
and evaluates policy options and brings together
representatives of different interests to debate alternative
solutions to policy problems. We do not make any political
contributions and our charitable contributions are limited to
the law-related organisations discussed above along with a
modest budget for charitable events to support clients or
Burford people.
We are committed to preventing any form of slavery and
human trafficking. We seek to ensure that there are no such
practices in our business and supply chain. During the year we
sent out a staff communication to raise awareness and
continued to include anti-slavery considerations into supplier
selection and due diligence. Burford’s full policy on Modern
Slavery can be found on our website.
Our vision is to provide an inclusive and respectful
environment in which each individual is motivated to make
their fullest contribution, in which they consider themselves
to be fairly recognised, rewarded and included regardless
of gender, age, race, sexual orientation, disability, religion
or beliefs.
We do not tolerate discrimination of any kind and comply fully
with appropriate human rights legislation. We aim for our
employees to have a sense of wellbeing, and we promote a
working culture where employees can freely question
practices and suggest alternatives.
Governance
Anti-corruption
Burford is highly sensitive to issues around corruption,
sanctions and money laundering. We run extensive
compliance programs to ensure we are in the right place on
these issues, and we take seriously allegations of corruption in
matters we finance and diligence them with great care. We rely
not only on our legal and compliance team but also on
specialised outside counsel.
Corporate governance
We suggest that a number of the precepts of current corporate
governance need to be considered in the relatively unique
context of Burford. We have built a large and complex business
quite rapidly; Burford only came into existence in late 2009.
Moreover, our business and the industry in which we operate
have regularly seen seismic changes during the decade of our
existence. We believe that there is enormous value in a board,
at this stage of our existence, that is deeply experienced in the
business and has lived through its growth and history. We
believe shareholders would be poorly served by rotating our
directors off the Board simply because they have served for 10
years, for example.
Nevertheless, we have listened to our shareholders and we
have started the process of making a number of changes to
our corporate governance. We announced the intention of
two of our long-serving non-executive directors to retire at the
2020 and 2021 AGMs, respectively, and the succession of our
Chief Financial Officer. Subsequent to the 2019 year-end, we
announced the nomination for shareholder election at our
2020 AGM of two independent non-executive directors and
our Chief Executive Officer as a director. Furthermore, we
disclosed that the Board had decided to seek a dual listing on a
US stock exchange and, in that regard, Burford intends to file
with the US Securities and Exchange Commission.
As noted previously, Burford is sensitive to the fact that its
Board will remain, with these new appointments, entirely male,
which is not our desire and is inconsistent with the significant
level of gender diversity in the business. Burford will use its best
efforts to ensure that its 2021 appointment will be a woman.
Tax transparency
Burford has historically been very transparent about its tax
status, including disclosing tax paid by jurisdiction in the notes
to our financial statements. We include a more detailed
discussion of our tax situation on page 68 of the Financial and
operational review.
86
Burford Annual Report 2019
Burford Annual Report 2019
87
Directors’ report
To our shareholders:
The Directors present their Annual Report and the audited
consolidated financial statements of the Group for the year
ended 31 December 2019.
Business activities
Burford Capital Limited (the “company”) and its subsidiaries
(the “Subsidiaries”) (together the “Group”) provide capital, asset
management, financing and risk solutions with a focus on the
legal sector. The Company is incorporated under The
Companies (Guernsey) Law, 2008. Shares in the Company
were admitted to trading on AIM, a market operated by the
London Stock Exchange, on 21 October 2009.
Corporate governance
The Directors recognise the high standards of corporate
governance demanded of listed companies. The Company has
adopted and complied with the Guernsey Code of Corporate
Governance (the “Code”).
Results and dividend
The results for the year are set out in the consolidated
statement of comprehensive income on page 103.
Burford paid an interim dividend for 2019 of 4.17¢ in
December, 2019. Given the economic uncertainties of the
COVID-19 pandemic, the Directors are not proposing payment
of a final dividend for 2019.
The Directors proposed and, following shareholder approval,
paid a final 2018 dividend of 8.83¢ per share on 14 June 2019
to shareholders on the register as at close of business on 24
May 2019. This combined with an interim dividend of 3.67¢,
paid in December 2018, resulted in a full year 2018 dividend
of 12.50¢.
Because the Company is a US dollar-denominated business,
dividends are declared in US dollars. For UK shareholders,
those dividends will then be converted into Sterling shortly
before the time of payment and paid in Sterling. Any UK
shareholder who would like to receive dividends in US dollars
instead of Sterling should contact the Registrar. US
shareholders will automatically receive their dividends in
US dollars unless they request otherwise.
Going concern
The Directors of the Company have reviewed and challenged
Management’s assessment of the ability of the Group to
continue as a going concern. The details of this assessment,
including the impacts of the COVID-19 pandemic, is included
in note 2 to the consolidated financial statements on page 109
of this report. Based on this review the Directors believe that
the Group has the ability to meet its financial obligations as
they fall due for a period of at least twelve months from the
date of approval of the financial statements.
Directors
The Directors of the Company who served during the year and
to date are as stated on page 76 of this report.
88
Burford Annual Report 2019
Directors’ interests
The interests of the Directors are as stated on pages 81 and 82 of
this report.
Statement of Directors’ responsibilities in relation to
the Group financial statements
The Directors are responsible for preparing the Annual Report and
the Group financial statements in accordance with applicable
Guernsey law and International Financial Reporting Standards.
Under The Companies (Guernsey) Law, 2008, the Directors must
not approve the Group financial statements unless they are
satisfied that they give a true and fair view of the financial position,
financial performance and cash flows of the Group for that period.
In preparing the Group financial statements the Directors are
required to:
▪ Select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently
▪ Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information
▪ Provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Group’s financial position and financial performance
▪ State that the Group has complied with IFRS, subject to
any material departures disclosed and explained in the financial
statements
▪ Make judgements and estimates that are reasonable
and prudent
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Group and enable them to ensure that
the Group financial statements comply with The Companies
(Guernsey) Law, 2008 and Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Group and
hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Disclosure of information to auditors
So far as each of the Directors is aware, there is no relevant audit
information of which the Company’s auditor is unaware, and each
has taken all the steps he ought to have taken as a Director to
make himself aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
Auditors
Ernst & Young LLP have expressed their willingness to continue in
office and a resolution to re-appoint them will be proposed at the
Annual General Meeting.
Charles Parkinson
Director
on behalf of the Board
28 April 2020
Strategic report
Governance
Financial statements
Financial
statements
Contents
90
Reconciliation
94
103
108
154
159
Independent auditors’ report
Consolidated financial statements
Notes to the consolidated financial statements
Glossary of terms
Further information
Directors’ report
To our shareholders:
Directors’ interests
The Directors present their Annual Report and the audited
consolidated financial statements of the Group for the year
this report.
The interests of the Directors are as stated on pages 81 and 82 of
ended 31 December 2019.
Business activities
Statement of Directors’ responsibilities in relation to
the Group financial statements
Burford Capital Limited (the “company”) and its subsidiaries
(the “Subsidiaries”) (together the “Group”) provide capital, asset
management, financing and risk solutions with a focus on the
The Directors are responsible for preparing the Annual Report and
the Group financial statements in accordance with applicable
Guernsey law and International Financial Reporting Standards.
legal sector. The Company is incorporated under The
Companies (Guernsey) Law, 2008. Shares in the Company
were admitted to trading on AIM, a market operated by the
London Stock Exchange, on 21 October 2009.
Under The Companies (Guernsey) Law, 2008, the Directors must
not approve the Group financial statements unless they are
satisfied that they give a true and fair view of the financial position,
financial performance and cash flows of the Group for that period.
In preparing the Group financial statements the Directors are
Corporate governance
required to:
The Directors recognise the high standards of corporate
governance demanded of listed companies. The Company has
▪ Select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and
adopted and complied with the Guernsey Code of Corporate
Errors and then apply them consistently
Governance (the “Code”).
Results and dividend
The results for the year are set out in the consolidated
statement of comprehensive income on page 103.
Burford paid an interim dividend for 2019 of 4.17¢ in
December, 2019. Given the economic uncertainties of the
COVID-19 pandemic, the Directors are not proposing payment
of a final dividend for 2019.
The Directors proposed and, following shareholder approval,
paid a final 2018 dividend of 8.83¢ per share on 14 June 2019
to shareholders on the register as at close of business on 24
May 2019. This combined with an interim dividend of 3.67¢,
paid in December 2018, resulted in a full year 2018 dividend
of 12.50¢.
Because the Company is a US dollar-denominated business,
dividends are declared in US dollars. For UK shareholders,
those dividends will then be converted into Sterling shortly
before the time of payment and paid in Sterling. Any UK
shareholder who would like to receive dividends in US dollars
instead of Sterling should contact the Registrar. US
shareholders will automatically receive their dividends in
US dollars unless they request otherwise.
Going concern
The Directors of the Company have reviewed and challenged
Management’s assessment of the ability of the Group to
continue as a going concern. The details of this assessment,
including the impacts of the COVID-19 pandemic, is included
in note 2 to the consolidated financial statements on page 109
of this report. Based on this review the Directors believe that
the Group has the ability to meet its financial obligations as
they fall due for a period of at least twelve months from the
date of approval of the financial statements.
Directors
The Directors of the Company who served during the year and
to date are as stated on page 76 of this report.
▪ Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information
▪ Provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Group’s financial position and financial performance
▪ State that the Group has complied with IFRS, subject to
any material departures disclosed and explained in the financial
statements
and prudent
▪ Make judgements and estimates that are reasonable
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Group and enable them to ensure that
the Group financial statements comply with The Companies
(Guernsey) Law, 2008 and Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Group and
hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Disclosure of information to auditors
So far as each of the Directors is aware, there is no relevant audit
information of which the Company’s auditor is unaware, and each
has taken all the steps he ought to have taken as a Director to
make himself aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
Auditors
Ernst & Young LLP have expressed their willingness to continue in
office and a resolution to re-appoint them will be proposed at the
Annual General Meeting.
Charles Parkinson
Director
on behalf of the Board
28 April 2020
88
Burford Annual Report 2019
Burford Annual Report 2019
89
Reconciliation
Reconciliation of Burford-only results to
Consolidated statement of comprehensive income
IFRS requires the consolidation of certain investments that contain third-party capital, principally including the Strategic Value fund
and the BOF-C fund which is the fund through which our Sovereign Wealth Fund arrangement is conducted. In our view, it is
confusing to include the interests of investors other than Burford in our discussion of performance, and we have thus generally
excluded the non-Burford portion of such funds from our presentation of our financial performance. The tables below provide a full
reconciliation of the consolidated statement of comprehensive income and consolidated statement of financial position so that
investors are able to relate our performance discussion with our published accounts.
31 December 2019
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in
consolidated entities
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
Elimination of third-party interests
Consolidated
IFRS
$’000
Strategic
Value fund
$’000
BOF-C fund
$’000
Other
$’000
Other
adjustments
$’000
Burford-only
$’000
351,828
(16,036)
(13,399)
(5,613)
15,160
3,833
7,137
3,545
2,133
6,703
1,992
(15,318)
366,043
(91,402)
(9,495)
265,146
(39,622)
225,524
(13,417)
212,107
(17,525)
194,582
–
–
(571)
–
3,463
(9,311)
9,311
–
–
–
–
–
–
–
–
–
–
(62)
–
–
–
–
–
60
6,304
5,551
(20)
20
–
–
–
–
–
–
–
–
(2)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
316,780
26,130
3,545
2,133
6,070
2,052
–
356,710
4,657
(77,412)
9,495
–
14,152
279,298
–
(39,622)
14,152
239,676
–
(13,417)
14,152
226,259
–
(17,525)
14,152
208,734
To assist in understanding the underlying performance of the Company, other adjustments exclude the impact of amortisation of
intangible asset and operating expenses incurred related to (i) one-time expenses related to equity and listing matters of $1,754,000
and (ii) case-related legal fees not included in asset cost of $2,903,000. Services and other income of $13,800,000 included in the
financial summary on page 2 is an aggregation of the Burford-only amounts insurance income, services income, cash management
income and bank interest and foreign exchange gains/losses) included in the table above.
90
90
Burford Annual Report 2019
Burford Annual Report 2019
Reconciliation
Reconciliation of Burford-only results to
Consolidated statement of comprehensive income
IFRS requires the consolidation of certain investments that contain third-party capital, principally including the Strategic Value fund
and the BOF-C fund which is the fund through which our Sovereign Wealth Fund arrangement is conducted. In our view, it is
confusing to include the interests of investors other than Burford in our discussion of performance, and we have thus generally
excluded the non-Burford portion of such funds from our presentation of our financial performance. The tables below provide a full
reconciliation of the consolidated statement of comprehensive income and consolidated statement of financial position so that
investors are able to relate our performance discussion with our published accounts.
Cash management income and bank interest
(571)
(62)
Elimination of third-party interests
Consolidated
Strategic
Other
IFRS
$’000
Value fund
BOF-C fund
$’000
$’000
Other
$’000
adjustments
Burford-only
$’000
$’000
351,828
(16,036)
(13,399)
(5,613)
15,160
3,833
7,137
31 December 2019
Capital provision income
Asset management income
Insurance income
Services income
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in
consolidated entities
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
3,545
2,133
6,703
1,992
(15,318)
366,043
(91,402)
(9,495)
265,146
(39,622)
225,524
(13,417)
212,107
(17,525)
194,582
6,304
5,551
3,463
(9,311)
9,311
(20)
20
–
–
–
–
–
–
–
–
–
–
316,780
26,130
3,545
2,133
6,070
2,052
–
–
356,710
4,657
(77,412)
9,495
14,152
279,298
–
(39,622)
14,152
239,676
14,152
226,259
(13,417)
(17,525)
14,152
208,734
–
–
–
–
60
(2)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
To assist in understanding the underlying performance of the Company, other adjustments exclude the impact of amortisation of
intangible asset and operating expenses incurred related to (i) one-time expenses related to equity and listing matters of $1,754,000
and (ii) case-related legal fees not included in asset cost of $2,903,000. Services and other income of $13,800,000 included in the
financial summary on page 2 is an aggregation of the Burford-only amounts insurance income, services income, cash management
income and bank interest and foreign exchange gains/losses) included in the table above.
Strategic report
Governance
Financial statements
31 December 2018
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in
consolidated entities
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation (expense)/credit
Profit after tax
Other comprehensive income
Total comprehensive income
Elimination of third-party interests
Consolidated
IFRS
$’000
Strategic
Value fund
$’000
BOF-C fund
$’000
Other
$’000
Other
adjustments
$’000
Burford-only
$’000
404,230
(11,705)
11,691
10,406
1,650
1,801
(1,453)
(3,348)
424,977
(71,831)
(9,494)
343,652
(38,538)
305,114
12,463
317,577
24,701
342,278
4,108
–
–
(334)
(4)
3,336
(4,599)
4,599
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(16)
12
(4)
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
392,525
15,799
10,406
1,650
1,467
(1,473)
–
420,374
1,734
(65,494)
9,494
–
11,228
354,880
–
(38,538)
11,228
316,342
–
12,463
11,228
328,805
–
24,701
11,228
353,506
To assist in understanding the underlying performance of the Company, other adjustments exclude the impact of amortisation
of intangible asset and operating expenses incurred related to case-related legal fees not included in asset cost of $1,734,000.
Operating expenses for 2018 now include $900,000 of banking and brokerage fees that were previously excluded from operating
expenses for consistency in comparative prior periods. Services and other income of $12,050,000 included in the financial summary
on page 2 is an aggregation of the Burford-only amounts insurance income, services income, cash management income and bank
interest and foreign exchange gains/losses) included in the table above.
90
90
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
91
91
Reconciliation
continued
Reconciliation of Burford-only results to
Consolidated statement of financial position
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Elimination of third-party interests
Consolidated
IFRS
$’000
Strategic
Value fund
$’000
BOF-C fund
$’000
Other
$’000
Burford-only
$’000
186,621
(3,235)
(14,810)
(113)
168,463
37,966
–
95,226
(95,226)
–
–
–
–
37,966
–
13,263
712
5,720
70
19,765
Due from settlement of capital provision assets
54,358
(22,899)
(9,796)
(2,674)
18,989
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
2,045,329
(73,535)
(92,162)
(45,642)
1,833,990
31,396
(31,367)
20,184
8,703
133,999
24,939
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29
20,184
8,703
133,999
24,939
2,651,984
(225,550)
(111,048)
(48,359)
2,267,027
Financial liabilities at fair value through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
91,493
(91,493)
51,401
(51,401)
9,462
51,430
655,880
13,944
–
(329)
–
–
–
–
–
(65)
–
–
–
–
–
–
9,462
(41)
50,995
–
655,880
(3,566)
(2,342)
8,036
Third-party interests in consolidated entities
235,720
(82,327)
(107,417)
(45,976)
–
Deferred tax liabilities
Total liabilities
Total net assets
9,662
–
–
–
9,662
1,118,992
(225,550)
(111,048)
(48,359)
734,035
1,532,992
–
–
–
1,532,992
92
92
Burford Annual Report 2019
Burford Annual Report 2019
Reconciliation of Burford-only results to
Consolidated statement of financial position
Reconciliation
continued
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Deferred tax liabilities
Total liabilities
Total net assets
Due from settlement of capital provision assets
54,358
(22,899)
(9,796)
(2,674)
18,989
Financial liabilities at fair value through profit and loss
2,651,984
(225,550)
(111,048)
(48,359)
2,267,027
Elimination of third-party interests
Consolidated
Strategic
IFRS
$’000
Value fund
BOF-C fund
Other
Burford-only
$’000
$’000
$’000
$’000
186,621
(3,235)
(14,810)
(113)
168,463
37,966
–
95,226
(95,226)
–
–
37,966
–
13,263
712
5,720
70
19,765
2,045,329
(73,535)
(92,162)
(45,642)
1,833,990
31,396
(31,367)
–
–
–
–
–
–
–
–
–
–
(65)
–
–
–
20,184
8,703
133,999
24,939
9,462
51,430
655,880
13,944
9,662
91,493
(91,493)
51,401
(51,401)
(329)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29
20,184
8,703
133,999
24,939
–
–
9,462
(41)
50,995
–
655,880
31 December 2018
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Receivable from sovereign wealth fund
Total assets
Liabilities
Financial liabilities at fair value
through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
(3,566)
(2,342)
8,036
Third-party interests in consolidated entities
235,720
(82,327)
(107,417)
(45,976)
–
Derivative financial liabilities
Capital provision asset subparticipations
1,118,992
(225,550)
(111,048)
(48,359)
734,035
1,532,992
–
1,532,992
Deferred tax liabilities
Total liabilities
Total net assets
Strategic report
Governance
Financial statements
Elimination of third-party interests
Consolidated
IFRS
$’000
Strategic
Value fund
$’000
BOF-C fund
$’000
Other
$’000
Other
adjustment
$’000
Burford-only
$’000
265,551
(14,574)
(15,000)
41,449
–
129,911
(129,911)
–
–
16,313
37,109
5,477
14,916
–
1,641,035
(87,006)
4,154
582
1,866
18,198
133,966
28,848
–
(4,154)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
235,977
41,449
–
36,706
37,109
(32,438)
(20,735)
1,500,856
–
–
–
–
–
–
–
–
–
–
–
–
–
–
582
1,866
18,198
133,966
28,848
20,735
20,735
–
–
–
–
–
–
–
–
–
2,318,982
(230,168)
(84)
(32,438)
–
2,056,292
112,821
(112,821)
12,667
(12,667)
9,327
31,046
638,665
7,000
3,244
–
(329)
–
–
–
4,099
–
–
–
–
(84)
–
–
–
–
–
–
–
–
(1)
–
–
171
(32,608)
–
955,828
(230,168)
(84)
(32,438)
1,363,154
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,327
30,632
638,665
7,000
3,415
–
4,099
693,138
1,363,154
–
9,662
Third-party interests in consolidated entities
136,959
(104,351)
Other adjustment excludes investments that were warehoused by a wholly-owned group subsidiary company under a forward purchase and sale agreement with a newly
formed consolidated investment fund.
92
92
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
93
93
Independent auditors’ report
Opinion
We have audited the consolidated financial statements of Burford Capital Limited and its subsidiaries (together the ‘group’) for the
year ended 31 December 2019 which comprise the Consolidated statement of comprehensive income, the Consolidated statement
of financial position, the Consolidated statement of cash flows, the Consolidated statement of changes in equity and the related
notes 1 to 32, including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards.
In our opinion, the financial statements:
give a true and fair view of the state of the group’s affairs as at 31 December 2019 and of its profit for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards; and
have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report below. We are independent of the group in accordance with the ethical requirements that are relevant to our
audit of the financial statements, including the UK FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from
the date when the financial statements are authorised for issue.
Overview of our audit approach
Key audit matters
Incorrect valuation of Capital provision assets, including incorrect calculation of unrealised and
realised gains and losses
Incorrect goodwill impairment assessment
Incorrect calculation of tax balances
Incorrect recognition of asset management income
Going concern (including assessment of impact of COVID-19)
Materiality
All of the above matters are considered to be significant risks, with the exception of going concern
which is included as a new key audit matter for 2019, in respect of our consideration of the
Company’s assessment of the impact of the COVID-19 pandemic.
Overall group materiality of US$14.9m which represents 1% of Total net assets.
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Governance
Financial statements
Opinion
Key audit matters
We have audited the consolidated financial statements of Burford Capital Limited and its subsidiaries (together the ‘group’) for the
year ended 31 December 2019 which comprise the Consolidated statement of comprehensive income, the Consolidated statement
of financial position, the Consolidated statement of cash flows, the Consolidated statement of changes in equity and the related
notes 1 to 32, including a summary of significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of
the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
In our opinion, the financial statements:
Risk
give a true and fair view of the state of the group’s affairs as at 31 December 2019 and of its profit for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards; and
have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report below. We are independent of the group in accordance with the ethical requirements that are relevant to our
audit of the financial statements, including the UK FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from
the date when the financial statements are authorised for issue.
Overview of our audit approach
Key audit matters
Incorrect valuation of Capital provision assets, including incorrect calculation of unrealised and
realised gains and losses
Incorrect goodwill impairment assessment
Incorrect calculation of tax balances
Incorrect recognition of asset management income
Going concern (including assessment of impact of COVID-19)
All of the above matters are considered to be significant risks, with the exception of going concern
which is included as a new key audit matter for 2019, in respect of our consideration of the
Company’s assessment of the impact of the COVID-19 pandemic.
Materiality
Overall group materiality of US$14.9m which represents 1% of Total net assets.
Incorrect valuation of Capital provision assets, including incorrect calculation and disclosure of
unrealised and realised gains and losses (fair value gains and losses)
(Capital provision assets $2,045 million, 2018: US$1,641 million in the consolidated statement of
financial position)
(Fair value gains of $355.9million (2018 $400.6 million) included within Income on capital
provision assets of $370.9million (2018 $411.6million) as set out in Note 6 to the financial
statements)
Refer to the Accounting policies (pages 113 to 115); and Note 6 of the Consolidated Financial
Statements (pages 122 to 125)
The directors have concluded that the capital provision assets should be classified as financial
instruments in accordance with IAS 32 (Financial Instruments – classification) and accounted for at fair
value through the income statement in accordance with IFRS 9 (Financial Instruments).
Owing to the illiquid nature of these capital provision assets, there is inherent valuation uncertainty in
the assessment of fair valuation. The valuation is subjective and may require significant and/or
complex judgments to be made. The fair value is determined for each capital provision asset based on
objective events, such as court rulings or settlement offers, on the contractual entitlement at exit, the
underlying risk profile of the litigation, a trial or an appellate outcome or other case events. Any other
agreements in respect of settlement discussions or negotiations are factored into the valuation, as well
as the credit risk associated with the capital provision asset and any relevant secondary market activity.
One litigation matter, the YPF-related assets of Petersen and Eton Park, is the most significant of those
the company is currently invested in. It represents $773m of the total capital provision assets (38%),
and $188m of total current year capital provision income (53%) in both realised and unrealised gains by
reference to the opening carrying value.
There is a risk that inappropriate judgments made in the assessment of fair value, in particular in
respect of the expected return on the legal judgement and the application of discounts could lead to
the incorrect valuation of a capital provision asset. This could materially misstate the value of the
capital provision assets in the consolidated statement of financial position and relevant fair value
movements recognised in the consolidated statement of comprehensive income.
There is also the risk that management may influence the significant judgments and estimates in
respect of the valuation of capital provision assets.
In respect of the realised gains recognised by management, there is a risk that realisations may not be
correctly calculated based on the underlying agreements or that capital provision assets are
incorrectly treated as concluded where litigation risk remains.
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Our response to the risk
We confirmed with our accounting technical specialist that the capital provision assets were correctly
classified as financial instruments in accordance with IAS 32 (Financial Instruments – classification) as
the relevant capital asset contract contains a contractual right to receive cash (which may be
contingent on the occurrence of a future event such as litigation success) and therefore meets the
definition of a financial asset.
We also confirmed that as financial assets they are recognised as required by IFRS 9 (Financial
Instruments) at fair value through profit and loss (capital asset contractual terms do not give rise on
specified dates to cash flows that are solely the payments of principal and interest on the principal
amount outstanding and therefore may not be carried at amortised cost or at fair value through other
comprehensive income).
For a sample of capital provision assets where there had been a change in fair value, we tested the
assumptions, obtained supporting documentation, considered any relevant secondary market trading
and assessed the application of the valuation policy to the capital provision asset valuation.
Where there had not been a change to the assessed fair value during the year, we tested a sample of
capital provision assets applying a combination of procedures, including considering externally
available data on the state of progress of the litigation, obtaining other supporting documentation as
appropriate and reviewing the contractual documentation, if acquired during the period.
Additionally, we performed independent research in the public domain to ensure that any factors
considered in the valuation were accurate and complete. We held discussions with management to
determine the qualitative factors and the ongoing legal proceedings and whether there have been
any changes in the facts and circumstances that suggest that the fair valuation is not appropriate.
In all cases above, we considered whether the capital provision assets tested were assessed for fair
value consistent with the Group’s fair value policy guidelines.
At our request, management engaged an independent counsel to perform an annual review of three
specific capital provision assets selected by us. The review focussed on the significance of the legal
judgements, events and assessments in respect of the relevant capital provision asset. We reviewed
the Independent Counsel’s conclusions, assessed his independence and objectivity and discussed
with him the approach and judgements considered in reaching his conclusion.
We engaged our valuations specialists to review samples of the valuations of specific capital provision
assets to:
use their relevant specialist valuation skills and cumulative industry knowledge and experience to
assess and confirm the appropriateness of the valuation metrics applied and the correct application
of the Group valuation policy guidelines;
assess that the methodologies used and judgements applied to value capital provision assets were
appropriate and consistently applied.
In relation to the YPF-related asset of Petersen we obtained and reviewed evidence of the secondary
market transaction entered into by the Group during the year to assess whether it represented a
relevant third party transaction for the purpose of determining fair value. Assisted by our valuation
specialists we considered whether events since the transaction date, including in relation to changes
in assessments of Argentina’s sovereign debt risk and other relevant economic factors should give rise
to a change in the fair value based on that transaction.
We performed back testing procedures on cases concluded in 2019 and, combining this with
previous history, continued to challenge the ongoing valuation process and methodology as set
out in the Group’s detailed fair valuation policy guidelines and any significant judgments applied.
For realised gains, on a sample basis, we obtained supporting documents such as settlement
agreements and final court judgements to prove that the relevant capital provision asset no
longer bears litigation risk. We held discussions with management to understand the finality of
the agreements and on a sample basis, we recalculated the realised gains in line with the
funding contracts and vouched the amounts to bank statements where appropriate. We
made recommendations, that were adopted, in respect of enhanced disclosures within the
financial statements.
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Our response to the risk
We confirmed with our accounting technical specialist that the capital provision assets were correctly
Key observations
communicated to the Audit
Committee
Risk
Our response to the risk
Key observations
communicated to the Audit
Committee
classified as financial instruments in accordance with IAS 32 (Financial Instruments – classification) as
the relevant capital asset contract contains a contractual right to receive cash (which may be
contingent on the occurrence of a future event such as litigation success) and therefore meets the
definition of a financial asset.
We also confirmed that as financial assets they are recognised as required by IFRS 9 (Financial
Instruments) at fair value through profit and loss (capital asset contractual terms do not give rise on
specified dates to cash flows that are solely the payments of principal and interest on the principal
amount outstanding and therefore may not be carried at amortised cost or at fair value through other
comprehensive income).
For a sample of capital provision assets where there had been a change in fair value, we tested the
assumptions, obtained supporting documentation, considered any relevant secondary market trading
and assessed the application of the valuation policy to the capital provision asset valuation.
Where there had not been a change to the assessed fair value during the year, we tested a sample of
capital provision assets applying a combination of procedures, including considering externally
available data on the state of progress of the litigation, obtaining other supporting documentation as
appropriate and reviewing the contractual documentation, if acquired during the period.
Additionally, we performed independent research in the public domain to ensure that any factors
considered in the valuation were accurate and complete. We held discussions with management to
determine the qualitative factors and the ongoing legal proceedings and whether there have been
any changes in the facts and circumstances that suggest that the fair valuation is not appropriate.
In all cases above, we considered whether the capital provision assets tested were assessed for fair
value consistent with the Group’s fair value policy guidelines.
At our request, management engaged an independent counsel to perform an annual review of three
specific capital provision assets selected by us. The review focussed on the significance of the legal
judgements, events and assessments in respect of the relevant capital provision asset. We reviewed
the Independent Counsel’s conclusions, assessed his independence and objectivity and discussed
with him the approach and judgements considered in reaching his conclusion.
We engaged our valuations specialists to review samples of the valuations of specific capital provision
assets to:
use their relevant specialist valuation skills and cumulative industry knowledge and experience to
assess and confirm the appropriateness of the valuation metrics applied and the correct application
assess that the methodologies used and judgements applied to value capital provision assets were
of the Group valuation policy guidelines;
appropriate and consistently applied.
In relation to the YPF-related asset of Petersen we obtained and reviewed evidence of the secondary
market transaction entered into by the Group during the year to assess whether it represented a
relevant third party transaction for the purpose of determining fair value. Assisted by our valuation
specialists we considered whether events since the transaction date, including in relation to changes
in assessments of Argentina’s sovereign debt risk and other relevant economic factors should give rise
to a change in the fair value based on that transaction.
We performed back testing procedures on cases concluded in 2019 and, combining this with
previous history, continued to challenge the ongoing valuation process and methodology as set
out in the Group’s detailed fair valuation policy guidelines and any significant judgments applied.
For realised gains, on a sample basis, we obtained supporting documents such as settlement
agreements and final court judgements to prove that the relevant capital provision asset no
longer bears litigation risk. We held discussions with management to understand the finality of
the agreements and on a sample basis, we recalculated the realised gains in line with the
funding contracts and vouched the amounts to bank statements where appropriate. We
made recommendations, that were adopted, in respect of enhanced disclosures within the
financial statements.
Strategic report
Governance
Financial statements
We confirmed that there were no material matters arising from our audit work that we needed to
bring to the attention of the Audit Committee.
The valuation of capital provision assets was determined to be reasonable whilst recognising that as a
result of the illiquid nature of these capital provision assets, there is inherent valuation uncertainty in
the overall assessment of fair valuation. Appropriate inputs to the valuations were used for the capital
provision assets tested and management judgments and estimates were considered to be reasonable
and supported by relevant evidence.
Litigation risk remains in respect of the YPF-related assets, and it is possible that the claim will lose
or produce no recovery in the future (as may be the case for any litigation asset). However, we
were satisfied that the year end fair value gave appropriate consideration of the relevant sovereign
and economic factors, including the enforcement options that might be available were the claim to
be successful.
The capital provision asset valuations and resulting unrealised and realised gains are consistent with
the Burford accounting policy and Group detailed valuation guidelines. The capital provision assets
were appropriately assessed as financial assets in accordance with IAS 32 and accounted for at fair
value through profit and loss in accordance with IFRS 9 and properly disclosed including as required
by IFRS 7 (Financial Instruments: Disclosures).
Incorrect goodwill impairment assessment
(US$134.0 million, 2018: US$134.0 million)
Refer to the Accounting policies (page 112); and Note 20 of the Consolidated Financial Statements
(pages 135 to 136)
Determining whether the carrying value of goodwill is recoverable requires management to make
significant estimates concerning the estimated future cash flows which are in turn dependent on the
directors’ assumptions in relation to future returns and growth rates and on the application of an
appropriate discount rate. There is a risk that inappropriate estimates are applied to the value in use
calculation. This could misstate materially the carrying value by excluding any required impairment.
We reviewed and challenged the cash flow projections and key inputs used in the value in use model.
Key inputs such as deployed capital, deployment rates and investment returns were compared to the
context of the historical data of the group. We utilised our valuation specialists to assess critically the
subjective inputs, such as discount rates and agree calculation inputs to available market data.
We validated the mathematical accuracy and logical integrity of the model. Our valuation model
specialists assessed the model formulae, ensuring they were consistently applied throughout.
We considered the sufficiency of disclosures in the financial statements including the critical
judgments and significant estimates and assessed whether they complied with IAS 36 (Impairment
of Assets).
We confirmed that there were no material matters arising from our audit work that we needed to
bring to the attention of the Audit Committee.
Based on the procedures performed, we concluded that no material goodwill impairment was
required and appropriate disclosures had been made in the financial statements.
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Risk
Our response to the risk
Incorrect calculation of tax balances
(Deferred tax asset US$24.9 million, 2018: US$28.8 million; deferred tax liability US$9.6m, 2018:
US$4.1m; in the consolidated statement of financial position)
(Tax (payable) / receivable US($1.3) million, 2018 US$1.8 million; in the consolidated statement of
financial position)
(Taxation expense / (credit) US$13.4 million, 2018: US$(12.5) million in the consolidated statement
of comprehensive income)
Refer to the Accounting policies (page 115); and Note 4 of the Consolidated Financial Statements
(pages 117 to 118)
Accounting for multi-jurisdictional taxes
There is a risk the group may not have accrued correctly for corporate income taxes in the various
jurisdictions in which it operates, including tax arising from disposals or movements in investment
values. This includes the risk that structuring arrangements may not be operated as intended or may
not be effective in achieving the tax position adopted.
Recognition of deferred tax assets
Deferred tax assets may not be appropriately recognised in the financial statements, taking into
account the level of deferred tax asset arising and the ability to forecast utilisation of the asset.
We involved tax specialists to consider tax relevant to certain jurisdictions. In particular we used US tax
specialists to review US tax advice received by the group, to consider the appropriateness of the
advice and how this has been applied by the group.
We obtained the deferred tax calculations and assessed the recoverability of the deferred tax assets.
We evaluated the evidence supporting the reversal of temporary and permanent differences in the
future and whether there will be sufficient future taxable profits available against which the temporary
and permanent differences can be utilised.
We performed a review of the realised and unrealised gains arising on capital provision assets to
ensure that any tax aspects were appropriately recorded. We utilised our US tax specialists to review
the group’s assessment of uncertain tax positions.
We considered new entities in the group in the current year and any potential tax that may arise
involving other tax specialists as appropriate. We have read relevant tax advice received by the group
and considered its application to the group.
We tested the disclosures in the financial statements and ensured they complied with IAS 12
(Income Taxes).
Key observations
communicated to the Audit
Committee
We confirmed that there were no material matters arising from our audit work that we needed to
bring to the attention of the Audit Committee.
Based on the procedures performed, we concluded that the tax balances were not materially
misstated and were appropriately disclosed in the financial statements.
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continued
Risk
Incorrect calculation of tax balances
Risk
Our response to the risk
Strategic report
Governance
Financial statements
Incorrect recognition of asset management income
(US$15.2 million, 2018: US$11.7 million in the consolidated statement of comprehensive income)
Refer to the Accounting policies (page 112); and Note 10 of the Consolidated Financial Statements
(pages 128)
Asset management fees are composed of management fees and performance fees. Management
fees are calculated as a percentage of the invested or committed capital of the fund (depending on
the fund specific terms) managed by the group while performance fees are earned when relevant
contractual realised performance levels on exited capital provision assets are exceeded.
We recalculated the management fees ensuring they were in line with the relevant limited partnership
and operating agreements and obtained evidence supporting all inputs into the calculations.
We recalculated the performance fees income due and received in accordance with the contractual
commitment under the relevant agreements and agreed all inputs used to source data.
We traced the fees paid during the year to bank statements.
Key observations
communicated to the Audit
Committee
We confirmed that there were no material matters arising from our audit work that we needed to
bring to the attention of the Audit Committee.
Based on the procedures performed, we concluded that asset management income was not
materially misstated.
Our response to the risk
We involved tax specialists to consider tax relevant to certain jurisdictions. In particular we used US tax
Risk
Going concern (including assessment of impact of COVID-19)
Refer to the Accounting policies Note 2 (page 109); and Note 32 of the Consolidated Financial
Statements (pages 153)
Since the balance sheet date the World Health Organisation has declared the outbreak of coronavirus
(“COVID-19”) to be a global pandemic.
The Directors are required to determine the appropriateness of preparing the financial statements on
a going concern basis. In doing so, they are required to consider the ability of the Group to meet its
financial obligations as and when they fall due and payable for a period of at least twelve months
from the date of approval of the financial statements. They are also required to assess the adequacy
of the going concern disclosures in the annual report and financial statements.
The outbreak of COVID-19 and the resulting financial and economic market uncertainty described
above, could have a significant adverse impact on the performance of the Company, which
potentially could lead to the improper application of the directors’ going concern assumption.
There is also a risk that appropriate disclosure of the impact of COVID-19 has not been made in the
financial statements.
(Deferred tax asset US$24.9 million, 2018: US$28.8 million; deferred tax liability US$9.6m, 2018:
US$4.1m; in the consolidated statement of financial position)
(Tax (payable) / receivable US($1.3) million, 2018 US$1.8 million; in the consolidated statement of
(Taxation expense / (credit) US$13.4 million, 2018: US$(12.5) million in the consolidated statement
Refer to the Accounting policies (page 115); and Note 4 of the Consolidated Financial Statements
financial position)
of comprehensive income)
(pages 117 to 118)
Accounting for multi-jurisdictional taxes
There is a risk the group may not have accrued correctly for corporate income taxes in the various
jurisdictions in which it operates, including tax arising from disposals or movements in investment
values. This includes the risk that structuring arrangements may not be operated as intended or may
not be effective in achieving the tax position adopted.
Recognition of deferred tax assets
Deferred tax assets may not be appropriately recognised in the financial statements, taking into
account the level of deferred tax asset arising and the ability to forecast utilisation of the asset.
specialists to review US tax advice received by the group, to consider the appropriateness of the
advice and how this has been applied by the group.
We obtained the deferred tax calculations and assessed the recoverability of the deferred tax assets.
We evaluated the evidence supporting the reversal of temporary and permanent differences in the
future and whether there will be sufficient future taxable profits available against which the temporary
and permanent differences can be utilised.
We performed a review of the realised and unrealised gains arising on capital provision assets to
ensure that any tax aspects were appropriately recorded. We utilised our US tax specialists to review
the group’s assessment of uncertain tax positions.
We considered new entities in the group in the current year and any potential tax that may arise
involving other tax specialists as appropriate. We have read relevant tax advice received by the group
and considered its application to the group.
We tested the disclosures in the financial statements and ensured they complied with IAS 12
(Income Taxes).
Key observations
We confirmed that there were no material matters arising from our audit work that we needed to
communicated to the Audit
bring to the attention of the Audit Committee.
Committee
Based on the procedures performed, we concluded that the tax balances were not materially
misstated and were appropriately disclosed in the financial statements.
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Our response to the risk
We obtained an understanding of the process followed by management and the Directors to
undertake the going concern assessment including assessing the relevant impact of COVID-19.
We challenged the overall approach to and evidencing of the going concern assessment including
the key assumptions and forecast amounts included in the forecast period. We considered their
appropriateness in the context of supporting evidence obtained through our audit work. We reviewed
the underlying projected cashflows to ensure that there were no unidentified or undisclosed events
that could have an impact on the forecast.
We performed testing to evaluate whether the covenant requirements would be met under base and
stressed scenarios and considered the level of headroom under these scenarios.
We evaluated, with the assistance of our specialists, the appropriateness of the stress test and reverse
stress test scenarios, their assessed impact and the mitigations that management would have
available to them in the event of these stressed scenarios.
We held discussions with the Audit Committee and management to determine whether, in their
opinion, there was any material uncertainty in respect of the adoption of the going concern
assumption. We considered whether the Director’s assessment of going concern as set out in the
Annual Report was consistent with the evidence provided to us.
We assessed that the disclosures in the financial statements in relation to COVID-19 adequately
disclose the risk, potential impact on the group and mitigating actions that could be adopted.
Key observations
communicated to the Audit
Committee
We are satisfied that our procedures indicated that the directors had an appropriate basis on which to
conclude that there is no material uncertainty in connection with the adoption of the going concern
basis in the preparation of the financial statements.
An overview of the scope of our audit
Tailoring the scope for an integrated audit team
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take
into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business
environment and other factors when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements. All audit work was performed by one integrated audit team with one
audit partner across the whole group. The team comprised individuals from Guernsey and the United Kingdom. We performed the
audit procedures and responded to the risks identified as described above.
The components for which we performed full scope audits accounted for 96.7% (2018: 97.4%) of the Group’s Profit Before Tax and
99.9% (2018: 98.6%) of the Group’s Total Net Assets. The components for which we performed specific scope audits accounted for
2.1% of the Group’s Profit Before Tax (2018: 2.6%) and 0.1% (2018:1.3%) of the Group’s Total Net Assets.
There has been no change in our approach from the prior year other than the insurance revenue which was taken out of scope due
to it being below our performance materiality threshold.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
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Independent auditors’ report
continued
undertake the going concern assessment including assessing the relevant impact of COVID-19.
We challenged the overall approach to and evidencing of the going concern assessment including
the key assumptions and forecast amounts included in the forecast period. We considered their
appropriateness in the context of supporting evidence obtained through our audit work. We reviewed
the underlying projected cashflows to ensure that there were no unidentified or undisclosed events
that could have an impact on the forecast.
We performed testing to evaluate whether the covenant requirements would be met under base and
stressed scenarios and considered the level of headroom under these scenarios.
We evaluated, with the assistance of our specialists, the appropriateness of the stress test and reverse
stress test scenarios, their assessed impact and the mitigations that management would have
available to them in the event of these stressed scenarios.
We held discussions with the Audit Committee and management to determine whether, in their
opinion, there was any material uncertainty in respect of the adoption of the going concern
assumption. We considered whether the Director’s assessment of going concern as set out in the
Annual Report was consistent with the evidence provided to us.
We assessed that the disclosures in the financial statements in relation to COVID-19 adequately
disclose the risk, potential impact on the group and mitigating actions that could be adopted.
Key observations
We are satisfied that our procedures indicated that the directors had an appropriate basis on which to
communicated to the Audit
conclude that there is no material uncertainty in connection with the adoption of the going concern
Committee
basis in the preparation of the financial statements.
An overview of the scope of our audit
Tailoring the scope for an integrated audit team
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take
into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business
environment and other factors when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements. All audit work was performed by one integrated audit team with one
audit partner across the whole group. The team comprised individuals from Guernsey and the United Kingdom. We performed the
audit procedures and responded to the risks identified as described above.
The components for which we performed full scope audits accounted for 96.7% (2018: 97.4%) of the Group’s Profit Before Tax and
99.9% (2018: 98.6%) of the Group’s Total Net Assets. The components for which we performed specific scope audits accounted for
2.1% of the Group’s Profit Before Tax (2018: 2.6%) and 0.1% (2018:1.3%) of the Group’s Total Net Assets.
There has been no change in our approach from the prior year other than the insurance revenue which was taken out of scope due
to it being below our performance materiality threshold.
Our application of materiality
audit and in forming our audit opinion.
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
Our response to the risk
We obtained an understanding of the process followed by management and the Directors to
Materiality
Strategic report
Governance
Financial statements
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be US$14.9 million (2018: US$13.6 million), which is 1% (2018: 1%) of Total net assets. We
believe that Total net assets provides an appropriate basis as the group’s objective is to provide attractive levels of dividends and
capital growth and the performance of the business is significantly based on the size and valuation of the capital provision assets.
During the course of our audit, we reassessed initial materiality and accordingly updated the materiality using year end figures.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was
that performance materiality was 50% (2018: 75%) of our planning materiality, namely US$7.45m (2018: US$10.2m). We have set
performance materiality at this percentage, which represents an overall increased risk assessment including in respect of the Group’s
stated intention to pursue a dual listing in the United States of America (and hence this is a change from 2018).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$0.7m (2018:
US$0.7m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds. There was no change in the percentage basis threshold of 5% used from prior year.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report set out on pages 1-93 other than the consolidated
financial statements and our auditor’s report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information,
we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires us
to report to you if, in our opinion:
proper accounting records have not been kept by the group, or proper returns adequate for our audit have not been received from
branches not visited by us; or
the financial statements are not in agreement with the group’s accounting records and returns; or
we have not received all the information and explanations we require for our audit
100
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Burford Annual Report 2019
Burford Annual Report 2019
101
101
Independent auditors’ report
continued
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 88, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the group’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to the group’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the group and the group’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Ernst & Young LLP
London
28 April 2020
Notes:
1. The maintenance and integrity of Burford Capital Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on
the web site.
2. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Consolidated statement of comprehensive income
for the year ended 31 December 2019
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
Income
Capital provision income
Asset management income
Insurance income
Services income
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit for the year before taxation
Taxation (expense)/credit
Profit for the year after taxation
Other comprehensive income
Exchange differences on translation of foreign operations on consolidation
Total comprehensive income for the year
(17,525)
24,701
194,582
342,278
Basic profit per ordinary share
Diluted profit per ordinary share
Basic comprehensive income per ordinary share
Diluted comprehensive income per ordinary share
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
Notes
2019
$’000
2018
$’000
6
10
11
13
351,828
404,230
15,160
3,545
2,133
6,703
1,992
(15,318)
11,691
10,406
1,650
1,801
(1,453)
(3,348)
366,043
424,977
14
19
(91,402)
(71,831)
(9,495)
(9,494)
265,146
343,652
17
(39,622)
(38,538)
225,524
305,114
4
(13,417)
12,463
212,107
317,577
Cents
97.0
96.6
89.0
88.6
Cents
150.7
150.3
162.4
162.0
28
28
28
28
102
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Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
103
Independent auditors’ report
continued
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 88, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the group’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to the group’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the group and the group’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Ernst & Young LLP
London
28 April 2020
Notes:
the web site.
Strategic report
Governance
Financial statements
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
for the year ended 31 December 2019
for the year ended 31 December 2019
Income
Income
Capital provision income
Capital provision income
Asset management income
Asset management income
Insurance income
Insurance income
Services income
Services income
Cash management income and bank interest
Cash management income and bank interest
Foreign exchange gains/(losses)
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
Third-party share of gains relating to interests in consolidated entities
Total income
Total income
Operating expenses
Operating expenses
Amortisation of intangible asset
Amortisation of intangible asset
Operating profit
Operating profit
Finance costs
Finance costs
Profit for the year before taxation
Profit for the year before taxation
Taxation (expense)/credit
Taxation (expense)/credit
Profit for the year after taxation
Profit for the year after taxation
Other comprehensive income
Other comprehensive income
Notes
Notes
2019
2019
$’000
$’000
2018
2018
$’000
$’000
6
6
10
10
11
11
13
13
351,828
351,828
404,230
404,230
15,160
15,160
3,545
3,545
2,133
2,133
6,703
6,703
1,992
1,992
(15,318)
(15,318)
11,691
11,691
10,406
10,406
1,650
1,650
1,801
1,801
(1,453)
(1,453)
(3,348)
(3,348)
366,043
366,043
424,977
424,977
14
14
19
19
(91,402)
(91,402)
(71,831)
(71,831)
(9,495)
(9,495)
(9,494)
(9,494)
265,146
265,146
343,652
343,652
17
17
(39,622)
(39,622)
(38,538)
(38,538)
225,524
225,524
305,114
305,114
4
4
(13,417)
(13,417)
12,463
12,463
212,107
212,107
317,577
317,577
Exchange differences on translation of foreign operations on consolidation
Exchange differences on translation of foreign operations on consolidation
Total comprehensive income for the year
Total comprehensive income for the year
(17,525)
(17,525)
24,701
24,701
194,582
194,582
342,278
342,278
Basic profit per ordinary share
Basic profit per ordinary share
Diluted profit per ordinary share
Diluted profit per ordinary share
Basic comprehensive income per ordinary share
Basic comprehensive income per ordinary share
Diluted comprehensive income per ordinary share
Diluted comprehensive income per ordinary share
Cents
Cents
97.0
97.0
96.6
96.6
89.0
89.0
88.6
88.6
Cents
Cents
150.7
150.7
150.3
150.3
162.4
162.4
162.0
162.0
28
28
28
28
28
28
28
28
1. The maintenance and integrity of Burford Capital Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
2. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
102
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Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
103
103
103
Consolidated statement of financial position
as at 31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Notes
2019
$’000
2018
$’000
1 January
2018
$’000
13
15
8
6
7
12
19
20
4
186,621
265,551
135,415
37,966
41,449
39,933
95,226
129,911
41,678
13,263
16,313
54,358
37,109
8,650
3,248
2,045,329
1,641,035
1,089,395
–
31,396
20,184
4,154
582
1,866
–
6,058
2,399
8,703
18,198
27,692
133,999
133,966
134,022
24,939
28,848
10,863
2,651,984
2,318,982
1,499,353
Financial liabilities at fair value through profit and loss
9
91,493
112,821
36,242
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Equity
Share capital
Reserves attributable to owners
Total shareholders’ equity
17
16
17
23
4
51,401
12,667
–
9,462
9,327
5,397
51,430
31,046
24,991
655,880
638,665
486,931
–
13,944
7,000
3,244
–
3,152
235,720
136,959
143,639
9,662
4,099
437
1,118,992
955,828
700,789
1,532,992
1,363,154
798,564
26
609,954
609,954
364,749
923,038
753,200
433,815
1,532,992
1,363,154
798,564
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
The financial statements on pages 103 to 107 were approved by the Board of Directors on
28 April 2020 and were signed on its behalf by:
Charles Parkinson
Director
28 April 2020
104
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Burford Annual Report 2019
Burford Annual Report 2019
Consolidated statement of financial position
as at 31 December 2019
Consolidated statement of cash flows
for the year ended 31 December 2019
Strategic report
Governance
Financial statements
Cash flows from operating activities
Profit for the year before tax
Changes in working capital and non-cash items
Capital provision assets (note 3):
Proceeds received
Net (funding) of/proceeds from financial liabilities at fair value through profit and loss
Net proceeds from/(cash paid) to due from/to brokers
Funding of derivative financial asset
Proceeds from equity security
Proceeds from asset recovery services
Net proceeds from/(funding) of cash management assets
Taxation paid
Notes
2019
$’000
2018
$’000
225,524
305,114
3
(281,501)
(344,379)
491,252
602,687
(42,200)
73,569
73,419
(75,566)
–
–
1,123
3,346
(694)
(7,616)
624
1,619
(5,655)
(2,273)
Net proceeds from/(cash paid) to third-party interests in consolidated entities
83,443
(10,028)
Net cash inflow/(outflow) from operating activities before new funding of capital
provision assets
Capital provision assets (note 3):
New funding of capital provision assets
Net cash inflow/(outflow) from operating activities
553,712
538,096
(562,018)
(771,409)
(8,306)
(233,313)
Financial liabilities at fair value through profit and loss
9
91,493
112,821
36,242
Notes
2019
$’000
2018
$’000
1 January
2018
$’000
13
15
8
6
7
12
19
20
4
17
16
17
23
4
186,621
265,551
135,415
37,966
41,449
39,933
95,226
129,911
41,678
2,045,329
1,641,035
1,089,395
13,263
16,313
54,358
37,109
–
31,396
20,184
4,154
582
1,866
8,650
3,248
–
6,058
2,399
8,703
18,198
27,692
133,999
133,966
134,022
24,939
28,848
10,863
2,651,984
2,318,982
1,499,353
51,401
12,667
–
9,462
9,327
5,397
51,430
31,046
24,991
655,880
638,665
486,931
–
13,944
7,000
3,244
–
3,152
235,720
136,959
143,639
9,662
4,099
437
1,118,992
955,828
700,789
1,532,992
1,363,154
798,564
26
609,954
609,954
364,749
923,038
753,200
433,815
1,532,992
1,363,154
798,564
Due from settlement of capital provision assets
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Equity
Share capital
Reserves attributable to owners
Total shareholders’ equity
Charles Parkinson
Director
28 April 2020
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
The financial statements on pages 103 to 107 were approved by the Board of Directors on
28 April 2020 and were signed on its behalf by:
104
104
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
105
105
Consolidated statement of cash flows
for the year ended 31 December 2019 continued
Cash flows from financing activities
Issue of share capital
Issue expenses – share capital
Issue of loan capital and loan notes
Issue expenses – loan capital
Payments of lease liabilities
Interest paid on loan capital
Dividends paid on ordinary shares
Net cash (outflow)/inflow from financing activities
Cash flows from investing activities
Purchases of tangible fixed assets
Net cash (outflow) from investing activities
Net (decrease)/increase in cash and cash equivalents
Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at beginning of year
(Decrease)/increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Supplemental disclosure
Cash received from interest and dividend income
Asset received in kind
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
Notes
2019
$’000
2018
$’000
–
–
–
–
249,983
(4,778)
180,000
(2,637)
(1,433)
–
(37,568)
(33,108)
(28,424)
(24,579)
(67,425)
364,881
(3,398)
(3,398)
(104)
(104)
(79,129)
131,464
2019
$’000
2018
$’000
265,551
135,415
(79,129)
131,464
199
(1,328)
186,621
265,551
2019
$’000
6,849
29,645
2018
$’000
6,377
–
106
106
Burford Annual Report 2019
Burford Annual Report 2019
Cash flows from financing activities
Issue of share capital
Issue expenses – share capital
Issue of loan capital and loan notes
Issue expenses – loan capital
Payments of lease liabilities
Interest paid on loan capital
Dividends paid on ordinary shares
Net cash (outflow)/inflow from financing activities
Cash flows from investing activities
Purchases of tangible fixed assets
Net cash (outflow) from investing activities
Net (decrease)/increase in cash and cash equivalents
Reconciliation of net cash flow to movements in cash and cash equivalents
Cash and cash equivalents at beginning of year
(Decrease)/increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Cash received from interest and dividend income
Supplemental disclosure
Asset received in kind
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
Notes
2019
$’000
2018
$’000
–
–
–
–
249,983
(4,778)
180,000
(2,637)
(1,433)
–
(37,568)
(33,108)
(28,424)
(24,579)
(67,425)
364,881
(3,398)
(3,398)
(104)
(104)
(79,129)
131,464
2019
$’000
2018
$’000
265,551
135,415
(79,129)
131,464
199
(1,328)
186,621
265,551
2019
$’000
6,849
29,645
2018
$’000
6,377
–
Consolidated statement of cash flows
for the year ended 31 December 2019 continued
Consolidated statement of changes in equity
for the year ended 31 December 2019
Strategic report
Governance
Financial statements
31 December 2019
Share capital
$’000
Contingent
share capital
$’000
Other capital
reserve
$’000
Revenue
reserve
$’000
Foreign
currency
consolidation
reserve
$’000
Capital
redemption
reserve
$’000
Total equity
shareholders’
funds
$’000
Balance at 31 December 2018
596,454
13,500
2,838
716,218
34,282
(138)
1,363,154
Change in accounting policy –
Leases
–
–
–
(839)
–
–
(839)
Restated at 1 January 2019
596,454
13,500
2,838
715,379
34,282
(138)
1,362,315
Profit for the year
Other comprehensive income
Share-based payments (note 27)
Dividends paid (note 29)
–
–
–
–
–
–
–
–
–
–
4,519
–
(28,424)
(17,525)
–
–
212,107
–
–
–
–
–
212,107
(17,525)
4,519
(28,424)
Balance at 31 December 2019
596,454
13,500
7,357
899,062
16,757
(138)
1,532,992
31 December 2018
As at 1 January 2018
Profit for the year
Other comprehensive income
Issue of share capital (note 26)
245,205
Share-based payments (note 27)
Dividends paid (note 29)
–
–
Share capital
$’000
Contingent
share capital
$’000
Other capital
reserve
$’000
Revenue
reserve
$’000
Foreign
currency
consolidation
reserve
$’000
Capital
redemption
reserve
$’000
Total equity
shareholders’
funds
$’000
351,249
13,500
1,152
423,220
9,581
(138)
798,564
–
–
317,577
–
–
–
–
1,686
–
–
–
–
–
–
(24,579)
24,701
–
–
–
–
–
–
–
–
317,577
24,701
245,205
1,686
(24,579)
–
–
–
–
–
Balance at 31 December 2018
596,454
13,500
2,838
716,218
34,282
(138)
1,363,154
The notes on pages 108 to 153 form an integral part of these consolidated financial statements.
106
106
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
107
107
Notes to the consolidated financial statements
for the year ended 31 December 2019
1. Legal form and principal activity
Burford Capital Limited (the “Company”) and its subsidiaries (the “Subsidiaries”) (together the “Group”) provide investment capital,
asset management, financing and risk solutions with a focus on the legal sector.
The Company was incorporated under The Companies (Guernsey) Law, 2008 (the “Law”) on 11 September 2009. Shares
in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 October 2009.
These financial statements cover the year from 1 January 2019 to 31 December 2019.
2. Basis of preparation and principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
Basis of accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about the carrying values of assets that are not apparent from other sources. Actual results may differ from these
estimates. The consolidated financial statements are presented in United States Dollars and are rounded to the nearest $’000 unless
otherwise indicated.
Significant estimates
The most significant estimates relate to the valuation of capital provision assets at fair value through profit or loss which are
determined by the Group.
Fair values are determined on the specifics of each asset and will typically change upon an asset having a return entitlement or
progressing in a manner that, in the Group’s judgement, would result in a third party being prepared to pay an amount different from
the original sum invested for the Group’s rights in connection with the asset. Positive, material progression of an asset will give rise to
an increase in fair value whilst adverse outcomes give rise to a reduction. The quantum of change depends on the potential future
stages of asset progression. The consequent effect when an adjustment is made is that the fair value of an asset with few remaining
stages is adjusted closer to its predicted final outcome than one with many remaining stages.
In litigation matters, before a judgment is entered following trial or other adjudication, the key stages of any matter and their impact
on fair value is substantially case specific but may include the motion to dismiss and the summary judgment stages. Following
adjudication, appeals proceedings provide further opportunities to re-assess the fair value of an asset.
The estimation of fair value is inherently uncertain. Awards and settlements are hard to predict and often have a wide range of
possible outcomes. Furthermore, there is much unpredictability in the actions of courts, litigants and defendants because of the large
number of variables involved and consequent difficulty of predictive analysis. In addition, there is little activity in transacting assets and
hence little relevant data for benchmarking the effect of asset progression on fair value, although the existence of the Group’s
secondary market sales is a valuation input. Refer to note 21 for further details on the sensitivities of fair value.
There is a significant estimate required to support the recoverability of the deferred tax asset as it includes an amount relating
to carried-forward US tax losses that can be utilised against future taxable profits of the Group’s US business. The estimation
of the future taxable profits is based on the business plans and approved budgets for those entities that require the use of
assumptions for expected returns on capital provision assets, the level of future business activity and the structuring of capital
provision assets for tax efficiency. The tax losses can be carried forward indefinitely and have no expiry date.
There is a significant estimate required in testing goodwill for impairment. This includes the identification of independent cash-
generating units (“CGU”) and the allocation of goodwill to these units based on which units are expected to benefit from the
acquisition. Cash flow projections necessarily take into account changes in the market in which a business operates including the
level of growth, competitive activity, and the impacts of regulatory change. Determining both the expected cash flows and the risk-
adjusted interest rate appropriate to the CGUs requires the exercise of judgement. The estimation of cash flows is sensitive to the
periods for which the projections are made and to assumptions regarding long-term sustainable cash flows. Refer to note 20 for
further details on sensitivities of goodwill.
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1. Legal form and principal activity
Significant judgements
Strategic report
Governance
Financial statements
In connection with investment funds and other related entities where the Group does not own 100% of the entity in question, the
Group makes judgements about whether it is required to consolidate such entities by applying the factors set forth in the relevant
accounting standards, including but not limited to the Group’s equity and economic ownership interest, the economic structures
in use in the entity, the level of control the Group has over the entity through the entity’s structure or any relevant contractual
agreements, and the rights of other investors.
Non-controlling interests where the Group does not own 100% of a consolidated entity are classified as financial liabilities and
recorded as third-party interest in consolidated entities on the consolidated statement of financial position when they contain
an obligation to transfer a financial asset to another entity. Accordingly, third-party share of gains or losses relating to interest
in consolidated entities is treated as a reduction or increase, respectively, of income on the consolidated statement of
comprehensive income.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Burford Capital Limited and its Subsidiaries. All the
Subsidiaries are consolidated in full from the date of acquisition.
The Subsidiaries’ accounting policies and financial year end are consistent with those of the Company.
All intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated
in full.
Basis of preparation
The financial statements have been prepared on a going concern basis under the historical cost convention adjusted to take account
of the revaluation of certain of the Group’s financial assets and liabilities to fair value.
The full extent to which the COVID-19 pandemic may impact Group’s results, operations or liquidity is uncertain. At present the
global economy is suffering considerable disruption due to the effects of the COVID-19 and Management has given serious
consideration to the consequences of this for the litigation finance market in general and for the cashflows and asset values of the
Group specifically over the next twelve months. In assessing the going concern basis of accounting Management has considered
ongoing compliance with applicable loan capital covenants, and the year end cash balances and forecast cash flows, especially those
relating to operating expenses, finance costs and commitments to capital provision assets.
The Group has certain covenants associated with its loan capital and at present the Group’s financial situation does not suggest that
any of these covenants are close to being breached. The analysis performed has considered the extraordinary nature of the current
economic situation and included a number of stress tests to examine the possible circumstances which could result in the Group’s
covenants being breached. Based on this analysis, it is Management’s opinion that the circumstances which would give rise to a
covenant breach are highly unlikely. The first repayment on the Group’s loan capital is not due until August 2022.
In addition to the possible effect of the coronavirus pandemic on debt covenants, Management has performed a COVID-19 impact
analysis on the Group’s liquidity position using information available as at the date of issue of these financial statements. This analysis
has modelled a number of adverse scenarios to assess the potential impact that COVID-19 may have on Group’s liquidity as well as
incorporating relevant reverse stress test scenarios and any mitigations available to assess the stresses the Group has to endure
before there is a liquidity concern. The mitigations considered include deferring deployments on commitments to capital provision
assets, liquidations or sales of an interest in one or more of the Group’s capital provision assets and reducing the level of new
commitments to capital provision assets in the current year. Having considered the likelihood of the events which could cause a
liquidity issue and the remedies available to the Group, Management is of the view that Group is well placed to manage such an
eventuality satisfactorily.
Based on this information, Management believe that the Group has the ability to meet its financial obligations as they fall due for a
period of at least twelve months from the date of approval of the financial statements. Accordingly, the financial statements have
been prepared on a going concern basis.
Statement of financial position
The consolidated statement of financial position is presented to show assets and liabilities in a decreasing order of liquidity.
In accordance with IAS 1 Presentation of Financial Statements this presentational format has been adopted for the year ended
31 December 2019 as it is considered to provide more relevant information than a current/ non-current presentation because the
Group does not supply goods or services within a clearly identifiable operating cycle. A maturity analysis of all the Group’s assets
and liabilities is included at note 22.
Notes to the consolidated financial statements
for the year ended 31 December 2019
Burford Capital Limited (the “Company”) and its subsidiaries (the “Subsidiaries”) (together the “Group”) provide investment capital,
asset management, financing and risk solutions with a focus on the legal sector.
The Company was incorporated under The Companies (Guernsey) Law, 2008 (the “Law”) on 11 September 2009. Shares
in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 October 2009.
These financial statements cover the year from 1 January 2019 to 31 December 2019.
2. Basis of preparation and principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
Basis of accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported
amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making
judgements about the carrying values of assets that are not apparent from other sources. Actual results may differ from these
estimates. The consolidated financial statements are presented in United States Dollars and are rounded to the nearest $’000 unless
otherwise indicated.
Significant estimates
determined by the Group.
The most significant estimates relate to the valuation of capital provision assets at fair value through profit or loss which are
Fair values are determined on the specifics of each asset and will typically change upon an asset having a return entitlement or
progressing in a manner that, in the Group’s judgement, would result in a third party being prepared to pay an amount different from
the original sum invested for the Group’s rights in connection with the asset. Positive, material progression of an asset will give rise to
an increase in fair value whilst adverse outcomes give rise to a reduction. The quantum of change depends on the potential future
stages of asset progression. The consequent effect when an adjustment is made is that the fair value of an asset with few remaining
stages is adjusted closer to its predicted final outcome than one with many remaining stages.
In litigation matters, before a judgment is entered following trial or other adjudication, the key stages of any matter and their impact
on fair value is substantially case specific but may include the motion to dismiss and the summary judgment stages. Following
adjudication, appeals proceedings provide further opportunities to re-assess the fair value of an asset.
The estimation of fair value is inherently uncertain. Awards and settlements are hard to predict and often have a wide range of
possible outcomes. Furthermore, there is much unpredictability in the actions of courts, litigants and defendants because of the large
number of variables involved and consequent difficulty of predictive analysis. In addition, there is little activity in transacting assets and
hence little relevant data for benchmarking the effect of asset progression on fair value, although the existence of the Group’s
secondary market sales is a valuation input. Refer to note 21 for further details on the sensitivities of fair value.
There is a significant estimate required to support the recoverability of the deferred tax asset as it includes an amount relating
to carried-forward US tax losses that can be utilised against future taxable profits of the Group’s US business. The estimation
of the future taxable profits is based on the business plans and approved budgets for those entities that require the use of
assumptions for expected returns on capital provision assets, the level of future business activity and the structuring of capital
provision assets for tax efficiency. The tax losses can be carried forward indefinitely and have no expiry date.
There is a significant estimate required in testing goodwill for impairment. This includes the identification of independent cash-
generating units (“CGU”) and the allocation of goodwill to these units based on which units are expected to benefit from the
acquisition. Cash flow projections necessarily take into account changes in the market in which a business operates including the
level of growth, competitive activity, and the impacts of regulatory change. Determining both the expected cash flows and the risk-
adjusted interest rate appropriate to the CGUs requires the exercise of judgement. The estimation of cash flows is sensitive to the
periods for which the projections are made and to assumptions regarding long-term sustainable cash flows. Refer to note 20 for
further details on sensitivities of goodwill.
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Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
The combination of presenting the assets and liabilities in a decreasing order of liquidity, and the new segment information as
disclosed in note 5, has resulted in the following changes to individual line items in the statement of financial position:
Capital provision assets – this combines the previously reported ‘Investments’, ‘New initiatives investments’ and ‘Investment
income receivables’ into a single line item. In addition, the single remaining financial asset held at amortised cost has been
transferred to ‘Other assets’ and therefore all items within this category are classified at fair value through profit and loss.
Other assets – this combines the previously reported ‘Receivables and prepayments’ and ‘Tax receivable’ into a single line item
including the asset transferred from ‘Investments’ above.
Due from settlement of capital provision assets – this combines the previously reported amount of ‘Due from settlement of
investments’ split between non-current and current into a single line item.
Other liabilities – this combines the previously reported ‘Payables’ and ‘Due to limited partners’ into a single line item.
The tables below presents a reconciliation of the above changes from the previously reported 2018 financial statements to these
new classifications.
Capital provision assets
Investments
New initiative investments
Investment income receivables
Less: transfer to Other assets
Other assets
Receivables and prepayments
Tax receivable
Plus: transfer from Investments
Due from settlement of capital provision assets
Due from settlement of investments (non-current)
Due from settlement of investments (current)
Other liabilities
Payables
Due to limited partners
2018
$'000
1 January
2018
$'000
1,592,378
1,075,941
42,856
10,189
7,301
(1,500)
4,765
(1,500)
1,641,035
1,089,395
12,990
1,823
1,500
16,313
5,474
1,676
1,500
8,650
3,083
3,083
34,026
165
37,109
3,248
31,038
23,833
8
1,158
31,046
24,991
In addition, the shareholders’ equity section of the consolidated statement of financial position has been amended this year to
present line items for ‘Share capital’ and ‘Reserves attributable to owners’ to avoid repetition of the detail already provided in the
consolidated statement of changes in equity on page 107.
In order to assist in understanding these changes, a consolidated statement of financial position as at 1 January 2018 has been
included on page 104.
IFRS 16 Leases
IFRS 16 Leases replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-
Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles
for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single
on-balance sheet model similar to the accounting for finance leases under IAS 17.
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Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
The combination of presenting the assets and liabilities in a decreasing order of liquidity, and the new segment information as
disclosed in note 5, has resulted in the following changes to individual line items in the statement of financial position:
Capital provision assets – this combines the previously reported ‘Investments’, ‘New initiatives investments’ and ‘Investment
income receivables’ into a single line item. In addition, the single remaining financial asset held at amortised cost has been
transferred to ‘Other assets’ and therefore all items within this category are classified at fair value through profit and loss.
Other assets – this combines the previously reported ‘Receivables and prepayments’ and ‘Tax receivable’ into a single line item
including the asset transferred from ‘Investments’ above.
Due from settlement of capital provision assets – this combines the previously reported amount of ‘Due from settlement of
investments’ split between non-current and current into a single line item.
Other liabilities – this combines the previously reported ‘Payables’ and ‘Due to limited partners’ into a single line item.
The tables below presents a reconciliation of the above changes from the previously reported 2018 financial statements to these
new classifications.
2018
$'000
1 January
2018
$'000
1,592,378
1,075,941
42,856
10,189
7,301
(1,500)
4,765
(1,500)
1,641,035
1,089,395
12,990
1,823
1,500
16,313
5,474
1,676
1,500
8,650
3,083
3,083
34,026
165
37,109
3,248
31,038
23,833
8
1,158
31,046
24,991
Capital provision assets
Investments
New initiative investments
Investment income receivables
Less: transfer to Other assets
Other assets
Receivables and prepayments
Tax receivable
Plus: transfer from Investments
Other liabilities
Payables
Due to limited partners
included on page 104.
IFRS 16 Leases
Due from settlement of capital provision assets
Due from settlement of investments (non-current)
Due from settlement of investments (current)
In addition, the shareholders’ equity section of the consolidated statement of financial position has been amended this year to
present line items for ‘Share capital’ and ‘Reserves attributable to owners’ to avoid repetition of the detail already provided in the
consolidated statement of changes in equity on page 107.
In order to assist in understanding these changes, a consolidated statement of financial position as at 1 January 2018 has been
IFRS 16 Leases replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-
Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles
for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single
on-balance sheet model similar to the accounting for finance leases under IAS 17.
Strategic report
Governance
Financial statements
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged
to the consolidated statement of comprehensive income over the period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and
the lease term on a straight-line basis.
The Group has adopted IFRS 16 retrospectively from 1 January 2019 but has not restated comparatives for the 2018 or 2017 reporting
periods, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the
new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.
On adoption of IFRS 16, the Group recognised lease liabilities of $6,785,000 in relation to property leases which had previously been
classified as operating leases in accordance with IAS 17. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average incremental
borrowing rate applied to the lease liabilities on 1 January 2019 was 6.7%. Lease liabilities are included within other liabilities in the
consolidated statement of financial position. The carrying amounts of the right-of-use assets were measured as if the new rules had
always been applied but using the incremental borrowing rate at the date of initial application.
The Group has applied the relief options provided for leases of low-value assets and short-term leases (shorter than twelve months)
and the transitional practical expedient to account for operating leases with a remaining term of less than 12 months as at 1 January
2019 as short-term leases. Right-of-use assets are included within tangible fixed assets in the consolidated statement of financial
position.
New accounting pronouncement not yet effective
The following issued standard, which is not yet effective, has not been adopted in these financial statements.
IFRS 17
Insurance Contracts
Effective Date
1 Jan 2023
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts
covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts
that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e. life, non-life, direct insurance and reinsurance),
regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary
participation features. In June 2019, the IASB published an exposure draft of amendments to IFRS 17 in response to feedback
received. The IASB has confirmed further changes that will be made to the standard, with the implementation date extended to
annual periods beginning on or after 1 January 2023. The Group intends to adopt IFRS 17 on the effective date and is currently
assessing the expected impact of adopting this standard which is not expected to be material to the Group.
Insurance activities
The Group both (i) acts as an administrator in the sale of legal expenses insurance policies issued in the name of Great Lakes
Reinsurance (UK) Plc, a subsidiary of MunichRe, under a binding authority agreement, and (ii) underwrites legal expenses insurance
policies through its wholly owned subsidiary and Guernsey based insurer, Burford Worldwide Insurance Limited (“BWIL”).
(i) Insurance administrator
Income earned from acting as an insurance administrator represents commissions receivable which are calculated based on the
premium earned, net of reinsurance and Insurance Premium Tax, less an allowance for claims, sales commissions, fees and the other
direct insurance related costs such as Financial Services Compensation Scheme Levy. The payment of premiums is often contingent
on a case being won or settled and the Group recognises the associated income only at this point, whilst a deduction is made for
claims estimated to be paid on all policies in force. This income is separately identified as “Insurance administrator commission”
included in note 11.
(ii) Insurance underwriting
Insurance policies written by BWIL are subject to contractual reinsurance arrangements that transfer a significant portion of the
insurance risk to the reinsurers with BWIL retaining a portion of the insurance risk of each contract. Contracts are typically written
with an upfront premium payable and may also include a conditional premium. The payment of conditional premiums is often
contingent on a case being won or settled and the Group recognises the associated conditional premium amount only at this point.
Gross premiums written
Premiums written relate to insurance business incepted during the year. Full account is taken of premiums receivable and
reinsurance premiums payable during the year.
Unearned premiums
Unearned premiums represent the proportion of premiums written in the year that relate to unexpired terms of policies in force
as at the statement of financial reporting date, calculated on a time apportionment basis.
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Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
Claims reserving
Provision is made for all outstanding loss reserves as notified by the insured. Provision is made for claims incurred but not reported
based on previous claims experience. Neither provision is calculated on a discounted basis to take account of the period from
incurring the loss to settlement thereof, as permitted by IFRS 4 Insurance Contracts.
Claims reserves comprise provision for the estimated cost of settling all claims incurred up to but not paid at the year end.
The level of the provision is set on the basis of the information available, including potential loss claims which have been intimated
to the Group, experience of the development of similar claims and case law. While the directors consider that the provision for
these claims is fairly stated on the basis on the information currently available to them, the ultimate liability may vary as a result of
subsequent information and events and may result in significant adjustments to the amount provided. Adjustments to the amounts
provided are reflected in the financial statements in the accounting period in which the adjustments are made.
Claims paid
Claims are recorded in the year in which they are incurred.
Asset management income
Asset management income is derived from the governing agreements in place with various investment funds under management.
The rate or amount at which fees are charged, the basis on which such fees are calculated, and the timing of payment, vary across
funds and, as to a particular fund, may also vary across investment options available to underlying investors in or members of the
investment fund. Management fees are generally based on an agreed percentage of investor fund commitments, amounts
committed or deployed depending on the fund agreements. Management fees are recognised over time as the services are provided.
Performance fees are earned when contractually agreed performance levels are exceeded within specified performance
measurement periods. They are recognised when a reliable estimate of the fee can be made and it is highly unlikely that a significant
reversal of the amount will occur, which is generally at the end of the performance period.
Segment reporting
Management considers that there are three operating business segments: (i) provision of capital to the legal industry or in connection
with legal matters, both directly and through investment in the Company’s managed funds, (ii) asset management activities, (iii) the
provision of services to the legal industry, including litigation insurance and asset recovery (judgment enforcement), and other
corporate activities.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred
and included in the consolidated statement of comprehensive income. When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent
changes in the fair value of contingent consideration classified as an asset or liability are reflected in the consolidated statement of
comprehensive income. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted
for within equity.
Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration over the fair value of the
Group’s share of the assets acquired and the liabilities assumed on the date of the acquisition. After initial recognition, goodwill is
measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the Group’s CGU’s that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Intangible asset
The intangible is recognised at fair value when acquired as part of a business combination. It represents the future cash flows of
asset management income recognised in accordance with the Group’s policy for the recognition of asset management income.
This intangible is amortised to the income statement on a straight line basis over the period revenue is expected to be earned.
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2. Basis of preparation and principal accounting policies continued
Impairment of non-financial assets
Strategic report
Governance
Financial statements
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s or CGU fair value less costs of disposal and its value in use. The recoverable amount is determined
for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or
groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount.
Impairment losses are recognised in the consolidated statement of comprehensive income.
Financial instruments
The Group classifies its financial instruments into the categories below in accordance with IFRS 9.
1) Capital provision assets
Capital provision assets relate to the provision of capital to the legal industry or in connection with legal matters. The Group takes
positions in assets where legal and regulatory risk can affect asset value, either through direct litigation or through other dynamics
relating to that risk. Capital provision assets are comprised of financial assets held at fair value through profit or loss as the contractual
terms of the financial assets do not give rise on specified dates to cash flow that are solely payments of principal and interest on the
principal amount outstanding. Capital provision assets are initially measured at fair value which is the sum of capital provided.
Attributable due diligence and closing costs are expensed.
Recognition, derecognition and measurement
Purchases and sales of assets at fair value through profit or loss are generally recognised on the trade date, being the date on which
the Group disburses funds in connection with the asset (or becomes contractually committed to pay a fixed amount on a certain
date, if earlier). In some cases, multiple disbursements occur over time. Capital provision assets are initially measured at fair value
which is the sum of capital provided. An asset that is renegotiated is derecognised if the existing agreement is cancelled and a new
agreement made on substantially different terms, or if the terms of an existing agreement are modified, such that the renegotiated
asset is substantially a different financial instrument.
Movements in fair value on investments are included within capital provision income in the consolidated statement of
comprehensive income. Capital provision income can also consist of interest that is accrued or received on capital provision assets.
2) Financial assets and liabilities at amortised cost
Financial assets and liabilities held at amortised cost include loan capital, other assets, other liabilities, due to/from broker, and
amounts due from settlement of capital provision assets. The financial assets meet the contractual cash flow test as these cash flows
comprise solely payments of principal and interest and are held in a business model to receive those contractual cash flows. Financial
assets and liabilities are initially measured at fair value and subsequently measured at amortised cost using the effective interest
method, less any impairment for non-recoverable amounts calculated using an expected credit loss model for financial assets.
3) Cash management assets
Assets acquired for the purpose of cash management to generate returns on cash balances awaiting subsequent investment are
managed and evaluated on a fair value basis at the time of acquisition. Their initial fair value is the cost incurred at their acquisition.
Transaction costs incurred are expensed in the consolidated statement of comprehensive income.
Recognition, derecognition and measurement
Cash management assets through profit or loss are recorded on the trade date, and those held at the year end date are valued at
bid price.
Listed interest-bearing debt securities are valued at their quoted bid price. Interest earned on these assets is recognised on an accrual
basis. Listed corporate bond funds are valued at their quoted bid price. Unlisted managed funds are valued at the Net Asset Value per
share published by the administrator of those funds as it is the price at which they could have been realised at the reporting date.
Movements in fair value and realised gains and losses on disposal or maturity of cash management assets, including interest income,
are reflected in cash management income and bank interest in the consolidated statement of comprehensive income.
Notes to the consolidated financial statements
continued
Claims reserving
Provision is made for all outstanding loss reserves as notified by the insured. Provision is made for claims incurred but not reported
based on previous claims experience. Neither provision is calculated on a discounted basis to take account of the period from
incurring the loss to settlement thereof, as permitted by IFRS 4 Insurance Contracts.
Claims reserves comprise provision for the estimated cost of settling all claims incurred up to but not paid at the year end.
The level of the provision is set on the basis of the information available, including potential loss claims which have been intimated
to the Group, experience of the development of similar claims and case law. While the directors consider that the provision for
these claims is fairly stated on the basis on the information currently available to them, the ultimate liability may vary as a result of
subsequent information and events and may result in significant adjustments to the amount provided. Adjustments to the amounts
provided are reflected in the financial statements in the accounting period in which the adjustments are made.
Claims paid
Claims are recorded in the year in which they are incurred.
Asset management income
Asset management income is derived from the governing agreements in place with various investment funds under management.
The rate or amount at which fees are charged, the basis on which such fees are calculated, and the timing of payment, vary across
funds and, as to a particular fund, may also vary across investment options available to underlying investors in or members of the
investment fund. Management fees are generally based on an agreed percentage of investor fund commitments, amounts
committed or deployed depending on the fund agreements. Management fees are recognised over time as the services are provided.
Performance fees are earned when contractually agreed performance levels are exceeded within specified performance
measurement periods. They are recognised when a reliable estimate of the fee can be made and it is highly unlikely that a significant
reversal of the amount will occur, which is generally at the end of the performance period.
Management considers that there are three operating business segments: (i) provision of capital to the legal industry or in connection
with legal matters, both directly and through investment in the Company’s managed funds, (ii) asset management activities, (iii) the
provision of services to the legal industry, including litigation insurance and asset recovery (judgment enforcement), and other
Segment reporting
corporate activities.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred
and included in the consolidated statement of comprehensive income. When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent
changes in the fair value of contingent consideration classified as an asset or liability are reflected in the consolidated statement of
comprehensive income. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted
for within equity.
Goodwill
Intangible asset
Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration over the fair value of the
Group’s share of the assets acquired and the liabilities assumed on the date of the acquisition. After initial recognition, goodwill is
measured at cost less any accumulated impairment losses. For the purposes of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the Group’s CGU’s that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
The intangible is recognised at fair value when acquired as part of a business combination. It represents the future cash flows of
asset management income recognised in accordance with the Group’s policy for the recognition of asset management income.
This intangible is amortised to the income statement on a straight line basis over the period revenue is expected to be earned.
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Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
4) Derivative financial assets and liabilities
Options are held for the purpose of hedging gains and losses attributable to long equity positions held within capital provision assets
and one put option contract has been recognised relating to a sale of a capital provision asset (see note 6). Derivative assets and
liabilities are classified as fair value through profit or loss, and movements in fair value are included within capital provision income
in the consolidated statement of comprehensive income.
5) Financial liabilities at fair value through profit and loss
Equity securities are held for the purpose of hedging offsetting gains and losses attributable to long equity positions held within
capital provision assets and are classified as held for trading as they are generally held in the near-term to hedge that exposure.
Movements in fair value on financial liabilities at fair value through profit and loss and transaction costs incurred are included within
capital provision income in the consolidated statement of comprehensive income.
6) Asset subparticipations
Asset subparticipations are classified as financial liabilities at fair value through profit and loss and are initially recorded at the fair value
of proceeds received. They are subsequently measured at fair value with changes in fair value being recorded in capital provision
income in the consolidated statement of comprehensive income.
7) Third-party interests in consolidated entities
Third-party interests in consolidated entities are classified as financial liabilities at fair value through profit and loss as the underlying
arrangements contain an obligation to transfer cash or other financial asset to the holder in certain circumstances. Amounts included
in the consolidated statement of financial position represent the net asset value of the third-parties’ interest in each entity and the
amounts included in the consolidated statement of comprehensive income represent the third-parties’ share of any gains or losses
for the year.
Fair value hierarchy of financial instruments
The financial assets and liabilities measured at fair value are disclosed using a fair value hierarchy that reflects the significance of the
inputs used in making the fair value measurements, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Those involving inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices);
Level 3 – Those inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Valuation Methodology for Level 1 Investments
Level 1 assets and liabilities are comprised of listed instruments including equities, fixed income securities, investment funds and
financial liabilities at fair value through profit and loss. All level 1 assets and liabilities are valued at the quoted market price as of the
reporting date.
Valuation Methodology for Level 2 Investments
Level 2 assets are comprised of equity securities that are not actively traded and are valued at the last traded price as of the
reporting date provided there is evidence the price is not assessed as significantly stale to warrant a level 3 classification..
Valuation Processes for Level 3 Investments
The Group’s senior professionals are responsible for developing the policies and procedures for fair value measurement of assets
and liabilities. At each reporting date, the movements in the values of assets and liabilities are required to be re-assessed as per
the Group’s accounting policies. Following origination, each asset’s valuation is reviewed semi-annually. For this analysis, the
reasonableness of material estimates and assumptions underlying the valuation are discussed and the major inputs applied are
verified by agreeing the information in the valuation computation to contracts, asset status and progress information and other
relevant documents.
The semi-annual reviews are presented to the Audit Committee and the Group’s independent auditors.
Valuation Methodology
Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants as of the measurement date.
114
114
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
4) Derivative financial assets and liabilities
Options are held for the purpose of hedging gains and losses attributable to long equity positions held within capital provision assets
and one put option contract has been recognised relating to a sale of a capital provision asset (see note 6). Derivative assets and
liabilities are classified as fair value through profit or loss, and movements in fair value are included within capital provision income
in the consolidated statement of comprehensive income.
5) Financial liabilities at fair value through profit and loss
Equity securities are held for the purpose of hedging offsetting gains and losses attributable to long equity positions held within
capital provision assets and are classified as held for trading as they are generally held in the near-term to hedge that exposure.
Movements in fair value on financial liabilities at fair value through profit and loss and transaction costs incurred are included within
capital provision income in the consolidated statement of comprehensive income.
6) Asset subparticipations
Asset subparticipations are classified as financial liabilities at fair value through profit and loss and are initially recorded at the fair value
of proceeds received. They are subsequently measured at fair value with changes in fair value being recorded in capital provision
income in the consolidated statement of comprehensive income.
7) Third-party interests in consolidated entities
Third-party interests in consolidated entities are classified as financial liabilities at fair value through profit and loss as the underlying
arrangements contain an obligation to transfer cash or other financial asset to the holder in certain circumstances. Amounts included
in the consolidated statement of financial position represent the net asset value of the third-parties’ interest in each entity and the
amounts included in the consolidated statement of comprehensive income represent the third-parties’ share of any gains or losses
for the year.
Fair value hierarchy of financial instruments
The financial assets and liabilities measured at fair value are disclosed using a fair value hierarchy that reflects the significance of the
inputs used in making the fair value measurements, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Those involving inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices);
Level 3 – Those inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1 assets and liabilities are comprised of listed instruments including equities, fixed income securities, investment funds and
financial liabilities at fair value through profit and loss. All level 1 assets and liabilities are valued at the quoted market price as of the
Valuation Methodology for Level 1 Investments
reporting date.
Valuation Methodology for Level 2 Investments
Level 2 assets are comprised of equity securities that are not actively traded and are valued at the last traded price as of the
reporting date provided there is evidence the price is not assessed as significantly stale to warrant a level 3 classification..
Valuation Processes for Level 3 Investments
The Group’s senior professionals are responsible for developing the policies and procedures for fair value measurement of assets
and liabilities. At each reporting date, the movements in the values of assets and liabilities are required to be re-assessed as per
the Group’s accounting policies. Following origination, each asset’s valuation is reviewed semi-annually. For this analysis, the
reasonableness of material estimates and assumptions underlying the valuation are discussed and the major inputs applied are
verified by agreeing the information in the valuation computation to contracts, asset status and progress information and other
relevant documents.
Valuation Methodology
Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants as of the measurement date.
Strategic report
Governance
Financial statements
The methods and procedures to fair value assets and liabilities may include, but are not limited to: (i) obtaining information provided
by third-parties when available; (ii) obtaining valuation-related information from the issuers or counterparties (or their advisors);
(iii) performing comparisons of comparable or similar assets; (iv) calculating the present value of future cash flows; (v) assessing other
analytical data and information relating to the asset that is an indication of value; (vi) reviewing the amounts funded in these assets;
(vii) evaluating financial information provided by the asset counterparties and (viii) entering into a market transaction with an arm’s-
length party.
The material estimates and assumptions used in the analyses of fair value include the status and risk profile of the risks underlying the
asset, the timing and expected amount of cash flows based on the asset structure and agreement, the appropriateness of discount
rates used, if any, and in some cases, the timing of, and estimated minimum proceeds from, a favourable outcome. Significant
judgement and estimation goes into the assumptions which underlie the analyses, and the actual values realised with respect to
assets could be materially different from values obtained based on the use of those estimates.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The functional currency of the Company, as determined in
accordance with IFRS, is the United States Dollar (“US Dollar”) because this is the currency that best reflects the economic substance
of the underlying events and circumstances of the Company and its Subsidiaries. The consolidated financial statements are presented
in US Dollars, the presentation currency.
Certain subsidiaries operate and prepare financial statements denominated in Sterling. For the purposes of preparing consolidated
financial statements, those subsidiaries’ assets and liabilities are translated at exchange rates prevailing at each balance sheet date.
Income and expense items are translated at average exchange rates for the year.
Exchange differences arising are recognised in other comprehensive income and accumulated in equity (foreign currency
consolidation reserve).
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies including intragroup balances are recognised
in the Consolidated Statement of Comprehensive Income as part of the profit or loss for the year.
Since April 2016, certain intragroup balances are now considered, in substance, to form part of a net investment in a foreign
operation. Gains and losses on such balances are recognised in other comprehensive income, with a gain of $1,125,000 recognised
in the current year (2018: loss of $1,888,000).
Bank interest income
Bank interest income is recognised on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis.
Finance costs
Finance costs represent loan capital interest and issue expenses in line with the effective interest rate method and lease liabilities
interest which are recognised in the consolidated statement of comprehensive income.
Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits, and highly liquid investments readily convertible within
three months or less to known amounts of cash and subject to insignificant risk of changes in value. Cash and cash equivalents at
the balance sheet date comprised amounts held on current or overnight deposit accounts.
The semi-annual reviews are presented to the Audit Committee and the Group’s independent auditors.
Taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted.
To the extent that any foreign withholding taxes or any form of profit taxes become payable these will be accrued on the basis of the
event that creates the liability to taxation.
Deferred tax is provided on the liability method on temporary differences between the tax bases of assets and liabilities and their
carrying amount for financial reporting purposes at the reporting date. Deferred tax assets and liabilities are measured at the rates that
are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date.
114
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Burford Annual Report 2019
Burford Annual Report 2019
115
115
Notes to the consolidated financial statements
continued
2. Basis of preparation and principal accounting policies continued
Dividends
Dividends paid during the year are shown in the consolidated statement of changes in equity.
Tangible fixed assets
Fixed assets are recorded at cost less accumulated depreciation and provision for impairment. Depreciation is provided to write off
the cost less estimated residual value in equal instalments over the estimated useful lives of the assets. The expected useful lives are
as follows:
Right-of-use assets
Leasehold improvements
Fixtures, fittings and equipment
Computer hardware and software
Life of lease
Life of lease
5 years
3 years
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the net sales proceeds and
the carrying amount of the asset and is recognised in income.
Prepayments and other payables
Prepayments and other payables are recognised at nominal value and are non-interest-bearing.
Capital and reserves
Ordinary shares are classified as equity in share capital. Contingent shares are classified as equity in share capital, where shares will be
issued and converted to ordinary shares only after the specified terms have been met. Other capital reserve is the obligation for the
long term incentive plan issuance of shares to the Group’s employees. Incremental costs directly attributable to the issue of new
shares are deducted from equity in share capital.
3. Supplemental cash flow information
Changes in working capital and non-cash items
Income on capital provision assets
Interest and other income from capital provision assets
Increase in capital provision asset subparticipation
(Gain)/loss on equity securities
Asset recovery fee for services income
Loss on derivative financial asset
Realised gain on derivative financial liabilities
Income on cash management assets
Loss on financial liabilities at fair value through profit and loss
Third-party share of gains relating to interests in consolidated entities
Decrease/(increase) in other assets and deferred tax asset
(Decrease)/increase in other liabilities and deferred tax liabilities
Increase in payable for capital provision assets
Finance costs
Amortisation and depreciation of intangible assets and tangible fixed assets
Impairment
Right-of-use assets and associated lease liability
Other non-cash including exchange rate movements
Total changes in working capital and non-cash items
116
116
Burford Annual Report 2019
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2019
$’000
2018
$’000
(370,898)
(411,612)
(1,870)
(1,692)
–
(1,169)
(2,133)
4,154
92
4,852
(1,650)
3,462
(7,000)
(2,250)
137
20,872
15,318
4,139
3,010
3,348
3,777
(26,080)
(3,488)
24,755
36
–
39,622
38,538
12,017
10,111
4,083
970
–
–
4,071
6,598
(281,501)
(344,379)
2. Basis of preparation and principal accounting policies continued
The following tables provide a supplemental breakout of the cash inflows and outflows for capital provision assets related line items
between direct and indirect.
Strategic report
Governance
Financial statements
31 December 2019
Proceeds received
Increase in payable for capital provision assets
New funding
31 December 2018
Proceeds received
New funding
Capital
provision-
direct assets
$’000
Capital
provision-
indirect assets
$’000
Total
$’000
207,167
284,085
491,252
36
–
36
(337,862)
(224,156)
(562,018)
Capital
provision-
direct assets
$’000
Capital
provision-
indirect assets
$’000
Total
$’000
286,872
315,815
602,687
(419,615)
(351,794)
(771,409)
Capital provision-direct assets referenced above in this note are those in which Burford has provided financing directly to a client or
to fund a principal position in a legal finance asset.
Capital provision-indirect assets represent those through which the Company’s capital is provided through a fund as a limited partner
contribution instead of directly. At 31 December 2019 and 2018, capital provision-indirect assets consisted entirely of assets held
through the Burford Strategic Value Fund. Burford does not invest capital in the BOF-C fund and accordingly it is included in direct
and not capital provision-indirect assets. Refer to the statement of financial position section in note 2 for a detailed explanation of the
presentational changes made this year.
4. Taxation
The Company obtained exempt company status in Guernsey. In certain cases, a subsidiary of the Company may elect to make use
of financing structures that are subject to income tax in a country related to the investment. The Company’s subsidiaries in Ireland,
Singapore, the UK and the US are subject to taxation in such jurisdictions as determined in accordance with relevant tax legislation.
Profit on ordinary activities before tax
Corporation tax at country rates
Factors affecting charge:
Adjustment in respect of prior year
Tax losses not recognised
Costs not allowable for tax
Other
Total taxation charge/(credit)
2019
$’000
2018
$’000
225,524
305,114
(3,227)
(15,926)
3,027
12,979
74
564
2,250
340
82
791
13,417
(12,463)
Corporation tax at country rates is influenced by taxable profits and losses arising in jurisdictions at different rates and non-taxable
gains and losses arising on fair value adjustments. Cash taxes paid during the year ended 31 December 2019 amounted to $694,000
(2018: $2,273,000).
Notes to the consolidated financial statements
continued
Dividends paid during the year are shown in the consolidated statement of changes in equity.
Fixed assets are recorded at cost less accumulated depreciation and provision for impairment. Depreciation is provided to write off
the cost less estimated residual value in equal instalments over the estimated useful lives of the assets. The expected useful lives are
Dividends
Tangible fixed assets
as follows:
Right-of-use assets
Leasehold improvements
Fixtures, fittings and equipment
Computer hardware and software
Life of lease
Life of lease
5 years
3 years
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the net sales proceeds and
the carrying amount of the asset and is recognised in income.
Prepayments and other payables
Prepayments and other payables are recognised at nominal value and are non-interest-bearing.
Capital and reserves
Ordinary shares are classified as equity in share capital. Contingent shares are classified as equity in share capital, where shares will be
issued and converted to ordinary shares only after the specified terms have been met. Other capital reserve is the obligation for the
long term incentive plan issuance of shares to the Group’s employees. Incremental costs directly attributable to the issue of new
shares are deducted from equity in share capital.
3. Supplemental cash flow information
Changes in working capital and non-cash items
Income on capital provision assets
Interest and other income from capital provision assets
Increase in capital provision asset subparticipation
(Gain)/loss on equity securities
Asset recovery fee for services income
Loss on derivative financial asset
Realised gain on derivative financial liabilities
Income on cash management assets
Loss on financial liabilities at fair value through profit and loss
Third-party share of gains relating to interests in consolidated entities
Decrease/(increase) in other assets and deferred tax asset
(Decrease)/increase in other liabilities and deferred tax liabilities
Increase in payable for capital provision assets
Amortisation and depreciation of intangible assets and tangible fixed assets
Finance costs
Impairment
Right-of-use assets and associated lease liability
Other non-cash including exchange rate movements
Total changes in working capital and non-cash items
2019
$’000
2018
$’000
(370,898)
(411,612)
(1,870)
(1,692)
(7,000)
(2,250)
92
4,852
(1,650)
3,462
4,139
3,010
3,348
–
(1,169)
(2,133)
4,154
137
20,872
15,318
36
4,083
970
3,777
(26,080)
(3,488)
24,755
39,622
38,538
12,017
10,111
–
–
–
4,071
6,598
(281,501)
(344,379)
116
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Burford Annual Report 2019
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Burford Annual Report 2019
Burford Annual Report 2019
117
117
Notes to the consolidated financial statements
continued
4. Taxation continued
The taxation charge for the year comprises:
US subsidiaries taxation charge
Irish subsidiaries taxation charge/(credit)
UK subsidiaries taxation charge
Non-resident taxation charge
US deferred taxation charge/(credit)
UK deferred taxation (credit)
Total taxation charge/(credit)
2019
$’000
340
3,272
290
110
2018
$’000
1,790
(191)
79
179
9,476
(14,241)
(71)
(79)
13,417
(12,463)
Included in the deferred tax asset recognised at the balance sheet date are amounts relating to operating losses that the Group
believes it will be able to utilise in the future. In December 2017, the US government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the US tax
code including, but not limited to, the creation of a new limitation on deductible interest expense under Internal Revenue Code
Section 163(j). During the year ended 31 December 2019, the Group has not recognised a deferred tax asset of $10,928,000
(2018: $nil) relating to this interest expense limitation as the carryovers are not expected to be utilised in the foreseeable future
under the current interpretation of the applicable statute.
Deferred tax asset
Balance at 1 January
Movement on UK deferred tax – temporary differences
Movement on US deferred tax – temporary differences
Foreign exchange adjustment
Balance at 31 December
Deferred tax liability
Balance at 1 January
Movement on UK deferred tax – temporary difference
Movement on US deferred tax – temporary differences
Foreign exchange adjustment
Balance at 31 December
Net deferred tax asset
Analysis of net deferred tax asset by type
Staff compensation and benefits
GKC acquisition costs
Capital provision asset fair value adjustments
Capital allowances
Other deduction limitations
Net operating loss carry forward
118
118
Burford Annual Report 2019
Burford Annual Report 2019
2019
$’000
2018
$’000
28,848
10,863
195
60
(4,112)
17,925
8
–
24,939
28,848
2019
$’000
4,099
193
2018
$’000
437
(19)
5,363
3,684
7
(3)
9,662
4,099
2019
$’000
2018
$’000
15,277
24,749
2019
$’000
5,047
(3,323)
(4,236)
(332)
1,257
2018
$’000
7,050
(1,767)
7,040
(91)
–
16,864
12,517
15,277
24,749
Included in the deferred tax asset recognised at the balance sheet date are amounts relating to operating losses that the Group
believes it will be able to utilise in the future. In December 2017, the US government enacted comprehensive tax legislation
commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the US tax
code including, but not limited to, the creation of a new limitation on deductible interest expense under Internal Revenue Code
Section 163(j). During the year ended 31 December 2019, the Group has not recognised a deferred tax asset of $10,928,000
(2018: $nil) relating to this interest expense limitation as the carryovers are not expected to be utilised in the foreseeable future
under the current interpretation of the applicable statute.
Notes to the consolidated financial statements
continued
4. Taxation continued
The taxation charge for the year comprises:
US subsidiaries taxation charge
Irish subsidiaries taxation charge/(credit)
UK subsidiaries taxation charge
Non-resident taxation charge
US deferred taxation charge/(credit)
UK deferred taxation (credit)
Total taxation charge/(credit)
Deferred tax asset
Balance at 1 January
Movement on UK deferred tax – temporary differences
Movement on US deferred tax – temporary differences
Foreign exchange adjustment
Balance at 31 December
Deferred tax liability
Balance at 1 January
Movement on UK deferred tax – temporary difference
Movement on US deferred tax – temporary differences
Foreign exchange adjustment
Balance at 31 December
Net deferred tax asset
Analysis of net deferred tax asset by type
Staff compensation and benefits
GKC acquisition costs
Capital provision asset fair value adjustments
Capital allowances
Other deduction limitations
Net operating loss carry forward
2019
$’000
340
3,272
290
110
2018
$’000
1,790
(191)
79
179
9,476
(14,241)
(71)
(79)
13,417
(12,463)
2019
$’000
2018
$’000
28,848
10,863
195
60
(4,112)
17,925
8
–
24,939
28,848
2019
$’000
4,099
193
2018
$’000
437
(19)
5,363
3,684
7
(3)
9,662
4,099
2019
$’000
2018
$’000
15,277
24,749
2019
$’000
5,047
(3,323)
(4,236)
(332)
1,257
2018
$’000
7,050
(1,767)
7,040
(91)
–
16,864
12,517
15,277
24,749
Strategic report
Governance
Financial statements
5. Segmental information
Management considers that there are three operating business segments: (i) provision of capital to the legal industry or in connection
with legal matters, both directly and through investment in the Company’s managed funds, (ii) asset management activities, (iii) the
provision of services to the legal industry, including litigation insurance and asset recovery (judgment enforcement), and other
corporate activities.
The Group has reassessed its presentation of consolidated segment information during the year. The previously used segment for
‘New initiatives’ most recently contained two key activities; the provision of capital to asset recovery matters and fees earned for asset
recovery services provided. This segment has historically been used for new business activity until such time that it becomes a core
part of Burford’s business. The capital provision to asset recovery matters is now an established core activity for Burford which is
operated and managed in the same way as the Group’s other capital provision to legal finance matters. Accordingly, this activity is
now reported with the new ‘Capital provision’ segment along with the capital provision to legal finance matters previously reported
in the ‘Investments’ segment. Fee for service work and activity included in the old ‘Litigation insurance’ segment are not material to
the Group and have been included in ‘Services and other corporate’. These presentational changes are as a result of the continuing
evolution of Burford’s business and consistent with how management evaluates the Group.
Consolidated segment revenue and results
31 December 2019
Income*
Operating expenses
Amortisation of intangible asset arising on acquisition
Finance costs
Profit/(loss) for the year before taxation
Taxation
Other comprehensive income
Total comprehensive income
Capital
provision
$’000
Asset
management
$’000
Services and
other
corporate
$’000
Total
$’000
336,510
15,160
14,373
366,043
(57,919)
(19,797)
(13,686)
(91,402)
–
–
–
–
(9,495)
(9,495)
(39,622)
(39,622)
278,591
(4,637)
(48,430)
225,524
(10,826)
–
89
–
(2,680)
(13,417)
(17,525)
(17,525)
267,765
(4,548)
(68,635)
194,582
*Includes the following revenue from contracts with customers for
services transferred over time
–
15,160
5,678
20,838
31 December 2018
Income*
Operating expenses
Amortisation of intangible asset arising on acquisition
Finance costs
Profit/(loss) before taxation
Taxation
Other comprehensive income
Total comprehensive income
Capital
provision
$’000
Asset
management
$’000
Services and
other
corporate
$’000
Total
$’000
400,882
11,691
12,404
424,977
(44,046)
(12,175)
(15,610)
–
–
356,836
15,193
–
–
–
(484)
(164)
–
(9,494)
(71,831)
(9,494)
(38,538)
(38,538)
(51,238)
305,114
(2,566)
24,701
12,463
24,701
372,029
(648)
(29,103)
342,278
*Includes the following revenue from contracts with customers for
services transferred over time
–
11,691
12,056
23,747
118
118
Burford Annual Report 2019
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119
119
Notes to the consolidated financial statements
continued
5. Segmental information continued
Consolidated segment assets and liabilities
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Financial liabilities at fair value through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Capital
provision
$’000
Asset
management
$’000
Services
and other
corporate
$’000
Total
$’000
122,909
248
63,464
186,621
–
95,226
6,462
54,358
2,045,329
31,396
15,380
–
–
23,718
–
–
37,966
37,966
–
95,226
2,012
4,789
13,263
–
–
–
–
–
–
–
–
–
–
54,358
2,045,329
31,396
4,804
20,184
8,703
8,703
133,999
133,999
1,221
24,939
2,394,778
2,260
254,946
2,651,984
91,493
51,401
–
220
–
13,944
235,720
5,400
398,178
–
–
–
–
–
91,493
51,401
9,462
9,462
467
50,743
51,430
–
–
–
–
655,880
655,880
–
–
13,944
235,720
4,262
9,662
467
720,347
1,118,992
1,996,600
1,793
(465,401)
1,532,992
120
120
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
5. Segmental information continued
Consolidated segment assets and liabilities
Due from settlement of capital provision assets
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Deferred tax liabilities
Total liabilities
Total net assets
Financial liabilities at fair value through profit and loss
Capital provision asset subparticipations
Third-party interests in consolidated entities
31 December 2018
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
37,966
37,966
Due from settlement of capital provision assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
2,394,778
2,260
254,946
2,651,984
Financial liabilities at fair value through profit and loss
220
467
50,743
51,430
Derivative financial liabilities
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Capital
Asset
provision
management
$’000
$’000
Services
and other
corporate
$’000
Total
$’000
122,909
248
63,464
186,621
–
95,226
6,462
54,358
2,045,329
31,396
15,380
23,718
91,493
51,401
–
–
–
–
13,944
235,720
5,400
398,178
2,012
4,789
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
95,226
13,263
54,358
2,045,329
31,396
4,804
20,184
8,703
8,703
133,999
133,999
1,221
24,939
–
–
91,493
51,401
9,462
9,462
655,880
655,880
–
–
13,944
235,720
4,262
9,662
467
720,347
1,118,992
1,996,600
1,793
(465,401)
1,532,992
Strategic report
Governance
Financial statements
Capital
provision
$’000
Asset
management
$’000
Services
and other
corporate
$’000
Total
$’000
97,847
648
167,056
265,551
–
129,911
5,959
37,109
1,641,035
4,154
582
1,353
–
–
28,116
–
–
41,449
41,449
–
129,911
2,263
8,091
–
–
–
–
–
–
–
–
191
322
16,313
37,109
1,641,035
4,154
582
1,866
–
–
–
18,198
18,198
133,966
133,966
732
28,848
1,946,066
3,102
369,814
2,318,982
112,821
12,667
–
–
–
–
26,675
361
–
–
9,327
4,010
112,821
12,667
9,327
31,046
638,665
638,665
–
–
–
7,000
3,244
136,959
2,460
4,099
–
–
–
–
–
–
7,000
3,244
136,959
1,639
301,005
361
654,462
955,828
1,645,061
2,741
(284,648)
1,363,154
120
120
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
121
121
Notes to the consolidated financial statements
continued
6. Capital Provision Assets
Capital provision assets are financial assets held at fair value through profit and loss that relate to the provision of capital to the legal
industry in connection with legal matters.
Capital provision-direct assets referenced later in this note are those in which Burford has provided financing directly to a client or
to fund a principal position in a legal finance asset. Capital provision-indirect assets represent those through which the Company’s
capital is provided through a fund as a general partner contribution instead of directly. At 31 December 2019 and 2018, capital
provision-indirect assets consisted entirely of assets held through the Burford Strategic Value Fund. Burford does not invest capital in
the BOF-C fund and accordingly it is included in direct and not indirect capital provision assets. Refer to the statement of financial
position section in note 2 for a detailed explanation of the presentational changes made this year.
At 1 January
Additions
Realisations
Income for the year
Transfer to derivative financial liabilities
Transfer to investment subparticipation
Foreign exchange (losses)
As at 31 December
Capital provision assets are comprised of:
Capital provision-direct assets
Capital provision-indirect assets
Total capital provision assets
2019
$’000
2018
$’000
1,641,035
1,089,395
562,018
771,409
(539,359)
(634,856)
370,898
411,612
–
9,250
10,700
–
37
(5,775)
2,045,329
1,641,035
2019
$’000
2018
$’000
1,787,193
1,321,985
258,136
319,050
2,045,329
1,641,035
The capital provision income on the face of the consolidated statement of comprehensive income comprises:
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Fair value adjustment in the year
Interest income on certain indirect capital provision assets
Income on capital provision assets
Interest and other income
Impairment
Realised gain on derivative financial liabilities
Loss on derivative financial assets
Loss on financial liabilities at fair value through profit and loss
Gain/(loss) on equity securities (note 7)
2019
$’000
2018
$’000
151,886
169,901
(85,789)
(79,694)
289,795
310,405
15,006
11,000
370,898
411,612
1,870
1,692
(4,083)
7,000
(4,154)
(20,872)
1,169
–
2,250
(3,462)
(3,010)
(4,852)
Total capital provision income as reported on the consolidated statement of comprehensive income
351,828
404,230
122
122
Burford Annual Report 2019
Burford Annual Report 2019
Strategic report
Governance
Financial statements
All financial assets at fair value through profit and loss and all financial liabilities at fair value through profit and loss are mandatorily
measured as such. Further detail and commentary on realised gains on capital provision assets and unrealised gains on capital
provision assets is included in the report to shareholders on page 57.
Burford generally relies on legally protected information to arrive at its asset valuations and as a result is precluded from disclosing
individual asset valuations publicly. However, Burford’s 2019 sale of part of its entitlement to proceeds in the Petersen matter was
uniquely of such a size and breadth (including third-party sales organized by Burford’s financial adviser as part of the same
transaction, resulting in the total sale of 15% of the entitlement to proceeds) that it was appropriate to use that sales price alone,
without consideration of legally protected information, to set its 2019 valuation of its YPF-related assets. The carrying value of
the Group’s YPF-related assets included in capital provision assets (both Petersen and Eton Park combined) was $773 million at
31 December 2019 including $734 million of unrealised gain. During 2019, the capital provision income from the YPF-related assets
was $188 million, consisting of realised gains relative to cost of $98 million, previous unrealised gains transferred to realised gains
of $(78) million and fair value adjustment in the period of $168 million. It is unlikely that future Burford sales, if any, will approach
that size and breadth.
Impairment of receivables includes a full write off of a $3,083,000 promissory note received in settlement of a capital provision asset
in a prior period. A further $1,000,000 of impairment has been recognised on the $1,500,000 financial asset held at amortised cost
that was included in Investments and is now included within Other assets as part of the presentational changes made this year as set
out in note 2.
Loss on financial liabilities at fair value through profit and loss reflects losses on assets and liabilities used to hedge certain capital
provision-indirect assets. Gains that would correspond to the hedge losses are included in income on capital provision assets.
A further discussion on accounting for capital provision-indirect assets is included in the report to shareholders on page 47.
During the year, certain participating employees received payments of de minimis amounts with respect to profits interests sold to
those employees by the Carry Pools. Please refer to carry pool plan in the compensation section of the report to shareholders on
pages 81 to 82. The Group is deemed to control the Carry Pools and they are included in the consolidated financial statements.
The non-controlling interests held by employees in the Carry Pools meet the definition of a financial liability and are included within
‘Third party interests in consolidated entities’ in the Group’s consolidated statement of financial position.
Notes to the consolidated financial statements
continued
6. Capital Provision Assets
industry in connection with legal matters.
Capital provision assets are financial assets held at fair value through profit and loss that relate to the provision of capital to the legal
Capital provision-direct assets referenced later in this note are those in which Burford has provided financing directly to a client or
to fund a principal position in a legal finance asset. Capital provision-indirect assets represent those through which the Company’s
capital is provided through a fund as a general partner contribution instead of directly. At 31 December 2019 and 2018, capital
provision-indirect assets consisted entirely of assets held through the Burford Strategic Value Fund. Burford does not invest capital in
the BOF-C fund and accordingly it is included in direct and not indirect capital provision assets. Refer to the statement of financial
position section in note 2 for a detailed explanation of the presentational changes made this year.
At 1 January
Additions
Realisations
Income for the year
Transfer to derivative financial liabilities
Transfer to investment subparticipation
Foreign exchange (losses)
As at 31 December
Capital provision assets are comprised of:
Capital provision-direct assets
Capital provision-indirect assets
Total capital provision assets
2019
$’000
2018
$’000
1,641,035
1,089,395
562,018
771,409
(539,359)
(634,856)
370,898
411,612
–
9,250
10,700
–
37
(5,775)
2,045,329
1,641,035
2019
$’000
2018
$’000
1,787,193
1,321,985
258,136
319,050
2,045,329
1,641,035
2019
$’000
2018
$’000
151,886
169,901
(85,789)
(79,694)
289,795
310,405
15,006
11,000
370,898
411,612
1,870
1,692
(4,083)
7,000
(4,154)
(20,872)
1,169
–
2,250
(3,462)
(3,010)
(4,852)
The capital provision income on the face of the consolidated statement of comprehensive income comprises:
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Fair value adjustment in the year
Interest income on certain indirect capital provision assets
Income on capital provision assets
Interest and other income
Impairment
Realised gain on derivative financial liabilities
Loss on derivative financial assets
Loss on financial liabilities at fair value through profit and loss
Gain/(loss) on equity securities (note 7)
Total capital provision income as reported on the consolidated statement of comprehensive income
351,828
404,230
122
122
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
123
123
Notes to the consolidated financial statements
continued
6. Capital Provision Assets continued
The following table reflects the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the capital provision assets balance reported in the consolidated statement of financial position to arrive at
Burford’s capital provision assets at 31 December 2019.
At 1 January 2019
Additions
Realisations
Income for the year
Burford-only
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
1,641,035
(119,444)
1,521,591
1,289,548
232,043
562,018
(173,196)
388,822
272,016
116,806
(539,359)
143,679
(395,680)
(218,807)
(176,873)
370,898
(56,198)
314,700
302,075
12,625
Transfer to capital provision asset subparticipation
10,700
(6,241)
4,459
4,459
37
61
98
98
2,045,329
(211,339)
1,833,990
1,649,389
184,601
–
–
Foreign exchange losses
At 31 December 2019
Unrealised fair value at 31 December 2019
808,320
(32,220)
776,100
772,083
4,017
At 1 January 2018
Additions
Realisations
Income for the year
Transfer to derivative financial liabilities
Foreign exchange losses
At 31 December 2018
Burford-only
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
1,089,395
(98,529)
990,866
834,993
155,873
771,409
(113,697)
657,712
387,171
270,541
(634,856)
109,317
(525,539)
(320,733)
(204,806)
411,612
(16,535)
395,077
384,642
10,435
9,250
(5,775)
–
–
9,250
(5,775)
9,250
(5,775)
–
–
1,641,035
(119,444)
1,521,591
1,289,548
232,043
Unrealised fair value at 31 December 2018
598,712
(9,102)
589,610
590,317
(707)
On a consolidated basis the capital provision-indirect assets represent solely the equity securities and related claims in the Burford
Strategic Value Fund. The fund’s investment activity also includes entering into financial liabilities at fair value through profit and loss
to offset the market based gains and losses in the equity securities (refer to note 7). On a consolidated basis that activity is presented
within financial liabilities at fair value through profit and loss in the liabilities section of the consolidated statement of financial
position. On a Burford-only basis as presented in the table above, the amount included as capital provision-indirect assets represents
the fair value of Burford’s entire interest held in the fund, including the respective share of any financial liabilities at fair value through
profit and loss, and not just the Burford portion of the equity securities.
Included within the realisations amounts for Burford-only in 2019 and the additions amounts in 2018 is $20,735,000 relating to six assets
that were warehoused by a subsidiary company under a forward purchase and sale agreement with BOF-C. Included within additions
and realisation amounts for Burford-only during 2019 is $12,343,000 relating to an asset that was warehoused on behalf of and then
transferred to a managed fund during the year.
124
124
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
6. Capital Provision Assets continued
The following table reflects the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the capital provision assets balance reported in the consolidated statement of financial position to arrive at
Burford’s capital provision assets at 31 December 2019.
At 1 January 2019
Additions
Realisations
Income for the year
Foreign exchange losses
At 31 December 2019
At 1 January 2018
Additions
Realisations
Income for the year
Transfer to derivative financial liabilities
Foreign exchange losses
At 31 December 2018
Elimination of
Consolidated
third-party
Burford-only
provision
total
$’000
interests
$’000
total
$’000
Burford-only
Capital
–direct
$’000
Capital
provision
–indirect
$’000
1,641,035
(119,444)
1,521,591
1,289,548
232,043
562,018
(173,196)
388,822
272,016
116,806
(539,359)
143,679
(395,680)
(218,807)
(176,873)
370,898
(56,198)
314,700
302,075
12,625
37
61
98
98
2,045,329
(211,339)
1,833,990
1,649,389
184,601
–
–
Elimination of
Consolidated
third-party
Burford-only
total
$’000
interests
$’000
total
$’000
Burford-only
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
1,089,395
(98,529)
990,866
834,993
155,873
771,409
(113,697)
657,712
387,171
270,541
(634,856)
109,317
(525,539)
(320,733)
(204,806)
411,612
(16,535)
395,077
384,642
10,435
9,250
(5,775)
–
–
9,250
(5,775)
9,250
(5,775)
–
–
1,641,035
(119,444)
1,521,591
1,289,548
232,043
Unrealised fair value at 31 December 2018
598,712
(9,102)
589,610
590,317
(707)
On a consolidated basis the capital provision-indirect assets represent solely the equity securities and related claims in the Burford
Strategic Value Fund. The fund’s investment activity also includes entering into financial liabilities at fair value through profit and loss
to offset the market based gains and losses in the equity securities (refer to note 7). On a consolidated basis that activity is presented
within financial liabilities at fair value through profit and loss in the liabilities section of the consolidated statement of financial
position. On a Burford-only basis as presented in the table above, the amount included as capital provision-indirect assets represents
the fair value of Burford’s entire interest held in the fund, including the respective share of any financial liabilities at fair value through
profit and loss, and not just the Burford portion of the equity securities.
Included within the realisations amounts for Burford-only in 2019 and the additions amounts in 2018 is $20,735,000 relating to six assets
that were warehoused by a subsidiary company under a forward purchase and sale agreement with BOF-C. Included within additions
and realisation amounts for Burford-only during 2019 is $12,343,000 relating to an asset that was warehoused on behalf of and then
transferred to a managed fund during the year.
Strategic report
Governance
Financial statements
The following table reflects the line-by-line impact of eliminating the income of third-parties in the entities which Burford consolidates
from the capital provision income reported in the consolidated statement of comprehensive income to arrive at Burford’s investments
income at 31 December 2019.
31 December 2019
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
Burford-only
Realised gains/(losses) relative to cost
151,886
(23,462)
128,424
120,522
7,902
Previous unrealised (gains)/losses transferred to realised
gains/(losses)
(85,789)
6,504
(79,285)
(79,424)
139
Fair value adjustment in the year
289,795
(24,234)
265,561
260,977
4,584
Interest income on certain indirect capital provision assets
15,006
(15,006)
–
–
–
Income on capital provision assets
370,898
(56,198)
314,700
302,075
12,625
Transfer to capital provision asset subparticipation
10,700
(6,241)
4,459
4,459
Unrealised fair value at 31 December 2019
808,320
(32,220)
776,100
772,083
4,017
Interest and other income
Impairment
Realised gain on derivative financial liabilities
Loss on derivative financial assets
Loss on financial liabilities at fair value through profit and loss
(20,872)
20,467
Gain/(loss) on equity securities (note 7)
Loss on capital provision asset subparticipations
1,169
(1,722)
–
(7)
1,870
(1,742)
128
128
(4,083)
7,000
(4,154)
4,154
–
–
(4,083)
(4,083)
7,000
7,000
–
(405)
(553)
(7)
–
(405)
(553)
(7)
–
–
–
–
–
–
–
Total capital provision income
351,828
(35,048)
316,780
304,155
12,625
31 December 2018
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
Burford-only
Realised gains/(losses) relative to cost
169,901
(13,146)
156,755
142,044
14,711
Previous unrealised (gains)/losses transferred to realised
gains/(losses)
(79,694)
3,168
(76,526)
(70,523)
(6,003)
Fair value adjustment in the year
310,405
4,443
314,848
313,121
1,727
Interest income on certain indirect capital provision assets
11,000
(11,000)
–
–
–
Income on capital provision assets
Interest and other income
Realised gain on derivative financial liabilities
Loss on derivative financial assets
Loss on financial liabilities at fair value through profit and loss
Gain/(loss) on equity securities (note 7)
411,612
(16,535)
395,077
384,642
10,435
1,692
2,250
(3,462)
(3,010)
(4,852)
(1,642)
50
50
–
2,250
2,250
3,462
3,010
–
–
–
–
–
(4,852)
(4,852)
–
–
–
–
–
Total capital provision income
404,230
(11,705)
392,525
382,090
10,435
124
124
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
125
125
Notes to the consolidated financial statements
continued
7. Equity securities
As at 31 December 2019, equity securities were held at fair value of $31,396,000 (2018: $582,000) and there is a gain on equity
securities of $1,169,000 (2018: loss of $4,852,000) included in capital provision income on the face of the consolidated statement
of comprehensive income (see note 6). At 31 December 2019, equity securities consisted of (a) $31,367,000 of equities received in
settlement for an capital provision-indirect asset, which position was hedged and subsequently sold shortly after year end resulting
in no material impact to profit and loss and (b) $29,000 of a security previously received as consideration in a settlement of a direct
capital provision asset.
As at 1 January
Asset received in kind
Realisations
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Fair value movement
As at 31 December
2019
$’000
2018
$’000
582
6,058
29,645
–
–
–
1,169
31,396
–
(624)
(924)
1,258
(5,186)
582
The following table presents the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the equity securities balance reported in the consolidated statement of financial position to arrive at Burford’s
equity securities at 31 December 2019.
31 December 2019
As at 1 January
Asset received in kind
Fair value movement
As at 31 December
31 December 2018
As at 1 January
Realisations
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Fair value movement
As at 31 December
Consolidated
Total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
582
–
29,645
(29,645)
1,169
(1,722)
31,396
(31,367)
582
–
(553)
29
Consolidated
Total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
6,058
(624)
(924)
1,258
(5,186)
582
–
–
–
–
–
–
6,058
(624)
(924)
1,258
(5,186)
582
126
126
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
7. Equity securities
As at 31 December 2019, equity securities were held at fair value of $31,396,000 (2018: $582,000) and there is a gain on equity
securities of $1,169,000 (2018: loss of $4,852,000) included in capital provision income on the face of the consolidated statement
of comprehensive income (see note 6). At 31 December 2019, equity securities consisted of (a) $31,367,000 of equities received in
settlement for an capital provision-indirect asset, which position was hedged and subsequently sold shortly after year end resulting
in no material impact to profit and loss and (b) $29,000 of a security previously received as consideration in a settlement of a direct
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
The following table presents the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the equity securities balance reported in the consolidated statement of financial position to arrive at Burford’s
equity securities at 31 December 2019.
2019
$’000
2018
$’000
582
6,058
29,645
–
–
–
1,169
31,396
–
(624)
(924)
1,258
(5,186)
582
interests
Burford-only
Elimination of
Consolidated
third-party
Total
$’000
582
$’000
–
29,645
(29,645)
1,169
(1,722)
31,396
(31,367)
$’000
582
–
(553)
29
Elimination of
Consolidated
third-party
interests
Burford-only
$’000
$’000
Total
$’000
6,058
(624)
(924)
1,258
(5,186)
582
–
–
–
–
–
–
6,058
(624)
(924)
1,258
(5,186)
582
capital provision asset.
As at 1 January
Asset received in kind
Realisations
Fair value movement
As at 31 December
31 December 2019
As at 1 January
Asset received in kind
Fair value movement
As at 31 December
31 December 2018
As at 1 January
Realisations
Fair value movement
As at 31 December
Realised gains/(losses) relative to cost
Previous unrealised (gains)/losses transferred to realised gains/(losses)
Strategic report
Governance
Financial statements
8. Due from settlement of capital provision assets
Amounts due from settlement of assets relate to the recovery of capital provision assets that have successfully concluded and where
there is no longer any litigation risk remaining. The settlement terms and duration vary by capital provision asset. The majority of
settlement balances are received shortly after the period end and all are generally expected to be received within 12 months. The
carrying value of these assets approximate the fair value of the assets at the balance sheet date.
Due from settlement of capital provision assets
At 1 January
Transfer of realisations from capital provision assets
Interest and other income
Impairment of receivable (see note 6)
Proceeds received
Asset received in kind (see note 7)
Foreign exchange gains
At 31 December
Split:
Non-current assets
Current assets
Total due from settlement of capital provision assets
2019
$’000
2018
$’000
37,109
3,248
539,359
634,856
1,870
(3,083)
1,692
–
(491,252)
(602,678)
(29,645)
–
–
(9)
54,358
37,109
3,750
3,083
50,608
34,026
54,358
37,109
The following tables reflect the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the due from settlement of assets balance reported in the consolidated statement of financial position to arrive at
Burford’s capital provision asset receivables at 31 December 2019.
Due from settlement of capital provision assets
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
Burford-only
At 1 January 2019
37,109
–
37,109
37,109
–
Transfer of realisations from capital provision assets
539,359
(143,679)
395,680
218,807
176,873
Interest and other income
Impairment of receivable
Proceeds received
Asset received in kind
At 31 December 2019
Due from settlement of capital provision assets
1,870
(3,083)
(1,742)
128
128
–
(3,083)
(3,083)
–
–
(491,252)
80,407
(410,845)
(233,972)
(176,873)
(29,645)
29,645
–
–
54,358
(35,369)
18,989
18,989
–
–
Consolidated
Total
$’000
Elimination of
third-party
interests
$’000
Burford-only
total
$’000
Capital
provision
–direct
$’000
Capital
provision
–indirect
$’000
Burford-only
At 1 January 2018
3,248
1,517
4,765
3,248
1,517
Transfer of realisations from capital provision assets
634,856
(109,317)
525,539
320,733
204,806
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Interest and other income
Proceeds received
Foreign exchange gains
At 31 December 2018
1,692
(1,642)
50
50
–
(602,678)
109,442
(493,236)
(286,913)
(206,323)
(9)
37,109
–
–
(9)
(9)
37,109
37,109
–
–
127
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Notes to the consolidated financial statements
continued
9. Financial liabilities at fair value through profit and loss
Financial liabilities at fair value through profit and loss are sales of equity securities transacted to offset the market based gains and
losses on equity positions held within capital provision assets as the underlying investment strategy is focused on earning an
underlying litigation related return and not an outright position in a pure equity return. Proceeds from entering into sales of equity
securities are held by brokers and are presented with due from brokers in the consolidated statement of financial position in addition
to any margin held by the broker relating to the activity in buying and selling equities. While the positions are held to offset gains and
losses on equity positions included within capital provision-indirect assets, the activity is required to be presented separately within
liabilities in the consolidated statement of financial position. Gains and losses are included in the capital provision income in the
consolidated statement of comprehensive income.
Amounts included in due to brokers relate to equity positions included in capital provision assets that have been purchased using
available credit in the margin account with the respective broker.
10. Asset management income
Burford receives regular management fees on its managed funds, calculated as a percentage of capital committed by the fund
investors or as a percentage of capital committed by the fund, depending upon the status of the fund. In addition, Burford receives
performance fees from the funds. Burford’s managed funds (other than the Strategic Value fund and the BOF-C fund) use a so-called
“European” structure for the payment of performance fees, in that the manager is not paid any performance fees until fund investors
have had their entire capital investment repaid, as opposed to performance fees being paid on profitable resolutions as they occur
(referred to as an “American” structure). The impact of this European structure is to delay the receipt of performance fees, and thus
while many fund assets have already successfully and profitably concluded, few of those performance fees have yet been paid.
Performance fees are recognised when a reliable estimate of the fee can be made and it is highly unlikely that a significant reversal
of the amount will occur.
The asset management income on the face of the consolidated statement of comprehensive income comprises:
Management fee income
Performance fee income
Total asset management income
2019
$’000
2018
$’000
15,160
10,936
–
755
15,160
11,691
The following tables show the impact of consolidating the Strategic Value and BOF-C funds by adding back the elimination entries
for consolidation purposes to arrive at Burford’s asset management income at 31 December 2019 and 2018.
For the period ended 31 December 2019
Management fee income
Performance fee income
Income from BOF-C
Total asset management income
For the year ended 31 December 2018
Management fee income
Performance fee income
Total asset management income
Consolidated
total
$’000
15,160
–
–
Elimination of
third-party
interests
$’000
Burford-only
$’000
3,239
594
7,137
18,399
594
7,137
15,160
10,970
26,130
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
10,936
755
11,691
3,060
1,048
4,108
Burford-only
$’000
13,996
1,803
15,799
Under the co-investing arrangement with the SWF, Burford receives reimbursement of expenses from BOF-C up to a certain level
before either party receives a return of capital. After the repayment of capital, Burford then receives a portion of the return generated
from the assets held by BOF-C. Amounts received and due from BOF-C from both of these sources is included in Income from
BOF-C in the Burford-only figures in the table above. On a consolidated basis, the amounts are included within capital provision
income.
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Financial statements
9. Financial liabilities at fair value through profit and loss
11. Liabilities arising from insurance contracts
Unearned premiums
Claims incurred but not reported reserve
Total
2019
Gross
$’000
Reinsurance
$’000
4,445
(3,556)
82
–
4,527
(3,556)
Net
$’000
889
82
971
There were no claims reported during the year or outstanding loss reserve relating to reported claims as at 31 December 2019
(2018: $nil).
Income statement:
Gross premiums written
Gross ceded reinsurance premiums
Movement in net unearned premium
Net premium earned
Change in insurance claims reserves
Net income on insurance contracts
Insurance underwriting commission
Insurance administrator commission
Total insurance income
12. Tangible fixed assets
Cost:
At 31 December 2018
Adoption of IFRS 16 – Leases (note 2)
As at 1 January 2019
Additions
Disposals
Exchange differences
At 31 December 2019
Depreciation:
At 1 January 2019
Charge in period
Disposals
Exchange differences
At 31 December 2019
Net book value:
At 31 December 2018
At 31 December 2019
2019
$’000
4,707
(3,766)
(862)
79
(79)
–
56
3,489
3,545
Total
$’000
3,202
5,552
8,754
16,513
(1,665)
68
Fixtures,
fittings and
equipment
$’000
Right-of-use
assets –
property
leases
$’000
3,202
–
3,202
3,398
(1,370)
21
–
5,552
5,552
13,115
(295)
57
5,251
18,419
23,670
(1,336)
(912)
533
(10)
–
(1,862)
111
(10)
(1,336)
(2,774)
644
(20)
(1,725)
(1,761)
(3,486)
1,866
–
1,866
3,526
16,658
20,184
Notes to the consolidated financial statements
continued
Financial liabilities at fair value through profit and loss are sales of equity securities transacted to offset the market based gains and
losses on equity positions held within capital provision assets as the underlying investment strategy is focused on earning an
underlying litigation related return and not an outright position in a pure equity return. Proceeds from entering into sales of equity
securities are held by brokers and are presented with due from brokers in the consolidated statement of financial position in addition
to any margin held by the broker relating to the activity in buying and selling equities. While the positions are held to offset gains and
losses on equity positions included within capital provision-indirect assets, the activity is required to be presented separately within
liabilities in the consolidated statement of financial position. Gains and losses are included in the capital provision income in the
consolidated statement of comprehensive income.
Amounts included in due to brokers relate to equity positions included in capital provision assets that have been purchased using
available credit in the margin account with the respective broker.
10. Asset management income
Burford receives regular management fees on its managed funds, calculated as a percentage of capital committed by the fund
investors or as a percentage of capital committed by the fund, depending upon the status of the fund. In addition, Burford receives
performance fees from the funds. Burford’s managed funds (other than the Strategic Value fund and the BOF-C fund) use a so-called
“European” structure for the payment of performance fees, in that the manager is not paid any performance fees until fund investors
have had their entire capital investment repaid, as opposed to performance fees being paid on profitable resolutions as they occur
(referred to as an “American” structure). The impact of this European structure is to delay the receipt of performance fees, and thus
while many fund assets have already successfully and profitably concluded, few of those performance fees have yet been paid.
Performance fees are recognised when a reliable estimate of the fee can be made and it is highly unlikely that a significant reversal
of the amount will occur.
The asset management income on the face of the consolidated statement of comprehensive income comprises:
The following tables show the impact of consolidating the Strategic Value and BOF-C funds by adding back the elimination entries
for consolidation purposes to arrive at Burford’s asset management income at 31 December 2019 and 2018.
2019
$’000
2018
$’000
15,160
10,936
–
755
15,160
11,691
Elimination of
Consolidated
third-party
total
$’000
15,160
–
–
interests
Burford-only
$’000
3,239
594
7,137
$’000
18,399
594
7,137
15,160
10,970
26,130
Elimination of
Consolidated
third-party
total
$’000
10,936
755
11,691
interests
Burford-only
$’000
3,060
1,048
4,108
$’000
13,996
1,803
15,799
Management fee income
Performance fee income
Total asset management income
For the period ended 31 December 2019
Management fee income
Performance fee income
Income from BOF-C
Total asset management income
For the year ended 31 December 2018
Management fee income
Performance fee income
Total asset management income
Under the co-investing arrangement with the SWF, Burford receives reimbursement of expenses from BOF-C up to a certain level
before either party receives a return of capital. After the repayment of capital, Burford then receives a portion of the return generated
from the assets held by BOF-C. Amounts received and due from BOF-C from both of these sources is included in Income from
BOF-C in the Burford-only figures in the table above. On a consolidated basis, the amounts are included within capital provision
income.
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Notes to the consolidated financial statements
continued
13. Cash management assets
As at 31 December 2019, cash management assets of $37,966,000 (2018: $41,449,000) were invested primarily in a listed investment
fund and fixed income securities.
Reconciliation of movements
At 1 January
Purchases
Proceeds on disposal
Net realised gains on disposal
Fair value movement
Change in accrued interest
Balance at 31 December
2019
$’000
2018
$’000
41,449
39,933
6,410
17,376
(9,756)
(11,721)
65
527
(211)
(4,624)
9
(42)
37,966
41,449
The cash management income and bank interest on the face of the consolidated statement of comprehensive income comprise:
Realised gains (see above)
Fair value movement (see above)
Interest and dividend income
Bank interest income
Total cash management income and bank interest
2019
$’000
65
2018
$’000
527
(211)
(4,624)
1,987
4,862
6,703
1,990
3,908
1,801
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Notes to the consolidated financial statements
continued
13. Cash management assets
As at 31 December 2019, cash management assets of $37,966,000 (2018: $41,449,000) were invested primarily in a listed investment
fund and fixed income securities.
Reconciliation of movements
At 1 January
Purchases
Proceeds on disposal
Net realised gains on disposal
Fair value movement
Change in accrued interest
Balance at 31 December
Realised gains (see above)
Fair value movement (see above)
Interest and dividend income
Bank interest income
Total cash management income and bank interest
2019
$’000
2018
$’000
41,449
39,933
6,410
17,376
(9,756)
(11,721)
65
527
(211)
(4,624)
9
(42)
37,966
41,449
(211)
(4,624)
2019
$’000
65
1,987
4,862
6,703
2018
$’000
527
1,990
3,908
1,801
The cash management income and bank interest on the face of the consolidated statement of comprehensive income comprise:
Strategic report
Governance
Financial statements
14. Operating expenses
Staff costs
Share-based payments
Pension costs
Non-executive directors' remuneration
Non-staff operating expenses
Capital provision asset related costs
Case-related legal fees not included in asset cost
One-time expenses related to equity and listing matters
Expenses incurred by consolidated entities*
Capital provision asset related costs
Non-staff operating expenses
Total operating expenses
2019
$’000
2018
$’000
49,191
48,198
4,519
1,285
484
1,686
736
415
15,724
11,478
6,209
2,903
1,754
8,343
990
2,981
1,734
–
3,977
626
91,402
71,831
* Expenses incurred by consolidated entities are shown net of adjustments and eliminations as shown in note 23
Operating expenses for 2018 now include $900,000 of banking and brokerage fees that were previously reported separately and
have now been included for consistency in comparative prior periods.
Directors’ remuneration* comprise:
Sir Peter Middleton
Hugh Steven Wilson
David Charles Lowe
Charles Nigel Kennedy Parkinson
* Directors' remuneration is Sterling denominated
Fees paid and payable to Ernst & Young LLP comprise:
Audit fees
Interim review fees
Tax compliance fees
Tax advisory fees
Other advisory fees
2019
$’000
189
125
85
85
484
2019
$’000
1,386
55
348
124
14
1,927
2018
$’000
171
112
66
66
415
2018
$’000
961
38
287
133
166
1,585
130
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Notes to the consolidated financial statements
continued
15. Other assets
Trade receivable – insurance
Trade receivable – services
Asset management receivables
Reinsurance assets (note 11)
Prepayments
Financial asset held at amortised cost
Tax receivable
Other receivables
Total other assets
16. Other liabilities
Audit fee payable
General expenses payable
Payable for capital provision assets
Lease liabilities
Insurance liabilities (note 11)
Tax payable
Due to limited partners
Total other liabilities
The following table sets out the movement in lease liabilities during the year.
At 1 January
Change in accounting policy – note 2
Restated at 1 January 2019
Additions
Lease liabilities interest expense
Payments of lease liabilities during year
Exchange differences
At 31 December
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2019
$’000
658
1,547
825
3,556
1,375
500
–
4,802
2018
$’000
7,438
735
2,118
–
352
1,500
1,823
2,347
13,263
16,313
2019
$’000
1,385
2018
$’000
381
24,782
30,657
36
19,389
4,527
1,311
–
–
–
–
–
8
51,430
31,046
2019
$’000
–
6,785
6,785
13,115
869
(1,433)
53
19,389
2018
$’000
–
–
–
–
–
–
–
–
Notes to the consolidated financial statements
continued
15. Other assets
Trade receivable – insurance
Trade receivable – services
Asset management receivables
Reinsurance assets (note 11)
Prepayments
Financial asset held at amortised cost
Tax receivable
Other receivables
Total other assets
16. Other liabilities
Audit fee payable
General expenses payable
Payable for capital provision assets
Lease liabilities
Insurance liabilities (note 11)
Tax payable
Due to limited partners
Total other liabilities
At 1 January
Change in accounting policy – note 2
Restated at 1 January 2019
Additions
Lease liabilities interest expense
Payments of lease liabilities during year
Exchange differences
At 31 December
The following table sets out the movement in lease liabilities during the year.
Strategic report
Governance
Financial statements
17. Loan capital
The Group has issued the following retail bonds listed on the London Stock Exchange’s Order Book for Retail Bonds.
Issuance date
19 –Aug –2014
19 –Apr –2016
1 –Jun –2017
12 –Feb –2018
Issuing entity (100% owned subsidiary)
Burford Capital PLC Burford Capital PLC Burford Capital PLC
Burford Capital
Finance LLC
Currency
GBP
GBP
GBP
USD
Face amount (in currency)
£90,000,000
£100,000,000
£175,000,000
$180,000,000
Maturity date
Interest rate per annum
19 –Aug –2022
26 –Oct –2024
1 –Dec –2026
12 –Aug –2025
6.50%
6.125%
5.00%
6.125%
USD equivalent face value at exchange
rate at issuance
USD equivalent face value at 31 December
2019 exchange rate of $1.321 per £1.00
Fair value equivalent:
At 31 December 2019
At 31 December 2018
$149,562,000
$144,020,000
$225,803,000
$180,000,000
$118,890,000
$132,100,000
$231,175,000
$180,000,000
$119,871,000
$128,302,000
$208,924,000
$172,350,000
$121,098,000
$134,872,000
$224,240,000
$177,075,000
24,782
30,657
The fair value equivalents for the Group’s retail bonds are based on the last traded price for each bond observed on the London Stock
Exchange’s Order Book for Retail Bonds.
Retail bonds
At 1 January
Retail bonds issued
Bond issue costs
Loan capital finance costs
Interest paid
Foreign exchange (gains)/losses
As at 31 December
Split:
Loan capital
Loan interest payable
Total loan capital
Loan capital interest expense
Bond issue costs incurred as finance costs
Loan capital finance costs (above)
Lease liabilities interest expense (see note 16)
Total finance costs
2019
$’000
2018
$’000
647,992
492,328
–
–
180,000
(2,637)
38,753
38,538
(37,568)
(33,108)
16,165
(27,129)
665,342
647,992
655,880
638,665
9,462
9,327
665,342
647,992
2019
$’000
2018
$’000
37,528
37,334
1,225
1,204
38,753
38,538
869
–
39,622
38,538
13,263
16,313
2019
$’000
658
1,547
825
3,556
1,375
500
–
4,802
2019
$’000
1,385
36
19,389
4,527
1,311
–
2019
$’000
–
6,785
6,785
13,115
869
(1,433)
53
19,389
2018
$’000
7,438
735
2,118
–
352
1,500
1,823
2,347
2018
$’000
381
2018
$’000
–
–
–
–
8
–
–
–
–
–
–
–
–
51,430
31,046
132
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Notes to the consolidated financial statements
continued
18. Changes in liabilities arising from financing activities
A summary of the changes arising from cash flows and non-cash changes of loan capital is shown below.
At 1 January
Cash flows:
Issuance/(repayments) net of issue costs
Interest paid
Non-cash charges:
Interest expense
Amortisation of bond issue costs
Foreign exchange (gains)/losses
As at 31 December
19. Intangible asset
At 1 January
Amortisation
At 31 December
Acquisition of subsidiary
Accumulated amortisation
Net book value at 31 December
2019
$’000
2018
$’000
647,992
492,328
–
177,363
(37,568)
(33,108)
37,528
37,334
1,225
1,204
16,165
(27,129)
665,342
647,992
2019
$’000
2018
$’000
18,198
27,692
(9,495)
(9,494)
8,703
18,198
2019
$’000
2018
$’000
39,666
39,666
(30,963)
(21,468)
8,703
18,198
Burford acquired Gerchen Keller Capital (GKC) on 14 December 2016. The intangible asset represents an assessment, for
accounting purposes, of the value of GKC’s future asset management income at the date of acquisition. The intangible asset has an
estimated useful life extending to 2020 and is being amortised over this period, in accordance with revenue generated from asset
management income.
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Notes to the consolidated financial statements
continued
18. Changes in liabilities arising from financing activities
A summary of the changes arising from cash flows and non-cash changes of loan capital is shown below.
Issuance/(repayments) net of issue costs
At 1 January
Cash flows:
Interest paid
Non-cash charges:
Interest expense
Amortisation of bond issue costs
Foreign exchange (gains)/losses
As at 31 December
19. Intangible asset
At 1 January
Amortisation
At 31 December
Acquisition of subsidiary
Accumulated amortisation
Net book value at 31 December
2019
$’000
2018
$’000
647,992
492,328
–
177,363
(37,568)
(33,108)
37,528
37,334
1,225
1,204
16,165
(27,129)
665,342
647,992
2019
$’000
2018
$’000
18,198
27,692
(9,495)
(9,494)
8,703
18,198
2019
$’000
2018
$’000
39,666
39,666
(30,963)
(21,468)
8,703
18,198
Burford acquired Gerchen Keller Capital (GKC) on 14 December 2016. The intangible asset represents an assessment, for
accounting purposes, of the value of GKC’s future asset management income at the date of acquisition. The intangible asset has an
estimated useful life extending to 2020 and is being amortised over this period, in accordance with revenue generated from asset
management income.
Strategic report
Governance
Financial statements
20. Goodwill
Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration over the fair value of the
Group’s share of the assets acquired and the liabilities assumed on the date of the acquisition. The goodwill allocated to each of the
Group’s operating business segments is set out in the table below.
Carrying Value of Goodwill
At 1 January 2019
Foreign exchange gains
At 31 December 2019
At 1 January 2018
Foreign exchange losses
At 31 December 2018
Capital
provision
$’000
Asset
management
$’000
Services and
other
corporate
$’000
Total
$’000
107,991
25,020
955
133,966
–
–
33
33
107,991
25,020
988
133,999
Capital
provision
$’000
Asset
management
$’000
Services and
other
corporate
$’000
Total
$’000
107,991
25,020
1,011
134,022
–
–
107,991
25,020
(56)
955
(56)
133,966
As goodwill does not generate cash flows independently of other assets or groups of assets the recoverable amount, being the
value in use, is determined at a cash generating unit (CGU) level. The Group’s CGU’s are consistent with the operating business
segments above.
The Group’s value in use calculations require estimates in relation to uncertain items, including management’s expectations of future
revenue growth, operating costs, profit margins, operating cash flows, and the discount rate for each CGU.
The future cash flows are discounted using a discount rate that reflects the time value of money. The discount rate used in each CGU
is adjusted for the risk specific to the asset.
The Group is required to test goodwill acquired in a business combination annually for impairment. This was carried out for
the period ended 31 December 2019.
Key Assumptions and Sensitivities
The value in use of each CGU is determined using cash flow projections over a five-year period, based on past experience of
business performance.
Discount rate
The discount rates used in performing the value in use calculation in 2019 were 9.0% (2018: 9.9%) except for Asset Management
where we have used 8.3% (2018: 8.5%) reflecting the lower risk and volatility of income in this CGU. The discount rates estimated
on a pre-tax equivalent basis were 10.0% (2018: 11.0%) and 10.4% (2018: 10.7%) for Asset Management.
Growth in commitments
The annual growth rate assumption for the five-year projection period is 5% (2018: 5%). The perpetuity growth rates are determined
based on the forecast market growth rates of the economies in which the CGU operates, and they reflect an assessment of the long-
term growth prospects of that market. For all CGUs this rate is 2% (2018: 2%).
Return on capital provision assets
The rates of return are determined based on historical experience. The rates used in performing the value in use calculation in 2019
were 22.5% for existing and new capital provision assets (2018: 22.5% and 20% respectively) per annum except for Asset Management
where we have used rates of between 6.5% (2018: 6.5%) and 22.5% (2018: 22.5%) reflecting the differing rates of return expected on
the different funds.
Sensitivities
Based on the methodology and assumptions set out above, the recoverable amounts estimated using the value in use calculation
exceed the carrying amounts including goodwill of the CGU’s by $341,574,000 and $72,429,000 for the capital provision and asset
management CGU’s respectively (2018: $464,073,000 and $205,222,000). The sensitivity to the key assumptions are set out in the
table below.
134
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135
135
Notes to the consolidated financial statements
continued
20. Goodwill continued
Assumption
Discount rate
Terminal growth rate
31 December 2019
31 December 2018
Capital
provision
$’000
Asset
management
$’000
Capital
provision
$’000
Asset
management
$’000
Sensitivity
+1%
(259,781)
(17,829)
(168,924)
(32,603)
–1% (200,020)
(14,374)
(119,958)
(25,205)
Return on capital provision assets
–1%
(198,301)
(9,611)
(224,828)
(34,993)
21. Fair value of assets and liabilities
Valuation methodology
The fair value of financial assets and liabilities continue to be valued using the techniques set out in the accounting policies in note 2.
Fair value hierarchy
31 December 2019
Assets
Capital provision assets
Single case
Portfolio
Legal risk management
Asset recovery
Indirect – equity securities
Equity securities
Cash management investments
Total assets
Liabilities
Financial liabilities at fair value through profit and loss
Capital provision asset subparticipations
Loan capital, at fair value*
Third-party interests in consolidated entities
Total liabilities
Net total
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
65,780
31,396
37,966
135,142
91,493
–
629,447
–
720,940
(585,798)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
458,340
458,340
1,241,106
1,241,106
1,619
1,619
86,128
86,128
192,356
258,136
–
–
31,396
37,966
1,979,549
2,114,691
–
91,493
13,944
13,944
–
629,447
235,720
235,720
249,664
970,604
1,729,885
1,144,087
* Loan capital is held at amortised cost in the consolidated financial statements and the figures disclosed in the above tables represent the fair value equivalent amounts.
The principal types of capital provision assets transacted by the Group are as follows:
Single case:
Capital provision assets funded by Burford that are subject to binary legal risk, such as financing the costs of a single
litigation claim.
Portfolio:
Capital provision assets with multiple paths to recovery, such as financing a pool of litigation claims.
Asset recovery:
Capital provision assets where Burford finances the cost of the pursuit of enforcement of an unpaid legal judgment.
Legal risk management:
Capital provision assets where all or a portion of the financing provided by Burford is providing some form of legal risk arrangement,
such as to cover an indemnity or insurance for adverse costs.
136
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Strategic report
Governance
Financial statements
31 December 2019
31 December 2018
Capital
Asset
Capital
Asset
provision
management
provision
management
$’000
$’000
$’000
$’000
Sensitivity
+1%
(259,781)
(17,829)
(168,924)
(32,603)
–1% (200,020)
(14,374)
(119,958)
(25,205)
Where capital is provided on a portfolio basis, Burford provides financing for a group of cases with the same counterparty on terms
that tend to recognise the lower risk of loss generally associated with multi-case portfolios. Typically, the cases in the portfolio are
cross collateralised, such that losses in one case can be recovered from successes in another. Cases in portfolios are underwritten
and priced in a similar manner to single case capital provision assets and are anticipated to achieve a similar risk-adjusted return.
Portfolios then allow us to originate larger volumes of assets with greater efficiency.
Asset recovery capital provision assets are underwritten, structured and priced in a similar manner to our single case and portfolio
capital provision assets and, as a consequence, are anticipated to have similar risk-adjusted returns.
The key risk and sensitivity across all capital provision assets relates to the underlying litigation associated with each case that is
underwritten and financed. The sensitivity to this level 3 input is therefore considered to be similar across the different types of capital
provision assets and is expressed as a portfolio-wide stress.
31 December 2018
Assets
Capital provision assets
Single case
Portfolio
Legal risk management
Asset recovery
Indirect – equity securities
Equity securities
Derivative financial asset
Cash management investments
Total assets
Liabilities
Financial liabilities at fair value through profit and loss
Derivative financial liabilities
Capital provision asset subparticipations
Loan capital, at fair value*
Third-party interests in consolidated entities
Total liabilities
Net total
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
–
–
217,703
217,703
1,058,979
1,058,979
3,086
42,217
3,086
42,217
137,809
72,692
108,549
319,050
582
–
41,449
–
–
–
–
4,154
582
4,154
–
41,449
179,840
72,692
1,434,688
1,687,220
112,821
–
–
657,285
–
770,106
–
–
–
–
–
–
–
112,821
7,000
3,244
–
136,959
7,000
3,244
657,285
136,959
147,203
917,309
(590,266)
72,692
1,287,485
769,911
* Loan capital is held at amortised cost in the consolidated financial statements and the figures disclosed in the above tables represent the fair value equivalent amounts.
Notes to the consolidated financial statements
continued
20. Goodwill continued
Assumption
Discount rate
Terminal growth rate
Valuation methodology
Fair value hierarchy
31 December 2019
Assets
Capital provision assets
Single case
Portfolio
Legal risk management
Asset recovery
Indirect – equity securities
Equity securities
Cash management investments
Total assets
Liabilities
Return on capital provision assets
–1%
(198,301)
(9,611)
(224,828)
(34,993)
21. Fair value of assets and liabilities
The fair value of financial assets and liabilities continue to be valued using the techniques set out in the accounting policies in note 2.
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
–
–
–
–
65,780
31,396
37,966
135,142
91,493
629,447
720,940
(585,798)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
458,340
458,340
1,241,106
1,241,106
1,619
1,619
86,128
86,128
192,356
258,136
–
–
31,396
37,966
1,979,549
2,114,691
–
91,493
13,944
13,944
–
629,447
235,720
235,720
249,664
970,604
1,729,885
1,144,087
Financial liabilities at fair value through profit and loss
Capital provision asset subparticipations
Loan capital, at fair value*
Third-party interests in consolidated entities
Total liabilities
Net total
Single case:
litigation claim.
Portfolio:
Asset recovery:
* Loan capital is held at amortised cost in the consolidated financial statements and the figures disclosed in the above tables represent the fair value equivalent amounts.
The principal types of capital provision assets transacted by the Group are as follows:
Capital provision assets funded by Burford that are subject to binary legal risk, such as financing the costs of a single
Capital provision assets with multiple paths to recovery, such as financing a pool of litigation claims.
Capital provision assets where Burford finances the cost of the pursuit of enforcement of an unpaid legal judgment.
Legal risk management:
Capital provision assets where all or a portion of the financing provided by Burford is providing some form of legal risk arrangement,
such as to cover an indemnity or insurance for adverse costs.
136
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Burford Annual Report 2019
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Burford Annual Report 2019
137
137
Notes to the consolidated financial statements
continued
21. Fair value of assets and liabilities continued
Movements in Level 3 fair value assets and liabilities
The table below provides analysis of the movements in the level 3 financial assets and liabilities.
At 1 January
2019
$’000
Transfers
into level 3
$’000
Additions
$’000
Realisations
$’000
Income for
the year
$’000
Foreign
exchange
losses
$’000
Transfer to
capital
provision
asset sub-
participation
$’000
At 31
December
2019
$’000
Single case
Portfolio
Legal risk management
Asset recovery
217,703
1,058,979
3,086
42,217
–
–
–
–
179,727
(37,078)
97,787
201
–
458,340
116,232
(152,377)
209,265
(1,693)
10,700 1,241,106
–
(1,762)
190
105
30,439
(1,438)
13,485
1,425
Indirect – equity securities
108,549
210,501
149,152
(327,274)
51,428
Derivative financial assets
4,154
–
–
–
(4,154)
–
–
–
–
–
–
1,619
86,128
192,356
–
Total level 3 assets
1,434,688
210,501
475,550
(519,929)
368,001
38
10,700 1,979,549
Capital provision asset
subparticipations
Derivative financial liabilities
Third-party interests in
consolidated entities
Total level 3 liabilities
(3,244)
(7,000)
(136,959)
(147,203)
–
–
–
–
–
–
–
–
–
7,000
(167,685)
84,242
(15,318)
(167,685)
84,242
(8,318)
–
–
–
–
(10,700)
(13,944)
–
–
–
(235,720)
(10,700)
(249,664)
At 1 January
2018
$’000
Transfers
into level 3
$’000
Additions
$’000
Realisations
$’000
Income for
the year
$’000
Foreign
exchange
losses
$’000
Transfer to
capital
provision
asset sub-
participation
$’000
At 31
December
2018
$’000
Single case
Portfolio
Legal risk management
Asset recovery
159,054
651,013
–
9,514
–
–
–
–
73,103
(134,455)
113,408
(407)
7,000
217,703
292,425
(143,699)
261,110
(4,120)
2,250 1,058,979
1,863
–
33,074
(7,138)
1,360
7,879
(137)
(1,112)
Indirect – equity securities
205,361
49,050
90,175
(259,484)
23,447
Derivative financial assets
–
–
7,616
–
(3,462)
–
–
–
–
–
–
3,086
42,217
108,549
4,154
Total level 3 assets
1,024,942
49,050
498,256
(544,776)
403,742
(5,776)
9,250 1,434,688
Capital provision asset
subparticipations
Derivative financial liabilities
Third-party interests in
consolidated entities
Total level 3 liabilities
(3,152)
–
–
–
(274)
182
–
–
–
2,250
(143,639)
(146,791)
– (113,690)
123,718
(3,348)
–
(113,964)
123,900
(1,098)
–
–
–
–
–
(3,244)
(9,250)
(7,000)
–
(136,959)
(9,250)
(147,203)
There were no gains or losses recognised in other comprehensive income with respect to these assets and liabilities.
All transfers into and out of level 3 are recognised as if they have taken place at the beginning of each reporting period. Transfers into
level 3 during the year of $210,501,000 (2018: $49,050,000) relate to assets where the underlying asset no longer has a quoted price
and becomes subject to the Group’s valuation methodology for level 3 financial instruments as set out in the accounting policies in
note 2.
138
138
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
21. Fair value of assets and liabilities continued
Movements in Level 3 fair value assets and liabilities
The table below provides analysis of the movements in the level 3 financial assets and liabilities.
At 1 January
Transfers
Income for
exchange
asset sub-
December
2019
into level 3
Additions
Realisations
the year
losses
participation
$’000
$’000
$’000
$’000
$’000
$’000
$’000
At 31
2019
$’000
Transfer to
capital
provision
Foreign
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Single case
Portfolio
Legal risk management
Asset recovery
217,703
1,058,979
3,086
42,217
179,727
(37,078)
97,787
201
–
458,340
116,232
(152,377)
209,265
(1,693)
10,700 1,241,106
–
(1,762)
190
105
30,439
(1,438)
13,485
1,425
Indirect – equity securities
108,549
210,501
149,152
(327,274)
51,428
Derivative financial assets
4,154
–
(4,154)
–
–
–
–
1,619
86,128
192,356
–
Total level 3 assets
1,434,688
210,501
475,550
(519,929)
368,001
38
10,700 1,979,549
Capital provision asset
subparticipations
Derivative financial liabilities
Third-party interests in
consolidated entities
Total level 3 liabilities
(3,244)
(7,000)
(136,959)
(147,203)
–
–
–
7,000
(10,700)
(13,944)
–
–
(167,685)
84,242
(15,318)
–
(235,720)
(167,685)
84,242
(8,318)
(10,700)
(249,664)
–
–
–
At 1 January
Transfers
Income for
exchange
asset sub-
December
2018
$’000
into level 3
Additions
Realisations
$’000
$’000
$’000
the year
$’000
losses
participation
$’000
At 31
2018
$’000
Transfer to
capital
provision
Foreign
$’000
(407)
Single case
Portfolio
159,054
651,013
73,103
(134,455)
113,408
7,000
217,703
292,425
(143,699)
261,110
(4,120)
2,250 1,058,979
Legal risk management
1,863
–
Asset recovery
9,514
33,074
(7,138)
1,360
7,879
(137)
(1,112)
Indirect – equity securities
205,361
49,050
90,175
(259,484)
23,447
Derivative financial assets
7,616
–
(3,462)
–
–
–
–
–
–
3,086
42,217
108,549
4,154
Total level 3 assets
1,024,942
49,050
498,256
(544,776)
403,742
(5,776)
9,250 1,434,688
Capital provision asset
subparticipations
Derivative financial liabilities
Third-party interests in
consolidated entities
Total level 3 liabilities
(3,152)
–
(143,639)
(146,791)
(274)
182
–
–
(3,244)
–
–
2,250
(9,250)
(7,000)
– (113,690)
123,718
(3,348)
–
(136,959)
–
(113,964)
123,900
(1,098)
(9,250)
(147,203)
There were no gains or losses recognised in other comprehensive income with respect to these assets and liabilities.
All transfers into and out of level 3 are recognised as if they have taken place at the beginning of each reporting period. Transfers into
level 3 during the year of $210,501,000 (2018: $49,050,000) relate to assets where the underlying asset no longer has a quoted price
and becomes subject to the Group’s valuation methodology for level 3 financial instruments as set out in the accounting policies in
note 2.
–
–
–
–
–
–
–
–
–
–
–
–
Strategic report
Governance
Financial statements
Sensitivity of level 3 valuations
Following origination, the Group engages in a semi-annual review of each capital provision asset’s fair value. At 31 December 2019,
should the value of those instruments have been 10% higher or lower than provided for in the Group’s fair value estimation, while all
other variables remained constant, the Group’s income and net assets would have increased and decreased respectively by
$172,989,000 (2018: $128,749,000).
Reasonably possible alternative assumptions
The determination of fair value for capital provision assets, derivative financial liabilities and asset subparticipations involve significant
judgements and estimates. Whilst the potential range of outcomes for the assets is wide, the Group’s fair value estimation is its best
assessment of the current fair value of each asset. That estimate is inherently subjective, being based largely on an assessment of
how individual events have changed the possible outcomes of the asset and their relative probabilities and hence the extent to which
the fair value has altered. The aggregate of the fair values selected falls within a wide range of reasonably possible estimates. In the
Group’s opinion there is no useful alternative valuation that would better quantify the market risk inherent in the portfolio and there
are no inputs or variables to which the values of the assets are correlated.
22. Risk management
Market and asset risk
The Group is exposed to market and asset risk with respect to its cash management assets, capital provision assets, financial liabilities
at fair value through profit and loss and derivative financial assets and liabilities. The maximum risk equals the fair value of all such
financial instruments.
With respect to the Group’s cash management assets, consisting of corporate bonds and investment funds, market risk is the risk that
the fair value of financial instruments will fluctuate due to changes in market variables such as interest rates, credit risk, security and
bond prices and foreign exchange rates. At 31 December 2019, should the prices of the investments in corporate bonds and
investment funds have been 10% higher or lower while all other variables remained constant, the Group’s income and net assets
would have increased and decreased respectively by $3,797,000 (2018: $4,145,000).
With respect to the Group’s financial liabilities at fair value through profit and loss and derivative financial assets the market risk is
negligible as the positions are held exclusively as economic hedges against gains and losses arising on offsetting long positions
included in the Group’s capital provision assets. The fair value of the Group’s offsetting long positions is approximately $91,493,000
at 31 December 2019 (2018: $112,821,000).
The Group only funds capital provision assets following a due diligence process. However, such assets involve high risk and there can
be no assurance of any particular recovery in any individual asset. Certain of the Group’s capital provision assets are comprised of a
portfolio of assets thereby mitigating the impact of the outcome of any single asset. While the claims underlying the Group's capital
provision assets are generally diverse, the Group monitors and manages the portfolio for related exposures that finance different
clients relative to the same or very similar claims, such that the outcomes on those related exposures are likely to be correlated.
Liquidity risk
The Group is exposed to liquidity risk. The Group’s financing of capital provision assets require funds to meet commitments (see note
30) and for settlement of operating liabilities. The Group’s capital provision assets (as described in note 2) typically require significant
capital contributions with little or no immediate return and no guarantee of return or repayment. In order to manage liquidity risk the
Group finances assets with a range of anticipated lives and holds cash management assets which can be readily realised to meet
those liabilities and commitments.
Cash management assets include listed fixed income instruments and investment funds that can be redeemed on short notice or can
be sold on an active trading market.
In 2014, 2016, 2017 and 2018, the total issues of $699 million in retail bonds raised sufficient extra capital to help mitigate liquidity risk.
Interest payments on the bonds will total approximately $211 million over the remaining three-year, five-year, six-year and seven-
year periods until maturity in August 2022, October 2024, August 2025 and December 2026, respectively, at which point the principal
amounts shall be repaid.
138
138
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
139
139
Notes to the consolidated financial statements
continued
22. Risk management continued
The tables below summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
Loan interest payable
9,376
9,825
19,201
138,155
34,143
Liabilities
31 December 2019
Financial liabilities at fair value
through profit and loss
Due to brokers
Other liabilities
Loan capital
Capital provision asset
subparticipations
Third-party interests in
consolidated entities
Deferred tax liabilities
31 December 2018
Financial liabilities at fair value
through profit and loss
Due to brokers
Less than
3 months
3 to 6
months
6 to 12
months
1 to 5
years
Greater than
5 years
No
contractual
maturity date
Total
undiscounted
cash outflows
91,493
51,401
–
–
–
–
–
–
–
–
28,072
791
1,587
12,455
10,029
250,990
411,175
–
–
–
–
–
91,493
51,401
210,700
52,934
662,165
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,944
13,944
235,720
235,720
9,662
9,662
180,342
10,616
20,788
401,600
455,347
259,326
1,328,019
Less than
3 months
3 to 6
months
6 to 12
months
1 to 5
years
Greater than
5 years
No
contractual
maturity date
Total
undiscounted
cash outflows
112,821
12,667
–
–
–
–
–
–
–
–
Loan interest payable
9,247
9,497
18,744
142,485
63,390
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset
subparticipations
Third-party interests in
consolidated entities
Deferred tax liabilities
31,046
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
114,921
531,148
–
–
–
–
–
–
–
–
–
–
–
–
–
112,821
12,667
243,363
31,046
646,069
7,000
7,000
3,244
3,244
136,959
136,959
4,099
4,099
165,781
9,497
18,744
257,406
594,538
151,302
1,197,268
140
140
Burford Annual Report 2019
Burford Annual Report 2019
Strategic report
Governance
Financial statements
The tables below present an analysis of the Group’s assets and liabilities split between a current and non-current classification.
Notes to the consolidated financial statements
continued
28,072
791
1,587
12,455
10,029
250,990
411,175
22. Risk management continued
The tables below summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments.
Less than
3 months
3 to 6
months
6 to 12
months
1 to 5
Greater than
contractual
undiscounted
years
5 years
maturity date
cash outflows
Liabilities
31 December 2019
Financial liabilities at fair value
through profit and loss
Due to brokers
91,493
51,401
Other liabilities
Loan capital
Capital provision asset
subparticipations
Third-party interests in
consolidated entities
Deferred tax liabilities
31 December 2018
Financial liabilities at fair value
through profit and loss
Due to brokers
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset
subparticipations
Third-party interests in
consolidated entities
Deferred tax liabilities
–
–
–
–
–
–
–
–
–
112,821
12,667
31,046
180,342
10,616
20,788
401,600
455,347
259,326
1,328,019
Less than
3 months
3 to 6
months
6 to 12
months
1 to 5
years
Greater than
contractual
undiscounted
5 years
maturity date
cash outflows
No
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
No
Total
–
–
–
–
–
91,493
51,401
210,700
52,934
662,165
13,944
13,944
235,720
235,720
9,662
9,662
–
–
–
–
–
112,821
12,667
243,363
31,046
646,069
7,000
7,000
3,244
3,244
136,959
136,959
4,099
4,099
–
–
–
–
–
–
–
–
–
–
–
–
Loan interest payable
9,247
9,497
18,744
142,485
63,390
114,921
531,148
165,781
9,497
18,744
257,406
594,538
151,302
1,197,268
Loan interest payable
9,376
9,825
19,201
138,155
34,143
Due from settlement of capital provision assets
Assets:
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Liabilities:
Financial liabilities at fair value through profit
and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
31 December 2019
31 December 2018
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
Total
$’000
186,621
37,966
95,226
9,207
50,608
–
–
–
186,621
265,551
37,966
41,449
95,226
129,911
–
–
–
4,056
3,750
13,263
14,813
54,358
34,026
1,500
3,083
265,551
41,449
129,911
16,313
37,109
– 2,045,329
2,045,329
–
1,641,035
1,641,035
–
31,367
–
29
31,396
–
4,154
–
–
–
–
20,184
20,184
8,703
8,703
133,999
133,999
24,939
24,939
–
582
1,866
4,154
582
1,866
18,198
18,198
133,966
133,966
28,848
28,848
–
–
–
–
–
410,995
2,240,989
2,651,984
489,904
1,829,078
2,318,982
31 December 2019
31 December 2018
Current
$’000
Non-current
$’000
Total
$’000
Current
$’000
Non-current
$’000
Total
$’000
91,493
51,401
9,462
–
–
–
91,493
112,821
51,401
12,667
9,462
9,327
29,324
22,106
51,430
31,046
–
–
–
–
112,821
12,667
9,327
31,046
–
–
–
–
–
655,880
655,880
–
638,665
638,665
–
–
7,000
13,944
13,944
235,720
235,720
9,662
9,662
–
–
–
–
3,244
7,000
3,244
136,959
136,959
4,099
4,099
181,680
937,312
1,118,992
172,861
782,967
955,828
140
140
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
141
141
Notes to the consolidated financial statements
continued
22. Risk management continued
Credit risk
The Group is exposed to credit risk in various asset structures (see note 2), most of which involve financing sums recoverable only
out of successful capital provision assets with a concomitant risk of loss of invested cost. On becoming contractually entitled to
proceeds, depending on the structure of the particular asset, the Group could be a creditor of, and subject to direct or indirect credit
risk from, a claimant, a defendant, both or other parties. Moreover, the Group may be indirectly subject to credit risk to the extent a
defendant does not pay a claimant immediately notwithstanding successful adjudication of a claim in the claimant’s favour. The
Group’s credit risk is uncertain given that its entitlement pursuant to its assets is generally not established until a successful resolution
of claims and the Group’s potential credit risk is mitigated by the diversity of its counterparties and indirect creditors.
The Group is also exposed to credit risk in respect of the cash management assets, due from broker and cash and cash equivalents.
The credit risk of the due from broker and cash and cash equivalents is mitigated as all cash is placed with reputable banks with a
sound credit rating (A-2 or higher by S&P; P-2 or higher by Moody’s). Cash management assets are held in a listed fund investing in
senior short duration floating rate corporate debt and investment grade corporate bonds.
The Group is also exposed to credit risk from opponents in litigation insurance. The underwriting process includes an assessment
of counterparty credit risk and there is a large diversification of counterparties and therefore no concentration of risk.
The maximum credit risk exposure represented by cash, cash equivalents, due from broker and capital provision assets is as stated
on the consolidated statement of financial position.
The Group is exposed to credit risk on financial assets held at amortised cost including amounts due from settlement of capital
provision assets and receivables. The maximum credit exposure for amounts due from settlement of capital provision assets and
receivables is the carrying value at 31 December 2019 of $62,690,000 (2018: $51,247,000). The Group applies the simplified
approach to recognise impairment on settlement and receivable balances based on the lifetime expected credit loss. The Group
reviews the lifetime expected credit loss based on historical collection performance, the specific provisions of any settlement
agreement and a forward-looking assessment of macro-economic factors. Based on this review, the Group has not identified
any material expected credit loss relating to the financial assets held at amortised cost except for as set out in note 6, the Group
recognised $4,083,000 of impairment against two specific financial assets during the year ended 31 December 2019 (2018: nil).
Financial assets are generally considered to be in default when amounts are more than 90 days past due or if sufficient indicators
exist that the debtor is unlikely to pay. Amounts are written off as uncollectable when all reasonably collectable amounts have been
recovered and following the completion or cessation of enforcement activity.
Currency risk
The Group holds assets denominated in currencies other than US dollars, the functional currency of the Company, including Sterling,
the functional currency of Burford UK. Further, the Group issued Sterling loan capital during 2014, 2016, and 2017. It is therefore
exposed to currency risk, as values of the assets and liabilities denominated in other currencies will fluctuate due to changes in
exchange rates. The Group may use forward exchange contracts from time to time to mitigate currency risk.
At 31 December 2019, the Group’s net exposure to currency risk could be analysed as follows:
Capital
provision
assets
$ ‘000
Other Net
Assets/
(Liabilities)
$ ‘000
1,837,750
(31,425)
65,290
(480,912)
139,418
2,689
182
–
–
–
2,045,329
(512,337)
US dollar
Sterling
Euro
Australian dollar
Swiss Franc
142
142
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
22. Risk management continued
Credit risk
The Group is exposed to credit risk in various asset structures (see note 2), most of which involve financing sums recoverable only
out of successful capital provision assets with a concomitant risk of loss of invested cost. On becoming contractually entitled to
proceeds, depending on the structure of the particular asset, the Group could be a creditor of, and subject to direct or indirect credit
risk from, a claimant, a defendant, both or other parties. Moreover, the Group may be indirectly subject to credit risk to the extent a
defendant does not pay a claimant immediately notwithstanding successful adjudication of a claim in the claimant’s favour. The
Group’s credit risk is uncertain given that its entitlement pursuant to its assets is generally not established until a successful resolution
of claims and the Group’s potential credit risk is mitigated by the diversity of its counterparties and indirect creditors.
The Group is also exposed to credit risk in respect of the cash management assets, due from broker and cash and cash equivalents.
The credit risk of the due from broker and cash and cash equivalents is mitigated as all cash is placed with reputable banks with a
sound credit rating (A-2 or higher by S&P; P-2 or higher by Moody’s). Cash management assets are held in a listed fund investing in
senior short duration floating rate corporate debt and investment grade corporate bonds.
The Group is also exposed to credit risk from opponents in litigation insurance. The underwriting process includes an assessment
of counterparty credit risk and there is a large diversification of counterparties and therefore no concentration of risk.
The maximum credit risk exposure represented by cash, cash equivalents, due from broker and capital provision assets is as stated
on the consolidated statement of financial position.
The Group is exposed to credit risk on financial assets held at amortised cost including amounts due from settlement of capital
provision assets and receivables. The maximum credit exposure for amounts due from settlement of capital provision assets and
receivables is the carrying value at 31 December 2019 of $62,690,000 (2018: $51,247,000). The Group applies the simplified
approach to recognise impairment on settlement and receivable balances based on the lifetime expected credit loss. The Group
reviews the lifetime expected credit loss based on historical collection performance, the specific provisions of any settlement
agreement and a forward-looking assessment of macro-economic factors. Based on this review, the Group has not identified
any material expected credit loss relating to the financial assets held at amortised cost except for as set out in note 6, the Group
recognised $4,083,000 of impairment against two specific financial assets during the year ended 31 December 2019 (2018: nil).
Financial assets are generally considered to be in default when amounts are more than 90 days past due or if sufficient indicators
exist that the debtor is unlikely to pay. Amounts are written off as uncollectable when all reasonably collectable amounts have been
recovered and following the completion or cessation of enforcement activity.
The Group holds assets denominated in currencies other than US dollars, the functional currency of the Company, including Sterling,
the functional currency of Burford UK. Further, the Group issued Sterling loan capital during 2014, 2016, and 2017. It is therefore
exposed to currency risk, as values of the assets and liabilities denominated in other currencies will fluctuate due to changes in
exchange rates. The Group may use forward exchange contracts from time to time to mitigate currency risk.
At 31 December 2019, the Group’s net exposure to currency risk could be analysed as follows:
Currency risk
US dollar
Sterling
Euro
Australian dollar
Swiss Franc
Capital
Other Net
provision
assets
$ ‘000
Assets/
(Liabilities)
$ ‘000
1,837,750
(31,425)
65,290
(480,912)
139,418
2,689
182
–
–
–
2,045,329
(512,337)
Strategic report
Governance
Financial statements
At 31 December 2018, the Group’s net exposure to currency risk could be analysed as follows:
US dollar
Sterling
Euro
Australian dollar
Capital
provision
assets
$ ‘000
Other Net
Assets/
(Liabilities)
$ ‘000
1,488,582
160,848
41,895
(438,693)
107,888
2,670
(36)
–
1,641,035
(277,881)
At 31 December 2019, should the Sterling, Euro, Australian dollar and Swiss Franc have strengthened or weakened by 10% against the
US dollar and all other variables held constant, the Group’s net profit and net assets would have (decreased)/increased and
increased/(decreased) respectively as noted in the table below:
Increase or (decrease) in net profit and net assets
Sterling
Euro
Australian dollar
Swiss Franc
Interest rate risk
2019
$’000
2018
$’000
(41,562)
(39,680)
13,942
10,785
269
18
267
–
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The Group’s exposure to market risk for changes in floating interest rates relates primarily to the Group’s cash, certain
cash management assets and capital provision assets. All cash bears interest at floating rates. There are certain capital provision
assets, due from settlement of assets and cash management assets that earn interest based on fixed rates; however, those assets
do not have interest rate risk as they are not exposed to changes in market interest rates. The Group’s loan capital incurs interest at
a fixed rate and so is not exposed to changes in market interest rates. The following table sets out the Group’s exposure to interest
rate risk.
Non interest-bearing
Interest-bearing – floating rate
Interest-bearing – fixed rate
Total net assets
2019
$’000
2018
$’000
1,666,761
1,430,085
374,904
509,661
(508,673)
(576,592)
1,532,992
1,363,154
The interest-bearing floating rate assets and liabilities are denominated in both US Dollars and Sterling. If interest rates
increased/decreased by 25 basis points while all other variables remained constant, the profit for the year and net assets would
increase/decrease by $937,000 (2018: $1,274,000). For fixed rate assets and liabilities, it is estimated that there would be no material
profit or net assets impact. Fixed rate liabilities include the loan capital as disclosed in note 17.
142
142
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
Burford Annual Report 2019
143
143
Notes to the consolidated financial statements
continued
22. Risk management continued
The maturity profile of interest-bearing assets and liabilities is:
Maturity period at 31 December 2019
Assets
Less than 3 months
3 to 6 months
6 to 12 months
1 to 2 years
Greater than 2 years
Liabilities
Greater than 2 years
Net assets/(liabilities)
Maturity period at 31 December 2018
Assets
Less than 3 months
3 to 6 months
6 to 12 months
1 to 2 years
Greater than 2 years
Liabilities
Greater than 2 years
Net assets/(liabilities)
Management of capital
Floating
$’000
Fixed
$’000
Total
$’000
310,646
–
–
–
955
802
654
311,601
802
654
2,140
2,140
64,258
148,941
213,199
–
(662,165)
(662,165)
374,904
(508,673)
(133,769)
Floating
$’000
Fixed
$’000
Total
$’000
415,026
762
415,788
–
–
–
1,453
2,522
2,193
1,453
2,522
2,193
94,635
62,547
157,182
–
(646,069)
(646,069)
509,661
(576,592)
(66,931)
The Group’s approach to capital management is intended to ensure adequate liquidity to meet its funding commitments and
ongoing expenses while also ensuring that adequate resources are available to finance new assets as opportunities arise.
The Group’s assets generate a significant amount of cash proceeds in a typical period as assets are realised into due from settlement
receivables, which are in turn, resolved into cash. The Group uses the cash from these realisations as well as fee income as its primary
sources of liquidity for funding assets and expenses. Because the timing of cash realisations from its capital provision assets is
uncertain, the Group normally maintains a substantial balance of cash and cash management assets to provide liquidity during
periods when cash realisations are less than funding and expense needs.
To the degree that the Group intends to grow its capital provision assets portfolio, it requires external financing beyond its cash
realisations from assets. Over the past several years, the Group has grown its portfolio beyond its cash realisations. The Group has
financed that growth through:
Third party fund vehicles, which the Group manages, including the Burford Opportunity Fund and BOF-C raised in 2018 and
Burford Alternative Investment Fund raised in 2019.
Loan capital in the form of bond issuances totally approximately $699 million issued in 2014, 2016, 2017 and 2018.
Share issuance of approximately $245 million in 2018.
The Group manages its balance sheet with relatively low levels of leverage. Its debt issues contain one significant financial covenant,
which is a leverage ratio requirement that the Group maintain a consolidated level of net debt (debt less cash) less than 0.5 times the
level of tangible assets (total assets less intangibles). At December 31, 2019, the leverage ratio on this basis was 17% (2018: 15%),
significantly lower than required.
In planning its bond issuances, the Group has purposely constructed a set of laddered maturities with an overall weighted average
maturity well in excess of the expected weighted average life of its legal finance assets. It has also sized these issues so that any single
year’s maturity amount is significantly less than the historical annual rate of legal finance asset realisations, such that the Group is
expected to have more than sufficient liquidity to redeem these bonds should it choose not to refinance them.
The Group expects from time to time to issue additional debt, depending on its liquidity needs, capital deployment prospects and
market conditions.
144
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
22. Risk management continued
The maturity profile of interest-bearing assets and liabilities is:
Maturity period at 31 December 2019
Assets
Less than 3 months
3 to 6 months
6 to 12 months
1 to 2 years
Greater than 2 years
Liabilities
Greater than 2 years
Net assets/(liabilities)
Assets
Less than 3 months
3 to 6 months
6 to 12 months
1 to 2 years
Greater than 2 years
Liabilities
Greater than 2 years
Net assets/(liabilities)
Management of capital
Maturity period at 31 December 2018
Floating
$’000
Fixed
$’000
Total
$’000
310,646
–
–
–
955
802
654
311,601
802
654
2,140
2,140
64,258
148,941
213,199
–
(662,165)
(662,165)
374,904
(508,673)
(133,769)
Floating
$’000
Fixed
$’000
Total
$’000
415,026
762
415,788
–
–
–
1,453
2,522
2,193
1,453
2,522
2,193
94,635
62,547
157,182
–
(646,069)
(646,069)
509,661
(576,592)
(66,931)
The Group’s approach to capital management is intended to ensure adequate liquidity to meet its funding commitments and
ongoing expenses while also ensuring that adequate resources are available to finance new assets as opportunities arise.
The Group’s assets generate a significant amount of cash proceeds in a typical period as assets are realised into due from settlement
receivables, which are in turn, resolved into cash. The Group uses the cash from these realisations as well as fee income as its primary
sources of liquidity for funding assets and expenses. Because the timing of cash realisations from its capital provision assets is
uncertain, the Group normally maintains a substantial balance of cash and cash management assets to provide liquidity during
periods when cash realisations are less than funding and expense needs.
To the degree that the Group intends to grow its capital provision assets portfolio, it requires external financing beyond its cash
realisations from assets. Over the past several years, the Group has grown its portfolio beyond its cash realisations. The Group has
financed that growth through:
Third party fund vehicles, which the Group manages, including the Burford Opportunity Fund and BOF-C raised in 2018 and
Burford Alternative Investment Fund raised in 2019.
Loan capital in the form of bond issuances totally approximately $699 million issued in 2014, 2016, 2017 and 2018.
Share issuance of approximately $245 million in 2018.
The Group manages its balance sheet with relatively low levels of leverage. Its debt issues contain one significant financial covenant,
which is a leverage ratio requirement that the Group maintain a consolidated level of net debt (debt less cash) less than 0.5 times the
level of tangible assets (total assets less intangibles). At December 31, 2019, the leverage ratio on this basis was 17% (2018: 15%),
significantly lower than required.
In planning its bond issuances, the Group has purposely constructed a set of laddered maturities with an overall weighted average
maturity well in excess of the expected weighted average life of its legal finance assets. It has also sized these issues so that any single
year’s maturity amount is significantly less than the historical annual rate of legal finance asset realisations, such that the Group is
expected to have more than sufficient liquidity to redeem these bonds should it choose not to refinance them.
The Group expects from time to time to issue additional debt, depending on its liquidity needs, capital deployment prospects and
market conditions.
144
Burford Annual Report 2019
Strategic report
Governance
Financial statements
23. Investment in consolidated entities
Burford may invest in entities that it manages and may be deemed to control such entities, which results in their consolidation
on a line-by-line basis as detailed below.
Line-by-line consolidation
The following tables reflect the line-by-line impact of consolidating the results of the entities with the stand alone results for
Burford (i.e., if Burford-only accounted for its investment in the entities) to arrive at the totals reported in the consolidated statement
of comprehensive income and consolidated statement of financial position.
Consolidated Statement of Comprehensive Income
31 December 2019
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation
Profit after tax
Other comprehensive income
Total comprehensive income
Burford-only
$’000
Entities
$’000
Adjustments
and
eliminations*
$’000
Consolidated
total
$’000
316,780
60,183
(25,135)
351,828
26,130
3,545
2,133
6,070
2,052
–
–
–
–
633
(228)
(10,970)
15,160
–
–
–
168
3,545
2,133
6,703
1,992
–
(15,318)
(15,318)
356,710
60,588
(51,255)
366,043
(82,069)
(19,708)
10,375
(91,402)
(9,495)
–
–
(9,495)
265,146
40,880
(40,880)
265,146
(39,622)
–
–
(39,622)
225,524
40,880
(40,880)
225,524
(13,417)
–
–
(13,417)
212,107
40,880
(40,880)
212,107
(17,525)
–
–
(17,525)
194,582
40,880
(40,880)
194,582
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
Burford Annual Report 2019
Burford Annual Report 2019
145
145
Notes to the consolidated financial statements
continued
23. Investment in consolidated entities continued
31 December 2018
Capital provision income
Asset management income
Insurance income
Services income
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation credit
Profit after tax
Other comprehensive income
Total comprehensive income
Burford-only
$’000
Entities
$’000
Adjustments
and
eliminations*
$’000
Consolidated
total
$’000
392,525
22,203
(10,498)
404,230
15,799
10,406
1,650
1,467
(1,473)
–
–
–
–
954
20
–
(4,108)
11,691
–
–
(620)
–
(3,348)
10,406
1,650
1,801
(1,453)
(3,348)
420,374
23,177
(18,574)
424,977
(67,228)
(8,494)
3,891
(71,831)
(9,494)
–
–
(9,494)
343,652
14,683
(14,683)
343,652
(38,538)
–
–
(38,538)
305,114
14,683
(14,683)
305,114
12,463
–
–
12,463
317,577
14,683
(14,683)
317,577
24,701
–
–
24,701
342,278
14,683
(14,683)
342,278
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
146
146
Burford Annual Report 2019
Burford Annual Report 2019
Notes to the consolidated financial statements
continued
Cash management income and bank interest
Foreign exchange gains/(losses)
Third-party share of gains relating to interests in consolidated entities
31 December 2018
Capital provision income
Asset management income
Insurance income
Services income
Total income
Operating expenses
Amortisation of intangible asset
Operating profit
Finance costs
Profit before tax
Taxation credit
Profit after tax
Other comprehensive income
Total comprehensive income
Adjustments
and
Consolidated
Burford-only
Entities
eliminations*
$’000
$’000
$’000
total
$’000
392,525
22,203
(10,498)
404,230
15,799
10,406
1,650
1,467
(1,473)
–
(9,494)
(38,538)
12,463
24,701
–
–
–
954
20
–
(4,108)
11,691
–
–
–
(620)
(3,348)
10,406
1,650
1,801
(1,453)
(3,348)
420,374
23,177
(18,574)
424,977
(67,228)
(8,494)
3,891
(71,831)
343,652
14,683
(14,683)
343,652
305,114
14,683
(14,683)
305,114
–
(9,494)
–
(38,538)
–
–
12,463
24,701
–
–
–
–
342,278
14,683
(14,683)
342,278
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
23. Investment in consolidated entities continued
Consolidated Statement of Financial Position
31 December 2019
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
317,577
14,683
(14,683)
317,577
Financial liabilities at fair value through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Strategic report
Governance
Financial statements
Burford-only
$’000
Entities
$’000
Adjustments
and
eliminations*
$’000
Consolidated
total
$’000
168,463
18,158
37,966
–
–
95,226
–
–
–
186,621
37,966
95,226
19,765
6,615
(13,117)
13,263
18,989
43,395
(8,026)
54,358
1,833,990
496,463
(285,124)
2,045,329
29
31,367
20,184
8,703
133,999
24,939
–
–
–
–
–
–
–
–
–
31,396
20,184
8,703
133,999
24,939
2,267,027
691,224
(306,267)
2,651,984
–
–
91,493
51,401
9,462
–
–
–
–
91,493
51,401
9,462
50,995
16,421
(15,986)
51,430
655,880
–
–
655,880
8,036
14,266
(8,358)
13,944
–
9,662
–
–
235,720
235,720
–
9,662
734,035
173,581
211,376
1,118,992
1,532,992
517,643
(517,643)
1,532,992
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
146
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147
147
Notes to the consolidated financial statements
continued
23. Investment in consolidated entities continued
31 December 2018
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Due from settlement of capital provision assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Financial liabilities at fair value through profit and loss
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Burford-only
$’000
Entities
$’000
Adjustments
and
eliminations*
$’000
Consolidated
total
$’000
235,977
29,574
41,449
–
–
129,911
–
–
–
265,551
41,449
129,911
36,706
37,109
273
35
(20,666)
16,313
(35)
37,109
1,521,591
416,380
(296,936)
1,641,035
–
4,154
582
1,866
18,198
133,966
28,848
–
–
–
–
–
–
–
–
–
–
–
4,154
582
1,866
18,198
133,966
28,848
2,056,292
580,327
(317,637)
2,318,982
–
–
112,821
12,667
9,327
–
–
–
–
112,821
12,667
9,327
30,632
9,957
(9,543)
31,046
638,665
7,000
3,415
–
4,099
–
–
–
–
6,948
(7,119)
638,665
7,000
3,244
–
–
136,959
136,959
–
4,099
693,138
142,393
120,297
955,828
1,363,154
437,934
(437,934)
1,363,154
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
148
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Burford Annual Report 2019
Notes to the consolidated financial statements
continued
23. Investment in consolidated entities continued
24. Structured entities
Strategic report
Governance
Financial statements
Due from settlement of capital provision assets
31 December 2018
Assets
Cash and cash equivalents
Cash management assets
Due from brokers
Other assets
Capital provision assets
Derivative financial asset
Equity securities
Tangible fixed assets
Intangible asset
Goodwill
Deferred tax asset
Total assets
Liabilities
Due to brokers
Loan interest payable
Other liabilities
Loan capital
Derivative financial liabilities
Capital provision asset subparticipations
Third-party interests in consolidated entities
Deferred tax liabilities
Total liabilities
Total net assets
Adjustments
and
Consolidated
Burford-only
Entities
eliminations*
$’000
$’000
$’000
total
$’000
235,977
29,574
41,449
–
–
129,911
36,706
37,109
273
35
(20,666)
16,313
(35)
37,109
1,521,591
416,380
(296,936)
1,641,035
–
4,154
2,056,292
580,327
(317,637)
2,318,982
582
1,866
18,198
133,966
28,848
9,327
638,665
7,000
3,415
–
4,099
–
–
–
–
–
–
–
–
–
–
30,632
9,957
(9,543)
31,046
6,948
(7,119)
136,959
136,959
–
4,099
693,138
142,393
120,297
955,828
1,363,154
437,934
(437,934)
1,363,154
–
–
–
–
–
–
–
–
–
–
–
–
–
–
265,551
41,449
129,911
4,154
582
1,866
18,198
133,966
28,848
112,821
12,667
9,327
638,665
7,000
3,244
Financial liabilities at fair value through profit and loss
–
–
112,821
12,667
* The adjustments and eliminations are required due to the services provided by the Group to the consolidated entities as investment manager and the Group’s investment as a
limited partner in consolidated entities. Accordingly, these adjustments and eliminations do not have an effect on the net income or total net assets of Burford.
A structured entity is an entity in which voting or similar rights are not the dominant factor in establishing control, for example where
contractual arrangements are the dominant factor in affecting an investor’s returns. Structured entities are generally created to
achieve a narrow and well-defined objective with restrictions on their permitted activities.
The key considerations in assessing whether the Group controls a structured entity are set out in the Group’s principal accounting
policies in note 2.
Consolidated structured entities
The Group holds investments in certain funds where it also acts as investment adviser. The total investment in these funds was
$201,795,000 as at 31 December 2019 (2018: $242,874,000). The Group provides revolving credit facilities to certain investment
funds to bridge capital calls when needed. These facilities are entirely discretionary in that the Group is not obligated to provide
funding under them. The balance outstanding on the revolving credit facilities as at 31 December 2019 was $nil (2018: $4,744,000).
As at 31 December 2019 $544,909,000 (2018: $478,827,000) of the total assets included in the Group’s balance sheet relates to the
consolidated investment funds, held to pay principal and return to the holders of interests in those funds. The Group cannot access
the assets except for the investment made by the Group in these funds.
Unconsolidated structured entities
The Group’s maximum exposure to loss from unconsolidated structured entities is the sum total of any capital provision asset held,
fee receivables, accrued income and loans to those entities, and is $23,834,000 as at 31 December 2019 (2018: $26,808,000). The
Group’s interests in, and exposure to, unconsolidated structured entities are set out below.
As at 31 December 2019
Capital provision assets
Other assets
Total on balance sheet exposures
Off balance sheet – undrawn commitments
Maximum exposure to loss
Total assets of the entity
As at 31 December 2018
Capital provision assets
Other assets
Total on balance sheet maximum exposure
Off balance sheet – undrawn commitments
Maximum exposure to loss
Total assets of the entity
Investment
funds
$’000
Other
$’000
Total
$’000
–
11,075
11,075
2,012
2,012
–
11,075
–
10,747
2,012
13,087
10,747
2,012
21,822
23,834
923,346
11,075
934,421
Investment
funds
$’000
Other
$’000
–
9,109
2,118
2,118
–
9,109
–
15,581
Total
$’000
9,109
2,118
11,227
15,581
2,118
24,690
26,808
693,271
9,109
702,380
Investment funds
The Group acts as investment adviser to a number of unconsolidated funds and sidecar vehicles where the Group’s interest in the
funds is generally restricted to management and incentive fees. The value of the fees are typically based on investor commitments,
capital deployed or committed to investments and the performance of the fund. The Group provides revolving credit facilities to
certain investment funds to bridge capital calls when needed. These facilities are entirely discretionary in that the Group is not
obligated to provide funding under them. The figures included in the table above for the comparative 2018 year have been corrected
to reflect the discretionary nature of the facilities.
Other
This includes legal finance assets with structured entities that aggregate claims from multiple parties. The nature and recourse of the
Group’s investment in these matters is consistent with the rest of the litigation investments portfolio and the use of the structured
entity to aggregate the claims does not introduce incremental risk. The off balance sheet exposure represents the maximum extent
of the undrawn committed amounts relating to these litigation commitments.
148
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Burford Annual Report 2019
149
149
Notes to the consolidated financial statements
continued
25. Investments in joint ventures and associates
The Group holds certain of its capital provision assets or in associate companies under joint arrangements that are classified as
joint ventures in accordance with IAS 28 Investments in Associates and Joint Ventures and accounted for at fair value through profit
and loss in accordance with IFRS 9. The total fair value of the Group’s interest in associate companies as at 31 December 2019 is
$4,673,000 (2018:$638,000) and is included in capital provision assets in the consolidated statement of financial position. The total
fair value of the Group’s interest in joint ventures as at 31 December 2019 is $106,924,000 (2018: $95,494,000) and is included
within capital provision assets in the consolidated statement of financial position. None of the associate companies or joint venture
arrangements are individually material to the Group and there are no significant restrictions on the ability of the joint ventures to
make cash distributions or repayment of advances to the Group.
The Group’s share of commitments and contingencies for its associates and joint ventures at 31 December 2019 is $1,500,000 and
$122,628,000, respectively (2018: $nil and $87,076,000) and are included in the commitment amounts relating to funding obligations
on asset agreements disclosed in note 30.
26. Share capital
Authorised share capital
Unlimited ordinary shares of no par value
Issued share capital
Ordinary shares of no par value
2019
$’000
–
2018
$’000
–
Number
Number
218,649,877 218,649,877
80,000,001 ordinary shares were issued at 100p each on 21 October 2009. A further 100,000,000 ordinary shares were issued at
110p each on 9 December 2010. A further 24,545,454 shares were issued on 12 December 2012 in connection with the restructuring
of the Group. A further 3,692,524 shares were issued on 14 December 2016 as part of the GKC acquisition as noted in the 2016
Annual Report. A further 10,411,898 shares were issued at 1850p each on 4 October 2018.
31 December 2019
At 1 January and 31 December
31 December 2018
At 1 January 2018
Share capital issued
Share capital issue costs
At 31 December 2018
Share Capital
$’000
Contingent
Share Capital
$’000
Total
$’000
596,454
13,500
609,954
Share Capital
$’000
Contingent
Share Capital
$’000
Total
$’000
351,249
13,500
364,749
249,983
(4,778)
–
–
249,983
(4,778)
596,454
13,500
609,954
Also, the GKC acquisition in 2016 included $15,000,000 of contingent equity consideration. In calculating the fair value of the
contingent consideration a discount of 10% was applied for non-performance risk, hence the contingent equity consideration is
valued at $13,500,000 at acquisition. Shares of 2,461,682 will be issued only after GKC’s investment funds contribute more than
$100 million in performance fee income (and, in certain instances, fee income from new funds or other capital provision income)
to Burford. If the $100 million income target is not achieved, no contingent consideration is payable.
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Strategic report
Governance
Financial statements
Notes to the consolidated financial statements
continued
25. Investments in joint ventures and associates
27. Long term incentive plan
The Group holds certain of its capital provision assets or in associate companies under joint arrangements that are classified as
joint ventures in accordance with IAS 28 Investments in Associates and Joint Ventures and accounted for at fair value through profit
and loss in accordance with IFRS 9. The total fair value of the Group’s interest in associate companies as at 31 December 2019 is
$4,673,000 (2018:$638,000) and is included in capital provision assets in the consolidated statement of financial position. The total
fair value of the Group’s interest in joint ventures as at 31 December 2019 is $106,924,000 (2018: $95,494,000) and is included
within capital provision assets in the consolidated statement of financial position. None of the associate companies or joint venture
arrangements are individually material to the Group and there are no significant restrictions on the ability of the joint ventures to
make cash distributions or repayment of advances to the Group.
In 2017 the Group introduced a long-term incentive plan (“LTIP”). Participants will only be entitled to these shares at end of a three-
year period if the Group has met the relevant pre-determined corporate performance measures over the three-year performance
period and they are still employed by the Group. The performance measures for the 2017 and 2018 awards are equally weighted
between the Group’s total shareholder return as compared to a group of comparable public companies; earnings per share growth
adjusted to remove amortisation and other non-cash items; and growth in aggregate asset value defined as gross investment assets
plus gross cash receipts from investments. The performance measures for the 2019 awards are weighted 2/3 on the Group’s total
shareholder return as compared to a group of comparable public companies; and 1/3 earnings per share growth adjusted to remove
amortisation and certain other items.
The Group’s share of commitments and contingencies for its associates and joint ventures at 31 December 2019 is $1,500,000 and
$122,628,000, respectively (2018: $nil and $87,076,000) and are included in the commitment amounts relating to funding obligations
The expense included within these financial statements arising from equity-settled share-based payment transactions amounted to
$4,519,000 (2018: $1,686,000).
The following table summarises the fair values and key assumptions used for valuing grants made under the LTIP in each of the years
awards were granted:
2019
$’000
–
2018
$’000
–
Number
Number
218,649,877 218,649,877
Contingent
Share Capital
Share Capital
$’000
$’000
Total
$’000
596,454
13,500
609,954
Contingent
Share Capital
Share Capital
$’000
$’000
Total
$’000
351,249
13,500
364,749
249,983
(4,778)
–
–
249,983
(4,778)
596,454
13,500
609,954
Awards granted (number of shares)
Dividend yield (%)
Expected volatility (%)
Risk–free interest rate (%)
Expected life of share awards (years)
Weighted average fair value ($)
Weighted average share price ($)
Model used
2019
2018
2017
695,330
288,752
506,637
1.00%
1.90%
40.80%
35.60%
0.63%
0.93%
3
15.85
16.78
3
16.72
19.46
2.80%
25.80%
0.15%
3
9.1
10.27
Monte Carlo Monte Carlo Monte Carlo
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the awards is indicative of
future trends, which may not necessarily be the actual outcome.
28. Profit per ordinary share and comprehensive income per
ordinary share
Profit per ordinary share is calculated based on profit attributable to ordinary shareholders for the year of $212,107,000
(2018: $317,577,000) and the weighted average number of ordinary shares in issue for the year of 218,649,877 (2018: 210,776,771).
Comprehensive income per ordinary share is calculated based on total comprehensive income attributable to ordinary shareholders
for the year of $194,582,000 (2018: $342,278,000), and the same weighted average number of ordinary shares in issue as above.
The effect of dilution is attributable to the addition of 973,268 shares related to the LTIP (2018: 554,680).
29. Dividends
The Directors paid an interim dividend for 2019 of 4.17¢ in December 2019.
on asset agreements disclosed in note 30.
26. Share capital
Authorised share capital
Unlimited ordinary shares of no par value
Issued share capital
Ordinary shares of no par value
31 December 2019
At 1 January and 31 December
31 December 2018
At 1 January 2018
Share capital issued
Share capital issue costs
At 31 December 2018
80,000,001 ordinary shares were issued at 100p each on 21 October 2009. A further 100,000,000 ordinary shares were issued at
110p each on 9 December 2010. A further 24,545,454 shares were issued on 12 December 2012 in connection with the restructuring
of the Group. A further 3,692,524 shares were issued on 14 December 2016 as part of the GKC acquisition as noted in the 2016
Annual Report. A further 10,411,898 shares were issued at 1850p each on 4 October 2018.
Also, the GKC acquisition in 2016 included $15,000,000 of contingent equity consideration. In calculating the fair value of the
contingent consideration a discount of 10% was applied for non-performance risk, hence the contingent equity consideration is
valued at $13,500,000 at acquisition. Shares of 2,461,682 will be issued only after GKC’s investment funds contribute more than
$100 million in performance fee income (and, in certain instances, fee income from new funds or other capital provision income)
to Burford. If the $100 million income target is not achieved, no contingent consideration is payable.
150
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Burford Annual Report 2019
151
151
Notes to the consolidated financial statements
continued
30. Financial commitments and contingent liabilities
As a normal part of its business, the Group routinely enters into some financing agreements that oblige the Group to provide
continuing funding over time, whereas other agreements provide for the immediate funding of the total commitment. The terms of
the former type of agreements vary widely; in some cases (discretionary commitments), the Group has broad discretion as to each
incremental funding of a continuing investment, and in others (definitive commitments), the Group has little discretion and would
suffer adverse consequences were it to fail to provide incremental funding.
The Group’s funding obligations are capped at a fixed amount in its agreements. At 31 December 2019, the Group had outstanding
commitments for $981,554,000 (2018: $646,631,000).
In addition, at 31 December 2019 at current exchange rates, the Group had $89,294,000 of exposure to assets where the Group is
providing some form of legal risk arrangement pursuant to which the Group does not generally expect to deploy the full committed
capital unless there is a failure of the claim, such as providing an indemnity for adverse costs (2018: $72,523,000).
The following table reflects the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the commitment balances reported above to arrive at Burford’s commitments at 31 December 2019.
31 December 2019
Unfunded commitments – capital provision
Definitive
Discretionary
Total
Legal risk (Definitive)
31 December 2018
Unfunded commitments – capital provision
Definitive
Discretionary
Total
Legal risk (Definitive)
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
342,452
(53,939)
288,513
639,102
(99,007)
540,095
981,554
(152,946)
828,608
89,294
(6,233)
83,061
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
261,578
(6,415)
255,163
385,053
(25,376)
359,677
646,631
(31,791)
614,840
72,523
–
72,523
Of the $981,554,000 in commitments, based on recent experience, the Group expects approximately 15 to 20% (median
experience=16%) to be sought from it during the next 12 months. The following tables show the experience over the past three years
of deployments during the year on commitments outstanding at the end of the prior year.
Deployments on commitments in 2019
Outstanding commitments at 31 December 2018
Deployed in 2019
Deployed in 2019 (%)
Deployments on commitments in 2018
Outstanding commitments at 31 December 2017
Deployed in 2018
Deployed in 2018 (%)
152
152
Burford Annual Report 2019
Burford Annual Report 2019
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
646,631
(31,791)
614,840
99,145
15.3%
(5,123)
94,022
–
15.3%
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
Burford-only
$’000
503,435
152,498
30.3%
–
–
–
503,435
152,498
30.3%
Notes to the consolidated financial statements
continued
30. Financial commitments and contingent liabilities
As a normal part of its business, the Group routinely enters into some financing agreements that oblige the Group to provide
continuing funding over time, whereas other agreements provide for the immediate funding of the total commitment. The terms of
the former type of agreements vary widely; in some cases (discretionary commitments), the Group has broad discretion as to each
incremental funding of a continuing investment, and in others (definitive commitments), the Group has little discretion and would
suffer adverse consequences were it to fail to provide incremental funding.
The Group’s funding obligations are capped at a fixed amount in its agreements. At 31 December 2019, the Group had outstanding
commitments for $981,554,000 (2018: $646,631,000).
In addition, at 31 December 2019 at current exchange rates, the Group had $89,294,000 of exposure to assets where the Group is
providing some form of legal risk arrangement pursuant to which the Group does not generally expect to deploy the full committed
capital unless there is a failure of the claim, such as providing an indemnity for adverse costs (2018: $72,523,000).
The following table reflects the line-by-line impact of eliminating the interests of third-parties in the entities which Burford
consolidates from the commitment balances reported above to arrive at Burford’s commitments at 31 December 2019.
Unfunded commitments – capital provision
31 December 2019
Definitive
Discretionary
Total
Legal risk (Definitive)
31 December 2018
Definitive
Discretionary
Total
Legal risk (Definitive)
Unfunded commitments – capital provision
Deployments on commitments in 2019
Outstanding commitments at 31 December 2018
Deployed in 2019
Deployed in 2019 (%)
Deployments on commitments in 2018
Outstanding commitments at 31 December 2017
Deployed in 2018
Deployed in 2018 (%)
Elimination of
Consolidated
third-party
total
$’000
interests
Burford-only
$’000
$’000
342,452
(53,939)
288,513
639,102
(99,007)
540,095
981,554
(152,946)
828,608
89,294
(6,233)
83,061
Elimination of
Consolidated
third-party
total
$’000
interests
Burford-only
$’000
$’000
261,578
(6,415)
255,163
385,053
(25,376)
359,677
646,631
(31,791)
614,840
72,523
–
72,523
Elimination of
Consolidated
third-party
total
$’000
interests
Burford-only
$’000
$’000
646,631
(31,791)
614,840
99,145
15.3%
(5,123)
94,022
–
15.3%
Elimination of
Consolidated
third-party
total
$’000
interests
Burford-only
$’000
$’000
503,435
152,498
30.3%
–
–
–
503,435
152,498
30.3%
Of the $981,554,000 in commitments, based on recent experience, the Group expects approximately 15 to 20% (median
experience=16%) to be sought from it during the next 12 months. The following tables show the experience over the past three years
of deployments during the year on commitments outstanding at the end of the prior year.
Strategic report
Governance
Financial statements
Deployments on commitments in 2017
Outstanding commitments at 31 December 2016
Deployed in 2017
Deployed in 2017 (%)
Consolidated
total
$’000
Elimination of
third-party
interests
$’000
296,448
47,000
15.9%
–
–
–
Burford-only
$’000
296,448
47,000
15.9%
Given the nature of the Company’s business the Company may from time to time receive claims against it or be subject to inbound
litigation. Having considered the legal merits of any relevant claims or progressed litigation, and having received relevant legal advice
including from external advisers, the Company considers there to be no material contingent liability in respect of any such situations
requiring disclosure in the financial statements.
31. Related party transactions
Directors’ fees paid in the year amounted to $484,000 (2018: $415,000). There were no directors’ fees outstanding at 31 December
2019 or 31 December 2018. Directors’ interests are disclosed in the Shareholdings on page 82 of the Annual Report.
The Group holds investments on associates and joint ventures conducted on the same terms as third party transactions. Details of
the balances held with associates and joint ventures are set out in note 25. Funding during the year on the investments in associates
and joint ventures was $15,914,000 (2018: $80,858,000).
There is no controlling party.
32. Subsequent events
On January 30, 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) to be a public health
emergency of international concern. This coronavirus pandemic has severely restricted the level of economic activity around the
world. In response to this coronavirus pandemic, the governments of many countries, states, cities and other geographic regions
have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or
requiring individuals to limit or forego their time outside of their homes. In response to this the Group has closed its offices and
implemented business continuity plans for staff to work from home without noticeable impact on service delivery and operations.
The Group has assessed the coronavirus pandemic as a non-adjusting post balance sheet event.
The Group has undertaken a detailed review of the potential impacts of COVID-19 and continues to monitor developments closely.
As at the date of this report the most likely impact for the Group is expected to be some potential delays in the realisation of cash
flows from the capital provision asset portfolio. While litigation matters that do not require in-person attendance are continuing,
courts and arbitration tribunals are postponing some trials and hearings as they adapt to the new environment. In addition, some
liquidity constrained corporate defendants may defer settling cases.
The impact of COVID-19 has also been assessed with respect to the Group’s deferred tax asset and goodwill. While some
deterioration of headroom is expected in the short-term due to potential delays in the realisation of capital provision income this is
currently not expected to be material enough to impact the recoverability of the deferred tax asset or to trigger an impairment of
goodwill. Disruptive events and economic downturns tend to be positive in generating litigation activity and increases the demand for
external capital.
Further consideration in respect of the assessment of COVID-19 impact and how this has been considered in respect of forming a
conclusion in respect of the going concern assumption for the Group is set out in note 2 on page 109.
Subsequent to 31 December 2019 various court outcomes or arbitral awards have been obtained relating to certain capital provision
assets that, if paid in full, are expected to generate approximately $300 million in capital provision income across the Group. Risk
remains in litigation until matters actually pay cash, and it is always possible that the anticipated income described above will be
reduced by further court action or by agreement between the parties. The Group has assessed these developments as a non-
adjusting post balance sheet event.
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Burford Annual Report 2019
153
153
Glossary of terms
Addition
BOF-C
Funding provided for an asset, which adds to Burford’s invested
cost in that asset. We use the term interchangeably with
deployment.
The Burford private fund through which the sovereign wealth
fund invests in pre-settlement litigation finance matters under
our SWF arrangement.
Adjusted income, operating profit, profit before tax and profit
after tax
Income, operating profit, profit before tax and profit after tax
excluding the impact of amortisation of the intangible asset
and third-party interests in consolidated entities as presented
on pages 90 to 93.
Burford Capital Limited
Burford’s holding company which is publicly traded on the
London Stock Exchange, and provides legal finance to law
firms and corporate clients around the world from its principal
offices in New York, London, Chicago, Washington, Singapore
and Sydney.
ALF
Burford Capital LLC
The Association of Litigation Funders of England and Wales.
Asset management
Asset management includes our activities administering the
private funds we manage for third party investors.
Asset management income
Income from fees earned managing our private funds.
A wholly-owned indirect subsidiary of Burford Capital Limited
and our primary operating company in the US.
Burford Capital Finance LLC
A wholly-owned indirect subsidiary of Burford Capital Limited
and the issuer of Burford’s US dollar bonds, which are
guaranteed by Burford Capital Limited as well as a number of
its subsidiaries.
Asset recovery
Burford Capital PLC
Pursuit of enforcement of an unpaid legal judgment, which
can include Burford’s financing of the cost of that pursuit.
Assets under management (“AUM”)
Consistent with its status as a registered investment adviser
with the US SEC, Burford reports publicly on its asset
management business on the basis of regulatory assets under
management. For the benefit of non-US investors, the SEC’s
definition of AUM may well differ from that used by European
investment managers. AUM as we report it means the fair value
of the capital invested in funds and individual capital vehicles
plus the capital that we are entitled to call from investors in
those funds and vehicles pursuant to the terms of their capital
commitments to those funds and vehicles.
BAIF
A wholly-owned indirect subsidiary of Burford Capital Limited
and the issuer of Burford’s sterling bonds, which are
guaranteed by Burford Capital Limited as well as a number of
its subsidiaries
Burford Capital (UK) Limited
A wholly-owned indirect subsidiary of Burford Capital Limited
and our primary operating company in the UK.
Burford-only
Burford-only, Burford standalone, Burford balance sheet only,
or “balance sheet” refers to assets, liabilities and activities that
only pertain to Burford itself, excluding any third-party funds
and the portions of jointly-owned entities owned by others.
Burford-only largely corresponds to the view of our business
presented in the “de-consolidating” footnote in our financials.
Burford Alternative Income Fund, a private fund focused on
post-settlement legal finance matters.
Capital provision assets
Board
The Board of Directors of Burford Capital Limited.
BCIM
Burford Capital Investment Management LLC, an indirect
wholly owned subsidiary of Burford Capital Limited, serves as
the investment advisor of all of our managed funds and is
registered under the Investment Advisers Act of 1940, as
amended.
BOF
Burford Opportunity Fund, a private fund focused on pre-
settlement litigation finance matters.
Our capital provision segment (previously our Investments
segment) includes all of our legal finance assets. We have now,
however, eliminated the “new initiatives” segment, which
previously included only our asset recovery activities. We have
combined the financing assets generated from asset recovery
into our capital provision segment since the risk/return profile
is very similar. We sub-divide capital provisions assets for
purposes of reporting a number of financial metrics into:
▪ Direct includes all our legal finance assets (including those
generated by asset recovery and legal risk management
activities) that we have made directly (i.e., not through
participation in a fund). We also include direct (not through a
fund) complex strategies assets in this category.
▪ Indirect includes participations in one of our funds.
Currently, this category is comprised entirely of our position
in Burford Strategic Value Fund, through which we fund
most of our complex strategies assets.
154
Burford Annual Report 2019
Glossary of terms
Addition
deployment.
after tax
on pages 90 to 93.
ALF
Asset management
Funding provided for an asset, which adds to Burford’s invested
The Burford private fund through which the sovereign wealth
cost in that asset. We use the term interchangeably with
fund invests in pre-settlement litigation finance matters under
Adjusted income, operating profit, profit before tax and profit
Burford Capital Limited
Income, operating profit, profit before tax and profit after tax
London Stock Exchange, and provides legal finance to law
excluding the impact of amortisation of the intangible asset
firms and corporate clients around the world from its principal
and third-party interests in consolidated entities as presented
offices in New York, London, Chicago, Washington, Singapore
Burford’s holding company which is publicly traded on the
BOF-C
our SWF arrangement.
and Sydney.
Burford Capital LLC
The Association of Litigation Funders of England and Wales.
A wholly-owned indirect subsidiary of Burford Capital Limited
and our primary operating company in the US.
Asset management includes our activities administering the
Burford Capital Finance LLC
private funds we manage for third party investors.
A wholly-owned indirect subsidiary of Burford Capital Limited
Asset management income
Income from fees earned managing our private funds.
its subsidiaries.
and the issuer of Burford’s US dollar bonds, which are
guaranteed by Burford Capital Limited as well as a number of
Asset recovery
Burford Capital PLC
Pursuit of enforcement of an unpaid legal judgment, which
can include Burford’s financing of the cost of that pursuit.
A wholly-owned indirect subsidiary of Burford Capital Limited
and the issuer of Burford’s sterling bonds, which are
guaranteed by Burford Capital Limited as well as a number of
Assets under management (“AUM”)
its subsidiaries
Consistent with its status as a registered investment adviser
with the US SEC, Burford reports publicly on its asset
management business on the basis of regulatory assets under
management. For the benefit of non-US investors, the SEC’s
definition of AUM may well differ from that used by European
investment managers. AUM as we report it means the fair value
Burford-only
Burford Capital (UK) Limited
A wholly-owned indirect subsidiary of Burford Capital Limited
and our primary operating company in the UK.
of the capital invested in funds and individual capital vehicles
Burford-only, Burford standalone, Burford balance sheet only,
plus the capital that we are entitled to call from investors in
or “balance sheet” refers to assets, liabilities and activities that
those funds and vehicles pursuant to the terms of their capital
only pertain to Burford itself, excluding any third-party funds
commitments to those funds and vehicles.
and the portions of jointly-owned entities owned by others.
Burford-only largely corresponds to the view of our business
presented in the “de-consolidating” footnote in our financials.
Burford Alternative Income Fund, a private fund focused on
post-settlement legal finance matters.
Capital provision assets
BAIF
Board
BCIM
amended.
BOF
The Board of Directors of Burford Capital Limited.
Burford Capital Investment Management LLC, an indirect
wholly owned subsidiary of Burford Capital Limited, serves as
the investment advisor of all of our managed funds and is
registered under the Investment Advisers Act of 1940, as
Burford Opportunity Fund, a private fund focused on pre-
settlement litigation finance matters.
Our capital provision segment (previously our Investments
segment) includes all of our legal finance assets. We have now,
however, eliminated the “new initiatives” segment, which
previously included only our asset recovery activities. We have
combined the financing assets generated from asset recovery
into our capital provision segment since the risk/return profile
is very similar. We sub-divide capital provisions assets for
purposes of reporting a number of financial metrics into:
▪ Direct includes all our legal finance assets (including those
generated by asset recovery and legal risk management
activities) that we have made directly (i.e., not through
participation in a fund). We also include direct (not through a
fund) complex strategies assets in this category.
▪ Indirect includes participations in one of our funds.
Currently, this category is comprised entirely of our position
in Burford Strategic Value Fund, through which we fund
most of our complex strategies assets.
Strategic report
Governance
Financial statements
Capital provision income
Income from our portfolio of capital provision assets and
related positions, as detailed in note 6 of the financial
statements.
Carrying value of an asset
This is the amount at which an asset is carried on the balance
sheet, reflecting both cost and any fair value adjustment.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand,
demand deposits and highly liquid investments readily
convertible within three months or less to known amounts of
cash and subject to insignificant risk of changes in value.
Cash management assets
Assets held for the purpose of cash management, acquired to
generate returns on cash balances awaiting subsequent
deployment.
Cash receipts
Cash received principally from asset realisations due from
settlement receivables, services and insurance cash income,
cash interest and cash management income.
Claimant
The party who asserts a right or title in a legal proceeding.
COLP
The Burford Credit Opportunity LP private fund, which focused
on post-settlement legal finance matters and was the
predecessor to BAIF.
Commitment
Burford enters into a commitment when it agrees to provide
financing for a legal finance asset. Commitments can be
definitive (requiring us to provide funding on a schedule or,
more often, when certain expenses are incurred) or
discretionary (only requiring us to provide funding after
reviewing and approving a future matter).
Company
Burford Capital Limited.
Complex Strategies
Burford’s activities providing funding as a principal in legal-
related assets, often securities, loans and other financial assets
where a significant portion of the expected return arises from
the outcome of legal or regulatory activity.
Compound annual growth rate (CAGR)
The annual rate of return that would be required for a sum to
grow from its beginning balance to its end balance, assuming
reinvestment at the end of each year.
assets where Burford has received all proceeds to which it is
entitled (net of any entirely concluded losses); (ii) the portion of
legal finance assets where Burford has received some
proceeds (for example, from a settlement with one party in a
multi-party case) but where the case is continuing with the
possibility of receiving additional proceeds; and (iii) legal
finance assets where the underlying litigation has been
resolved and there is a promise to pay proceeds in the future
(for example, in a settlement that is to be paid over time) and
there is no longer any litigation risk involved in the asset.
Consolidated funds
These are certain of Burford’s private funds in which, because
of its investment in and/or control of the fund, Burford is
required under IFRS to consolidate the minority LP’s interests
in the funds and include the full financials of the funds within
the Company’s consolidated financial statements. Presently,
BOF-C and Strategic Value are consolidated funds.
Consolidated
Consolidated refers to assets, liabilities and activities that
includes those third-party funds, partially-owned subsidiaries
and special purpose vehicles that we are required to
consolidate under IFRS accounting. This presentation
conforms to the presentation of Burford on a consolidated
basis in our financials. The major entities consolidated into
Burford include the Strategic Value Fund, BOF-C and several
entities in which Burford holds investments where there is also
a third-party partner in or owner of those entities.
Core litigation finance
Burford’s traditional pre-settlement financing of both single
cases and portfolio matters in which we are providing clients
with financing against the future value of legal claims.
Corporate monetisations
Burford’s pre-settlement financing of legal claims by corporate
clients in which we provide funding to those clients in excess
of the amounts required for ongoing legal expenses.
Defendant
The party against whom a civil action is brought, used
interchangeably with respondent.
Deployment
Funding provided for an asset, which adds to Burford’s invested
cost in that asset. We use the term interchangeably with
addition.
Definitive commitments
Commitments where Burford is contractually obliged to fund
incremental capital and failure to do so without good reason
(such as a negative change in a case’s prospects) would
typically come with adverse consequences such as loss of our
funded capital in a case.
Concluded asset
Discretionary commitments
A legal finance asset is “concluded” for Burford’s purposes
when there is no longer any litigation risk remaining. We use
the term to encompass: (i) entirely concluded legal finance
Commitments where Burford retains a considerable degree of
discretion over whether to advance capital and generally
would not suffer adverse financial consequences from failing
to do so.
154
Burford Annual Report 2019
Burford Annual Report 2019
155
Glossary of terms
continued
Due from settlement receivable
Judgment enforcement
In most instances, concluded investments both conclude and
receive all cash proceeds associated with the investment in the
same period. Sometimes, cash will be paid over time. In those
instances, a balance sheet due from settlement receivable is
created.
Fair value adjustment
This is the amount of unrealised gain or loss recognised in
Burford’s profit and loss account in the relevant period and
added to or subtracted from its balance sheet asset value.
FCA
The UK Financial Conduct Authority.
Fiscal year
Burford’s fiscal year is the 12 month period ended
31 December.
The activity of using legal and financial strategies to force a
judgment debtor to pay an adverse award made by a court. We
also refer to this as asset recovery.
Legal finance
Legal finance includes our traditional “core” litigation finance
activities in which we are providing clients with financing
against the future value of legal claims. It also encompasses
our asset recovery and legal risk management activities, which
often are provided to the same clients and generate
investment assets with broadly similar risk/return profiles.
Legal risk management
Matters where Burford is providing some form of legal risk
arrangement, such as providing an indemnity or insurance for
adverse costs.
Leverage ratio
General partner (“GP”)
Burford invests in its limited partnership funds as the general
partner for those funds.
Burford calculates its leverage ratio as net debt as a percentage
of tangible assets (total assets less goodwill and intangible
assets).
Group
In the context of our financial statements, Group refers to
Burford Capital Limited and its consolidated subsidiaries. Our
presentation of Consolidated financials presents the financials
of Group.
Limited partner (“LP”)
An institutional investor in one of Burford’s private funds.
Limited Partner Advisory Committee (“LPAC”)
The Burford private fund committee whose membership
comprises third-party Limited Partners.
Group-wide
Group-wide refers to Burford and its managed funds take
together, including those portions of the funds owned by third
parties and including funds that are not consolidated into
Burford’s consolidated financials. In addition to the funds
consolidated into its financials, Group-wide would include the
Partners funds, Burford Opportunity Fund and Burford
Alternative Investment Fund and its predecessor.
Management Committee (“MC”)
The Management Committee is responsible for the executive
management of the Group. Its members are the Chief
Executive Officer, the Chief Investment Officer, the Chief
Financial Officer, the Chief Strategy Officer, the Deputy Chief
Investment Officer, the Co-Chief Operating Officers, and the
General Counsel/Chief Administrative Officer.
Internal rate of return (“IRR”)
Management fee
IRR is a discount rate that makes the net present value of a
series of cash flows equal to zero and is expressed as a
percentage figure. Burford computes IRR on concluded
(including partially concluded) legal finance assets by treating
that entire portfolio (or, when noted, a subset thereof) as one
undifferentiated pool of capital and measuring inflows and
outflows from that pool, allocating investment cost
appropriately. Burford’s IRRs do not include unrealised gains.
International Financial Reporting Standards (“IFRS”)
These are the accounting standards issued by the International
Accounting Standards Board (“IASB”). Burford is required to
prepare consolidated financial statements in accordance with
IFRS.
Judgment debtor
The fee earned by the Company from a Burford private fund
for managing its fund assets.
Multiple on invested capital (“MOIC”)
MOIC is calculated the same way as ROIC except that the
return is instead expressed as a multiple of the amount of
funding provided for the asset.
Net asset value (“NAV”)
The value of our balance sheet or of the assets in a fund,
where assets are valued at fair value, net of any liabilities.
Net debt
Burford calculates its net debt as loan capital and notes less
cash and cash equivalents and cash management investments.
The defendant evading payment of an adverse court award.
Net realised gain/loss
The sum of the realised gains and realised losses in the period.
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Burford Annual Report 2019
Strategic report
Governance
Financial statements
Due from settlement receivable
Judgment enforcement
Nonconsolidated funds
Return on invested capital (“ROIC”)
These are certain of Burford’s private funds which the
Company is not required to include within the Company’s
consolidated financial statements but are included within
Group-wide data. Presently, Partners I, Partners II, Partners III,
COLP, BOF and BAIF are nonconsolidated funds.
Partners funds
BCIM Partners I, II and III LP are three limited partnerships for
which BCIM serves as the investment advisor and which invest
in litigation finance assets. All three funds are no longer
making new investments. BOF is the successor fund in this
strategy to the Partners Funds.
ROIC is a measure of financial performance calculated by
comparing the absolute amount of realisations from a
concluded asset relative to the amount of expenditure incurred
in funding that asset, expressed as a percentage figure. ROIC is
a measure of our ability to generate absolute returns on our
assets. Similar to our IRR calculations, when we compute
ROICs on the entire portfolio (or a subset of it), we do so by
taking the aggregate realisations relative to the aggregate costs
incurred, rather than a weighted average of the individual asset
ROICs.
SEC
The United States Securities and Exchange Commission.
Performance fee
The Company earns a share of profits generated from funds
which it manages on behalf of third party LPs. The profits are
paid as a performance fee when the funds meet certain
performance conditions.
Services & Other Corporate
The Burford business segment comprising our services to the
legal industry, including litigation insurance and asset recovery,
or judgment enforcement, and other corporate activities.
Plaintiff
Single-case finance
An institutional investor in one of Burford’s private funds.
Portfolio finance
Legal finance assets with multiple paths to recovery, such as
financing a pool of litigation claims.
The party who institutes a legal action or claim, used
interchangeably with claimant.
Legal finance assets funded by Burford that are subject to
binary legal risk, such as financing the costs of a single
litigation claim.
SRA
The Solicitors Regulation Authority of England and Wales.
Post-settlement finance
Strategic Value fund
Post-settlement finance includes our financing of legal-related
assets in situations where litigation has been resolved, such as
financing of settlements and law firm receivables. Burford’s
post-settlement financing activity occurs only in BAIF, not on
Burford’s balance sheet.
Realisation
A legal finance asset is realised when the asset is concluded
(when litigation risk has been resolved). A realisation will result
in Burford receiving cash or other asset or recognising a due
from settlement receivable, reflecting what Burford is owed on
the asset. We use the term interchangeably with recovery.
Realised gain/loss
This reflects the total amount of gain or loss generated by a
legal finance asset when it is realised, calculated simply as
realised proceeds less deployed funds, without regard for any
previously recognised fair value adjustment.
Recovery
A legal finance asset is recovered when the asset is concluded
(when litigation risk has been resolved). A recovery will result in
Burford receiving cash or a due from settlement receivable,
reflecting what Burford is owed on the asset. We use the term
interchangeably with realisation.
BCIM Strategic Value Master Fund LP is a limited partnership
for which BCIM serves as the investment advisor and which
invests in certain complex strategies assets. Investors in the
Strategic Value fund include third party LPs as well as Burford’s
balance sheet. Burford’s investment in the Strategic Value fund
currently comprises its capital provision-indirect assets.
SWF arrangement
The agreement we have entered into with a sovereign wealth
fund in which it provides funding for a portion of our legal
finance assets through the BOF-C fund.
Tangible assets
For the purposes of the debt covenant leverage ratio, tangible
assets is the total assets as presented in the consolidated
statement of financial position less any goodwill and intangible
assets which are included in the total assets.
Total shareholder return
This is the measure of the total return to shareholders and
includes the movement in the share price and any dividends
paid, assuming that all dividends are reinvested on their
ex-dividend date.
Transfers to realisations
This is the amount of fair value adjustment previously
recognised on an asset, which is then reversed in the period in
when a realised gain is recognised to avoid double counting.
Glossary of terms
continued
created.
Fair value adjustment
FCA
Fiscal year
31 December.
General partner (“GP”)
partner for those funds.
Group
of Group.
Group-wide
In most instances, concluded investments both conclude and
The activity of using legal and financial strategies to force a
receive all cash proceeds associated with the investment in the
judgment debtor to pay an adverse award made by a court. We
same period. Sometimes, cash will be paid over time. In those
also refer to this as asset recovery.
instances, a balance sheet due from settlement receivable is
Legal finance
Legal finance includes our traditional “core” litigation finance
activities in which we are providing clients with financing
This is the amount of unrealised gain or loss recognised in
against the future value of legal claims. It also encompasses
Burford’s profit and loss account in the relevant period and
our asset recovery and legal risk management activities, which
added to or subtracted from its balance sheet asset value.
often are provided to the same clients and generate
investment assets with broadly similar risk/return profiles.
The UK Financial Conduct Authority.
Legal risk management
Matters where Burford is providing some form of legal risk
arrangement, such as providing an indemnity or insurance for
Burford’s fiscal year is the 12 month period ended
Burford invests in its limited partnership funds as the general
Burford calculates its leverage ratio as net debt as a percentage
of tangible assets (total assets less goodwill and intangible
adverse costs.
Leverage ratio
assets).
Limited partner (“LP”)
In the context of our financial statements, Group refers to
Burford Capital Limited and its consolidated subsidiaries. Our
presentation of Consolidated financials presents the financials
Limited Partner Advisory Committee (“LPAC”)
The Burford private fund committee whose membership
comprises third-party Limited Partners.
Group-wide refers to Burford and its managed funds take
Management Committee (“MC”)
together, including those portions of the funds owned by third
The Management Committee is responsible for the executive
parties and including funds that are not consolidated into
management of the Group. Its members are the Chief
Burford’s consolidated financials. In addition to the funds
Executive Officer, the Chief Investment Officer, the Chief
consolidated into its financials, Group-wide would include the
Financial Officer, the Chief Strategy Officer, the Deputy Chief
Partners funds, Burford Opportunity Fund and Burford
Investment Officer, the Co-Chief Operating Officers, and the
Alternative Investment Fund and its predecessor.
General Counsel/Chief Administrative Officer.
Internal rate of return (“IRR”)
Management fee
IRR is a discount rate that makes the net present value of a
The fee earned by the Company from a Burford private fund
series of cash flows equal to zero and is expressed as a
for managing its fund assets.
percentage figure. Burford computes IRR on concluded
(including partially concluded) legal finance assets by treating
Multiple on invested capital (“MOIC”)
that entire portfolio (or, when noted, a subset thereof) as one
undifferentiated pool of capital and measuring inflows and
outflows from that pool, allocating investment cost
appropriately. Burford’s IRRs do not include unrealised gains.
International Financial Reporting Standards (“IFRS”)
These are the accounting standards issued by the International
Accounting Standards Board (“IASB”). Burford is required to
prepare consolidated financial statements in accordance with
Net debt
MOIC is calculated the same way as ROIC except that the
return is instead expressed as a multiple of the amount of
funding provided for the asset.
Net asset value (“NAV”)
The value of our balance sheet or of the assets in a fund,
where assets are valued at fair value, net of any liabilities.
IFRS.
Judgment debtor
The defendant evading payment of an adverse court award.
Net realised gain/loss
Burford calculates its net debt as loan capital and notes less
cash and cash equivalents and cash management investments.
The sum of the realised gains and realised losses in the period.
156
Burford Annual Report 2019
Burford Annual Report 2019
157
Glossary of terms
continued
Unrealised gain
This represents the fair value of Burford’s assets over their
funded cost, as determined in accordance with the
requirements of the relevant IFRS standards, as at the end of
the relevant financial reporting period. Burford is required to
account for its investments pursuant to IFRS 9 Financial
Instruments and has done so since 2012.
Valuation Committee
The Valuation Committee is responsible for applying Burford’s
valuation methodology to fair value litigation investments
based on observable and objective developments in the case
or the investment. For 2019, the members of the Valuation
Committee were the Chief Executive Officer, the Chief
Investment Officer, the Chief Financial Officer and the two
senior executives who oversaw the legal finance teams in the
US and the UK.
Weighted average life (“WAL”)
The WAL of one of our legal finance assets represents the
average length of time until we receive a cash realisation from
that asset weighted by the amount of that realisation. WAL is,
simply, how long our asset will be outstanding on average.
Unlike with our IRR and ROIC calculations, where we use the
aggregate cash flows from the portfolio in making our
portfolio level computations, that method will not readily work
with WAL computations because our assets originate in
different timeframes. Instead, in calculating a portfolio WAL,
we compute a weighted average of the individual asset WALs.
Historically, in doing this we weighted the individual WALs
(durations) by the costs funded on the case. We are also now
providing portfolio WAL data weighted by the recoveries on
the individual assets.
Vintage
This refers to the calendar year in which a legal finance
commitment is made.
158
Burford Annual Report 2019
Glossary of terms
continued
Unrealised gain
This represents the fair value of Burford’s assets over their
funded cost, as determined in accordance with the
requirements of the relevant IFRS standards, as at the end of
the relevant financial reporting period. Burford is required to
account for its investments pursuant to IFRS 9 Financial
Instruments and has done so since 2012.
Valuation Committee
The Valuation Committee is responsible for applying Burford’s
valuation methodology to fair value litigation investments
based on observable and objective developments in the case
or the investment. For 2019, the members of the Valuation
Committee were the Chief Executive Officer, the Chief
Investment Officer, the Chief Financial Officer and the two
senior executives who oversaw the legal finance teams in the
US and the UK.
Weighted average life (“WAL”)
The WAL of one of our legal finance assets represents the
average length of time until we receive a cash realisation from
that asset weighted by the amount of that realisation. WAL is,
simply, how long our asset will be outstanding on average.
Unlike with our IRR and ROIC calculations, where we use the
aggregate cash flows from the portfolio in making our
portfolio level computations, that method will not readily work
with WAL computations because our assets originate in
different timeframes. Instead, in calculating a portfolio WAL,
we compute a weighted average of the individual asset WALs.
Historically, in doing this we weighted the individual WALs
(durations) by the costs funded on the case. We are also now
providing portfolio WAL data weighted by the recoveries on
the individual assets.
Vintage
commitment is made.
This refers to the calendar year in which a legal finance
Strategic report
Governance
Financial statements
Advisors to the company on Guernsey law
Ogier
Ogier House
St Julian’s Avenue St Peter Port
Guernsey GY1 1WA
Independent auditor
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
Further information
Directors
Sir Peter Middleton (Chairman)
Hugh Steven Wilson (Vice Chairman)
David Charles Lowe
Charles Nigel Kennedy Parkinson
Registered office
Regency Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WW
Advisors to the company on US and English law
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Nominated adviser and joint broker
Macquarie Capital (Europe) Limited
Ropemaker Place
28 Ropemaker Street
London EC2Y 9HD
Joint brokers
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
Numis Securities Ltd
The London Stock Exchange Building
E10 Paternoster Square
London EC4M 7LT
Administrator and company secretary
Oak Fund Services (Guernsey) Limited
PO Box 282
Glategny Esplanade
St Peter Port
Guernsey GY1 3RH
Registrar
Computershare Investor Services (Guernsey) Limited
3rd Floor, Natwest House
Le Truchot
St Peter Port
Guernsey GY1 1WD
158
Burford Annual Report 2019
Burford Annual Report 2019
159
Further information
continued
Equity and debt securities
Issuer
Security
Exchange
Ticker
ISIN
FIGI
SEDOL/ID
Burford Capital Limited Share
Burford Capital PLC
Burford Capital
Finance LLC
Bond
Bond
Bond
Bond
London Stock
Exchange AIM
BUR
BUR1
BUR2
BUR3
BUR4
London Stock
Exchange
Main Market
London Stock
Exchange
Main Market
GG00B4L84979
BBG000PN88Q7
B4L8497 GB
XS1088905093
BBG006VZCHM9
EK3990638
XS1391063424
BBG00CMS9C56
JK7086578
XS1614096425
BBG00GPZLYD7
AN5937551
XS1756325228
BBG00JWN4HQ2 AQ9291818
Company website
www.burfordcapital.com
Investor relations enquiries
For all investor relations about Burford Capital Limited, please contact:
Investor Relations
Burford Capital
Brettenham House
2-19 Lancaster Place
London WC2E 7EN
Telephone: +44 (0)20 3530 2023
Email: IR@burfordcapital.com
Visit the investor relations section of Burford’s website at www.burfordcapital.com/shareholders for current investor relations
information, including the latest share price, results presentations and regulatory news.
160
Burford Annual Report 2019
Issuer
Security
Exchange
Ticker
ISIN
FIGI
SEDOL/ID
Burford Capital Limited Share
London Stock
BUR
GG00B4L84979
BBG000PN88Q7
B4L8497 GB
Burford Capital PLC
London Stock
BUR1
XS1088905093
BBG006VZCHM9
EK3990638
XS1391063424
BBG00CMS9C56
JK7086578
XS1614096425
BBG00GPZLYD7
AN5937551
Burford Capital
Finance LLC
London Stock
BUR4
XS1756325228
BBG00JWN4HQ2 AQ9291818
Bond
Bond
Bond
Bond
Exchange AIM
Exchange
Main Market
BUR2
BUR3
Exchange
Main Market
For all investor relations about Burford Capital Limited, please contact:
Further information
continued
Equity and debt securities
Company website
www.burfordcapital.com
Investor relations enquiries
Investor Relations
Burford Capital
Brettenham House
2-19 Lancaster Place
London WC2E 7EN
Telephone: +44 (0)20 3530 2023
Email: IR@burfordcapital.com
Visit the investor relations section of Burford’s website at www.burfordcapital.com/shareholders for current investor relations
information, including the latest share price, results presentations and regulatory news.
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Burford Annual Report 2019
burfordcapital.com