Burford Capital Limited, a global finance and investment management firm focussed on law, has announced new funding arrangements to facilitate its next USD1.6 billion in litigation finance investments.
The new capital will come from three sources: a sovereign wealth fund with which Burford has entered a strategic capital relationship; a new private investment fund; and the Company’s own balance sheet.
Christopher Bogart, Burford’s Chief Executive Officer, says: “Our success in being able to attract substantial long-term capital positions Burford to sustain its competitive advantage in the global legal finance industry. Burford’s unique ability to attract a large-scale commitment from a sovereign wealth fund and to close a new investment fund with capital from institutional investors underscores its distinction as industry leader in terms of performance and governance, critical factors in making our capital the most attractive in the market. These new funding arrangements are consistent with the strategic vision we have outlined for our capital structure, including most recently at our Capital Markets Day last month, and aim to provide shareholders with optimal risk- adjusted returns.”
Burford has entered a strategic relationship with a sovereign wealth fund to provide capital for its litigation finance investments along with potential further capital for other opportunities.
The commitment is for a USD1 billion pool of capital to be invested on a 2:1 basis, with the investor deploying USD667 million and Burford providing the remaining USD333 million. Burford will allocate 50 per cent of each new litigation finance investment to this pool of capital for the next four years or until the pool is fully committed, whichever occurs first.
After the recovery of the capital invested, Burford will receive 60 per cent of investment profits while investing only 33 per cent of the capital. Distributions will be made on an investment-by-investment basis so that Burford will receive cash flows considerably faster than in a traditional private fund structure. Burford will also receive a priority distribution in an expected amount of approximately USD7 million annually to defray Burford’s running costs.
In addition, the investor has expressed the potential to invest in other Burford opportunities as Burford’s business continues to expand.
With the current Partners III investment fund now fully committed ahead of schedule1, Burford has also raised a new private fund, the Burford Opportunities Fund (BOF). As a result of the size of its new strategic capital relationship, the company decided to limit BOF to USD300 million. Burford is not making an investment in BOF, although more than 40 of Burford’s employees have invested a total of USD5.7 million, demonstrating the team’s belief in the attractiveness of the investment opportunities ahead. Burford will allocate 25 per cent of each new litigation finance investment to BOF during the fund’s three-year investment period or until the fund is fully committed, whichever occurs first.
BOF investors will pay Burford a 2 per cent annual management fee on investor commitments and a performance fee of 20 per cent of fund profits, subject to an 8 per cent per annum priority return to investors, after which the Burford performance fee will receive a full general partner catch-up.
The combination of Burford’s new strategic capital relationship and the raising of BOF meet Burford’s objectives of drawing capital from multiple sources while also enabling Burford’s balance sheet to participate directly and significantly in each new litigation finance investment. Moreover, Burford has considerably enhanced the economics of its alternative capital sources and at the same time ensured access to a significant pool of capital to fund its continued expansion.
The aggregate position under the new funding structure for these USD1.6 billion of litigation finance investments is that Burford will invest directly 42 per cent of the capital for each new investment and will receive 60 per cent of the resulting profits.
Burford believes it has sufficient capital resources to finance its direct investments, although it may continue to make use of the long-term credit markets when desirable and appropriate.
Elizabeth O’Connell, Burford’s Chief Financial Officer, says: “As I said last month at our Capital Markets Day, we intend to continue to use multiple capital sources to finance Burford’s growth and we think doing so is the best way to balance producing desirable returns for public shareholders without assuming excessive leverage or undue balance sheet risk. The new capital sources we are announcing will enable us to make USD1.6 billion in new investments with only USD633 million of that coming from the balance sheet. We simply would not have been able to provide for that level of growth solely on the Burford balance sheet, let alone to have the implied leverage provided by this structure where we provide 42 per cent of the capital but earn 60 per cent of the returns. These new arrangements also show the need for, and the expected use of, the equity capital we raised in October.”
