Burford Capital AGM, 14 May 2019

Burford’s AGM took place in Guernsey on 14 May. Here’s what Chairman Sir Peter Middleton and CEO Christopher Bogart said in response to questions about:

- Criticism by Canaccord analysts

- Recent Share price fall

- Involvement in controversial litigation

- Booking profits from cases before they’ve been settled

Attendees: Sir Peter Middleton, the chairman, David Lowe, non-executive director, Steven Wilson, the deputy chairman, Charles Parkinson, non-executive director and chairman of the audit committee, Mark Klein, general counsel, Christopher Bogart

Chief Executive Officer. Ashley Cootes from the auditors. Plus two individual shareholders.

On the phone: Elizabeth Connell and John Malone, from Burford.

Question from shareholder: “What reassurances can you give investors following concerns expressed by analysts at Canaccord, who raised serious questions about your strategy of booking profits from cases that have yet to be concluded? Do the setbacks in the two high profile and protracted cases you are involved in - YPF and the Akhmedov divorce - demonstrate the risks of this approach? And has that contributed to the 20 per cent fall in Burford's share price?”

Sir Peter Middleton: “It certain contributed to the fall in the share price because – you know what the process is – you get a result like that, people read the headline and not the content. So it was hardly surprising that the shares fell a bit, but it is a very interesting market, we haven’t had a lot of sellers – in fact very few, Chris? The big issue is one of valuation and I think it is appropriate you [CB] should do that.”

Christopher Bogart: “There has been selling but our institutional investors by and large not. First of all we should be very clear about one point, that this is not at all about booking profits. Burford provides two entirely separate approaches to reporting. We provide audited financial statements and then separately we provide a great deal of information about the underlying performance of the investment portfolio.

“There is no issue with, and Canaccord didn’t raise any issue with, the financial reporting…nobody is suggesting any deficiencies associated with that. The question raised by Canaccord is computation methodology for the portfolio reporting – which has nothing to do with booking profits. What Canaccord is basically saying, which in our view, and in the view of most investors is nonsensical, is that Canaccord would want you to take all of the cost of a multi-case investment and compare the totality of that cost against a partial return…We disagree with it, but Canaccord is welcome to take whatever view, as an analyst, it wishes to take.”

A shareholder said that Canaccord had pointed out that the total invested figure that Burford has reported, US$555 million, is not the true figure and that the total invested actually US$1.2 billion. Canaccord, he pointed out, are saying Burford are “not comparing apples with apples” and the total recovered doesn’t match the calculations you make for the total invested.

Christopher Bogart: “That is indeed what they said, am I believe that they are wrong, but you don’t need to take my word or their word for it. They are obviously pursuing an agenda that involves their promotion in the market. We are providing a whole lot of investment data and you can analyse the company literally however you would like.

“We make a set of information publicly available on our website. For every single investment we make, both concluded and continuing, we provide all of the data for you to be able to analyse the business on whatever basis you would like. So you can decide to only look at the returns on entirely concluded case. You can decide, as we do, to look at the combination of returns from concluded case and on-going cases or you can come up with your own methodology…

“To use a real live example from Burford’s portfolio, one of the investments we have made is a multi-case portfolio, that has a total investment from the balance sheet of US$127 million. That is a relatively new investment, so most of the that investment, so most of that portfolio remains outstanding, with no activity. However, something has concluded in that portfolio and that is a matter that has US$17 million of costs associated with it and has generated around US$20 million of recovery. And so we have that cash, we have the recovery in hand, and will include the US$17 million in the denominator of our calculation as part of the calculation of our returns. We would not include in the denominator the entire US$127 million. To our mind it would make no sense at all to do that. That is what Canaccord math is doing. They are including the US$127 million in the denominator, that’s how they get to the point you made. We disagree with it and not only do we disagree with it, we think it is entirely inconsistent with broad market norms. I don’t mean litigation finance market norms; I mean general computations of profits. If you would compute your own investment profits in the way Canaccord suggest you would never make money…”

The investor added: “On the second point, there is some controversial cases that you have invested in. Those sort of case where, like Akhmedov, which is a personal case, with two people arguing about a divorce where it looks like you have taken a view to go after low hanging fruit, ie a large yacht parked in the UAE, and you have failed to achieve your aim of grabbing it, and now you are being sued in UAE, and that is causing a lot of press interest surrounding your company. Is that causing damage as well, and maybe that sort of investment, that sort of high-profile investment, where you are being dragged into a personal fight, going forward is that really the right way to go?

Christopher Bogart: “Let’s differentiate. You mentioned both YPF and Akhmedov, and I don’t believe we would agree with the characterisation of them doing poorly. If any anything I think we would characterise YPF of having gone extremely well and continuing to go extremely well. We have won every matter of significance in that case. So, not only am I delighted to be doing that case. I would be delighted to be doing more of those kinds of cases.

“The Akhmedov is, and I think it is important to realise what status that case is in, we don’t engage in the financing of personal litigation when it is in the pre-settlement or the pre-judgment stage…That is not the business we are in.

“However, once litigation has entirely concluded and has reduced to a final and enforceable judgment or an enforceable arbitration award. Then you are in an entirely different segment of the legal world and there is no distinction whatever from a judgment rendered in a divorce case or a judgment rendered in a contracts case, or any other case, they are all judgment.

“What we have here is an English High Court Judgment, fully enforceable, the appeals exhausted, and we have law firm clients who regularly come to us for our specialised assistance in enforcing those judgment. And when law firm clients, which is exactly what happened here. A significant law firm came to us because they were having difficulty in getting the judgment paid. When that happens, if we believe that there are assets available in jurisdictions that we may be able to help law firms secure, then we go and accept those assignment and we don’t engage in value judgments about the underlying claim that led to the presence of that judgment or arbitral award. That is exactly what has happened here.

“So a law firm that we have an on-going relationship with, that is still retained here, came for his specialised expertise. We have a separate business that does this. It is not part of our traditional litigation finance business. We have literally experts’ consultants who go and find assets and assist lawyers in recovering them. We are not the principle here, so we are merely advising the lawyers and the lawyers are implementing the strategy.

“As you point out, it is often the case that people who are not voluntarily paying the judgments doing like being separated from their assets and so those case can sometimes lead to a degree of tactical opportunism by the other side. Mostly those are efforts to try to avoid paying. The debtor is a scoff law who is ignoring a globally enforceable judgement of High Court. What we are doing is effectively extending the reach of the High Court and assisting a plaintiff in recovering the assets. While there is sometimes a lot of noise with those cases…we just go about our business. I don’t think anyone one in the legal industry is concern about the fact that we are engaged in that kind of business.”

The shareholder questioned whether it was sound for an “investment business” to take on cases like Akhmedov which meant they were involved in controversy that perhaps they did not foresee and that has a negative impact on people perception of Burford and its portfolio.

Christopher Bogart: “I don’t personally think so. First of all we are an investment business and it is important that shareholders feel good about the business. But underlying this business is the fact that we are a legal business and our target market are lawyers and law firm and I don’t think we get any sort of criticism from being involved in these kinds of things. This is just grist for the mill in what lawyers do and the fact that we get make this service available to them is actually something that many law firms find valuable. There is inevitably the potential for some degree of animus and publicity around litigation. Let’s be candid, people don’t like litigation. They don’t much enjoy being sued and so throughout our history some minority of our investments have resulted in adverse publicity because that is what you do as a strategy. When I was a defence lawyers, if I didn’t have a good merits argument I would look for collateral attacks – and we are an easy target to attack collaterally but that is just part of the business. Perversely it has a positive side to it because it is a barrier to entry from competitors. It is no accident that most of the significant players in the world providing litigation finance capital are pure play litigation finance firms and not arms of firm that are much more reputationally sensitive like a bank, for example. The reason you don’t find investment banks in this sector is because they, unlike us, are unwilling to accept some degree of pubic criticism. So this just goes with the territory.”