Burford Capital: Portfolio Breakdown

Burford is not a ‘usual’ business, in the operating sense, and litigation claims are a novel asset class. Both elements might cause misjudgment when superficially analyzing the company’s reports. In this article, I’ll go over:

• Everything related to Burford’s commitments and deployments.

• How Burford’s portfolio value has evolved.

• Portfolio diversification.

• Management’s approach to unrealized gains.

Origination of New Business

Commitments impose the ceiling for near-term capital deployment. In 2010, the first full year of Burford’s operations, the company committed 102M dollars in capital. During 2022, commitments were in excess of 700M, on a Burford-only basis.

Burford also reports commitments made on a group-wide basis, which contemplates their asset management business as well. Since the acquisition of GKC in 2016, some balance sheet investments started to flow through the managed private funds. This dynamic brought temporarily down the percentage of capital provision-direct commitments as a % of total.

Another implication is that it becomes obvious that not all balance sheet capital is deployed in core legal finance. Part of it has been, in the past, invested through the Strategic Value Fund and the Advantage Fund. The former is focused on complex strategies, though Burford has directly invested in some of these as well, while the latter on pre-settlement litigation. The following image displays Burford’s balance sheet investments in the different assets utilizing 2018 as an example.

Burford mentioned in their 2023 annual report that the Strategic Value fund was closed. Hereafter, complex strategies investments would be done directly on the balance sheet. Similarly, a successor for the Advantage Fund is unlikely to come. Management stated that pre-settlement investments that meet desired hurdle rates will be taken on the balance sheet as well.