Litigation Capital Management Limited

Welcome to the Litigation Capital Management full year results webinar. I now hand over to Patrick Maloney, CEO, Nick Rolls-Davies, Executive Vice Chairman and Mary Gangemi, CFO. Patrick, over to you.

Good morning and thanks everyone for attending our presentation in respect of our 2020 full year results. Um, 2019 for LCM was very much a year where we, um, built the platform, um, in reading the company for growth. 2020 was definitely a very significant growth for LCM. So the first highlight was the launching of our asset management business. That was launched in March of this year. It was launched with a $150 million US fund. That fund, when it was constructed, had an inception period for us to commit that fund of two years. Very encouragingly, by 30 June, the end of our financial year, we had committed that fund already to 47% of its capacity. And by September, as we're coming with this presentation, we've committed that fund to 61%. So incredibly good progress that LCM has made in terms of committing that third-party fund and a great start and launch to our asset management business. Secondly, touching upon revenue growth, so we had revenue growth in 2020, despite that being disrupted by COVID. We had three investments which we were expecting and would have finalised during the financial period, which were pushed out into 2021, simply through core capacity in the conversion to digital hearings. Very encouraging during the period, we had an increase in our applications across all regions by 25%. So a significant increase in the applications and the demand for LCM's capital in terms of litigation finance. Really importantly, our assets under management, when I talk about assets under management, I'm talking about the contracts to fund disputes globally have increased dramatically. By 30 June, our financial year end, we had assets under management across both our direct investments and our asset management business of $250 million. And by September, that's grown to $304 million. So very significant growth in terms of our assets under management. In terms of actually putting LCM's capital to work and putting the asset management capital to work, the increase in the financial year 2020 when compared to the prior year, our invested capital and putting our money to work has increased by 87%. So a very significant increase in actually investing in these disputes as part of our portfolio. Moving on to strengthening our referral sources. During the financial period, we entered into two new and revolutionary strategic alliances with global law firms. They provide us with a really important referral source in terms of quality opportunities for us to invest in disputes globally. And we'll touch upon those in a little more detail as we progress through this presentation. And finally, touching upon one of our investment strategies, which is a portfolio strategy, We consummated and signed the largest corporate portfolio transaction that LCM has done in its history. That's a 20 plus global disputes with a capital commitment of up to 34 million US. So that was a really significant transaction for us to enter into. and really give some credence to that investment strategy. Just moving on to some of the other measures of growth that we have achieved during this financial period. In terms of capital commitments year in, year out, We've grown that from $98 million in financial year 2019 up to $147 million in the year just past. Capital invested, I touched before, $27 million in financial year 2019 up to $52 million in financial year 20. Our gross revenue was up despite the interruptions of COVID and I've touched upon the number of applications significantly up 25% on the year prior. Talk about LCM's track record and its performance. So we track the performance of every single investment that LCM has entered into over the last nine years, inclusive of losses. We've generated a return on invested capital of 134%. a cumulative portfolio IRR of 78%. So that includes every single investment that LCM has made over the last nine years, inclusive of losses. So what that's giving us is we're operating in quite a tight band there in terms of our financial metrics over that nine year period. If I could just now talk about LCM's business model. So this has changed in the last financial period. So we're now running two business models. our asset management, which I've spoken about briefly before, and our direct investments off Balance Sheet. And there is a crossover between those two business models in that with the asset management, we actually co-fund from Balance Sheet up to 25% of each of those disputes. So we have absolute alignment between LCM and the asset management business, and that also gives all of our shareholders an opportunity to participate in the full economic upside of those investments as a 25% co-invest. And then below those two business models, We have currently three investment strategies. The first one of those investment strategies is our single case strategy. And that's a strategy that we have been pursuing since LCM's inception. We're now in our 22nd year of providing litigation finance into the market. And overwhelmingly, historically, that has been in the single case investments. investing in one single dispute, LCM would supply the capital, it would provide risk management associated with that dispute, and also we provide a greater or less degree of management assistance of that dispute as it travels through the court system or the arbitral process. Very much LCM's track record has been built around our single case investment strategy. It's probably the hardest strategy that there is in terms of litigation finance and our economic metrics that we've demonstrated in the last nine years. really bear out that we're very good at underwriting the risk associated with these investments and being able to predict which of these investments will go through to become a profitable outcome for both ourselves and our funded party. If I can next move to our second strategy, which is portfolio investments. That relates to us providing a funding source to fund a bundle of single case investments. And that can either be done directly with a corporate client, we might have a bundle of disputes that we provide a finance solution for, Alternatively, a law firm who might be looking for a finance solution in respect of a bundle of disputes that it might be acting in on a contingency basis. So that's our second strategy. The reason that those types of transactions tend to be attractive to us from an investment standpoint is they tend to be larger and allow us to invest larger amounts of capital in one investment. And secondly, you get the diversification and collateralization of risk. So all of our capital commitment is collaterally secured against each one of those investments in that portfolio. So it allows us to participate in the funding of those disputes with reduced risk and a much larger investment pool. And the third strategy that we are pursuing is the acquisition of claims. The acquisition of claims is typically in the insolvency space. They tend to be a much smaller investment for us. We're actually acquiring the cause of action from the party who would have been pursuing that and actually pursuing as principle, actually owning the claim and having complete autonomy as to how we pursue that claim through the system. So that's in its relatively early stages of evolution. But for example, in Australia, we are the only litigation financier providing that service in this jurisdiction. And we expect that that is going to be a very good and profitable strategy for us in the long term. If I can now move on to our asset management business and just give shareholders just a little bit more information about how that works. So as I described earlier, it's a co-investment arrangement. So we would apply in respect to every single investment that we enter into, 75% of that capital commitment will come from the fund and 25% of that investment will come from LCM's balance sheet. So a great alignment of interest between the fund and our balance sheet. In respect of how we get remunerated for the asset management component of that, we participate in a profit share arrangement. And that profit share arrangement is up to an IRR of 20%. We participate and receive 25% of the profits of each of those investments upon maturity. And above 20% IRR, we get outperformance of 35%. So if one looks at our track record over the last nine years, you would expect moving forward if we continue to perform in the same way, that most of our returns with respect to that asset management portion of our business will be in the outperformance section of 35%. And in respect of the participation on a co-funding basis, LCM will enjoy all of the economic upside of those investments up to our 25% direct investment. I just want to move on now and just talk about the investment cycle. I think it's important to understand how these investments work just to give you a sort of better understanding of what their life is. So the starting point here is to say, you know, how long do these investments take? If we look at our historic track record over the last nine years, the average time to completion of every single investment that we made was 27 months. Now, that is from first deployment of capital through to an actual realisation and the banking of the proceeds of that litigation or that settlement. Now, when one looks and compares LCM's actual revenue generated in a particular year, what's important to remember is the operating expense or the significant operating expense with respect to that revenue was probably incurred by LCM 27 months ago. So when you're comparing OPEX with revenue in a particular year, there actually is a mismatch between the majority of our OPEX and when that is actually going to convert into a tangible revenue event. That's important to remember when you're considering these investments. The other thing that's very important to remember about the investments that LCM enters into is that they have their own natural life. So unlike other investments where you have to make a logical decision about when you sell out of an investment, when you're investing in disputes, they have a natural life which is managed either by the disputing parties themselves, alternatively by the court. So they can't perpetually go on. They will have a natural life and the court system or the arbitral tribunal, depending on where they're being pursued, will actually bring that that investment to an end naturally if the parties do not settle it by adjudicating that dispute. So that's a dynamic that is kind of important to understand because it's very different to any other asset class that investors might be familiar with. So it's very much an alternate asset class that we are specialists in investing in and its disputes globally. If I can hand over to our CFO just to talk about the full year financial highlights. Mary, can I hand over to you, please?

Okay, so Patrick has run us through and given us an overview of the KPIs, which are, of course, our underlying measures of growth. But turning to the performance for the year just gone, gross revenue is up 11% at $38.4 million, and gross profit is up to $21.7, up 7%. Remembering that we're still recording revenue under IFRS 15, which means that we record revenue as and when that is earned, as opposed to fair value. adjusted profit before tax is marginally down nine percent at 11.1 million and statutory profit before tax is 9.2 again marginally down nine percent this is primarily because we had three matters which were pushed out into the next financial year um as a result of the delays caused by covert cash is down and um to 24.9 down 49 investments are up 89 percent which shows that we continue to deploy capital and we continue to put that capital to work and invest in more projects. Total capital invested during the year, again, a sign of us putting that capital to work. Exclusive third party interest is up to 41.3, up 49%, but inclusive of third party interest, that's up 87% in the year. If we turn to the balance sheet overview, so capital invested, just as mentioned, is up 41.3 from 27.8 in the prior year. Our total equity has increased to 82.2, up from 76.2. Cash generation is up 30.7. And we also had some post-year end receipts, which brings it up to 35.3. And net cash at the period end, is 29.5, including that final receipt. We move on to the next slide. It is pretty self-explanatory, but it just shows the movement in cash over the course of the year. We had cash generated from litigation investments of 30.7. And again, you can see that we continue to deploy our capital and put that capital to work. And as you can see, there's an outflow of cash of 39.7 with our post-year end position of 29.5. We move on to the current portfolio of direct investments. I will hand back over to Patrick.

Make a general statement across both our direct investments and our funds under management or our asset management business. We're striving, as we always have, to build a portfolio of global disputes which has diversity. In the same way that you would build a portfolio of investments through diversity, we apply the same principles associated with this when we're building a portfolio of disputes. Diversity is incredibly important to give a variety and to spread risk. So we are building that portfolio in commercial disputes, in insolvency disputes, in class actions, in portfolio funding, as I've described. and in arbitration. And we're also building that portfolio such that it doesn't suffer from concentration risk. And what I mean by that is we're making sure that there's a good spread of capital commitment so that we're not investing too much of our capital or our capital under management in one particular investment which might be unsuccessful. And if we look at our direct investments, they fall into two categories. The first one is where LCM is funding 100% of that dispute from balance sheet. And the other one is what I've described before is our co-funding arrangement with our funds under management. So we can see the numbers, significant growth. We're currently funding 23 separate investments on 100% basis and 18 on a co-funding basis. The last observation I'd make is the pie chart on the right-hand side of this is where these investment opportunities have been originated from. So we're really seeing over a period of time that an increase in the amount of quality applications and quality investments that we are originating through our London office. Now we would expect over a period of time that there will be a shift towards the Northern Hemisphere in terms of dominating our portfolio of investments, simply because we have much larger economies in the Northern Hemisphere to be originated out of our London office. And with the larger economies, you expect more disputes. So whilst Australia is always going to be a really good market for us and a market that we are very familiar with as a funder, Inevitably, we're going to see significant growth in other jurisdictions outside of Australia, including Asia, Europe and the United Kingdom. I can move over to the fund. The highlight here really is the speed with which we've been able to commit this fund. This fund, when it was closed in March, allowed a period of two years for LCM to commit that fund. Within the first three months, we committed that to 47%. And by September, six months into that process, we're at 61%. Now, the very important statistic that we probably should focus upon here, even though we've been able to commit that fund very quickly, what we haven't relaxed in any way is the very rigorous due diligence process that we pass all of our applications through before we actually offer commercial terms and agree to actually invest in and fund a dispute. Typically and historically, LCM has converted between 3% and 7% of applications into funded transactions. And by that, I mean only 3% to 7% of applications ever reach a point where we invest in them. Now, if I look at the 12-month period just completed at 30 June, our conversion rate was 3.5%. So that demonstrates very clearly that LCM is not relaxed in any way, the rigorous approach it has to due diligence and underwriting the risk of these investments, notwithstanding that it had a large pool of capital, which it was keen to invest early. So again, as with our direct investments, we're seeing diversity across the entire portfolio of asset management business. We're building that in importantly, and again, we're seeing a significant increase in the number of opportunities which are arising out of the London office. I might hand over to Nick Rolls-Davies just to talk about the market conditions, including the kind of cyclical nature, and also the uncorrelated investment class that we're in, both really important points in the current market.

What is probably important to remind ourselves of when we're looking at the arena in which we operate is that two big aspects. First, the uncorrelated nature of our investment class in relation to the rest of the world in that each of our individual investments is not only not correlated, economic climate, but also not correlated to each of the other investments. Each case has its own factual matrix and is decided in the specifics of the law as regards that factual matrix. So just because one case wins, it doesn't mean the next one's going to win. But equally, if a case loses, it doesn't necessarily mean that the next one's going to have the same effect. So they all stand on their own facts. in relation to the the industry and the economic uh position and market you know economic outlook uh one of the things that's been suggested and certainly from facts historically it's been shown that there is an increase in dispute spend an increase in pieces of litigation and arbitration when an economic downturn is faced. So it's suggested, and the facts maintain, that not only is litigation counter-cyclical, but it's also counter-recessionary. And that's an important thing for us to consider, given that we are experiencing an economic downturn, the effects of COVID, and that suggests to us that the outlook in terms of the likelihood of the number of disputes that are going to need litigation and finance or increased legal spend is going to increase. And perhaps if we put that in context in terms of the last 12 months, we've already said that we had a 25% increase in the number of applications we received for financing in the last 12 months. That is a number of 522 cases. Now, that was before the impact of COVID and I just want to touch on what's happened since February, March, April and the impact on what's been going on and what we're seeing in the marketplace. I think there's probably three ways to describe the three distinct areas, three distinct responses that have happened as a result. The first is that corporate clients who were in the midst or are in the midst of a dispute, whether it be litigation or arbitration, are re-evaluating whether or not they're going to continue with that legal spend and maintain that monthly cash flow drain when they have perhaps other priorities. The second element is those corporate clients who have not yet embarked upon the dispute, not yet embarked upon the piece of litigation, are now re-evaluating whether they have the budget to do so. Now, both of those elements mean that those corporate clients are thinking about how they're going to deal with their legal spending. That's something that we encourage corporate clients to do, whether they're looking at funding, whether it be by way of necessity. So they don't have the money to bring the case. But for our investment, they can't bring it. But also those corporate clients, which is very much the corporate clients that have been on our radar and part of our strategy over the last three or four years, are those clients that fund out of choice. So they may well have the money. that they're evaluating are they going to use their own money or are they going to invest that in their core business and let us deal with the external legal spend. Now that's very much at the forefront of those corporate clients' minds and it drives the third aspect or the third response that we've seen in the market, which is law firms that are involved in those matters are experiencing a drop in the continued instruction or the ongoing and new instruction from those corporate clients because of that re-evaluation. What that means is those corporate clients are asking for a different outlook from the law firm how can they deal with their legal spend differently what can they do to re-evaluate the position for them and assist them with with that legal spend and that's where we come in and what we're seeing is an increase in interest from law firms in how we can work with them an increase in the education process so law firms accelerating their learning really picking up on what we've been doing and how we've been doing it, and very much looking now at how they can use us as part of their business development process, using us to talk to their clients, to maintain those strengths, strengthen those relationships, to cement themselves with their clients by doing things in a slightly different way, changing the way they deal with their legal spend, and creating a situation where the law firm benefits because they have maintained their instructions and have continued and increased instructions, The client benefits because they get to deal with their legal spend in a much more efficient method in terms of an accounting strategy. And from our perspective, it's driving new business, new relationships, and creating a situation where instead of what is good business, which of course is the single case matters that we've done historically well, but going forward, creating relationships which have an ongoing and enduring situation which means that we are discussing what cases should be brought when they're brought and very much being much more involved in the whole management of the process so the market conditions certainly are favorable the outlook is certainly favorable the historic 12 months has shown that we've had an uptick in the number of applications that's continuing and certainly in terms of the pipeline and the market opportunity i think the next 12 months is very much a positive thing nick just outlined there for us what we're seeing in the market generally as a consequence of this kind of cyclical nature if i could just look forward before we move on to strategic priorities and just make this observation

Inevitably, given the market conditions globally and the uncertainty associated with that, there's going to be an increase in insolvency events, there's going to be an increase in restructuring of companies. Now, in most jurisdictions in which we operate, there's a monitorium on that that you cannot appoint an external administrator to an insolvent company currently. They will be lifted at some point in time. The overwhelming expectation is, in respect of global economies, is there's gonna be a significant increase in the number of liquidations, bankruptcies, and restructurings that occur. Now if you look at LCM's history, LCM was a pioneer in the litigation funding space, started here in Australia. For the first 10 years, we almost exclusively funded into the insolvency space. So we have a tremendous amount of experience in funding insolvency based disputes and restructuring disputes. So if we look just over the horizon, We have an expectation that there will be a considerable increase in the number of quality investments that we have coming out of the insolvency space. And those opportunities will probably last for six years from when they start running right through to the conclusion of the limitation period. So if we look ahead, tremendous opportunity for LCM, really touching upon that kind of cyclical nature of the way the business works. Moving on to strategic priorities. So again, forward looking. We will be launching a further third party fund and building upon our asset management business. Our initial thoughts around the size of that next fund will be probably somewhere in the order of 300 to 350 million US. We haven't settled upon that yet, but it is within that sort of range that we're thinking currently. The timing of that will be probably late this calendar year or early next calendar year. depending upon the speed at which we fully commit the existing fund. The next strategic priority that we've got is to increase both the number of applications but also the quality of applications. So if you look at LCM's historic conversion rate of applications into funded investments, it runs, since we started back in 1998 to date, to run between about 3% and 7% of applications ultimately end up as a funded investment. And that's just really a reflection of the rigor with which we undertake due diligence and risk assessments around these applications of these investments. Now, through our law firm alliances, which I'll move on to, we're aiming to increase the quality of those applications so that we can increase that conversion rate and operate far more efficiently as a company in terms of entering into these investments. So law firm alliances, Nick talked a little bit about the increasing demand from law firms to have an alliance with a reputable and quality funder like LCM. We will look to not only potentially enter into additional law firm alliances, But really try and sort of leverage the relationships that we've already formed with global firms such that we can provide a wider suite of products to that firm's clients to assist them in terms of funding their disputes. We want to increase the number of our portfolio investments. You know, at its very core, LCM's value is in its portfolio and the revenue that can be generated from that portfolio. So obviously we're looking to increase that portfolio. If we look at the metrics that we've achieved to date, $250 million as at 30 June and $304 million as at September when we're making this presentation. So we've made great progress in terms of increasing that portfolio in the past and we expect to continue to do that into the future. And the final thing is we're looking closely at expansion opportunities into other global markets. shareholders would have observed that LCM has been cautious and has been very diligent in the way that it's expanded into regions in the past up into Asia and then into the UK. And you would expect that we would have that same cautious and disciplined approach to moving into any new markets. But it is something that we're constantly looking at in terms of expanding our global footprint. It's important. at various junctions, just to look back and have a look at the growth that LCM has achieved within a short period of time. So this slide really shows you what our growth has been over the last four years. And many shareholders will know that LCM originally did an IPO on the Australian Securities Exchange back in 2016. We then in 2018 delisted from the Australian Securities Exchange and listed on the A market in London. You can see the phenomenal growth that LCM has achieved over that period. So if we look at total portfolio of assets under management, We've increased in that four year period from $33 million to $250 million. And as I've described, as it's September now, we're at $304 million. So really, really significant growth in the portfolio of assets under management. Operating capital, again, increased over that period of time. Applications, in the year you can see, you know, exponential growth in the number of applications. Capital commitments, so actually putting LCM's capital to work and now with our asset management business, putting the third party pool of capital to work increased significantly over that period of time from 6.25 when we listed on the Australian Securities Exchange up to 147 million currently. Capital invested during the year period, again, we're seeing the same increases. Now importantly, the last bar chart there talks about our OPEX compared to our portfolio of assets under management. comparing what our OPEX is compared to the pool of assets that we are managing. And you can see a really healthy decline from when we listed on the Australian Securities Exchange. It was 13% of what our portfolio size was. We've got that down progressively over a period of time now to 4%. So we're really very happy with that. We can turn on to the next slide, which really sort of makes some observations about perhaps the dynamic that we're seeing and the way that the market is valuing LCM. So what we can see here is that the market capitalization of LCM is very much tracking its operational capital on its balance sheet. What the market is currently not recognising is our portfolio under management. So you can see the stark difference there between our capitalisation and the market cap and what our portfolio of investments is. So that's at 30 June, $250 million. It's obviously increased now to $304 million and is growing on a monthly basis. So I think that's really sort of demonstrate perhaps what the market is not seeing in LCM currently in terms of its intrinsic value and obviously a real opportunity for investment. And if I can sort of move to the final slide here, which is really sort of applying our historic financial metrics to what our assets under management are and what that might look like. So if I go back to the slide and just refresh people's memory, our average time or life cycle of our investments is currently 27 months. We expect that to elongate slightly and perhaps go to three years or even three and a half years in respect of some of our investments. because we're moving into, with the larger capital backing, some much larger disputes. And when you have larger disputes, people tend predictably to fight longer and harder over larger sums of money. So if we expected that to elongate out to three to three and a half years, you look at, at 30 June, we had $250 million of assets under management. It's September now, we've got 304. By the time that we fully commit the asset management, the third party fund that we've got, which we expect to do in the latter part of this calendar year or early next year, we'll have at that time $416 million of assets under management. If one just simply applies our historic multiple invested capital and looks three years out, we turn that $416 million into $973 million. This is showing the ability for LCM to generate organic capital through its investment cycle. Now, even if you wind down that performance to a two times mark, which is, you know, not insignificantly less than what we have performed over the last nine years, it still produces an outcome of $832 million. And if you just wind it up slightly to two and a half times, you're getting up into that $1 billion mark. So this is really sort of giving investors a bit of a glimpse of the ability of this business to generate organic capital and the size of our current assets under management. So if I can just close by saying, even on the investments that we currently have under management, the future looks incredibly bright for us. But if you couple that together with the strategic alliances that we've entered into, the way that the market is generally going in economic conditions, LCM is perfectly placed for significant growth into the future.

And we have a question from Carlos Sanchez who asks, on page 17 of your annual report, you talk about the need of more capital. Can you elaborate more on that? Are you planning a rights issue? If you decide to raise debt, how much are you looking to raise in the order of 200 Australian dollars?

Currently, the level of demand for LCM's capital and the growth rate of the litigation finance industry Inevitably drives us to need additional capital now if we look at what we've achieved this year We've brought on a new entirely new source of capital through our asset management business But we really will need to supplement the capital that we have available on our balance sheet And so as so as to enable us to continue growing in the way that we're growing now the source of that capital really comes down to cost, so cost of capital. So currently, if we think about what we believe is the intrinsic value of LCM, doing a rights issue is a very expensive way for us to raise capital. And it also is unfavorable to investors because it has a dilutionary effect on their participation in the company as a shareholder. So we're looking wider than that, and the board is considering forms of quasi-debt. And when I talk about quasi-debt, a form of capital which would have some features of debt and some features of a profit split participation. So perhaps a coupon rate coupled with a profit participation in a portion of our direct investments under management, some type of product like that. The other way that we have been considering introducing new capital to LCM is we've had a number of approaches over the last 12 months with investors wanting to take advantage of our historic performance and track record by purchasing from us a strip of our direct investments. So that would give that investor direct exposure to our economic performance, but also introduce new capital into LCM. So if we think about what the level of that might be, I don't think that we're talking about the sort of levels of 200 million Australian dollars. I think we need to sort of progressively grow and, you know, Despite being in litigation funding, which is probably a novel industry, we are very conservative about the way that we manage money. And we certainly don't want to find ourselves in a situation where we sort of overextend ourselves with debt. So it's likely to be a blend of those options as we move forward.

And Alan Thomas has a lead on question saying, from a strategic perspective, what's the aim? Is it to open a second fund depending on the outcome of the first closure? He's trying to get a very approximate view of where the firm will be in 10 years. That is approximately enough time for two funding cycles to be fully utilised and recovered. But the quantum of round two funding is unclear from here.

I think I've touched upon the size of fund number two. So we expect, we've already started our forward planning in respect of going to market with our second fund. The terms of our first fund don't permit us to close a second fund until we have the first fund 75% committed. Now we're fast approaching that 75% mark. Our current thinking around the size of our second fund will probably be $300 to $350 million US, but we haven't sort of formed a concluded view in relation to that. But that's certainly something that we will be going to market on in the near future. So whether it be the latter part of this calendar year or early next year, we certainly will be doing a second fund. And I'll just remind shareholders that The two cornerstone investors in our first fund, which took well over $100 million of capacity in respect of that 150 US fund, both of them entrenched rights to participate to the same level in fund number two and fund number three. we have an expectation that those cornerstone investors will participate in our next two funds, which gives us a really good sort of opportunity to cornerstone those funds with existing participants in our first fund. In terms of our investment cycle, as I said before, if you look at the life of these investments, historically over the last nine years, that has been 27 months. We expect that to elongate slightly, perhaps up to three years or three and a half years. So if one's trying to sort of look at what this business might look like in 10 years time, that's probably a little too far out. It'll certainly be substantially larger than it is now. But if you look at that last slide, 16, it really does show you what the potential of our current assets under management will be within sort of three years time. So very, very substantial economic growth.

Thank you very much. Sort of leading on from that, David Kempton comments, and you might have comments on this, with all the businesses based in Sydney, they have found the UK aim quote to be worthwhile with all the attendant expensive compliance, but they have withheld a dividend and there's no actual broker projections beyond 2020, which makes it hard for UK investors to evaluate, which he suggests might hold back the share price.

Look, I think LCM is constantly sort of looking at the way that we communicate our business to the market to try and help investors and potential investors better understand our business. Now, I think that the move of LCM into alternate asset management will probably assist the way that people think about this business, and I think probably demystify slightly this asset class of investing in disputes globally. In terms of research, LCM obviously does not have control over which investment houses cover us in terms of research, and it's very hard for us to influence what that research does. I mean, we are currently considering whether we do some private research so that we can actually sort of have, I think, a greater level of import into the way that we communicate the intrinsic value of this business to the market. So it's certainly... educating investors and informing them in a better way is something that we're acutely aware of and we are working on.

Thank you. And Bruce Packard asks, can we settle the fair value versus historic cost debate? Is there anything now or in the future which will require you to report fair value accounting for cases?

Yeah, there is the potential for... our auditors to require us to adopt fair value accounting in the future. That's not something that we can rule out. It very much depends upon the dominating jurisdictions in which we are investing. So when we're investing in jurisdictions such as Australasia, we don't have to apply fair value accounting because of the way that the funding agreement is structured. If we're funding predominantly into the United Kingdom, that pushes us more towards fair value accounting. And so we really depend upon what our portfolio of investments and how that evolves over time. So one comfort that I think that the executives of LCM can give to the market is that LCM had the choice when it originally IPO'd in Australia and again when it IPO'd in the United Kingdom to adopt fair value accounting. It was a principle, it was an accounting principle a principle that we could have applied if we'd wanted to, but we took a far more conservative view. And to some extent, that makes our job a little more difficult because it makes our revenue line far more lumpy, and that's something that investors don't relate well to. But given that we had the choice to do that and didn't do that and adopted the most conservative approach that we possibly could in terms of accounting, you would expect that if LCM was required to adopt fair value accounting, we would adopt that in the most conservative way. So I don't think there's any necessarily evil or fear that investors should have about fair value accounting. It's very much about the way that the management team and the executives apply the valuation policies to their Level 3 assets. I think that's the fundamental message that I like and comfort that I like to give to the market.

Thank you. We've now got a verbal question from Weiking Sao.

Hi, Patrick, Nick, Mary. Just two questions on the funds management business. First one being, if the cornerstone investors from Sharewell Fund 1 take up the insurance rights and it's a large stake of fund number two and potentially three, I think you might have mentioned. Is there any concern of client concentration risk, number one? And the second question, Pauline, is the fund fees and app fund fees set to a high watermark? And is it cumulative in nature, therefore, If you were to win case number one within the portfolio and then lose case number two, would there be an impairment?

So just to answer the first one, I'll answer the second one first. So the way that the fund is structured is at different intervals, there's sort of a squaring up provision. So what happens is we get paid our performance fee in respect of each resolution along the way. and then at different points towards the back end of this fund, there's a square up. So we do the accounting and make sure that we haven't been overpaid in the unlikely event that we actually are unsuccessful in some of our investments. So there is a built-in mechanism there to ensure that everyone is squared up at different points along the way towards the conclusion of that fund. The second aspect of your question is, are we concerned about concentration risk? Now, when we look at the quality of the investors we've got, I mean, if you first look at the US-based university endowment you probably couldn't find a more stable investor globally than a large US university endowment. And that particular investor took up 50% of this fund and has an entrenched right to take up 50% of the next two funds. They are an endowment that has had very significant experience in the litigation funding industry. So you'll see that they have invested in other listed providers of litigation funding globally. So they're very experienced and comfortable with our asset class. And the second largest was a global investment bank, also with very significant experience into the litigation finance space. So I suppose that we've sort of ameliorated the best we could that concentration risk. But the issue is, is that if those investors decline to take up that right, we feel very confident that we could replace them with other sort of very high caliber and blue chip investors in respect of our second and third and ongoing funds as we build out our asset management business.

thank you very much and we've got a question from say two who asks where are you intending to purchase insolvency claims would this be in the uk or other countries if so would you not be up against the incumbent dominant players in the uk yes so if we look at um if we look at the markets um where we think that we will be um rolling out this product we're certainly rolling it out in australia at the moment so australia we're the only um funder in the market that um

is offering to acquire claims. So there's currently no competition in Australia in respect of that. Availability of insolvency generated investments in Australia is quite low at the moment. You know, we've had some instability in the Australian economy more recently through COVID, but there's been a moratorium on insolvency, which has not yet expired. So prior to that, we had sort of many years of pretty buoyant economic times. So insolvency-based opportunities have been quite low, but we're expecting, as I described before, for there to be a significant increase sort of looking forward in respect to that. In the United Kingdom, there are... listed funders who operate in this small end of the market. And when we talk about competition, I think that the opportunity here is so vast in the market currently, let alone the uptick that one would expect naturally with the downturn in economic activity, that there's probably room for sort of two, three, four, five other operators to sort of comfortably operate in that market. You know, as I described before, LCM has significant experience, embedded experience in this insolvency space. And I think it's a natural sort of progression for us to move into that acquisition line.

And Setu also asks, will you continue with more strategic alliances with law firms?

I think we will. I mean, I actually might get Nick to answer that. He's kind of spearheaded that. I think there's probably a limit to how many of these you can do effectively before they don't make as much sense. But I'll hand over to Nick just to talk about that issue.

I think there's definitely a maximum number that you can do because of the nature of the benefit that we derive from those transactions. And obviously, one of the add-on benefits for the law firm is that what they're starting to do is to use this as a business development tool. They're working closely with us to develop and look at areas that are of interest to them where they want to get new clients or where they can provide solutions for specific clients in specific industry sectors, whether it be aviation, oil and gas, or construction. What you can't do is be all things to all men. So there's a natural limit. If you're funding or very closely involved with one, two or three global dominant players, there are others that will be competing for that same business. So we have to bear that in mind. That said, the benefits to us of those strategic alliances are, well, clearly we get to look at an awful lot of cases, business and origination of single case transactions is a labor intensive job. And by forming these relationships, the vast majority of that business development is outsourced to the law firm. They already have the clients, they've got the relationships, whether it be in the commercial space, so not necessarily the disputes partners, but the relationship partners who have control of those particular clients might be non-contentious lawyers. But that means that they've already got the vast network, they've got those contacts, the opportunities are there. And part of the process that we go through with those law firms is very much educating what we can do. And litigation finance or legal finance, whatever the description is, has evolved so much in the last 10 years whilst a number of the lawyers in the markets that we operate in will know what they think it is and what solutions can be provided. By getting involved in these alliances, we're educating all the time and they're learning from us, we're learning from them what the needs are. So they're very powerful arrangements for us. And not just the first look at good cases and the BD side, but also the streamlining of procedures. So the more We work with them. The more they understand how they get to a yes, how they get an accepted case, the more they understand what it is we look at. And that helps us because clearly driving new business into LCM from these alliances is important. But if you suddenly had a cascade of cases, that might be difficult for us to deal with. And we certainly don't want to increase our operating overhead in a vast amount to accommodate that. Part of the process is we're teaching these law firms and working with them so they understand what it needs, what cases should come in. And those relationships are such that now we're seeing an uptick in business. Last year was good, but as I said, the future's positive because of these relationships. So in short, yes, we've got three now. I think there will be more, but we're careful about how we undertake those.

Thank you. And Carlos Sanchez has a follow-up question saying, in the past, Mr. Rolls-Davies has commented that corporate portfolios are a very sticky product. Are you seeing any signs of this stickiness with your current clients?

I should probably answer that, Patrick. yes it's still early days um we've got three corporate portfolios uh that are signed up and running but the the positive news that i've seen or the positive responses i've seen in relation to those transactions are that what's happening is they're demonstrating the arrangements that we thought they would demonstrate. So we've started to see revenues thrown off and we saw that in the interim results that we commented upon. The aviation portfolio has had some settlements because there were certain mature, further mature cases than those that just started day one. The same with the first construction portfolio. And what's happened with those is that we've added new cases. So the stickiness or the evergreen nature of the relationship means that I can't remember the exact numbers off the top of my head, but it was sort of late 30s in terms of the number of cases in the aviation portfolio to start with. And I think it's rising and getting up over 40 now. So that process seems to be working. The client that we're dealing with seems to like the process, seems to understand it, and has now started to add more cases in more jurisdictions. So that's definitely a positive sign. The speed at which the cases are concluding seems to be tracking as we expected, and the returns that we're getting seem to be pretty much on target with what we anticipated. Clearly, there'll be fluctuations, but the general flow of traffic is in the right direction. And in this construction portfolio, the original one, that seems to be doing the same thing, that we're likely to look at new cases to go into that pot because they have new disputes. So in short, the The stickiness, which is a line I've definitely used, seems to work. And they're tracking generally in the right way. And we're very positive. And the latest one hopefully will be another example of that. And unsurprisingly, there are others in due diligence, which we hope will go the same way. So, so far, so good and tracking the way we'd like it to.

And we've got two questions on the lockdown effect on cases. With certain cases flowing through into full year 21, is this indicative of future delays in case settlements, especially in the UK with COVID restrictions?

Look, I'll answer that insofar as Australia, and then I might get Nick to follow up on his observations in the United Kingdom. Look, in Australia, we have the court systems having to adopt quite quickly when this country went into lockdown, the administration of the court system through the digital medium. Now, once that was put in place and the judges and the practitioners who operate through the court, the litigators, became more and more familiar with that process, it became far more streamlined. And what inevitably we will see is these features of the judicial system and the way that things are heard digitally will actually stay when we go back to normal or whatever normal will be after COVID. If it's operated properly, it's a far more efficient way of running a court process. So if you think about how many times highly paid legal practitioners have to travel from their office or their chambers into court and what a terrible waste of time that is, What ultimately happens now is everyone stays in their office. It's all done digitally. It's a far more efficient way. Rather than waiting in a court list for hours and hours before your man is heard, you can get on with more productive work. So that's a long-winded way of saying, look, I think There were delays through the implementation of this system. As practitioners and judges and the whole system becomes far more efficient, I think we'll see those sort of flow out and I think we'll see digital as being something that will stay with the system forever. Nick, can I just get you to touch upon what you're seeing in the UK?

Yeah, sure. I think there was a period of adjustment that you'd expect, but the UK commercial courts and the legal system here has adjusted pretty well. I mean, there were, as I said, initial changes, disruption causing a slight delay, but I don't think we're seeing anything particularly worrying in terms of pushing cases out from the UK perspective. And then perhaps we should address the arbitration world, which is that realistically, the arbitration world has fared pretty well in terms of adopting virtual hearings. not sending people around the world to meet for panels for tribunal hearings. And I think, as Patrick says, I think what you'll see certainly in arbitration going forward is the adoption of virtual hearings. And they're here to stay because it's turned out to be a far more efficient use of time and reduced legal bills considerably. So I think in short, the UK is pretty much back on track and the arbitral world seems to cope really well.

And Glenn Dixon asks, is the weighting of these third-party funds not a conflicting interest, as there's a better return for investors in the fund, or is all capital in the funds raised externally and co-owned 25% by LCM? As such, investors receive the additional benefit of returns.

Yeah, I think we were very conscious about introducing this notion of co-funding so that LCM and through LCM its shareholders could enjoy a percentage of the full economic outcome of these cases. And we've done that through co-funding. The advantage we get in relation to the asset management business is, first of all, gives us access to much greater pools of capital than we could ever sort of raise through equity or other sources as a company standalone. So it allows us to grow the business at a far greater rate and more particularly the assets under management. But it also gives us access to performance fees in respect of capital that LCM doesn't have. So we get the benefit of leveraging the business through use of investors' money and we get paid performance fees on that whilst also sort of maintaining an interest and an alignment through co-funding. So I think it has very significant benefits both for direct investors in our funds and from equity investors in LCM as a vehicle.

And a final question from Carlos Sanchez who asks, what stops you from becoming a £1 billion company in 5 to 10 years?

Well, I think we would embrace that comment as a shrewd observation of LCM's growth. We would like to think that we might be able to achieve that inside that period of time. But look, If we look at LCM's growth just over the last four years since we've been in the public markets, that's very significant. If we continue to grow at that same rapid rate, we will easily have a market capitalisation of a billion sterling within some timeframe, such as you've suggested, particularly given the outlook which we've got now and into the future.

Thank you. That's the end of questions. Patrick, do you have any closing remarks?

Other than to say, you know, we have established the platform for growth. We've achieved very significant growth during 2020. The economic outlook generally in global markets is incredibly conducive to LCM's further growth. And we see the outlook is incredibly bright for LCM.