Burford Capital Limited

Hello and welcome to the Burford Capital presentation of 2021 full year results. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand you over to your host, Christopher Bogart, Chief Executive Officer to begin. Christopher, please go ahead.

Thanks very much and hello everyone. Thank you all for joining us both on the telephone and by the webcast for our earnings call about our full year 2021 numbers. As usual with me on the call are John Malo, Burford's chief investment officer and Ken Brous, Burford's chief financial officer and we will walk you through the slides that you should have before you. I will start on slide 3. which is really just an overall summary of some of the key things that happened during the course of the year. And I would say that we are very pleased with our 2021 performance. This was the best year in our history for new business, not only in terms of the total amount of business that we wrote across all of Burford's pools of capital, which translated into further growth in our now $5-plus billion portfolio of litigation assets. But I'd particularly highlight the strength of the balance sheet commitments and deployments, which is, of course, where we maximize our returns for shareholders. We also, of course, as you can see there, have continued to produce strong returns along with very, very low losses. Before I go on in the slides, I'll just comment on a couple of other things that I'm seeing in the business. First of all, as we announced just yesterday, we have done the final closing now on a new fund, a $360 million fund that we call the Burford Advantage Fund. And this fund is designed to fit in between the lower returning post-settlement fund activity that we already have been doing for a number of years and the traditional core high return litigation finance matters. There was a gap in our product offering both to clients in the market and to investors and to fund investors. And this new fund fills this gap so that we now have really a complete end-to-end solution across the legal finance landscape. And this new fund, which we raised from a number of large institutional investors, endowments and the like, this new fund comes with a structure that we quite like as well. These are assets that we anticipate returning you know, roughly in sort of the 12 to 20% range annually. And so the structure of this fund, instead of the traditional management and performance fee structure, pays the fund investors a simple 10% annual return, and Burford retains any excess that we're able to generate. We do better with that economic structure than a traditional 2 and 20 style fund, once we get not very far at all into that 12% to 20% range, somewhere around 13% or so, depending on your assumptions. So we're quite pleased with having that new fund available to us. We did a first close of it during the fall of 2021, and so you'll actually see some notations about it and some activity in it during the course of the fiscal year, but the final close just occurred just occurred last Friday. I think in addition to just our happiness about having this incremental vehicle available to us, I think it also underlines the wide range of liquidity options and capital availability that we have for us. The other thing that's nice to finally see, and this I'm sure is consistent with lots of your lives, is that the post-COVID world is resuming resuming its pace. So for example, we've talked for the last couple of years about the fact that we have largely not seen some stalwart things in the legal industry going on like in-person conferences which are significant marketing opportunities for us. Those are in fact resuming and indeed I'm in Europe right now about tomorrow to attend the first in-person large gathering of lawyers that I've been at since 2019. So I'm really excited to see the world reopening and having things come back to life. So turning to slide four, this again emphasizes the new business activity that we carried on in 2021. And this is presented here on a Burford-only basis. In other words, just what we're doing on our balance sheet. And I would really highlight for you the Burford-only deployments. This is where we make the most money. We obviously keep Burford-only profits for our balance sheet and for our shareholders as opposed to the activity that we do in our private funds. We love our private funds business, but the reality is we make a lot more money, a lot more profit when we invest directly from the balance sheet. And to see Burford-only deployments effectively double year over year and reach a significant all-time high is a terrific setup for those assets to produce balance sheet shareholder-driven cash and profitability in the future. And that applies to our core litigation finance assets. we're really putting our balance sheet capital just behind those high returning assets at the moment. Slide five talks about what's going on in realizations. And look, those of you who have followed Burford for a while are fully aware that the timing of litigation resolutions is entirely uncertain. And that's not a bad thing. That's what gives us our lack of correlation to the market and to broader economic activity. And candidly, it's also what generates the ability for us to earn the high returns that we've consistently been able to generate. If these cases were predictable, both in substance and duration and timing, I don't think that you'd see the returns that you do, and I think you'd see a different level of competition in this market. But instead, this is the one thing that one needs to contend with when you run a legal finance business, which is that were in the hands of the litigation process and ultimately the courts in driving the timing, the duration of outcomes. So that's always been present. And you've seen the period to period unpredictability and variability in the past. There's no question that COVID has added to that uncertainty. And what we're hoping for during the course of 2022 is to see some amelioration of that COVID-based uncertainty. And when I talk about COVID delays, there are really two things going on. The first is that you are seeing delays in the litigation process itself. Not in the court process, but the litigation process. So when you file a piece of litigation, what happens for quite a long time is the parties engage in discovery in the exchange of documents and witness testimony and so on, long before you ever go to trial. And that process was interrupted by COVID. Sometimes legitimately, in the sense that parties truly couldn't because of restrictions put on them because of the various lockdowns and restrictions couldn't do all of the discovery activities that they were supposed to be doing. You know, for example, in the Peterson case, You know, we saw meaningful delays in the discovery schedule in the Peterson case, because literally the Argentine government offices were closed and people could not go into them to retrieve and produce documents. And some of these delays are tactical, you know, defendants often seek delay, um, and seize on any kind of reason to, to, to proffer for delay. And so there was probably some, some taking advantage of COVID that went along there as well. As the world reopens, those delays are significantly reducing, and unless we get another variant that causes more distress, you would reasonably expect those not to continue past this year. Courts are just not going to be sympathetic to the idea any longer that witnesses can't get on planes and sit for depositions and clients can't produce their documents. So I'm looking forward to an improvement um in that now i said the same thing in the fall of 2021 and then we had omicron so i'm hoping not to be proved wrong by another pesky variant but that's the that's the path that we're on there the other kind of covet delay relates to the actual scheduling of of court proceedings and trials um and and as as you all know and it just is logical that's a catalyst for settlement as well. If you're just sitting there and nothing much is happening in your litigation, there's not any particular reason that you'd go out and settle it tomorrow. Whereas an impending trial tends to be the thing that focuses the minds of the parties and brings them together for negotiation and ultimately settlement. And as you know, a clear majority of our matters end in settlement. They don't all go to trial. So what we see on the trial calendar, and this varies jurisdiction by jurisdiction, is we certainly see backlogs that have arisen because of COVID. And those backlogs are to do with the absence of physical distancing in courtrooms, the unavailability of jury pools, and also often the prioritizing of criminal trials. And so that backlog will continue to take some time to work its way through the system. You know, and that'll vary jurisdiction by jurisdiction, but we're certainly on the right side of the curve now instead of the wrong side of the curve. It's important to emphasize, as we do on this slide, that this is all just timing. This has nothing to do with the substance of these adjudications. We don't see cases discontinuing. We see incredibly low loss rates. Not sustainable. Those are not sustainable loss rates. They're so low because nothing much is happening in the cases. But what that is is confirmation that nothing bad is happening in the cases. It's simply that things are taking longer to make their way through the snake, if you will, than they were before COVID. And so we're optimistic about what the future holds as we begin to work our way more rapidly through some of our own existing vintages that have not yet come to fruition. Turning to slide six, this is a familiar chart to many of you, and I'm not going to go through it in great detail, but fundamentally the message here is that it shows that the business is continuing to perform strongly. We start on the left-hand side with the fact that we continue to be able to deploy most of the capital that we have committed into cases. The middle shows you that we remain with a robust level of settlements, which take all of the litigation and risk out of these matters, and a significant level of adjudication gains, in other words, wins at trial. So we win much more often than we lose. And I think the other thing to emphasize here over what is now almost $2 billion of cash recoveries, and as a reminder, this slide is cash, this isn't fair value, is just the sheer consistency of both turning in those settlements and wins and the consistency of returns that we have been able to demonstrate. Slide seven is the companion of that slide, another old favorite, and really it highlights two things. One is it reminds us of the asymmetry of our portfolio, that nobody rational spends or risks $20 million in legal fees on a $20 million claim. And so when we lose, we tend to lose less than the money that we make when we win. And this chart amply shows that. The other thing it shows is the repeatability of what we do. If you now look, we've got 26 separate matters over time that have generated returns of over 200%, more than 3x MOECs. So these are not flashes in the pan. This is a consistent, repeatable part of a litigation portfolio where you'll always have some losses and where we would expect to continue to be able to produce some very high returns from cases that go the distance and produce. Turning to slide eight, this slide accompanies some text in the management statement in the annual report about a case study that we've put together. We try to do these every year when we have something to illustrate. And this case study actually illustrates quite a few dynamics that we've talked about in the past. First of all, it shows the winding path of litigation. This is a case that has been running in our portfolio since 2013. And during the period of time from 2013 to 2022, to 2021 when it resolved right at the end of the year, This case has gone through motion practice in the trial court. It's been dismissed. It's been up on appeal. It's been overturned. It's gone back to the trial court for summary judgment again. And finally, with a trial judge-imposed mediation, finally settled before going to trial. But it's a winding path sometimes. And what that means, when you look at these older cases... is that it's entirely possible for there to be significant value in these older cases. This was a very profitable case for us. Even though it took eight years, it still generated a 23% IRR and it generated a 231% return on capital. So it is simply wrong to assume that because cases are old, there's necessarily something wrong with them. All that age means is that the case is wending its way through the process. Now, to be sure, some of those cases will probably lose, just like in the rest of our portfolio, some of our cases will probably lose. But there's value in that back book, and this is a good illustration of the ability to take that value out. This also shows the impact of COVID. This case would have resolved more rapidly. It would have been in trial well before this mediation and settlement happened if we hadn't had COVID. And so it's just an example of COVID-related delay. But the other thing that's let us do is lay out here the way that our fair value approach actually operates in these cases. And you can see not only that it is sensitive to the events in the case, but that even when we get to the end in a case that was quite positively positioned by that point, we still have only a relatively small minority of the ultimate outcome booked as fair value. And as you can see along the way, this case actually went to zero at one point when we had lost in the trial court before we were able to turn it around and get it back to trial. So as I said, there's more detail in the annual report, but we thought that this was really quite an interesting illustration of a number of things, including, as I say, the application of our fair value policy. Turning to slide nine, And I'm very pleased to be able to say at long last we can report the discovery in the YPF matter that all of the discovery deadlines have finished. So fact and expert discovery both now have reached the point where they have been concluded, and now we are on to summary judgment. So what does that mean? That means a few things. First of all, it means that the case resumes some level of court activity instead of what has been happening for the last couple of years, which has mostly been just activity between the parties, exchanging documents and witnesses and expert statements and so on. Another thing that it means is that you're going to be able to see more about this case because the summary judgment filings and the summary judgment proceedings are public open court matters instead of the discovery, which is not something that happens in open court. So what's going to happen is the parties are going to file their summary judgment motions in the middle of April. The plaintiffs will put in a motion saying, you know, we have a strong case and we should win, and the defendants will put in a motion that says the plaintiff's case is terrible and they should lose. And those motions will be, you know, legal argument, and they'll be accompanied by expert reports and other evidence. Then each side will respond to the other side's motions. That happens at the end of May. and then each side gets one round of further reply, and that happens in the third week of June. That's a completely traditional legal briefing schedule. Once that three rounds of legal briefing is complete, then the court will decide whether and when to schedule oral argument, and then we'll go off and write a decision about the summary judgment motions. It's possible for the court to resolve the case entirely on summary judgment without ever holding a trial, or it's also possible that the court will not resolve the case and send it to trial. And this little flowchart on the side shows you the possible outcomes there. If the case isn't resolved in summary judgment, it'll go to trial relatively rapidly after the release of the summary judgment decision. And if it is fully resolved, then the losing party, it could be us, it could be Argentina and YPF, the losing party then has a right of appeal. However, if we are the winning party, if the plaintiffs are the winning party in this case, then the judgment is enforceable even while the appeal is pending unless there is a bond posted, which is unlikely, or unless a court grants an unusual stay of the proceedings. So what all of this means is two things. One is after a long period of waiting and just speculating about Peterson, you're going to see some activity this year. You're going to see filings that will flesh out the case in more detail than has happened in the public before, although you'll have to read the legal arguments to some extent with a grain of salt because both sides will obviously be putting their rhetorical best foot forward. And depending on the speed of the court, it's entirely possible that you might even see a decision on these motions during the course of 2022 as well. But we just don't know that. That's entirely in the hands of the trial court. So something to watch given the prominence that Peterson has taken on in Burford's portfolio, but hopefully not prominence that overshadows the large size and great strength of the rest of the portfolio. And to talk more about that, here is John Malone.

Thank you, Chris. And thanks to all of you for joining. I'm very pleased to be here chatting with you. If we turn to slide 10, that's exactly what I'm going to talk about is the portfolio. And you see that we have a very large portfolio that has continued to grow, right? It's 15% larger at the end of 21 than it was at the end of 20. And that's based in large part on a very significant increase in our capital provision direct new commitments. They were up 80% from last year. And they've continued to increase over the last five years, right? We've got a compound annual growth rate of 43% over the five years. And when you think about what's in that portfolio, it's pretty incredible the diversity of what we have built, right? We still turn down lots of matters that come our way. We have a very rigorous investment process. But fortunately, we have the internal expertise and the market reach that we are not limited to any one particular type of litigation or one type of geography or jurisdiction. So Whether it's intellectual property, whether it's contract disputes, whether it's a business tort, whether it's an investor state dispute under an investment treaty, it could be in Europe, it could be in North America, it could be international arbitration, we take it all. And we want to be there and have long been there for law firms that have diverse practices with global reach and companies who have diverse portfolios of litigation that cover lots of different topics and lots of different jurisdictions so we've built a very large portfolio with diverse matters included in them and that's really what makes me love this business and be optimistic about its future because that's what what delivers the future returns if you turn to slide 11 i'm going to talk about one One way we have grown the portfolio, which we've talked about in the past, but I think bears a little more discussion, and that is monetizations and claim families. We have talked about in the past how even though, as I mentioned, we are takers of the matters that come our way. We build a diverse portfolio because we are able to be all things to all people in the the litigation space, right? If there's legal risk of a company or a law firm, they can come to us and we're never going to turn it down based on subject matter that we don't understand it. We may turn it down because we don't like the risk reward, but not based on subject matter or geography. That being said, once we have invested in a matter and we get to know it and we see its progression, The risk-reward can evolve, and we can like the risk a lot and think this would be an attractive place to deploy more capital. Sometimes it will be the very same counterparty, a corporate that's come to us to finance its expenses associated with litigation, to defray the general counsel's budget and remove an expense from their accounting numbers. And then as things progress, they realize they would like to monetize a portion of the receivable of the amount of money that they expect to receive when the matter resolves profitably. Sometimes it's not the same counterparty. It could be a different company in the same industry with very similar overlapping claims or a different law firm that's representing clients in the same industry. And so we're able to basically take what we've learned about a matter, watch the matter progress, and continue to build a position in that area. And you've seen in the past that we have done this quite profitably, doubled down on investments we like, and that we continue to do it today in a number of different areas where we like them. And I'd say there are three distinct advantages that come from this strategy. One is just if you like the investments, putting out more capital on good investments as the risk-reward improves is a very attractive matter. Two, the expertise and value-add that we always just use to distinguish ourselves from competitors and others in the market really comes into play here because as we get to know a particular area, there's really nobody in the world that knows it as well as we do. And we'll often know a set of litigation claims better than the claimant that's actually pursuing them because we are so steeped in the risk. And that way we can not only be a provider of capital, we can be a provider of smart capital. And I think our counterparties come to us not based on price competition but based on the value we can add to their claims in terms of strategy, strategic advice, settlement prospects, you name it. way in which this is a very important strategy to us is it provides operating leverage and efficiency, right? If you've already done the underwriting in an area and gotten to know it, it's just that much more efficient to put out more capital on a risk that you understand than it is reinventing the wheel to learn the case again. We love learning about new cases. We do it all the time, but there are efficiencies when you're putting out more capital on risks you already understand. So that's part of the strategy of what has grown our book, but it does not diminish our, as I mentioned at the outset, the diversity of the portfolio and our continuation of a policy of taking risk. And frankly, I should say, sometimes these claim families can be sufficiently broadly cross-collateralized with other claims that that does mitigate the risk as well, that even though There could be a core claim we've seen someplace else that a company has. The company may have other claims they want to throw into our portfolio as well. Okay, so turning to slide 12, I'd like to spend a couple of minutes talking about our history of our portfolio and looking at vintages by age. And you'll see the potential, the very large significant potential from these larger, more recent vintages. which have many matters remaining to resolve. If you look at this slide, you'll see on the left, the older vintages have, by and large, resolved. From 2009 to 2013, many of them you see are at 100%, some are less so, but you see from the bullet point, there's only $39 million of deployed capital remaining among the pre-2013 vintages. which represents only 3% of total deployed costs and ongoing matters. So most of the money that is out is out in these more recent vintages where we've really significantly scaled up and grown our business. This is not to say that those older vintages don't have profitable matters. Chris just alluded to a case study a couple minutes ago showing that one such matter that was quite old that's been in our portfolio for a long time that ended up delivering very attractive returns so there's still value there but the real value is from the more recent things we've put on since as we've grown and chris alluded before to the fact that covert delays have have slowed down resolutions that they are coming in later than we would have expected, that only adds to the value of the portfolio today. You have these very attractive later vintages that are quite large, and they have not resolved as quickly as they might have because of COVID. So there's a lot of potential left in there, and it makes me very optimistic for the future. Finally, I'd like to talk, if you turn to slide 13, about the probabilistic modeling that we introduced back in November at the New York Stock Exchange on our investor day. And you'll recall from that conversation that we have been doing probabilistic modeling for quite a long time, very sophisticated probabilistic modeling. We use it as part of our underwriting process every matter before we put out capital gets modeled and we use it as part of our portfolio management process. Those models are updated every quarter and the team is able to use that modeling to decide where to allocate resources among the many matters in our portfolio. So it's been a very useful internal tool. For a long time, we did not share any of the results of that probabilistic modeling publicly with our investors. But over time, we accumulated sufficient experience where we were able to have a large enough number of resolved matters that had been subject to earlier modeling that we were able to compare the actual results when the case is concluded with the modeled results when we put the investments out. and see that there was sufficient accuracy there that this may be a metric that would be of value to our investors. We don't make projections, we're not forecasting what our earnings will be, but we thought this was a data point that investors would want to know given that in our experience it has shown a measure of accuracy or that it seems like a useful metric. So when you look at what our modeling says today, It's not surprisingly, the modeling today shows a more valuable portfolio than the modeling showed six months ago. Well, in November, we presented it based on the first half of 21, and now we've updated it to include the full year of 21. And you'll see it's still projecting quite attractive returns, 137% return on invested capital, It's projecting $3.8 billion in recoveries on $1.6 billion invested, and those are not our projections. That's just reporting what the modeling says. But that is roughly a 10% increase. That's $2.2 billion of gain in the models compared to $2 billion you would have seen at the end of the first half of 2021. And so it's not surprising that as we put out more capital in attractive investment opportunities. And as the matters that are in our portfolio continue to progress, even if COVID slowed down their progression, nonetheless, there have been some events. But it's not surprising that you'd see an increase in the model's projected value of the portfolio. And so That's really what leaves me very optimistic about the future for us and very bullish on our portfolio. We've built a tremendous portfolio of assets in the legal space. We have a team that's been able to both underwrite and bring those matters in and monitor and continue to stay on top of them. I'm very, very pleased with how we've done, particularly, as Chris said, with the significant increases in our commitment and deployment levels this year. And with that, I will turn it over to Ken.