Burford Capital reveals funding structure for $1.6bn investment round

The AIM-traded firm said the capital for the arrangements would come from three sources.

It said the first would be a sovereign wealth fund with which it had entered a strategic capital relationship, with the second being a new private investment fund.

The last portion of capital would come from the company's own balance sheet.

“Burford has entered a strategic relationship with a sovereign wealth fund to provide capital for Burford's litigation finance investments along with potential further capital for other opportunities,” the board said in its statement.

That commitment was for a $1bn pool of capital to be invested on a 2:1 basis, with the investor deploying $667m and Burford providing the remaining $333m.

Burford would allocate 50% of each new litigation finance investment to the pool of capital for the next four years, or until the pool was fully committed - whichever occurred first.

After the recovery of the capital invested, Burford would receive 60% of investment profits while investing only 33% of the capital.

Distributions would be made on an investment-by-investment basis so that Burford would receive cash flows “considerably faster” than in a traditional private fund structure.

Burford would also receive a priority distribution in an expected amount of approximately $7m annually to defray its running costs.

In addition, the investor had reportedly expressed the potential to invest in other Burford opportunities, as the company’s business continued to expand.

“With the current Partners III investment fund now fully committed ahead of schedule, Burford has also raised a new private fund, the Burford Opportunities Fund,” the board added.

As a result of the size of its new strategic capital relationship, the company said it had decided to limit that fund to $300m.

Burford was not making an investment in the fund, although more than 40 of Burford's employees had invested a total of $5.7m, which the board said demonstrated the team's belief in the attractiveness of the investment opportunities ahead.

The company would allocate 25% of each new litigation finance investment to the fund during its three-year investment period, or until the fund was fully committed, whichever occurred first.

Investors would pay Burford a 2% annual management fee on investor commitments and a performance fee of 20% of fund profits, subject to an 8% per annum priority return to investors, after which the Burford performance fee would receive a full general partner catch-up.

Finally, the board said the combination of Burford's new strategic capital relationship and the raising of the Burford Opportunities Fund met its objectives of drawing capital from multiple sources while also enabling the company’s balance sheet to participate “directly and significantly” in each new litigation finance investment.

Moreover, Burford said it had “considerably enhanced” the economics of its alternative capital sources, and at the same time ensured access to a significant pool of capital to fund its continued expansion.

The aggregate position under the new funding structure for the $1.6bn of litigation finance investments was that Burford would invest directly 42% of the capital for each new investment and would receive 60% of the resulting profits.

“Our success in being able to attract substantial long-term capital positions Burford to sustain its competitive advantage in the global legal finance industry,” said chief executive officer Christopher Bogart.

“Burford's unique ability to attract a large-scale commitment from a sovereign wealth fund and to close a new investment fund with capital from institutional investors underscores its distinction as industry leader in terms of performance and governance, critical factors in making our capital the most attractive in the market.

“These new funding arrangements are consistent with the strategic vision we have outlined for our capital structure, including most recently at our capital markets day last month, and aim to provide shareholders with optimal risk-adjusted returns.”