Investor letter, July 2024

Burford continues to work through a COVID-delayed backlog of cases, with results expected to become evident as longer-duration cases close and large gains are recognized. Their largest holding is a $6.2B (~$28/share) judgment against Argentina in the YPF case, accruing nearly $1M of interest daily. The share price reflects zero recovery from YPF and the meat-related antitrust cases while assigning minimal value to the asset management business, creating an attractive risk/reward skew.

“Burford (BUR) – In my last letter, I included the ancient Greek saying, "The wheels of justice turn slowly, but grind exceedingly fine." Burford continues to work through a backlog of cases that were slowed by COVID court closures. We expect that the fruits of their labors will begin to be more evident over the coming quarters as they close out longer-duration cases and recognize what are likely large gains on their original capital deployments. As a reminder, their largest "holding" is a $6.2B (~$28 per share) judgement against Argentina related to the YPF case. Each passing day sees nearly $1M of interest accrued to the judgment, which equates to ~$1.40 per share annually for Burford. While there is likely to be a negotiated settlement with the Argentinian government for an amount less than what is owed, Burford's share price indicates that they will recover nothing from YPF and nothing from their investments in substantial meat-related antitrust cases, while assigning minimal value to their asset management business. We have no way of knowing for certain what the precise recoveries will be from these cases, but the risk/reward skew is very attractive from an investment standpoint.”

Cellebrite's tools demonstrated their value when FBI used them to open a phone in approximately 40 minutes, illustrating the power of the tools and the ability to sell more licenses within existing agencies. Law enforcement agencies will continue to demand Cellebrite's products given increasingly digital investigative challenges.

“Cellebrite (CLBT) – After the quarter ended, Cellebrite was in the news for an unfortunate reason. When the FBI was trying to open the phone of the man who shot at former President Donald Trump, they could not do it in the Pittsburgh field office. The phone was sent to Quantico where the lab technicians used Cellebrite tools and had it open in approximately 40 minutes. This speaks to the power of the tools as well as the ability to sell more licenses within existing agencies such as the FBI. In a perfect world, Cellebrite's products would not be needed. In real life, law enforcement agencies will continue to demand the products and technologies Cellebrite offers to support the ever-growing challenges presented by investigating crimes in an increasingly digital world.”