Burford Capital Ltd Q2 FY2021 Earnings Call

Hello, everyone, and thank you for joining us for another Burford earnings presentation. We are delighted to have so many of you with us today on the phone or on our webcast or online. And as usual, I am joined by Jon Molot, Burford’s Chief Investment Officer and for the very first time, Ken Brause, our new Chief Financial Officer. We're looking forward to introducing all of you to Ken. The three of us as usual will walk through the slides that we've distributed and that are available on our website. At the end of our presentation, we'll open the floor to questions and look forward to having some further dialogue with you. We are excited about the results that we were able to post for the first half of 2021. Really three key messages came away from those results. The first is around new business growth. Not just commitments, but also a really strong record-breaking deployment position. Having us deploy capital is obviously critical to our future potential profits from that capital. And so, smashing our prior performance there, especially in an era where we had seen some prior COVID-related delays was really, very rewarding and sets the business up well for the future. The portfolio itself was slower in terms of its turnover over this period, but we didn't come away with any bad news. Returns are up a little bit. Losses are down and we completed the Akhmedov matter, which over time has brought in $108 million to us. Pretty impressive returns, 233% return on invested capital, 71% IRR. In addition to that, it sort of underlines our ability to do large complex noisy matters like that and frankly the appropriateness of us doing them for all the reasons we said out in the past. I think the other part of the message that goes along with that is that, while these cases are going on, to the extent that our involvement in them has become public, you just can't believe what you read in the media and we're not able during the course of pending litigations to correct any of that. We make, as Jon has outlined many times in the past and Douglas will continue to do so today, we make our investment decisions based on rigorous underwriting and we have low loss rates and high levels of confidence in the matters that we do take on. Finally, and I'll talk about this in a little more detail in a minute as well, Ken, as to accounting, we see U.S. GAAP in our future as we’ve been clear about with people and to facilitate us looking more like a U.S. GAAP issuer. We are taking a series of one-time non-cash accruals that really just match up those accruals with the carrying value of the cases. From my perspective, this is really just what I'll almost call some accounting noise. As you know, I've always focused on the cash performance of this business and not the accounting performance. And this stuff is theoretical while the cash actually comes in from the underlying investments. I'll take you through a slide on that in a minute. The numbers on this page really are very pleasing to us in terms of the overall performance. Before I go into any more details, I just note a couple of other elements; the sort of the non-financial part of the business. Our Board has continued to evolve exactly as we said that it would in 2019. We've kept to all of our commitments there. Sir Peter Middleton retired as our Chairman at the AGM, Steve Wilson stepped into that role and now will serve a three-year term. We are in the market recruiting for another new non-executive director. During the course of the year, we’ve already talked once before about the successful U.S. debt offering that we generated earlier this year. That offering has been trading nicely as has the remainder of our UK debt. So, we are very pleased with our capital and liquidity position. We've seen a nice run in the U.S. market receptivity to the dual listing. We didn't do a flash bang approach with a big offering that would have generated all sorts of immediate coverage and interest. We did it more organically instead. I am pleased to say that about a quarter of our total trading volume went through the stock exchange, which is pretty nice from our perspective on a purely organic low-resource approach. Turning to Slide 4, the numbers here, this is all about our new business. The numbers here really speak for themselves. COVID continues to have some impact on our business development and origination activities. But as you can see from these numbers, we've been able to post substantial numbers nevertheless. So we feel good about that concerning what it says about our ability to write new business and it leaves us with some optimism about what our pace can look like once the world does come fully back to normal. The trend of new business continues as it has over the last several years. A mix of smaller one-off matters and larger high conviction matters with real scale to them. It's important from our perspective to do both of those things in our business. We are simply – have such a scale now that if the only thing we did was a dial of small one-off litigation funding matters that would not be enough to continue to grow the business. But at the same time, it's very important to do those matters as there continues to be real growth in the market. We still are just scratching the surface in terms of the proportion of litigants who are users of third-party capital. Mixing those in with the larger matters that have been successful for us in the past is, from our perspective, a very desirable way of managing the portfolio. I am sure that to first stall what you inevitably would be some questions. You'll notice here a bullet point on the bottom of this deck about one of those new large matters. As usual, we don't have any ability to go beyond the pretty limited public disclosure that we give in most of these matters and this is no exception. But, as you'll see in another chart, this is a large global antitrust matter that has hundreds of underlying cases associated with it. As always, these kinds of large deals come with bespoke structures and a substantial amount of underwriting work on our part. The accounting for them is awfully complex and this won't be any exception to that. We have a component of equity risk in this transaction as opposed to our more traditional credit risk and that will tweak the accounting somewhat. But obviously, we wouldn't be doing deals of that size unless we had quite a high level of conviction about them. Turning to Slide 5, and Jon is going to talk in more detail about the portfolio. I'll just note quickly here that, as we've always said, the speed of resolution of these matters is unpredictable. That's what gives us our uncorrelated nature of our business we are wholly predictable as to both duration and outcome, then you wouldn't need people like us doing it and you wouldn't be able to generate the returns that we can. So, we're satisfied with the quality of this underlying portfolio and we think about where the returns and the loss rates have come. Jon, as I say, will address the dynamics of the portfolio a little bit more. Before we get to Jon, on Slide 6, I need to take you through a couple of accounting points. As I mentioned upfront, we are having a serious eye towards U.S. GAAP. We thought not only about what that looks like as we convert to U.S. GAAP, the answer is not a huge number of changes. But also, given that we want to make the most of the New York Stock Exchange listing and the dual listing, we want to try and look like U.S. GAAP issuers as well as part of our goal to make the stock as investable as possible to as many shareholders as possible. Even though the practice is mixed on the subject among European companies under IFRS, there is more consistency practice under U.S. GAAP when it comes to matching accruals against fair value changes and so that's just what we've done here. As we explained in August, we've taken some one-time non-cash accruals, but basically take prior fair value gains, a whole big chunk of which are in the Peterson and Eaton Park cases, and accrue the potential expense against those. This is all to me, as I said earlier, this is sort of accounting noise because this only becomes relevant when the cash rolls in. The cash numbers - to make the accruals work, the cash numbers have to be big.

Thank you, Chris. Thanks to everybody for joining. Speaking of court schedules, I would say that, Chris pointed out the sort of slowdowns we experienced in doing new deals and putting new money out during the COVID-related effects on the economy. That really feels like it's behind us. We've bounced back. When it comes to how our portfolio has performed, like what kind of realizations have we've seen, there, we still do see COVID-related delays. And if you look at Slide 7, I'll walk you through how we are doing in terms of realizations. On the one hand, there is good news that although our realizations are down from the first half of 2020, they are up from the second half of 2020 and to the extent that realizations haven't yet returned to earlier levels, it's not because anything bad has happened, it's not because we've lost cases. It’s just been because of delays. In fact, our realized loss rate decreased to 0.5% in the first half of 2021, down from the second half of 2020. But, close to half of our matters have been delayed by COVID. We see the courts picking up. But there is no doubt that that slowed things down. Now those delays are just bad delays. There is not a single case in our portfolio that was discontinued because of COVID. All the money we put out the assets, we've got in our portfolio, the deals we've done, they are all there. In fact, delay is not necessarily a bad thing for us because often our deals are negotiated with increasing returns that are a product at the time and therefore they can lead to greater profitability. So the fact that you can sort of see a graphically represented on the lower left, where you see realizations by vintage year. The red lines are the realization that came in and the black lines below the middle line are the ongoing costs that are out. On the one hand, we've said before, we have begun to see those years with greater deployments. The real growth we've enjoyed since 2015 has started to produce the red lines of significant and an example of that was the success Chris talked about earlier in a fairly prominent asset recovery matter where we collected more than $100 million. But you also see that the black lines below are quite big. And that's the dry powder. Those are the deals we've already put on that we are sitting on and managing and are watching for future performance. If you turn to Slide 8, you'll see why I am quite bullish on our portfolio, on what's in those black lines. We've shown you this slide before, but just to tell you how I think about this. You've basically got a business where we do a deal and we put out money and we are going to end up with a result that falls into one of three general buckets. We can get more granular and I will on the next slide. But the big buckets are, we either go to full adjudication and we win, we go to adjudication and we lose, or the case settles. The majority of our investment dollars do result in settled recoveries. Those are quite attractive returns generating a 31% IRR and return on invested capital that's nearly half, meaning you are getting your money back, and then half your money back again on average in those cases. The adjudication losses are not complete losses and are only 10% of our cases. The adjudication gains, which is 30% of deployment so far, that's where it's really generated phenomenal returns where we've gotten invested back and 2.5 times your investment back. When you take the big gains from the adjudication wins and combine them with the still attractive gains from settlements, it obviously much more than offsets the smaller number of adjudication losses and generates the returns you see on the side with a 95% return on invested capital, which Chris points out actually ticked up from the past in a 30% IRR. To the extent those black lines I talked about are matters that we have taken on using the same rigorous underwriting process that we adhere to, it's our belief and hope that those have a lot of dry powder left.

Well, thanks, Jon. And Chris, thank you for that nice introduction and glad to be here today. It's been just over four months since I joined Burford and pleased to be at my first results call. Since Chris has already addressed some of the key operating and financial results for the period, I thought I'd start by discussing our liquidity and funding and then follow that with some comments on a few components of our financials. Just for the record, unless I state otherwise, the figures I mention are going to be on a Burford only basis. So turning to Slide 10, you can see here we ended the period in our strongest liquidity position ever. Our cash and cash management assets at the end of June was $430 million, a new high for us. This strong level of liquidity reflects a robust $215 million in deployments in the first half, but knocks the $103 million we collected in July for the Akhmedov realization, which represented the majority of our due from settlement receivable at period end. The largest contributor to the increase in cash assets in the first half was our $400 million U.S. Bond issuance in April that Chris mentioned, our first in the U.S. As intended, we utilized the portion of the net proceeds of that offering to repurchase £24 million or US$33 million of our nearest bond maturity, which occurs in August of 2022. I’ll discuss the details of that tender in a few minutes. You’ll also notice on the graph that cash management assets constituted a much larger proportion of our total liquidity than in the past. These cash management assets consist predominantly of high-quality and liquid fixed income assets and are managed by one of the top fixed income managers in the United States. The establishment of these accounts enables us to earn an incremental yield on our cash assets without taking undue risk. We believe the maintenance of a relatively high level of cash assets on our balance sheet is prudent in order to take advantage of new opportunities when they arise while also recognizing the sometimes unpredictable nature of our cash inflows. So turning to Slide 11. You can see here that we generated $63 million of cash receipts in the first half of 2021, a relatively low figure as this was a quiet period for realizations. We've already exceeded that amount in the second half. Although we recognize the $103 million realization I mentioned in the first half, that cash was not received until July and therefore not included here in the first half cash receipts. Cash receipts, excluding capital provision indirect assets, were up from $54 million in the year-ago periods, which were significantly impacted by the onset of the pandemic. I think the chart in the lower left-hand side of this slide demonstrates how variable our cash receipts have been over the past few years. Cash receipts in this period were derived predominantly from realizations from capital provision direct assets and from asset management income. Capital provision indirect assets contributed $170 million in total cash receipts in the year-ago period as a result of a decision we made to monetize certain assets in the strategic value fund in light of economic conditions at the time, but none in this period. We believe that excluding the impact of capital provision indirect cash receipts is the best way to evaluate our performance relative to the year-ago period. Turning to Slide 12, you can see our liability structure remains conservative. Our debt maturities are well-laddered and our leverage levels remain modest and well below the covenant levels in both our UK and U.S. bonds. As I mentioned, we successfully completed our first U.S. debt issuance in April, which was also the largest in Burford’s history. We issued $400 million U.S. dollar bonds that mature in 2028. We were pleased by the strong investor interest in that issue, which enabled us to upsize the offering and drive down the anticipated coupon and we utilized some of the incremental cash from the upsizing to repurchase through a tender offer a portion of our nearest debt maturity, our 6.5% notes due in August of 2022. Through the tender offer, we repurchased £24 million or $33 million U.S. dollar equivalent of these bonds at a price of 105%. The remaining principal outstanding is therefore down just $86 million. We've seen pretty consistent improvements in the yields on all our outstanding bonds. With the offering and with our strong liquidity position and our low leverage, we believe Burford is well positioned to take advantage of the significant growth opportunity we see ahead. On the next two slides, I'll talk about some components of our total income or revenue. As Chris mentioned, the first half of 2021 was a strong period for new business, but relatively quiet in terms of portfolio progress. In addition to the normal factors that influenced the judicial process, COVID also impacted the progress of several cases within our existing portfolio.

Thanks, Ken. And on Slide 15, we've just got half a dozen key bullet points to really sum up the remarks that we just made. I am not going to dwell on them, so that we leave lots of time for question, but it's really back to what I said at the beginning; three fundamental points: number one, a terrific period for new business, both commitments and the deployments shattering our deployment record. Number two, a strong portfolio that has grown a little bit had a relatively quiet period for realizations, probably in part due to some COVID delays, but at the same time, saw the returns tick up a little bit with very low loss rates. Number three, a strong position overall liquidity, cash and the accounting noise that we discussed previously. So, we are pretty happy, especially in the middle of the ongoing global pandemic with where things stand. We are looking forward to getting back into real business development and origination to show you what we can do then. But for now, let's take any questions that you may have.

The first question comes from David Chiaverini from Wedbush Securities. David, please go ahead.

Hi. Thanks for taking the questions. The first one, I wanted to touch on, you mentioned about the record level of new business with commitments over $500 million. Can you talk about the pipeline for new deals on a go-forward basis?

Sure. Although we don't do a lot of forward-looking commentary in this business for a whole variety of reasons that we've laid out in the past. But what I'd say, just as a general matter is, just sort of echo what Jon said before. We saw a sharp reduction in the pipeline and in new business, which we believe was entirely COVID-related in the first half of 2020. We saw a resumption of activity, but not to historic levels in the second half of 2020. Then in the first half of 2021, we obviously saw a meaningfully greater ability to deploy capital. It's a little early probably to determine exactly how the Delta variant is going to impact the legal world and in turn how that's going to impact us. But we are certainly seeing opportunities to invest at this point in the cycle.

Great. Thanks for that. I appreciate how the business can be lumpy and volatile quarter-to-quarter or interim results. Shifting to - you mentioned about how the delay in resolving some matters could be more profitable for Burford. I was curious what level of time value on average is built into the deal structures?

Sure. Thanks for the question. It really does vary by matter. We are always trying to be protective of ourselves from things causing delays, but I think we've said historically that our returns usually consist of two elements. There is going to be a preferred return which is dependent upon how much money we've put out on what schedule and then there is going to be a percentage of the recovery, which depends on how much rather than when. Although both of those elements can be toggled with time as such that you could say if a matter resolves early, we get this preferred return and this percentage of the net. If it takes longer, which is often a question both of whether it takes longer and if we put out more money, then our preferred return goes up by half an x or an x and our percentage of the net goes up by 5% or 10%. So that if it goes the full distance and the duration, we end up with our maximum returns. I can’t say the exact numbers as we haven’t broken down our portfolio on how much effect time has on returns. But I can say as a general matter, it's a feature that is often incorporated into the terms of our deals.

Great. Thank you. And then, the last one for me, I saw a media report about how a law firm that's not a Burford client, but I had a question about it nonetheless that this law firm was pledging assets to multiple litigation finance firms without each of those firms knowing about it. So it was amounting to fraud. But I was curious if Burford is taking any measures to mitigate any sort of risk that this issue could present whether it's creating escrow accounts or cash flows, just curious about any commentary there?

Sure. The case that you're talking about is a fairly well-known case for a variety of reasons. It's a California lawyer whose wife is also a very high profile actress. He is in an entirely different business from us. He was a class action contingency fee lawyer and what he had were a very large number of smaller claims and clients. His business consists of amalgamating thousands of cases and pursuing them on a group basis. You can't in that business have the same kind of corporate arrangements that we have. By contrast, we can do traditional institutional financings with full and negotiated documents, the other side has counsel and they negotiate those. In appropriate cases, we take a security position. It's a very different part of the legal industry.

Thanks very much.

Thanks, David.

The next question comes from Julian Roberts of Jefferies. Julian, please go ahead.

Hi there. Thanks for taking the question. I was just wondering if you could expand a bit on the new largest asset by deployments, which I think between you and the Sovereign Wealth Fund Partners $277 million of commitments and a large number of underlying claims. Also, there is a point you make in the report that there is an equity element to your exposure. Is there any more detail you can give us on that, please?

My - obviously my peroration of saying that I'll talk a little bit about it now, because I won't be able to say anything more about it was unsuccessful I guess. As is always the case with our investments, unless for some clients or judicial reason they become public, what we've said in the disclosure is all that we're going to be able to say publicly. If you look at the disclosure, what we've said about this case is that, as you say, it's a large matter, but it's an antitrust matter. It involves a major global company. There are more than 500 underlying claims associated with it. So, we've released at least that much information. But beyond that, I am afraid that's all that we're able to say at the moment.

Okay. And on the matter that was previously the largest by deployments, it looks like you’ve added a couple of cases to that investment. I think I can tell from the investment data you released that there may have been a bit more of a recovery in one of those underlying cases. Am I bucking up the wrong tree or has there been a bit of positive movement from there?

Let’s see, Jon Molot, are you able to address that? Maybe doing as well, yes, we may have to come back to you.

Yes.

Maybe doing as well, yes, we may have to come back to you.

Right. You have to come back to on the specifics. So I can say as a matter of general response that with respect to where we take a position across multiple cases, where we have high conviction and see profit opportunity, it's increasingly common that we will continue to make additional investments either with the same counterparties who want additional capital or with new counterparties that we've spoken to who are in the same situation, businesses in the same situation. It's also not uncommon in something with that many things involved that there will be smaller settlements along the way that will generate some returns. It is always difficult to extrapolate from those. Particularly, given the constraints we have on the disclosure about when you take, how much you read into early resolutions. You can imagine if there is a large category of litigation, multiple pending suits against people in the same industry and maybe guilty of the same misconduct. If they settle - if one or two on the outskirts end up settling that may not set a benchmark for what the other settlements will be. But there could be some more significant ones that do tell you more. I’d say it's not unexpected that there would be both additional and follow-on investments and there would be some resolutions whether the resolutions are a marker for when and the quantum involved in the future ones, I can’t comment. However, it does happen that things start to settle and multiple settlements can follow. But I can't draw conclusions about what it means for the future.

And I just add to that, I’d just sort of add that, Julian, a really good example of what Jon just described is what you saw in the large pool of investments that we concluded in the first half of last year. I make that the years run by one year but the spacing is right. In 2016, for example, we started investing in that area and we only had one deal at the time. We closed one deal and we waited and watched, our conviction grew. Then in 2018, we did more deals with more counterparties and in 2019, we did yet more deals with more counterparties. We amassed a position that resolved satisfactorily for us very successfully in 2020. So that's an example of how you see Jon's concept playing out in practical reality.

The only difference I would point out is that in that case, we kept putting on more money, which did reflect our conviction. But then all of the successes came at the end whereas in the one I think you've identified, we've continued to put out more money, but we've also seen some settlements before we get to the end. So, we were on the right track there, but I can't draw conclusions about what it means for the future.

So we are going to introduce first questions between the phone and the webcast. So don't spare a few things, many questions on the webcast, but I think we're going to go next to one more telephone question.

The next question on the telephone comes from Andrew Shepherd-Barron of Peel Hunt. Andrew, please go ahead.

Great. Thanks, good afternoon. Thanks for taking my call. This is a sort of follow-up question into the call to that question about where the new money is going and obviously that this large antitrust portfolio of cases. Can you comment about in terms of your business over the years and sort of more sometimes it’s between doing single cases and cross-collateralized portfolios? Might be a purchase from an existing case, which this one looks as the purchase of existing interest because the cash is being deployed in the same period that it was committed. But typically, I’ve always understood the form of legal - future legal expenses rather than buying into an existing case and also the split between whether you are all supporting legal firms, i.e., taking cases from them and therefore equivalent to the contingency arrangement of paying their legal fees or by taking corporate i.e., basically taking other cases from a corporate and replacing their balance sheet and bringing all the advances that you can. What - is there a trend that's going on here? Could you talk a little bit more about that I am trying to understand where we should expect in the next two to three years where we are likely to see a focus?

So, why don't I start on this and Jon, I am sure will chime in, as well. But even before I start, what I'm going to do is actually knit your question together with a couple of the other questions that we've had of a similar vein from the webcast. For example, we've also had Mark Clabber asking, is it fair to say that much of the existing book of cases is corporate versus corporate, whereas the new very large case looks more like a class action? If this is the case, does it represent a shift in strategy? We’ve similarly had Derry O'Callaghan ask – first of all, to say congratulations to the Burford team for stellar results. Thank you very much for that. And my question relates to some of the new deployments. As you pointed out, case sizes are becoming larger and more complex, can you give us some color on this complexity and how it impacts the risk profile of the overall portfolio? The way to approach this discussion is to think about what we do in the context of the development of the legal finance market. When we started, we were predominantly providing, as you say, fees and expenses financing. That was the corporate desire was for companies to get the cost of the increasing cost of litigation off their P&L and put it on to someone else. They didn’t care much where it went. In those days, the typical dynamic was the company would go to the law firm and say figure out a way to do this case for me without paying your high hourly fees on a current basis. It was up to the law firm whether they took the risk themselves, whether they looked for out a capital, whether they threw up their hands and ran in circles. We were initially a very desirable solution for both the law firm trying to land the client and the clients wanting off the P&L. This business continues actively and vibrantly with single case fees and expenses financing. The only thing that has changed much about that business is the dramatic increase in legal services’ costs even just over the twelve years we've been doing this. You’ve seen the investment sizes rise. It’s not the case that we’re leaving the small cases behind. It’s the case that it costs considerably more to have the same law firm do the same work in 2021 than it did in 2010 for, frankly, no particularly good reason, other than demand. But what happened and the evolution that happened, both in our business and in the market is that as companies started to make use of that capital, they said there are other things that we can do when we think about litigation as an asset instead of thinking about just cost avoidance. We can start tending to the balance sheet side of the business as well. You have seen us lead the market in terms of developing, first of all, multi-case portfolios. Recently, there's been a drive toward monetizing the underlying potential value beyond just covering fees and expenses in these cases and when you see large deployments, that’s often what is happening. So before I turn you over to Jon, just a couple of other points along the way, I don’t think you can necessarily correlate volume as the question is one of the webcast questions did with type of litigation. For reference, we would show a class action as one asset, we wouldn’t show it as multiple assets. So just to correct that assumption. Jon, do you want to add anything there?

Sure. I actually think the questions really and obviously your description, but captured the evolution of our business. I don't think that simply because there has been a trend toward expansion and growth, meaning we went from single cases to law firm portfolios to doing deals with corporates that involve not only covering their costs but litigating a series of lawsuits but also monetizing their litigation receivables and accelerated recoveries. It is true that the evolution has been to grow and expand and deploy capital in new ways that's useful for both corporate clients and law firms, but that has not meant we are leaving behind the businesses where we were already enjoying success. I mean, we still do single cases, and some of those single cases you’ve seen from our results have produced very attractive returns that have been meaningful. We have lots of single cases in our portfolio right now that we’re monitoring that have great potential. It is true that when you do a portfolio, you are putting out more money at a time and you are mitigating the risk of a single case there being a risk of complete binary loss. But as part of our portfolio, we still think those are attractive. You never really know as long as there we have the kinds of law firms and corporate clients we want to have as our counterparties. Do a single case with someone it works well, that is the next portfolio. That’s the next monetization opportunity with a corporate. I think we are not leaving behind, instead, we just continue to expand.

So, let's switch gears to some other questions that we've had from the webcast. And we'll start with a question from Trevor Griffiths. There is the definition of undrawn commitments included in total portfolio on Slide 5 refer to commitments from investors in funds you manage or commitments entered into by the company in respect to case investments or both. I am trying to understand the movement in BOF-C, which seems to lack the other elements of the portfolio. Yes, I have - we settled on the term commitment before we were a fund manager and I have long regretted the fact that we have two different kinds of commitments in the business, which does cause this confusion from time to time. But to be clear, when we talk about commitments to investments or commitments in our portfolio, we are talking about the commitments that we have entered into by Burford to finance matters. We're not talking about commitments that the private fund investors have made to give us capital. We address the latter in an entirely separate asset management discussion. The reason I think Trevor that you're seeing a little bit of aberrant movement around BOF and BOF-C and so on, is because of the combination of the maturity of BOF. To refresh everybody, while we raised BOF and BOF-C at the same time, BOF-C is the sovereign wealth funds arrangement and BOF is the traditional multi-investor June 2020 fund. They have different sizes, obviously, and they have different lengths of investment periods. The other thing is that BOF-C is excluded from a certain category of investments as we've disclosed before. What has happened is that BOF has filled up more rapidly and has a short investment period. So BOF is full and became full at around the end of 2020 or at the beginning of 2021. It's not receiving any new investments at all and we've instead realigned the distribution of the allocated investments between the balance sheet and BOF-C on a 50:50 basis subject to that carve-out. So that’s really what you are seeing go on there. Next, we have a question from Paul Degruchy. I apologize if I mispronounce that. The question revolves around how to value Burford, a matter for debate with some believing it should be treated as a financing company and others as an asset holding company? Without judging which approach is correct, what would Burford’s NAV be if it were treated as an investment company, accepting that there would be a very fine management company alongside the assets themselves. What is the value of Burford’s underlying investments in its own name or as a co-investor using its funds unless any debt? Interestingly, of course, Burford started life in the asset holding company, investment company structure with an external fund manager and we figured out by 2012 that it was not the optimal structure for us to use. We converted to our current structure and have been living happily in that rubric ever since. I think the question literally is the net asset value on balance sheet because, especially when you look at this on a Burford-only basis, what you see are simply the case investments that we've made value it exactly the same way that they would be valued regardless of the corporate structure or form. The obvious question though is how you then look at them and I think when you consider the growth rates that the business has had, and this is what sets us apart from a pure asset manager’s investment company - publicly traded investment trust, the growth rate that we have had in the overall business, not only just in capital dollars but in scope of strategy and the returns is where I think you would appropriately see a more premium valuation. Next, we have a question from Jerome Hobs. Given the liquidity is at an all-time high and the lumpy performance in 1H due to COVID-19 delays, wouldn't this be an ideal time for the Board to introduce a normal course issuer bid? I think we've talked – we've had this question in various forms at various times over the last several years. Our continued philosophy well, it’s certainly something that we look at along with all of the other shareholder and corporate finance questions that we address, which include - should we be paying a dividend? If so, at what level? Should we be buying back stock and so on? Should we be using capital to prematurely retire some of our bonds, and so on? I think we put all of those things in the hopper and we also however look hard at what we think is coming in terms of not only of new business from the market, but also we have a very significant level of undrawn commitments in the business, something above $900 million comprising both definitive and discretionary commitments. We look at those numbers and candidly look at the volatility of capital markets and the unpredictability of our cash inflows and we say, in a world where we deployed $400 million in the first half of this year and we're generating very nice returns and did better to take the capital that we're able to get our hands on and use it to grow the business and make what we hope are high quality asset additions to the book. One can obviously have the corporate finance debate about that issue and can also have the corporate finance debate about dividends. One’s position on those issues depends on various factors and it’s certainly not something that we ignore or take lightly. But that's the present situation we find ourselves in.

Now, I think this is the question for a couple of questions that I think are for Jon. The first from Ed Quail. Has the business has evolved to new business lines? Has your pricing for new commitments been kept such that you expect future investment returns to keep pace with the historic 30% IRR? And Jon will of course, comment generally on this, but as you all know, we don't predict the future and guide about where we think individual returns are going to go. That's right. Thanks for the question. We don’t – yes, I would never project what our IRRs would be in the future. I will say that our underwriting process has become no less rigorous than the expansion into new lines because of the presence of new opportunities. I don’t see that we've had for the risk involved sacrifice pricing. There is always the question, we've always said that we price differently depending upon risk and duration and it's risk-adjusted returns that we pay attention to and we model everything very carefully. So, for single issue, one-year appeal, where we feel fairly bullish that there will be an affirmation of an existing verdict and you already have all the information because the trial judgment has been rendered, that’s going to commend different pricing from a suit that's just being filed, where there is factual uncertainty. There could be obstacles along the way and the duration will be longer. So our pricing has varied depending on risk, but our approach to pricing has not markedly changed. If anything, with experience, our underwriting continues to get better, or modeling has much more data to draw upon and we have much more experience, but we haven’t changed our underwriting standards.

But I'm conscious that it's now one minute past the hour. With your indulgence, I think we can probably have time for two more questions. But I think after that, we’ll probably close this and we always of course welcome your direct interaction with any of us. Why don’t we next do a question from Dennis Twak? Commitments have been fairly flat over the recent years. What's limiting the growth in commitment? Is it capital? The size of your sourcing team? Or the fact that there is simply not that many attractive cases in any one period to be funded?

Right. It's interesting. I would say that is the flip side of Ed Quail’s question in terms of the way Chris described our standards. Our standards remain the same and that means we say no to most things to ensure that our pricing is commensurate with the risk to generate the returns we think are justified. I think frankly COVID slowed us down, right? I think when you say they are flat, it's not just that the commitments were flat, right? We did see a dip, then we came back up and now we've come back up further. I feel like the market is quite robust right now. I see lots of great opportunities that I like and want to invest in. I don’t have the data at my fingertips. But I don’t think there has been a period that we had to get through. We mentioned before the core process is still delayed, but the flow of deals has come back. I am optimistic that the growth of deals can increase when our business development and origination teams are allowed to get back out into the market and meet with people in person. Actually, there are plenty of good opportunities, and I am hopeful that growth resumes. We are on a growth trajectory from where we were, but we’d like to see more.

And finally, a question from Bruce Anderson. We've talked about some of this. Let me read the question and then we'll sort of say - dissect it a little bit. Can you comment on the level of new commitments and the fact that only 14 new commitments were made in the period? While the value of new commitments in the period is very high, the level of new commitments in terms of numbers was less than in the prior periods. Then, Bruce cites some numbers. Let me come back to that in a second; why were their associated commitments made in H1? It’s because the market really has yet to pick up or was it a conscious decision not to go after more business? If so, what was behind it? By going further upmarket in terms of value, are you allowing the competition to take the space in that sector of the market than you previously occupied? On the subject of the actual numbers, we provide two different sets of numbers. We provide total business activity numbers across all of the platforms in which we invest. So, traditional core litigation finance that we put on the balance sheet and in BOF and BOF-C, as well as pre-settlement and post-settlement things that we put in the base fund, strategic value investments and so on. We separately provide in tabular form a huge amount of detail both in our interim report and then even more on our website tables of information about the capital provision direct assets. One of the targets I see in your question, Bruce, is that you mismatch the total number against the capital provision direct. We did 14 capital provision direct matters in the first half, just by comparison. So that would annualize to 28 and in 2017, we did 25, in 2018, we did 39 annualized. So we’re not off our historical path although, as Jon just said, we look forward to a world of, yes, more. Leaving the numbers aside and going to the substance of the question, it goes back to what Jon and I were talking about earlier. It's a combination of the evolution of the market and the upsizing of litigation costs. We just are not seeing, I'll pick on a firm, Fresh Fields used to do an international arbitration case for a few million dollars a dozen years ago. Today, that number is going to be five times that. We’re not seeding the market at all in the kinds of cases that we've historically done and like to do. It’s just that those cases have become more expensive which is not a terrible thing for us. It's not wonderful for the underlying clients, but it’s not a terrible thing for us. What we're doing is we're really adding. It’s not that we're shifting, but we’re adding whole new areas of capital provision opportunity and endeavor. That’s really how we think about it. But as Jon says, it would be nice if we were not having all of that evolution happen with the ghost of COVID hanging over what might otherwise be a more active period. We’re very pleased with the level of activity that we did have. We are pleased that nothing went awry, but at the same time, it will be awfully nice to come back to normal, not only for us but for everybody else in the world. With that, and having gone gentlemen, it's over time, I think we'll call it the day. We really appreciate all of your participation and attendance today. We're available to talk to any of you about anything that you'd like about the business. We know that we give you a whole lot of data, some of which needs some explanation. Rob Bailhache and Jim Ballan are delighted to aid on that Ken Brause who is getting out to see investors and make the rounds and so we're excited to introduce Ken to you. We look forward to interacting with you in a number of different ways, not only through some traditional meetings, but through some group and investor engagements. We hope that all of you will participate in our investor event, our Capital Markets Day in early November. We’ve put out an announcement this morning about the date and time of that, as well. It will be an opportunity for us to spend a more concentrated period of time with you going through some key elements of the business and some things that we think you'll find very interesting about how we look at the portfolio. Thank you all very much.

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.