Burford’s ‘Timing’ Loss Shows Litigation Funders Need Patience

Burford Capital’s $72 million annual loss—the first in its history—shows the risk litigation funders face in growing their caseloads while the Covid-19 pandemic slowed court dockets, delaying payoffs for investors.

Burford last year invested $447 million in cases, about twice the $225 million it deployed in 2020, the company said in its annual report this week. But with fewer cases being decided through trials and settlements, payoffs from those investments—and others made in prior years—weren’t realized.

The impact of Covid on litigation, and thus on litigation finance investments, “has really been extreme,” said Matthew L. Schwartz, a managing partner with Boies Schiller Flexner.

Litigation funders pay for the costs of individual lawsuits, or tranches of them, with a goal of making a profit if their parties win. The practice has been growing in recent years, as funders in the U.S. committed $2.8 billion toward new deals in 2021, an 11% rise from 2020, according to a Westfleet Advisors survey.

Burford’s losses likely weren’t unique among litigation funders but have come to light because the company is one of just a few such entities that is publicly traded and therefore discloses finances.

“Burford turned in an excellent 2021,” the company’s chairman, Hugh Steven Wilson, said in a March 29 statement disclosing results. “This may seem odd to say as we report the first loss in our history, but that is a matter of timing.”

In an interview, David Perla, Burford’s co-chief operating officer, said the almost half-billion dollars the company deployed last year represents assets “capable of generating our highest balance sheet returns and profits.”

“What’s happening for shareholder value isn’t bad,” Perla, a former president of Bloomberg Law, said.

Courthouse Closures

Schwartz, whose practice concentrates on government investigations and civil litigation, said the Covid pandemic’s closure of courthouses and delays in trials and case outcomes is testing the patience of lawsuit investors.

“If you’re in the business of investing in litigation claims, those claims often take years to play out,” he said.

Without trials—or even just scheduled trial dates to prepare for—litigation doesn’t move, Schwartz said. Settlements are fewer in number because there’s less urgency for parties to try to come to terms, he said.

Two other Covid-inspired factors—both likely temporary—came into play that slowed litigation last year, said Julian Roberts, a London-based analyst with Jefferies International Ltd., which is retained by Burford as a broker.

Judges who ran their courts like triage units often prioritized criminal cases over civil litigation, Roberts said. And defendants who often try to slow cases that funders are involved with found that “Covid was a really good excuse to delay.”

According to Westfleet, which released its survey March 23, 41% of the $2.8 billion committed by litigation funders last year went to the country’s 200 largest law firms. Litigation funders manage $12.4 billion in assets, up 10% from 2020, Westfleet found.

Last year, Willkie Farr & Gallagher announced a $50 million partnership with litigation financer Longford Capital, the first major law firm to publicly state it was providing financing to clients.

Burford’s growth in “new commitments during a pandemic is a significant achievement,” the company’s chief executive officer, Christopher Bogart, said in the March 29 statement. “The slow pace we are experiencing is a timing issue, not one affecting our view of the ultimate realizable value of the portfolio.”