BUR.L - Burford Capital

[Guest Schwab711]

I think there's a misconception that Burford has large corporate litigation clients and that encompasses a lot of BUR's cases and investment dollars because BUR's "Additions" seems high. I think people believe investment turnover and reinvestment is much higher than it actually is.

 

In the 1H 2019, BUR invested $40.4m in to their core balance sheet litigation investments (just $6.3m was spent on new cases). In 2018, BUR invested $128m. Both figures include new cases and continued investment in ongoing cases. The additions are high in 2018 and 2019 because BUR trades stocks where an acquisition was announced prior to close and then litigates appraisal rights of the sale. That is roughly 70%-80% of additions.

 

BUR invested $17m in asset recovery investments in 1H 2019.

 

BUR raised money opportunistically but they really don't have anywhere to invest it. I often hear about the asset management part of the business but in the 1H 2019, BUR invested $70m on behalf on their investors. Most of the AUM is just committed capital. BUR hasn't come anywhere near deploying that much capital and it's hard to figure how they will be able to.

 

Competition is already starting to hurt BUR's future returns. At +/- $100m invested annually, BUR will have difficulty paying overhead annually if we assume 2.6 year average maturity and any realistic normalized portfolio ROIC.

 

Edit: I didn't mean to write fraud to suggest that "I know BUR commits criminal fraud" in an earlier post. I only meant fraud in the sense that BUR's management seem like con artists to me. I should have been much clearer.

 

One the recent call (around the 52 minute mark) they referenced a $770 million in existing commitments figure for balance sheet investments, with less than 50% of that amount to be drawn/used over the next 12 months. I don't know where you are getting $100 million, but management is suggesting more like ~3X that figure.

 

Also, Muddy Waters (MW) is of the opinion that Burford is "arguably insolvent" due to their debt and ongoing funding commitments. You seem to think basically the opposite: they won't be able to find enough claims to fund. Interesting that two bearish takes on this company can hold such diametrically opposed opinions about this.

 

Finally, why do you think Burford's management "seem like con artists"? 

 

If you look at the calculation of invested capital, it is essentially assuming Petersen case losses or is noncollectable since it removes unrealized gains. I've already said I think BUR is in a bad place if Petersen doesn't work out.

 

BUR management is con artists because they have exhibited a pattern of misleading and lying to investors. BUR management sold a substantial amount of their stock and raised money from outside investors while investors had incomplete and misleading data to analyze the decision. That's sketchy.

 

 

To add, BUR stressed on the call that at most 50% would be spent and likely less. That number represents BUR's balance and all funds. ($40.4m core litigation + $17m asset recovery + $70m for funds + other) * 2  =  +/- $250m invested on an annualized basis. 1H 2019 invested capital is not inconsistent with what BUR is saying and I highly doubt it matches what investors think is happening regarding reinvestment in to the business. Additions/realizations are high because of trading in special situations.

[LaGrandeBelleza]

 

https://courtconnect.courts.delaware.gov/public/ck_public_qry_main.cp_main_idx

 

GKC STRATEGIC VALUE MASTER FUND, L.P.

BCIM STRATEGIC VALUE MASTER FUND, L.P.

 

2019-0565 - BCIM STRATEGIC VALUE VS. MPM HOLDINGS - ACTIVE

2019-0363 - BCIM STRATEGIC MASTER FUND VS. NEXEO SOLUTIONS,INC - ACTIVE

2019-0558 - BCIM STRATEGIC VALUE MASTER FUND, LP VS. HFF, INC. - ACTIVE

2017-0714 - GKC STRATEGIC VS. KATE SPADE & CO - CLOSED

2018-0291 - GKC STRATEGIC VALUE VS. REGAL ENTERTAINMENT - ACTIVE

2017-0769 - GKC STRATEGIC VALUE FUND VS. BAKER HUGHES INC.I - CLOSED

2018-0226 - GKC STRATEGIC VALUE MASTER FUND VS. CAPITAL BANK - CLOSED

 

What is all this?

 

Their funds for appraisal rights litigation cases, allegedly a pretty poor business that lies within their complex strategies segment I guess

[Gregmal]

https://www.investegate.co.uk/burford-capital-ltd--bur-/rns/evidence-of-market-manipulation-in-burford-shares/201908120700046828I/

 

Not your average "market manipulation" claim.

[writser]

Mostly seems like nonsense to me. The part about sell orders vs. executions is interesting but there is no connection to Muddy Waters at all. In fact I'd say it is extremely unlikely (and would be stupid) for Muddy Waters to run a HFT shop alongside his research. Also, Burford forgets to mention that an alternative explanation for the huge drop is is that there simply were no buyers and that that's the reason orders didn't get executed? Comparing this to the 2010 flash crash seems ridiculous to me.

 

Burford is informed that posting certain phrases, such as "insolvent", on Twitter can induce an algorithmic sell off in a stock

 

Wow. Burford 'was informed' that tweets can induce stock price movements? How many phd's did they have to hire to come to that conclusion? I guess everybody tweeting a company is insolvent should be sued? Maybe we should ban the word 'insolvent' on Twitter and ban algorithmic trading too, while we are at it?

 

I agree that it is strange that people were front running the Muddy Waters report. But is that illegal? Is a 'random' short report material nonpublic information? Should it be? Burford seems to imply that Muddy Waters had to publicly reschedule his tweet after being 53 minutes late. Is that actually true?

 

And yes, Muddy Waters covered his position. Is that illegal? He did report his trading activity, right?

 

And did Muddy Waters actually leak this information himself? Or was he hacked or did people simply infer what company he was investigating?

 

I am not a lawyer and no doubt Burford will go to court if they think they have a chance. But here we are, a few days after the short report, and shares are still trading ~50% lower. I think there is a much simpler explanation for the huge price drop .. Investors were simply freaking out. Most of the press release seems like a bunch of speculation and scaremongering to me.

 

[Peregrine]

Just lol at the short apologists in this thread. Muddy Waters basically covered his entire short on the day that the report was "officially" released. As for the conspiracy claims, if you don't think that a lot of these guys are acting in concert, you're completely naive about how many of these hedge funds work.

 

Muddy Waters probably had his report well lawyered, but it's still a scumbag move and wholly hypocritical with how he presents himself as a truth crusader who fights for the regular joe investor against the villanous corporation. He's completely full of shit and I still marvel how a lot of these guys get so much press.

[Normax59]

Just lol at the short apologists in this thread. Muddy Waters basically covered his entire short on the day that the report was "officially" released. As for the conspiracy claims, if you don't think that a lot of these guys are acting in concert, you're completely naive about how many of these hedge funds work.

 

Muddy Waters probably had his report well lawyered, but it's still a scumbag move and wholly hypocritical with how he presents himself as a truth crusader who fights for the regular joe investor against the villanous corporation. He's completely full of shit and I still marvel how a lot of these guys get so much press.

 

Did they manipulate every single one of their bonds too? 

[Peregrine]

Just lol at the short apologists in this thread. Muddy Waters basically covered his entire short on the day that the report was "officially" released. As for the conspiracy claims, if you don't think that a lot of these guys are acting in concert, you're completely naive about how many of these hedge funds work.

 

Muddy Waters probably had his report well lawyered, but it's still a scumbag move and wholly hypocritical with how he presents himself as a truth crusader who fights for the regular joe investor against the villanous corporation. He's completely full of shit and I still marvel how a lot of these guys get so much press.

 

Did they manipulate every single one of their bonds too?

 

I don't understand your question. He made inflammatory remarks with little basis in fact, he doesn't have to be specifically involved in the buying and selling of a security to manipulate market behavior. Now you can say that it's the holders of said securities who should be at fault for panicking, which I agree with. But I don't think it's good for the integrity of markets when someone can say practically anything about a company, whether it be malicious insinuations or outright falsehoods, with very little repercussions to manipulate the market for its securities.

[Guest Schwab711]

What exactly did MW get wrong? BUR doesn't actually refute much of MW's report

[Normax59]

Just lol at the short apologists in this thread. Muddy Waters basically covered his entire short on the day that the report was "officially" released. As for the conspiracy claims, if you don't think that a lot of these guys are acting in concert, you're completely naive about how many of these hedge funds work.

 

Muddy Waters probably had his report well lawyered, but it's still a scumbag move and wholly hypocritical with how he presents himself as a truth crusader who fights for the regular joe investor against the villanous corporation. He's completely full of shit and I still marvel how a lot of these guys get so much press.

 

Did they manipulate every single one of their bonds too?

 

I don't understand your question. He made inflammatory remarks with little basis in fact, he doesn't have to be specifically involved in the buying and selling of a security to manipulate market behavior. Now you can say that it's the holders of said securities who should be at fault for panicking, which I agree with. But I don't think it's good for the integrity of markets when someone can say practically anything about a company, whether it be malicious insinuations or outright falsehoods, with very little repercussions to manipulate the market for its securities.

 

They imply in the release that it wasn't MW remarks but rather market mechanics being manipulated for the share price to fall before the report even came out.

 

"On 6 August, in the several hours following the 13:30 release of the Muddy Waters tweet about a forthcoming short

attack, almost £90 million of sell orders were placed and cancelled without being filled - for a stock whose average

trading volume for an entire day was less than one-fifth that amount. As discussed above, that trading conduct is

consistent with illegal market manipulation."

 

"Moreover, during five one-minute periods on 6 August (14:17, 14:30, 14:35, 14:43, 14:45), Burford's shares fell 6%, or over £170 million in value, some of its sharpest declines of the day. During these periods, executed sell orders totaled a mere £186,000."

 

"A large wave of sell order cancellations arrived in the few minutes preceding Muddy Waters' first tweet on 7 August identifying Burford Capital as the target of its short attack."

 

Muddy Waters did not publicly reschedule its announcement to 08:53 or otherwise provide any public indication of the actual timing of the report's release. The LSE data show that an unusual flood of sell-side cancellations began to arrive in the three minutes immediately preceding this tweet. Specifically, from 8:50am-8:53:47am, sell orders totaling over 578,000 shares were cancelled - approaching Burford's entire regular daily trading volume in less than four minutes. In fact, during those three minutes and forty-eight seconds before the tweet, there were 578,112 shares worth of cancelled sell-side orders as compared to only 36,597 shares sold in actual executed sales, a ratio of 15.8 to 1. We currently see no nonmanipulative explanation for that market phenomenon. Given that Muddy Waters made no public announcement about the actual timing of the release of the report, we do not see why a legitimate market participant without knowledge of the actual tweet's expected release time and content would be placing and cancelling a large number of sell orders in the three minutes before the release of the tweet."

 

They provide no data to back-up the tweet claim because if the key to making a stock fall 60% was to just tweet its name along side the words "insolvency" and "liquidity crisis" we'd all be billionaires.

 

I suggest you actually read what Burford said.

 

[Gregmal]

Once again I'd say this is just another sign of their inexperience. They likely mean well, with their intentions being in the right place; to defend the company and its shareholders, but they're wasting their time.

 

What occurred was a sleazy, unethical, piece of shit, etc, move. Absolutely. Was it illegal? Probably not. Tough way for these guys to have their "welcome to Wall Street" moment. Just get back to work and keep making money for shareholders and if they do that, things will be fine.

[Normax59]

Once again I'd say this is just another sign of their inexperience. They likely mean well, with their intentions being in the right place; to defend the company and its shareholders, but they're wasting their time.

 

What occurred was a sleazy, unethical, piece of shit, etc, move. Absolutely. Was it illegal? Probably not. Tough way for these guys to have their "welcome to Wall Street" moment. Just get back to work and keep making money for shareholders and if they do that, things will be fine.

 

They really should just move on it's just going to make people want to dig deeper.

[Foreign Tuffett]

What exactly did MW get wrong? BUR doesn't actually refute much of MW's report

 

I think some of your recent responses are overreaching.

 

Writing "Seriously, it's a fraud" on 8/7 was needlessly inflammatory and misleading, and you later had to walk that statement back, albeit after waiting four days to do so ("I didn't mean to write fraud to suggest that "I know BUR commits criminal fraud" in an earlier post. I only meant fraud in the sense that BUR's management seem like con artists to me. I should have been much clearer.").

---------------------------------------------------------------------------------------------------------------------

 

Anyway, I think even those very critical of Burford can recognize that recognize that Burford's response directly addressed much of Muddy Waters' report. A few examples:

 

1) MW presented the Napo case in an oversimplified, misleading way. Here are the most relevant two sentences from Burford's response:

 

"Thus, Burford structured its financing agreement with Napo so that its recovery could come from not just Napo’s dispute with Salix, but from other litigation as well."

 

"As it transpired, a litigation matter other than the Salix matter resolved first, and resulted in an entitlement for Burford. That is the figure shown in Burford’s 2013 reporting."

 

2) MW fails to mention that the Gray estate's litigation against Burford was stayed and sent to arbitration in 1/2019.

 

3) MW referenced the wrong case # for the Neptune situation

 

4) MW implies that case # 154586 was acquired with Focus Intelligence Limited, but Burford says "The investment cited in the report is a post-acquisition matter; it did not exist at the time of the acquisition"

 

5) MW misleadingly references a typographical error made by a 3rd party (Jaguar Health) relating to the address of a Burford subsidiary as if it is indicative of some kind of conspiracy between Burford and Invesco.

 

 

[Peregrine]

Just lol at the short apologists in this thread. Muddy Waters basically covered his entire short on the day that the report was "officially" released. As for the conspiracy claims, if you don't think that a lot of these guys are acting in concert, you're completely naive about how many of these hedge funds work.

 

Muddy Waters probably had his report well lawyered, but it's still a scumbag move and wholly hypocritical with how he presents himself as a truth crusader who fights for the regular joe investor against the villanous corporation. He's completely full of shit and I still marvel how a lot of these guys get so much press.

 

Did they manipulate every single one of their bonds too?

 

I don't understand your question. He made inflammatory remarks with little basis in fact, he doesn't have to be specifically involved in the buying and selling of a security to manipulate market behavior. Now you can say that it's the holders of said securities who should be at fault for panicking, which I agree with. But I don't think it's good for the integrity of markets when someone can say practically anything about a company, whether it be malicious insinuations or outright falsehoods, with very little repercussions to manipulate the market for its securities.

 

They imply in the release that it wasn't MW remarks but rather market mechanics being manipulated for the share price to fall before the report even came out.

 

"On 6 August, in the several hours following the 13:30 release of the Muddy Waters tweet about a forthcoming short

attack, almost £90 million of sell orders were placed and cancelled without being filled - for a stock whose average

trading volume for an entire day was less than one-fifth that amount. As discussed above, that trading conduct is

consistent with illegal market manipulation."

 

"Moreover, during five one-minute periods on 6 August (14:17, 14:30, 14:35, 14:43, 14:45), Burford's shares fell 6%, or over £170 million in value, some of its sharpest declines of the day. During these periods, executed sell orders totaled a mere £186,000."

 

"A large wave of sell order cancellations arrived in the few minutes preceding Muddy Waters' first tweet on 7 August identifying Burford Capital as the target of its short attack."

 

Muddy Waters did not publicly reschedule its announcement to 08:53 or otherwise provide any public indication of the actual timing of the report's release. The LSE data show that an unusual flood of sell-side cancellations began to arrive in the three minutes immediately preceding this tweet. Specifically, from 8:50am-8:53:47am, sell orders totaling over 578,000 shares were cancelled - approaching Burford's entire regular daily trading volume in less than four minutes. In fact, during those three minutes and forty-eight seconds before the tweet, there were 578,112 shares worth of cancelled sell-side orders as compared to only 36,597 shares sold in actual executed sales, a ratio of 15.8 to 1. We currently see no nonmanipulative explanation for that market phenomenon. Given that Muddy Waters made no public announcement about the actual timing of the release of the report, we do not see why a legitimate market participant without knowledge of the actual tweet's expected release time and content would be placing and cancelling a large number of sell orders in the three minutes before the release of the tweet."

 

They provide no data to back-up the tweet claim because if the key to making a stock fall 60% was to just tweet its name along side the words "insolvency" and "liquidity crisis" we'd all be billionaires.

 

I suggest you actually read what Burford said.

 

I wasn't referring to what Burford said. I was talking about how ridiculous it is that these short and distort attacks go on in plain view with little regulatory opposition to deter them. The media is always complicit as well but of course they're in the business of drawing eyeballs, and controversy and sensationalism pays a high dollar.

[Guest Schwab711]

What exactly did MW get wrong? BUR doesn't actually refute much of MW's report

 

I think some of your recent responses are overreaching.

 

Writing "Seriously, it's a fraud" on 8/7 was needlessly inflammatory and misleading, and you later had to walk that statement back, albeit after waiting four days to do so ("I didn't mean to write fraud to suggest that "I know BUR commits criminal fraud" in an earlier post. I only meant fraud in the sense that BUR's management seem like con artists to me. I should have been much clearer.").

---------------------------------------------------------------------------------------------------------------------

 

Anyway, I think even those very critical of Burford can recognize that recognize that Burford's response directly addressed much of Muddy Waters' report. A few examples:

 

1) MW presented the Napo case in an oversimplified, misleading way. Here are the most relevant two sentences from Burford's response:

 

"Thus, Burford structured its financing agreement with Napo so that its recovery could come from not just Napo’s dispute with Salix, but from other litigation as well."

 

"As it transpired, a litigation matter other than the Salix matter resolved first, and resulted in an entitlement for Burford. That is the figure shown in Burford’s 2013 reporting."

 

2) MW fails to mention that the Gray estate's litigation against Burford was stayed and sent to arbitration in 1/2019.

 

3) MW referenced the wrong case # for the Neptune situation

 

4) MW implies that case # 154586 was acquired with Focus Intelligence Limited, but Burford says "The investment cited in the report is a post-acquisition matter; it did not exist at the time of the acquisition"

 

5) MW misleadingly references a typographical error made by a 3rd party (Jaguar Health) relating to the address of a Burford subsidiary as if it is indicative of some kind of conspiracy between Burford and Invesco.

 

To be fair, it's unlikely anyone would have ever called me out on what I wrote and I still preemptively corrected it, despite that correction making me look bad. Burford got upset when someone pointed out their misleading reporting of their investment results. Two very different ways to handle similar things, no? I'm also not a lawyer and I don't run a publicly-traded company.

 

I think one of the things ignored is that before MW's report, much of what was reported was disputed by many investors. The sentiment and narrative of BUR one week ago was vastly different from today. MW was able to pierce that narrative by simply stating publicly known information with additional detail.

 

 

 

1. BUR does not dispute that in their Investment Data presentation (at 12/31/2018), the Napo case included non-cash recoveries that were already written down on the balance sheet.

BUR does not dispute that the Napo case was marked "concluded" before it was fully concluded. The case was included in the single case segment, thus MW's interpretation was quite reasonable without greater disclosure by BUR.

BUR does not dispute that one of their largest investors helped restructure Jaguar to avoid having to write-down the $30m of debt in Jaguar.

 

BUR states "The Napo investment was not introduced to Burford by Invesco, and at the time Burford had no relationship with Mr. Barnett, whose fund did not hold any

Burford equity", but this was never claimed by MW. This raises the natural question, did BUR introduce Invesco to Napo/Jaguar?

 

BUR stated "Finally, Burford has been transparent about this investment, commenting on it more than once in its public disclosures...", but the only public comments about this case were in 2019. Previously, BUR acknowledged Jaguar stock, but did not provide enough disclosure to link that specific case with the Jaguar stock.

 

 

2.

BUR stated "Burford has explained many times before that while most of its investments resolve for cash, some involve other kinds of consideration. While we do not routinely disclose this information, we can say at present that we have virtually no such non-cash recoveries awaiting monetisation (i.e., less than $1 million), and only around 4% of our litigation finance investment recoveries are represented by investments that have yet to pay in full."

 

Did you know a few months ago, that "virtually no such non-cash recoveries" stat would have been a material amount of money again?

 

On 6/30/2019, unpaid investment recoveries was nearly 10% of litigation finance investment recoveries.

 

BUR disputes the Gray example because Gray was successful, missing the purpose of MW pointing it out (that it was a contingent recovery but included in "recoveries", a potentially misleading term)

 

 

3.

Can you match any of the case numbers with specific cases? It's pretty hard to confirm BUR's reported figures. I'll give you this, MW made a mistake. It seems to be an honest mistake.

 

4.

Seems like a reasonable mistake, no?

 

5.

Where do you see that BUR says it is a typo?

 

 

 

Others:

BUR stated "To begin, the report goes to great length to point out a basic and consistent feature of Burford's accounting that we have ourselves described to investors and is a tenet of IFRS. That does not stop the report from suggesting that Burford "misleads" investors. The accounting feature is that when Burford recognizes a realized gain, it also reverses prior unrealized gains associated with the realized gain. This is straightforward accounting and, as the report itself admits, occurs to "avoid double-booking". A recent example of us describing this process in depth was in our 30 May 2019 RNS concerning our Teinver investment."

 

But BUR does not dispute that the example of 'misleading' that MW provided was a table from BUR's investor day.

 

BUR responded to the "ex-Petersen" analysis with "what if you exclude Google from Sequoia". Obviously, cobf has had this same conversation. The point always was, are you willing to pay 3x BV to invest in Sequoia just because they once invested in GOOG early? Probably no.

 

The point of MW's effort to point out the operating expenses as a % of the investment portfolio, ex-FV adjustments, is that BUR's 33% ROIC ex-outlier cases would result in roughly breakeven operating results given the average duration of cases. BUR blames MW for spinning but then also spins on the topic.

 

MW stated that BUR "was at high risk of financial stress". BUR stated "Burford is simply not in any financial stress". Do you see the difference? Since BUR is using the at-cost investment portfolio figure in their 'capital' calculation, there is an implied assumption of ex-Petersen. If Petersen does not work out, BUR is in fact at high risk of financial stress.

 

To further the point of BUR being misleading, BUR responded to the financial stress by pointing out 'they' have $400m of cash currently. But that $400m is held by the consolidated BUR Group. BUR itself has a little less than $300m in cash. BUR had just finished criticizing MW about misleading readers with BUR Group and BUR itself when they themselves confused readers about $400m in cash.

 

BUR concludes "Burford produces high operating margins, 84% for fiscal year 2018. It seems churlish to complain about those margins."

 

Those margins are predominately due to unrealized gains. That's basically the point of MW's section 7.

 

In aggregate, MW wasn't inaccurate, BUR just disagreed with the importance of the analysis. Where BUR claimed MW was misleading, they themselves engaged in misleading statements. Pot, kettle.

 

 

BUR criticized MW for using qualifying language but they themselves used qualifying language with regards to MW's report and the alleged market manipulation. Again, pot, kettle.

[Foreign Tuffett]

What exactly did MW get wrong? BUR doesn't actually refute much of MW's report

 

I think some of your recent responses are overreaching.

 

Writing "Seriously, it's a fraud" on 8/7 was needlessly inflammatory and misleading, and you later had to walk that statement back, albeit after waiting four days to do so ("I didn't mean to write fraud to suggest that "I know BUR commits criminal fraud" in an earlier post. I only meant fraud in the sense that BUR's management seem like con artists to me. I should have been much clearer.").

---------------------------------------------------------------------------------------------------------------------

 

Anyway, I think even those very critical of Burford can recognize that recognize that Burford's response directly addressed much of Muddy Waters' report. A few examples:

 

1) MW presented the Napo case in an oversimplified, misleading way. Here are the most relevant two sentences from Burford's response:

 

"Thus, Burford structured its financing agreement with Napo so that its recovery could come from not just Napo’s dispute with Salix, but from other litigation as well."

 

"As it transpired, a litigation matter other than the Salix matter resolved first, and resulted in an entitlement for Burford. That is the figure shown in Burford’s 2013 reporting."

 

2) MW fails to mention that the Gray estate's litigation against Burford was stayed and sent to arbitration in 1/2019.

 

3) MW referenced the wrong case # for the Neptune situation

 

4) MW implies that case # 154586 was acquired with Focus Intelligence Limited, but Burford says "The investment cited in the report is a post-acquisition matter; it did not exist at the time of the acquisition"

 

5) MW misleadingly references a typographical error made by a 3rd party (Jaguar Health) relating to the address of a Burford subsidiary as if it is indicative of some kind of conspiracy between Burford and Invesco.

 

To be fair, it's unlikely anyone would have ever called me out on what I wrote and I still preemptively corrected it, despite that correction making me look bad. Burford got upset when someone pointed out their misleading reporting of their investment results. Two very different ways to handle similar things, no? I'm also not a lawyer and I don't run a publicly-traded company.

 

I think one of the things ignored is that before MW's report, much of what was reported was disputed by many investors. The sentiment and narrative of BUR one week ago was vastly different from today. MW was able to pierce that narrative by simply stating publicly known information with additional detail.

 

 

 

1. BUR does not dispute that in their Investment Data presentation (at 12/31/2018), the Napo case included non-cash recoveries that were already written down on the balance sheet.

BUR does not dispute that the Napo case was marked "concluded" before it was fully concluded. The case was included in the single case segment, thus MW's interpretation was quite reasonable without greater disclosure by BUR.

BUR does not dispute that one of their largest investors helped restructure Jaguar to avoid having to write-down the $30m of debt in Jaguar.

 

BUR states "The Napo investment was not introduced to Burford by Invesco, and at the time Burford had no relationship with Mr. Barnett, whose fund did not hold any

Burford equity", but this was never claimed by MW. This raises the natural question, did BUR introduce Invesco to Napo/Jaguar?

 

BUR stated "Finally, Burford has been transparent about this investment, commenting on it more than once in its public disclosures...", but the only public comments about this case were in 2019. Previously, BUR acknowledged Jaguar stock, but did not provide enough disclosure to link that specific case with the Jaguar stock.

 

 

2.

BUR stated "Burford has explained many times before that while most of its investments resolve for cash, some involve other kinds of consideration. While we do not routinely disclose this information, we can say at present that we have virtually no such non-cash recoveries awaiting monetisation (i.e., less than $1 million), and only around 4% of our litigation finance investment recoveries are represented by investments that have yet to pay in full."

 

Did you know a few months ago, that "virtually no such non-cash recoveries" stat would have been a material amount of money again?

 

On 6/30/2019, unpaid investment recoveries was nearly 10% of litigation finance investment recoveries.

 

BUR disputes the Gray example because Gray was successful, missing the purpose of MW pointing it out (that it was a contingent recovery but included in "recoveries", a potentially misleading term)

 

 

3.

Can you match any of the case numbers with specific cases? It's pretty hard to confirm BUR's reported figures. I'll give you this, MW made a mistake. It seems to be an honest mistake.

 

4.

Seems like a reasonable mistake, no?

 

5.

Where do you see that BUR says it is a typo?

 

 

 

Others:

BUR stated "To begin, the report goes to great length to point out a basic and consistent feature of Burford's accounting that we have ourselves described to investors and is a tenet of IFRS. That does not stop the report from suggesting that Burford "misleads" investors. The accounting feature is that when Burford recognizes a realized gain, it also reverses prior unrealized gains associated with the realized gain. This is straightforward accounting and, as the report itself admits, occurs to "avoid double-booking". A recent example of us describing this process in depth was in our 30 May 2019 RNS concerning our Teinver investment."

 

But BUR does not dispute that the example of 'misleading' that MW provided was a table from BUR's investor day.

 

BUR responded to the "ex-Petersen" analysis with "what if you exclude Google from Sequoia". Obviously, cobf has had this same conversation. The point always was, are you willing to pay 3x BV to invest in Sequoia just because they once invested in GOOG early? Probably no.

 

The point of MW's effort to point out the operating expenses as a % of the investment portfolio, ex-FV adjustments, is that BUR's 33% ROIC ex-outlier cases would result in roughly breakeven operating results given the average duration of cases. BUR blames MW for spinning but then also spins on the topic.

 

MW stated that BUR "was at high risk of financial stress". BUR stated "Burford is simply not in any financial stress". Do you see the difference? Since BUR is using the at-cost investment portfolio figure in their 'capital' calculation, there is an implied assumption of ex-Petersen. If Petersen does not work out, BUR is in fact at high risk of financial stress.

 

To further the point of BUR being misleading, BUR responded to the financial stress by pointing out 'they' have $400m of cash currently. But that $400m is held by the consolidated BUR Group. BUR itself has a little less than $300m in cash. BUR had just finished criticizing MW about misleading readers with BUR Group and BUR itself when they themselves confused readers about $400m in cash.

 

BUR concludes "Burford produces high operating margins, 84% for fiscal year 2018. It seems churlish to complain about those margins."

 

Those margins are predominately due to unrealized gains. That's basically the point of MW's section 7.

 

In aggregate, MW wasn't inaccurate, BUR just disagreed with the importance of the analysis. Where BUR claimed MW was misleading, they themselves engaged in misleading statements. Pot, kettle.

 

 

BUR criticized MW for using qualifying language but they themselves used qualifying language with regards to MW's report and the alleged market manipulation. Again, pot, kettle.

 

You wrote "What exactly did MW get wrong? BUR doesn't actually refute much of MW's report." I provided 5 example of MW getting things wrong. You reference a myriad of other issues, ignoring the question (which you yourself posed) that I was responding to. 

 

1) Nothing you wrote here takes away from my point that MW presented an over simplified version of the Napo case.

 

2) All that is only tangentially relevant to my point about the Gray litigation.

 

3) No comment necessary

 

4) No comment necessary

 

5) Burford's management was asked about this on the call and said it was clearly a typographical type error, which MW interpreted in the least charitable of all possible ways.

 

I'm not going to even attempt to address your other points as, since you neglected to provide much organizational structure in the second half of your post, it would take me too long to decipher and respond to your word potpourri.

 

Finally, you see to operating with the belief that I wrote something to the effect of "MW is completely wrong and Burford is a great investment." But of course I didn't say that. I actually think there are serious questions about Burford's long term prospects. It's an interesting situation.

[Guest Schwab711]

You are right. My question was in reference to other posts criticizing MW's report in the same vain as 'short and distort'. I assumed a materiality to the question but you are right that the literal reading doesn't express any materiality. Between that and the lead to your post, I assumed a tone to your response. Hopefully, that goes some way to explain mine.

 

In general, I'm frustrated that BUR doesn't provide enough information to complete an analysis of them. I don't understand why MW is blamed for BUR's current predicament. You are the wrong person to direct that frustration.

[Peregrine]

You are right. My question was in reference to other posts criticizing MW's report in the same vain as 'short and distort'. Between that and the lead to your post, I assumed that was the tone of your response. Hopefully, that explains mine.

 

In general, I'm frustrated that BUR doesn't provide enough information to complete an analysis of them. I find it frustrating that MW is somehow to blame for BUR's current predicament. You are the wrong person to direct that frustration.

 

If this wasn't a short and distort followed by a rapid covering of said short, than what is?

[Guest Schwab711]

You are right. My question was in reference to other posts criticizing MW's report in the same vain as 'short and distort'. Between that and the lead to your post, I assumed that was the tone of your response. Hopefully, that explains mine.

 

In general, I'm frustrated that BUR doesn't provide enough information to complete an analysis of them. I find it frustrating that MW is somehow to blame for BUR's current predicament. You are the wrong person to direct that frustration.

 

If this wasn't a short and distort followed by a rapid covering of said short, than what is?

 

If someone wrote a long thesis that said X was undervalued, which causes X to increase by 100% in a matter of hours, are they doing something wrong selling while readers are buying from them? I don't think the direction of a thesis or the timing of the thesis playing out have anything to do with what is suggested by the phrase 'short and distort'.

 

Said another way, MW performed research and presented that research. They expressed their research opinion with an investment and sold as the market recognized their investment thesis. Did their exist some hyperbole in their report? Probably. Was it material to their report? I don't think so but I'd guess folks could reasonably disagree.

 

There's probably some level of hyperbole or exaggeration in nearly every detailed thesis or investment report, long or short. If the thrust of the negative thesis is accurate, that generally doesn't seem wrong to me.

[Gregmal]

Frankly, I dont think market manipulation should even be illegal as long as it is not companies/insiders/related parties. People should know what they are investing in. If you get freaked out by someone else's research, or see a large sell order and choose to sell, that's your prerogative, and no ones fault but your own. Thats like playing poker and saying no bluffing... Its bs.

 

At the same time, there is a distinction between some of this behavior. Scummy doesn't mean illegal. The MW report was largely sensationalized, and cherry picked information. Nothing new was really presented, and as some have detailed, there are several instances where you can without a doubt see that they deliberately misrepresented things to bolster their case. But this is the stock market and the David Tepper quote I love the most rings true here..."when you enter into a securities transaction, you are betting the guy on the other side of the trade is an idiot"... Know your shit, understand your risk, and accept responsibility for the end results.

 

 

 

[Spekulatius]

But this is the stock market and the David Tepper quote I love the most rings true here..."when you enter into a securities transaction, you are betting the guy on the other side of the trade is an idiot"... Know your shit, understand your risk, and accept responsibility for the end results.

 

..and if it starts to smell, sell.

[Foreign Tuffett]

New head of IR for Burford. Someone correct me if I'm wrong, but I don't think they previously had a full time IR person?

 

https://www.burfordcapital.com/newsroom/robert-bailhache-appointed-head-of-ir-for-burford-capital/

[Normax59]

New head of IR for Burford. Someone correct me if I'm wrong, but I don't think they previously had a full time IR person?

 

https://www.burfordcapital.com/newsroom/robert-bailhache-appointed-head-of-ir-for-burford-capital/

 

No, they didn't, he was previously outsourced.

[LaGrandeBelleza]

What exactly did MW get wrong? BUR doesn't actually refute much of MW's report

 

I think some of your recent responses are overreaching.

 

Writing "Seriously, it's a fraud" on 8/7 was needlessly inflammatory and misleading, and you later had to walk that statement back, albeit after waiting four days to do so ("I didn't mean to write fraud to suggest that "I know BUR commits criminal fraud" in an earlier post. I only meant fraud in the sense that BUR's management seem like con artists to me. I should have been much clearer.").

---------------------------------------------------------------------------------------------------------------------

 

Anyway, I think even those very critical of Burford can recognize that recognize that Burford's response directly addressed much of Muddy Waters' report. A few examples:

 

1) MW presented the Napo case in an oversimplified, misleading way. Here are the most relevant two sentences from Burford's response:

 

"Thus, Burford structured its financing agreement with Napo so that its recovery could come from not just Napo’s dispute with Salix, but from other litigation as well."

 

"As it transpired, a litigation matter other than the Salix matter resolved first, and resulted in an entitlement for Burford. That is the figure shown in Burford’s 2013 reporting."

 

2) MW fails to mention that the Gray estate's litigation against Burford was stayed and sent to arbitration in 1/2019.

 

3) MW referenced the wrong case # for the Neptune situation

 

4) MW implies that case # 154586 was acquired with Focus Intelligence Limited, but Burford says "The investment cited in the report is a post-acquisition matter; it did not exist at the time of the acquisition"

 

5) MW misleadingly references a typographical error made by a 3rd party (Jaguar Health) relating to the address of a Burford subsidiary as if it is indicative of some kind of conspiracy between Burford and Invesco.

 

 

These are pretty valid remarks and I've to admit the initial MW report was - at least partially - tendentious. Nonetheless some of the fundamental questions regarding the business, its valuation and specially the way management presents metrics and information to investors remain questionable, I wouldn't consider their principals crooks but the fact is that they've somewhat been misleading investors perhaps not on purpose, that's yet to be seen.

 

After attending the special call and reading into the transcript some questions remain open to me:

 

1. AIM changes nothing in terms of governance vs the main market according to the company, although an uplisting is clearly necessary. Why do they remain the only company to adscribe to the Guernsey governance code tho?

2. Why does the question about their compensation remain unanswered?

3. Why do they refuse to further discuss mark-ups on their BS of Petersen when there have been recent transactions of tranches for this case? Shouldn't it be marked up precisely using these market inputs?

 

 

[Foreign Tuffett]

 

These are pretty valid remarks and I've to admit the initial MW report was - at least partially - tendentious. Nonetheless some of the fundamental questions regarding the business, its valuation and specially the way management presents metrics and information to investors remain questionable, I wouldn't consider their principals crooks but the fact is that they've somewhat been misleading investors perhaps not on purpose, that's yet to be seen.

 

After attending the special call and reading into the transcript some questions remain open to me:

 

1. AIM changes nothing in terms of governance vs the main market according to the company, although an uplisting is clearly necessary. Why do they remain the only company to adscribe to the Guernsey governance code tho?

2. Why does the question about their compensation remain unanswered?

3. Why do they refuse to further discuss mark-ups on their BS of Petersen when there have been recent transactions of tranches for this case? Shouldn't it be marked up precisely using these market inputs?

 

Those are good questions, but I believe they addressed #3 during the call. From my notes: While there is active litigation ongoing, revealing the "fair value" mark would constitute revealing "attorney work product"

 

I actually think this is an acceptable answer. It isn't difficult to imagine a sort of reflexivity-type feedback loop occurring, with Burford's marks being introduced into ongoing cases. Obviously Burford wants to avoid this.

[writser]

The easiest way to avoid that would be to use cost-basis accounting, just like IMF and LIT. Using your own valuation model but not disclosing specific marks seems like a strange solution if 'revealing attorney work product' is your concern. Also if your valuations are proprietary and you refuse to disclose the valuation of your largest case because you are afraid of feedback loops it seems a bit strange that you are voluntarily releasing press statements touting prices at which you are selling stakes of said case.

 

Maybe it is an 'acceptable' answer but it doesn't seem like a very convincing one to me.