BUR.L - Burford Capital

[Guest Schwab711]

Thanks for correcting, JJ.

 

 

Burford says they consider, but don't necessarily mark to secondary transactions. The implied $800m valuation from the 3.75% sale almost certainly needs to be relied upon to mark their 71.25% interest, as of 12/31/2018. I don't get the assumption that they'd mark for anything less than $800m valuation for Petersen. It was literally their sale. I could imagine cases where Burford considered but did not rely on secondary market transactions they weren't involved in.

 

In each period there was a direct sale of some partial interest of Petersen, it's probably reasonable to assume the value of Petersen was stepped up and both realized and unrealized gains were recognized. Consider p.30 of the 2018 annual report. It is followed by the unrealized gains as a percentage of income chart, where the increase in unrealized gains as a % matches with when Petersen sales begun. It is surprising for this value to have increased in 2016, considering BUR increased their portfolio by so much and the life cycle of claims, if the Petersen value was not stepped up at this point.

 

We have written extensively in the past about how we account for our investments under IFRS and will not repeat our prior comments here. In short, we hold litigation investments at invested cost until there is some objective event in the underlying litigation that would cause a change in value, whereupon we are required under IFRS to attempt to reflect the market impact (up or down) of that objective event

 

 

As to Eton Park, that's possible. I don't have enough information to accurately assume anything about Eton and I haven't read the $210m value anywhere.

 

"There is no active secondary market for litigation risk, and thus there is generally no market-based approach to assessing fair value; to the extent that a secondary market transaction does take place with respect to an investment, the implied value of that transaction is a relevant valuation input."

p.48 of BUR's 2018 annual report

 

 

If you are truly going to go down the path of determining NAV, then I think we should looked at adjusted income statements, ex-Petersen as indicative of what the average year for BUR looks like. Going off memory, There was $270m of revenue in 2018 related to Petersen, $30m of which was realized (due to the 3.75% sale).

 

That implies that BUR had $45m of EBT in 2018. 2017 adjusted BV (ex-Petersen) was roughly $370m. BUR's adjusted ROE for 2018 is approximately 12%, which is more in line with what BUR reported prior to Petersen step-ups, what IMF reports in non-extraordinary years, and a reasonable rate of return for a financier.

 

Just something to consider when reviewing BUR's 30%+ ROE.

[Jerry Capital]

Schwab711 this is simply not how they mark their investments, that would be way to aggressive.

 

Jefferies estimates its on the books at about $200 million.

 

Thanks

 

 

[Pondside47]

See page 22 and 23 of the full year 2017. You will see at least they claim to not mark it all the way up to the valuation based on small parcel sales. 

 

[Guest Schwab711]

See page 22 and 23 of the full year 2017. You will see at least they claim to not mark it all the way up to the valuation based on small parcel sales.

 

In that passage, they are saying that the interests they sold at $400m and $440m implied valuations were re-trading in the secondary market at a $660m valuation. BUR is saying that they consider but may not rely on secondary market transactions. I am assuming that BUR does not rely on any secondary transactions that they did not participate in. Knowing what I do about fair value accounting and some I've read about FV accounting for IFRS, I find it hard to believe that BUR can sell a partial interest at one price and mark their remaining interest at any other price.

 

 

In late 2016 and the first half of 2017, Burford sold 25% of its interest in the Petersen outcome into a secondary market we are working to build. The sale price of that interest was $106 million; Burford’s investment to date was approximately $17 million.

 

Thus, Burford has no risk of principal loss in the matter and continues to hold 75% of its entitlement. Since the secondary sales, there has been trading activity in the secondary market throughout the year at varying price levels, with the weighted average price in 2017 implying a value of around $660 million for Burford’s total original investment – in other words, the value placed on Petersen by third party investors has continued to climb from the $440 million valuation implied by our final tranche of sales

[Jerry Capital]

Schwab711 it does not make sense with the inherent return distrbution in Litigation Finance to ignore the winners. It is like saying Benchmark is bad at VC without Uber.

The whole idea is many losers give one massive outsized gain. Saying that outsized gain doesnt count ignores literally what they are trying to do (capture mispriced massive call options). Another parrarel would be saying 90% of options expire worthless so buying options is a bad idea (that misses the point in a similar way). What matters is expected value not the number of winners.

[Jerry Capital]

Schwab711 it does not make sense with the inherent return distrbution in Litigation Finance to ignore the winners. It is like saying Benchmark is bad at VC without Uber.

The whole idea is many losers give one massive outsized gain. Saying that outsized gain doesnt count ignores literally what they are trying to do (capture mispriced massive call options). Another parrarel would be saying 90% of options expire worthless so buying options is a bad idea (that misses the point in a similar way). What matters is expected value not the number of winners.

 

They are pointing this out to show you how conservative their marks are... You can look at the totla fair value adjustments on their books and see that it is nowhere close to your estimates + your estimates would imply that none of their other investments have been written up. Does that make sense? Thanks

[Guest Schwab711]

Schwab711 it does not make sense with the inherent return distrbution in Litigation Finance to ignore the winners. It is like saying Benchmark is bad at VC without Uber.

The whole idea is many losers give one massive outsized gain. Saying that outsized gain doesnt count ignores literally what they are trying to do (capture mispriced massive call options). Another parrarel would be saying 90% of options expire worthless so buying options is a bad idea (that misses the point in a similar way). What matters is expected value not the number of winners.

 

That's fine. But to earn a P/B valuation of 3x+, BUR needs to earn 30% returns. BUR's recent returns are almost certainly based on one case that is not repeatable (BUR will not have a 50x+ investment with $1b+ in proceeds every few years). Backing out this outlier (which we only can because BUR provided enough info to be able to) gives a better sense of what an average year may look like. The Petersen-like homeruns are a bonus that can be handled in boosting the multiples in such a way, if you prefer. We can't capitalize Petersen though.

 

 

 

I suppose we can agree to disagree on the accounting. Unless someone knows a standard that I don't, I'm fairly sure they need to mark up their values to their personal sales. What better number could there possibly be?

[Guest Schwab711]

You can look at the totla fair value adjustments on their books and see that it is nowhere close to your estimates + your estimates would imply that none of their other investments have been written up.

 

What balance are you looking at? The fact that taxes are negative despite large reported gains suggests that reported EBT is primarily unrealized gains. Further, the suggestion that few, if any, other investment have been written up also seems consistent since BUR seems to hold most interests to maturity. They have stated they are handling Petersen differently for risk management purposes. Few other claims have moved the needle like Petersen. This is all consistent with what I'm saying.

[spartan]

This is probably a stupid question, but if litigation and finance have both been around for centuries, why have they suddenly partnered? Specifically, Burford has exploded post-GFC. Doesn't the timing of their rise seem strangely coincidental to anyone? Surely, the rise of litigation finance is not due to recent technological innovation, regulatory changes, etc.

 

Isn't this just a hidden macro play? (i.e. reach for yield) I've read so much of Burford's material and can't find a competitive advantage (other than data...potentially).

[Guest cherzeca]

lawyer and private investor, here.  litigation finance is a virginal field and there are pricing inefficiencies in favor of the supplier of capital.  having said that, litigation is famously unpredictable and I am watching this from sidelines. not correlated with markets generally so there is a certain hedge play there too.  to me, it is still alt-alt though

[Guest Schwab711]

If the figures I'm using are wrong feel free to correct me. Maybe I made a mistake somewhere. If you really think Jeffries stated what Petersen is on the books for can you show me a quote or something? It just contradicts what I know about fair value accounting so it's hard to believe as is. I can tell you how I looked at taxes but there's only so much we can read in book taxes, given the corporate structure. It looks like unrealized gains represents most of EBT in the last 3 years.

 

Just looking at the table on p.30 (2018 AR). Unrealized gains were 36% and 39% of investments in 2017 and 2018, respectively. That's $387m and $621m. That implies $234m of unrealized gains reported in 2018 revenue. That is pretty darn close to the calculated number for Petersen in 2018. If we repeat this for 2016 and 2017, we get $214m in unrealized gains reported as revenue in 2017. In 2016, unrealized gains represented $87m.

 

From the 2016 AR, Petersen was written up some, but no where near all the way to a $400m valuation. Perfect, we can see that. In 2017, BUR says they are aware of the $660m valuation trades but did not rely on them. If they went to $440m valuation at this point (the second direct sale at this price and conservative to secondary trading), that roughly fits what we measure (~$300m total unrealized gains + $106m proceeds on $440m valuation). If in 2018 they went to $800m (again, 3rd direct sale now and conservative to secondary trading), that again fits what we can calculate.

 

All of this fit the situation of negative book taxes with high reported income. Taxable income would be much lower with these unrealized gains. This all fits the cash flow statements. If there's issues with breaking out Petersen like this I'm open to hearing them but this seems all seems consistent with everything I've read from BUR. That means Petersen represents the majority of earnings between 2016-2018.

 

As to the quality of the business, I agree with you and others that it's a nice business. I may disagree on how to value it but it's a business I'd like to own. I like the trends in lit finance, I like that cash flows are generally uncorrelated, and so on. Packer brought up a great point about PFIC that I can't find a specific answer to, but it sure seems like it would be classified as such. I don't know much about all of that so that's a bit concerning. I don't know what I'd pay for BUR yet but I think it's worth getting comfortable with them since I would own them at some price.

[cameronfen]

If the figures I'm using are wrong feel free to correct me. Maybe I made a mistake somewhere. If you really think Jeffries stated what Petersen is on the books for can you show me a quote or something? It just contradicts what I know about fair value accounting so it's hard to believe as is. I can tell you how I looked at taxes but there's only so much we can read in book taxes, given the corporate structure. It looks like unrealized gains represents most of EBT in the last 3 years.

 

Just looking at the table on p.30 (2018 AR). Unrealized gains were 36% and 39% of investments in 2017 and 2018, respectively. That's $387m and $621m. That implies $234m of unrealized gains reported in 2018 revenue. That is pretty darn close to the calculated number for Petersen in 2018. If we repeat this for 2016 and 2017, we get $214m in unrealized gains reported as revenue in 2017. In 2016, unrealized gains represented $87m.

 

From the 2016 AR, Petersen was written up some, but no where near all the way to a $400m valuation. Perfect, we can see that. In 2017, BUR says they are aware of the $660m valuation trades but did not rely on them. If they went to $440m valuation at this point (the second direct sale at this price and conservative to secondary trading), that roughly fits what we measure (~$300m total unrealized gains + $106m proceeds on $440m valuation). If in 2018 they went to $800m (again, 3rd direct sale now and conservative to secondary trading), that again fits what we can calculate.

 

All of this fit the situation of negative book taxes with high reported income. Taxable income would be much lower with these unrealized gains. This all fits the cash flow statements. If there's issues with breaking out Petersen like this I'm open to hearing them but this seems all seems consistent with everything I've read from BUR. That means Petersen represents the majority of earnings between 2016-2018.

 

As to the quality of the business, I agree with you and others that it's a nice business. I may disagree on how to value it but it's a business I'd like to own. I like the trends in lit finance, I like that cash flows are generally uncorrelated, and so on. Packer brought up a great point about PFIC that I can't find a specific answer to, but it sure seems like it would be classified as such. I don't know much about all of that so that's a bit concerning. I don't know what I'd pay for BUR yet but I think it's worth getting comfortable with them since I would own them at some price.

 

As far as more bearish arguments from me I got nothing.  Schwab's point about Peterson accounting for almost all of earnings is a better point than anything I could come up with. 

 

I will say, even though Peterson is will not occur every other year or even once every three years, but if you probably shouldn't necessarily model it as a one-off either.  LIT had one 56x and one 39x in a period of 7.5 years.  I couldn't find individual claims data for anyone else, but judging by everyone's reported ROIC of 1.6x or higher, I wouldn't be surprised if these occurred in some frequency in other players as well. 

[peterHK]

If the figures I'm using are wrong feel free to correct me. Maybe I made a mistake somewhere. If you really think Jeffries stated what Petersen is on the books for can you show me a quote or something? It just contradicts what I know about fair value accounting so it's hard to believe as is. I can tell you how I looked at taxes but there's only so much we can read in book taxes, given the corporate structure. It looks like unrealized gains represents most of EBT in the last 3 years.

 

Just looking at the table on p.30 (2018 AR). Unrealized gains were 36% and 39% of investments in 2017 and 2018, respectively. That's $387m and $621m. That implies $234m of unrealized gains reported in 2018 revenue. That is pretty darn close to the calculated number for Petersen in 2018. If we repeat this for 2016 and 2017, we get $214m in unrealized gains reported as revenue in 2017. In 2016, unrealized gains represented $87m.

 

From the 2016 AR, Petersen was written up some, but no where near all the way to a $400m valuation. Perfect, we can see that. In 2017, BUR says they are aware of the $660m valuation trades but did not rely on them. If they went to $440m valuation at this point (the second direct sale at this price and conservative to secondary trading), that roughly fits what we measure (~$300m total unrealized gains + $106m proceeds on $440m valuation). If in 2018 they went to $800m (again, 3rd direct sale now and conservative to secondary trading), that again fits what we can calculate.

 

All of this fit the situation of negative book taxes with high reported income. Taxable income would be much lower with these unrealized gains. This all fits the cash flow statements. If there's issues with breaking out Petersen like this I'm open to hearing them but this seems all seems consistent with everything I've read from BUR. That means Petersen represents the majority of earnings between 2016-2018.

 

As to the quality of the business, I agree with you and others that it's a nice business. I may disagree on how to value it but it's a business I'd like to own. I like the trends in lit finance, I like that cash flows are generally uncorrelated, and so on. Packer brought up a great point about PFIC that I can't find a specific answer to, but it sure seems like it would be classified as such. I don't know much about all of that so that's a bit concerning. I don't know what I'd pay for BUR yet but I think it's worth getting comfortable with them since I would own them at some price.

 

You're right unrealized gains are over 50%  of EBT. That's fine.

 

But I think you're placing too much weight on Petersen. Yes, the numbers line up but lets say they made an average of $80mn of unrealized gains on all their dozens of other investments, that then reduces how much Petersen was marked up by. I mean I find it highly unlikely given the fact they release their returns by vintage for everyone to see that Petersen is 100% or close to 100% of unrealized gains for the last 3 years.

[Pondside47]

If the figures I'm using are wrong feel free to correct me. Maybe I made a mistake somewhere. If you really think Jeffries stated what Petersen is on the books for can you show me a quote or something? It just contradicts what I know about fair value accounting so it's hard to believe as is. I can tell you how I looked at taxes but there's only so much we can read in book taxes, given the corporate structure. It looks like unrealized gains represents most of EBT in the last 3 years.

 

Just looking at the table on p.30 (2018 AR). Unrealized gains were 36% and 39% of investments in 2017 and 2018, respectively. That's $387m and $621m. That implies $234m of unrealized gains reported in 2018 revenue. That is pretty darn close to the calculated number for Petersen in 2018. If we repeat this for 2016 and 2017, we get $214m in unrealized gains reported as revenue in 2017. In 2016, unrealized gains represented $87m.

 

From the 2016 AR, Petersen was written up some, but no where near all the way to a $400m valuation. Perfect, we can see that. In 2017, BUR says they are aware of the $660m valuation trades but did not rely on them. If they went to $440m valuation at this point (the second direct sale at this price and conservative to secondary trading), that roughly fits what we measure (~$300m total unrealized gains + $106m proceeds on $440m valuation). If in 2018 they went to $800m (again, 3rd direct sale now and conservative to secondary trading), that again fits what we can calculate.

 

All of this fit the situation of negative book taxes with high reported income. Taxable income would be much lower with these unrealized gains. This all fits the cash flow statements. If there's issues with breaking out Petersen like this I'm open to hearing them but this seems all seems consistent with everything I've read from BUR. That means Petersen represents the majority of earnings between 2016-2018.

 

As to the quality of the business, I agree with you and others that it's a nice business. I may disagree on how to value it but it's a business I'd like to own. I like the trends in lit finance, I like that cash flows are generally uncorrelated, and so on. Packer brought up a great point about PFIC that I can't find a specific answer to, but it sure seems like it would be classified as such. I don't know much about all of that so that's a bit concerning. I don't know what I'd pay for BUR yet but I think it's worth getting comfortable with them since I would own them at some price.

 

Schwab711, it seems the way you justify the claim that most of the unrealized gains from 2017 and 2018 was related to Petersen, at least the way you laid it out in the quoted paragraphs, is by assuming Burford is guilty first and go out look for pieces that fit your theory.

 

It seems that the one piece of support to your claim is that your understanding of FV accounting. But people who has a different view understands accounting two. I would say FV accounting is already grey and FV accounting for litigation funders is even worse. Here, previous good behaviors of Burford mean more to me than rigid accounting rules.

 

Could what you are claiming be right? Absolutely! But the way the reasoning was presented is not enough to convince me. There are evidence out there that support the opposite. Burford rarely has written down an investment that was written up and it would be imprudent to mark up to 800m valuation based on a 3.75% stake sale. I read all the Burford reports several times from the 2009 one, and I get the sense that the managements are rather forthcoming and transparent. They laid things out so that it is easy to understand despite of them being a bunch of lawyers. I found Benthem reports very hard to follow.

 

[Guest Schwab711]

What do you mean by good behavior?

 

 

People questioned why I thought BUR was using market pricing to conclude unrealized values so I showed. I can further show why I think Petersen in particular is the subject but at some point my point is not to convince you. I can't short BUR and I'm not going long at these prices so I have nothing to gain right now. I'm just walking you through some of the DD steps I took. Do what you want with it.

 

One thing I'd note about the "conservative" accounting angle is the knock-on effects. We know exactly when BUR adjusts the FV of its investments. They state that they will update if there is a court granted summary judgement. Along the way, they must mark investments to FV, so they favor looking at settlement offers or market transactions like sales of an interest and secondary trades. They state they are conservative. That's fine but if they are too conservative then the opposite side of "BUR BV is undervalued" is "BUR has cookie jar accounting". Cookie jar accounting is a loaded term and I'm not suggesting funny business has occurred. What I'm saying is if BUR is as conservative as you are saying then we also have a problem. We have a problem because the nature of BUR's return distribution and the lack of similar Petersen like homeruns raises the question of where are all the unrealized gains coming from? Is cash generation too low if the unrealized gains are not Petersen related? Various other accounting questions are raised if we assume Petersen accounting is too conservative. I haven't finished tackling this outcome (I also don't think it's probable) but it's something to consider if you don't agree with my previous posts.

[writser]

Page 23 of the 2018 AR they say:

 

Very large and widely diversified investment

portfolio comprised of $1.9 billion in traditional

litigation finance investments (and $3.2 billion

when including principal strategies and fund

investments)

■ 1,110 individual litigation claims underlying

investment portfolio

■ No concentration – no defendant represents

even 5% of total commitments, no single case

capital loss would amount to more than 3%

of total commitments and our largest law firm

relationship accounts for 17% of investments

across more than 50 different partners

 

That seems hard to square with a $800m valuation for the Petersen case, or not? Though how a lawyer defines 'defendant', 'total commitments' or 'single case capital loss' and if this includes 'principal strategies' or 'fund investments', I don't know.

[bizaro86]

Page 23 of the 2018 AR they say:

 

Very large and widely diversified investment

portfolio comprised of $1.9 billion in traditional

litigation finance investments (and $3.2 billion

when including principal strategies and fund

investments)

■ 1,110 individual litigation claims underlying

investment portfolio

■ No concentration – no defendant represents

even 5% of total commitments, no single case

capital loss would amount to more than 3%

of total commitments and our largest law firm

relationship accounts for 17% of investments

across more than 50 different partners

 

That seems hard to square with a $800m valuation for the Petersen case, or not? Though how a lawyer defines 'defendant', 'total commitments' or 'single case capital loss' and if this includes 'principal strategies' or 'fund investments', I don't know.

 

I imagine "commitments" is measured based on the money they committed to fund cases, not their current book value. So a single home run could be a significant portion of book without being a significant portion of commitments, if that now have it valued at many times what they originally committed to pay for the interest.

[writser]

Yeah I think you are correct. Bit of a cheeky way to promote your portfolio diversification in that case ("yes we are very diversified but if the Petersen case implodes worst case we lose 1/3 of our assets"). Also on page 14 they show a chart for "Balance sheet commitments" though by the same reasoning that chart has nothing to do with the balance sheet.

 

Bit like WEB saying his personal portfolio is very diversified .. When looking at cost basis.

[Guest Schwab711]

Page 23 of the 2018 AR they say:

 

Very large and widely diversified investment

portfolio comprised of $1.9 billion in traditional

litigation finance investments (and $3.2 billion

when including principal strategies and fund

investments)

■ 1,110 individual litigation claims underlying

investment portfolio

■ No concentration – no defendant represents

even 5% of total commitments, no single case

capital loss would amount to more than 3%

of total commitments and our largest law firm

relationship accounts for 17% of investments

across more than 50 different partners

 

That seems hard to square with a $800m valuation for the Petersen case, or not? Though how a lawyer defines 'defendant', 'total commitments' or 'single case capital loss' and if this includes 'principal strategies' or 'fund investments', I don't know.

 

I imagine "commitments" is measured based on the money they committed to fund cases, not their current book value. So a single home run could be a significant portion of book without being a significant portion of commitments, if that now have it valued at many times what they originally committed to pay for the interest.

 

It's exactly that. It has only a moderate relationship with balance sheet value.

 

I tried to consider if 17% of investments meant the balance sheet item but I think it's investment count (17% of 1,110).

[cameronfen]

This is speculation, but the thought occurred to me.  Maybe this was mentioned already.  For the intial sale, why do you sell a 3.75% stake in Peterson?  If you are derisking, it makes sense to sell 20% or 30% of an asset worth 50% of your book value, but 4%, why so little?  If they need the money, they can easily tap the liquidity in the capital markets, compared to selling Peterson at valuations outside observers consider low.  I think the reason you sell such a small sliver is so they can write up the valuation.

[no_free_lunch]

Regarding the Petersen case.  This is all from the 2017 annual report.

 

In late 2016 and the first half of 2017, Burford sold 25% of its interest in the Petersen outcome into a secondary market we are working to build. The sale price of that interest was $106 million; Burford’s investment to date was approximately $17 million. Thus, Burford has no risk of principal loss in the matter and continues to hold 75% of its entitlement.

 

Since the secondary sales, there has been trading activity in the secondary market throughout the year at varying price levels, with the weighted average price in 2017 implying a value of around $660 million for Burford’s total original investment – in other words, the value placed on Petersen by third party investors has continued to climb from the $440 million valuation implied by our final tranche of sales

 

We have thus increased the carrying value of  our remaining investment in Petersen. We do  not release individual investment carrying values for reasons of client confidentiality and litigation strategy but we can say that we have acted conservatively with respect to Petersen as is  our general practice. In the end, we altered  the carrying value of 15 investments in 2017  and the net increase in value across all of those investments was $181 million, so it is clear that  we have not increased the carrying value of Petersen to anything approaching its secondary market trading level, which we do not regard as determinative of our own carrying value.

[peterHK]

Look at Teinver as an example of how Burford marks cases.

 

Teinver was a $140 million payout, and we know that it was held at far less than $100mn even after a favorable judgment. As per the 2017 annual report:

 

"We invested approximately $13 million in the matter, and the carrying value subsequently increased to $30 million several years ago following a mid-case success on an important

jurisdictional matter."

 

Burford won the case in July 2017, the above statement was as of December 2017. The case was sold in March of 2018, meaning the realized gain would show up in the mid year report.

 

Burford realized almost 200mn in income from gains in H1 2018, 62% of that is realized or ~$124mn. The more of this that Teinver accounts for, the lower the original mark, so let's say Teinver is 1/2 of this gain: that means it accounted for $64 million of realized gain. Teinver sale of $107 less the $13mn cost, means $94mn of gain, less $64mn means this was still held at $30 million on the balance sheet until the sale.

 

We can also corroborate this with the chart that Burford provides on page 6 of it's 2018 interim report showing that of the concluded portfolio, 4% of valuation changes occurred 4 years to conclusion, 7% 3 years; 12% 2 years; and only 35% by 1 year to conclusion. This means that 65% of their investment profit has never been taken before investment conclusion. This is why it is rare for investments to swing to a loss after incurring a write up: they do not write up cases significantly until they are concluded.

 

I seriously don't understand how, if you've done the work, you can't get comfortable with this stuff. Burford goes to such great pains to explain and provide data about what they do.

[Guest Schwab711]

I seriously don't understand how, if you've done the work, you can't get comfortable with this stuff. Burford goes to such great pains to explain and provide data about what they do.

 

I appreciate you clarifying what you meant. Nothing you said contradicts what I've wrote so far. I agree with you that what I've wrote is not conclusive. I don't know it to be true, I only said that it is consistent with everything BUR has provided us (which is also consistent with what you have wrote). That's the issue, right? There is not enough information to know where the money is coming from. That's fine, but it is that ambiguity that is causing our disagreement over what the financial picture is because there are many possible realities.

 

One correction. The table on p.6 of the 1H2018 report implies that 42% of investment profit is taken at conclusion (1 - 4% - 7% - 12% - 35% = 42%). That's kind of my point. BUR provides a lot of data, but it's not always straightforward how to apply it.

 

 

There are plenty of things BUR could do to reduce uncertainty over what their historical financials actually mean:

BUR could obviously just provide the marks of their 10 interests.

They could breakout the realized and unrealized gains and losses each reporting period instead of providing approximate figures on a net basis.

They could provide a table that shows the valuation technique used for non-cost based FVs.

They could disclose the mark for interests representing more than 10% of total investments.

They could just disclose the mark for Petersen, which is obviously material to the valuation of BUR at the moment.

 

I don't understand why it bothers you so much that I'm providing earnest push-back. That's the point of an investing forum. It goes without saying that knowing the mark used for Petersen or any of the large interests would obviously make it easier to value BUR. Why give BUR credit for better disclosure than they actually provide just because of their prior returns? On one hand, everyone acknowledges they are a blackbox. On the other hand, not just you but many point to the amount of data BUR provides and their conservative accounting. So what gives? So are they a blackbox or is there great disclosure? If there was great disclosure then we wouldn't be trying to figure out what gains were taken when and to what magnitude.

[peterHK]

I seriously don't understand how, if you've done the work, you can't get comfortable with this stuff. Burford goes to such great pains to explain and provide data about what they do.

 

I appreciate you clarifying what you meant. Nothing you said contradicts what I've wrote so far. I agree with you that what I've wrote is not conclusive. I don't know it to be true, I only said that it is consistent with everything BUR has provided us (which is also consistent with what you have wrote). That's the issue, right? There is not enough information to know where the money is coming from. That's fine, but it is that ambiguity that is causing our disagreement over what the financial picture is because there are many possible realities.

 

One correction. The table on p.6 of the 1H2018 report implies that 42% of investment profit is taken at conclusion (1 - 4% - 7% - 12% - 35% = 42%). That's kind of my point. BUR provides a lot of data, but it's not always straightforward how to apply it.

 

 

There are plenty of things BUR could do to reduce uncertainty over what their historical financials actually mean:

BUR could obviously just provide the marks of their 10 interests.

They could breakout the realized and unrealized gains and losses each reporting period instead of providing approximate figures on a net basis.

They could provide a table that shows the valuation technique used for non-cost based FVs.

They could disclose the mark for interests representing more than 10% of total investments.

They could just disclose the mark for Petersen, which is obviously material to the valuation of BUR at the moment.

 

I don't understand why it bothers you so much that I'm providing earnest push-back. That's the point of an investing forum. It goes without saying that knowing the mark used for Petersen or any of the large interests would obviously make it easier to value BUR. Why give BUR credit for better disclosure than they actually provide just because of their prior returns? On one hand, everyone acknowledges they are a blackbox. On the other hand, not just you but many point to the amount of data BUR provides and their conservative accounting. So what gives? So are they a blackbox or is there great disclosure? If there was great disclosure then we wouldn't be trying to figure out what gains were taken when and to what magnitude.

 

I think you're reading that table wrong. It is cumulative not incremental. So that final number is that cumulatively over 4 years 35% of profit is booked, not that an additional 35% of profit is booked in year 4.

 

This is their language:

 

"So, across our total portfolio, only 7% of our

ultimate investment profit was ever recognised in

investments three years prior to their conclusion,

rising to 12% two years prior to conclusion and to

35% one year prior to conclusion."

 

I read that as investments are marked to 35% one year prior to conclusion, implying that 35% of gains are realized by year 4, not IN year 4. I don't think the language is that confusing.

[Pondside47]

Given the location of the internal portfolio (Guersey) is this considered a PFIC for US stockholders or are the any other non-standard tax issues?

 

Packer

 

I have heard back from their IR person It’s pretty much what I expected that Burford cannot comment on the issue. FWIW, the IR person’s personal opinion is that Burford is not a PFIC.