The year 2019 marks the tenth anniversary of Burford Capital’s founding, in October of 2009. Over that ten-year period, Burford has become the world’s largest provider of legal finance, greatly evolving the breadth of legal capital we provide. Thus 2019 is also a milestone moment for the industry as a whole, and a natural moment to reflect on how legal finance has grown and where it is headed.
Legal finance is of course part of the larger approximately $800 billion legal services market, which in turn reflects macroeconomic forces—so rather than making predictions for the future of litigation finance in isolation, I’ll instead address the broader dynamics that will make legal finance increasingly valuable to lawyers at law firms and in legal departments, as well as C-suite leaders and finance professionals.
A decade of growth and evolution
Burford’s founding in October 2009 followed the technical end of the Great Recession in the US. But that economic trauma highlighted the value of legal finance given this blunt reality: Clients carry on with judgment enforcement and important commercial disputes in good and bad economies, but bad economies create enormous urgency to reduce and minimize legal department expenses. Thus, by October 2009, most law firms found themselves subject to even more extreme pressure from clients to negotiate and cut fees, to offer alternative fee arrangements and to take on more risk. Burford offered a solution—both to traditional hourly fee firms that wished to serve clients who couldn’t or wouldn’t pay hourly fees, and to hybrid and contingency-fee firms whose clients needed them to take on more risk, risk that the firms couldn’t always afford.
Even as the Great Recession faded from memory, these pressures on corporates and law firms became entrenched as the permanent “new normal” in the legal services market, and therefore from 2009 to 2019 we saw growth in demand for Burford’s capital that can only be characterized as explosive. In 2010, our first full calendar year in business, we made $99 million in investment commitments to commercial litigation and arbitration; in 2017, the last full calendar year for which we have released data on capital commitments, we committed $1.34 billion—a 1,254 percent increase. According to the annual industry research we began conducting in 2012, the number of lawyers who reported that their companies or firms have used litigation finance increased at least 237 percent between 2012 and 2018.
This period further saw not just growth but also evolution. At Burford’s founding, we offered funding for singular instances of commercial litigation and arbitration, most often to clients that were reacting to some external exigency or to the law firms that wanted to serve them. At the outset of 2019, by contrast, our capital is far more frequently deployed in portfolio arrangements, with a pool of capital backing multiple litigations and arbitrations, and used by strategic and forward-thinking legal teams and law firms that, far from being under any kind of duress, are simply being smart and proactive about how to manage their legal costs and risk and run their businesses as efficiently as possible. In 2017, the last calendar year for which we have publicly reported full year data, 54 percent of the capital we committed ($725.5 million) was to portfolio-based arrangements; five percent ($72.7 million) was to single cases.
Legal finance providers have also evolved. As Burford’s CEO, Christopher Bogart, recently noted: “There is a clear segmentation occurring among providers in the [legal finance] industry. In essence, a handful of litigation finance companies is behaving more and more like proper financial services brands, creating a big divide with other players and new entrants.” Over the course of the decade, as funders have come and gone, Burford has developed the relationships, expertise, proprietary data and operational standards one would expect of global financial services brands. Our team talks to thousands of lawyers around the world every year and worked with 70 of the Global 100 law firms in a 12-month period.
In the year ahead, uncertainty and risk will drive demand for legal finance
The year ahead promises to bring still more growth in demand for legal finance capital. Although the most compelling factors driving growth will be its value to law firms and legal teams, as I will explore below, it’s impossible to ignore the obvious macroeconomic and political realities that will impact the business of law and the world of business generally:
- Economic Concerns
No one can know for certain whether and when an economic downturn will occur, but some high-profile companies are lowering investor expectations (e.g., Apple and Samsung, citing decreased consumer demand in China) while still more are preparing for its eventuality.Whether actual or preemptive, such responses to an expected slowdown will tend to result in an increase in disputes—for example, as companies do battle with vendors and partners over contracts. Further, these economic concerns will exacerbate the unrelenting pressure to contain and offset costs that has become an accepted reality of the legal landscape since the last recession—and that legal finance addresses so well, by creating certainty for clients and law firms about the extent of their downside risk and moving the upfront costs of litigation off balance sheets to a third party.
- Political Uncertainty
Second, there is significant political uncertainty in major economies that will, again, tend to exacerbate the need to contain legal risk and cost through outside finance. In the UK and Europe, Brexit—however it unfolds—will reach a decisive next phase by March 2019. In the US, 2019 opened with a government shutdown dominating domestic news and US-China trade disputes continuing to cause concern for industries and companies across the global supply chain. These and other instances of political uncertainty create a climate in which tools that enhance law firms’ and legal teams’ ability to plan and manage risk—like legal finance—will become increasingly valuable.
Law firms and legal teams will seek opportunities for growth in 2019— and legal finance will help
While these negative macroeconomic and political forces will undoubtedly play a role in driving demand for legal finance in 2019, it’s more instructive—not to mention a lot more inspiring—to emphasize the positive value that legal finance offers its users at law firms and in legal departments, so I’ll close by offering some thoughts on the core user benefits of legal finance in 2019.
Law firms will use legal finance to drive growth and differentiate themselves with clients
Recent legal market forecasts have predicted that the increased law firm revenues of the last year will carry over into 2019. However, it’s likely that this increased revenue will be unevenly distributed across law firms, with the bulk of the benefit going to the very biggest players. That will in turn create a further incentive for the vast majority of firms that can’t rely on that increased revenue to do two things. First, they will need to seek out new ways to grow their business and profits. Second, they will need to seek out new ways to differentiate themselves with clients and with prospects. Legal finance can help them with both—in the first instance, by helping them pitch for new business with existing clients or new prospects with funding in place, and in the second, by helping them position themselves as innovative and nimble partners that can rapidly respond to client requests for alternative fee arrangements.
Corporate legal teams will use legal finance to grow their programs without increasing budgets
Over the last few years, an increasing number of legal departments have shifted from cost-cutting to redesigning their legal strategy, for example by “in-sourcing” work previously handled by law firms and alternative legal service providers. The emphasis is on innovation and delivering value. But even as legal departments increase their budgets, they will be increasingly focused on budget and risk management—and given that, legal finance will become an increasingly valuable tool. As my colleagues Rufus Caine and James Sexton explore elsewhere in this publication, an increasing number of “commercially-minded” legal departments will use legal finance to pursue affirmative recovery strategies with outside funders carrying the cost and risk of litigation and arbitration on their balance sheets. Although this means sharing the ultimate recovery with a third party, it enables legal teams to manage their programs with welcome certainty about their litigation and arbitration budgets—and in an uncertain market that will be increasingly valuable.