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2020: Setting a new ambition for legal finance

March 25, 2020
Christopher Bogart & Jonathan Molot

At the end of 2019, Burford Capital celebrated 10 years of being in the business of legal finance. At the start our second decade, we remain ambitious for our business, and we are gratified to have opened 2020 by announcing record-breaking client demand for Burford’s services in 2019, a year in which we wrote $1.6 billion in new business.

As we continue to evolve the legal finance industry, we’d like to take the time to explain to the law firms and in-house legal teams that are our clients how our ambitious approach to legal finance can benefit them.

More than capital

When we launched Burford in 2009, we entered a category then known as “litigation funding”, which most lawyers who knew of its existence thought of as merely the provision of capital by a third party to a commercial litigant who needed cash in order to pay lawyers so their claim could proceed. Even then, such a narrow use case for legal finance missed a lot of opportunity—and so we were eager then as now to work with in-house and law firm lawyers to help them understand why and how to use our capital.

Then as now, we advised companies of ways they could use our capital to unlock the otherwise captive value of pending claims without taking on debt to achieve those recoveries (because our financing is non-recourse capital, not a loan) and without lowering their quality or choice of outside counsel. Then as now, we advised law firms about how they could use our capital to maintain and grow their books of business. If they were hourly fee firms facing the loss of a client unable or unwilling to pay their fees, they could keep that client with our financing acting as a bridge; and if they were firms eager to take on client risk, they could use our capital to manage that risk and take on more when and where it made sense for their business.

Legal finance is a lot more than capital. If it required only money to be in this business, banks and other financial institutions could more than meet the market’s needs. And if money were the only thing law firms and in-house legal teams sought from legal finance, they would “buy” the cheapest money available. Legal finance has always been much more—and as we continue to lead the institutionalization of the legal finance industry, it is all the more so now.

This is why we advise our clients to be as ambitious in their use of legal finance as we are at Burford in how we practice and think about it. As we move into the next decade for Burford and legal finance, there are three ways in particular that in-house and law firm lawyers can elevate and improve their use of legal finance.

1. Finance strategically to manage the timing and risk of capital flows

Lawyers can use legal finance proactively to control for some of the most intractable obstacles of having significant value tied up in litigation as well as the inherent challenges of managing law firm cash flow. As contrasted to the old cliché of a claimant forced to use “third-party funding” because that claimant has no other choice, the proactive use of legal finance puts in-house legal teams and law firms very much in the driver’s seat.

Two excellent examples of this include portfolio-based capital facilities (as opposed to the financing of single matters) and monetizations (as distinct from fees and expenses financing). Monetizations allow lawyers and finance teams to advance the value of pending high-value claims and awards, thus removing pending litigation risk, accelerating cash flows and optimizing the timing of revenue based on business needs rather than judicial process. In 2019, we saw significant increase in interest in claim monetizations in particular, and the monetizations we financed included deals with multiple Fortune 500 companies.

Portfolio-based capital facilities enable in-house legal teams and law firms to offload significant risk associated with multiple commercial disputes, including both claims and defense matters. Although such facilities work well for both corporates and law firms, they are a particularly useful way for law firms to access capital to enter new markets and practice areas without taking on debt. Since Burford crafted the industry’s first portfolio-based capital facility in 2010, we have crafted such structures for numerous corporate counterparties and law firms.

2. Make legal finance choices based on excellence

In the same way that companies hire the right lawyers for their business-critical matters or the right investment bank for their deals, legal finance providers should be—and are—chosen based on excellence rather than price.

Research suggests most lawyers are already choosing legal finance providers based on the quality of their offering. According to the 2019 Legal Finance Report, the factor most likely to be cited by lawyers as very important in selecting a legal finance provider is expertise and track record; the least likely to be cited is cost. Cost certainly matters, but as this quote from a US general counsel interviewed for the 2019 Legal Finance Report affirms,

"The question is what can be offered beyond the money, such as the speed of due diligence, how easy you are [to work with] on due diligence, the funder's longstanding relationship with outside capital, and whether you can assist with case strategy. Reputation is also critical... You also want to find people with whom you would like to work… you don't want to be working with a jerk."

Burford’s track record reveals the impact of our excellence on our continued growth. Demand for our services and capital has grown significantly over our first decade, and last year we wrote 30 percent more new litigation finance business than the year prior.

Excellence matters. We advise clients to seek out legal finance based on the full scope of their needs and interests. They should not be distracted by the tendency in the media to emphasize the supply of litigation finance capital and to assert that the supply of capital to finance commercial litigation and arbitration will result in race-to-the-bottom pricing and a lowering of standards by providers.

We welcome anything that benefits our clients—and the factors that most benefit users of legal finance are the ability to work with providers equipped with the expertise and the scale of permanent capital needed to finance high-risk commercial disputes for the world’s leading companies and law firms.

3. Expect more of legal finance partners

We regularly hear from in-house and law firm lawyers that working with Burford’s team helped them be smarter and more ambitious about how they use legal finance, and indeed as we embark on our second decade, we’re excited and gratified by the growth and development of our team, which marries top quality former litigators from the world’s best law firms and in-house legal teams and commercially minded legal and financial analysts who know how to manage, budget and prioritize legal risk. As of the time of this writing we have about 130 people, including 60 lawyers.

Clients should expect a legal finance capital partner to provide not only appropriately priced, sufficient and reliable capital for their needs, but also the expertise to craft novel legal financing structures and the experience to offer insights into how to the best economic outcomes as efficiently as possible. The in-house legal teams and law firms we finance consistently tell us we add extraordinary value through the case management advice we offer. Our clients retain control of litigation and settlement strategy and decision making, but our expertise complements theirs—and helps us be good stewards of our investors’ money. We also offer proprietary data that can add valuable insights to help our clients make good decisions—even if they ultimately decide not to use our capital. That data derives in part from the extraordinary volume of commercial disputes we consider.

To be even better partners to our clients and investors as we continue to build the industry’s biggest and most complex litigation and arbitration portfolio, in January 2020 we announced a restructuring of our global team to invest new resources in case management. This investment in case management is good for our business and our clients’.

We remain ambitious about Burford’s prospects in our second decade, and we look forward to working with our clients in the year ahead.