Founders' message

Christopher Bogart & Jonathan Molot

While already pervasive, with Burford doing more than a billion dollars of new business in each of 2021 and 2022, legal finance had two breakout moments recently.

First, a segment of the top-rated non-sports primetime television program in the US, CBS’s 60 Minutes, introduced legal finance—and Burford—to almost 10 million live viewers in December and highlighted the benefits of what we do for businesses and the legal system generally.

Second, while legal finance transactions are often confidential, it was revealed that Sysco, the Fortune 100 food distributor, had taken more than $140 million in capital from us to monetize a series of its antitrust claims—a prototypical Burford transaction but rarely publicly visible. This shows the keen interest among businesses of all sizes in external capital solutions for arbitration and litigation assets.

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Burford’s integrity, professionalism and legal skill are second to none.

Barrister in a leading chamber, 2019

This feels like a tipping point: No matter their size, companies expect law firms and in-house legal teams to be ready with innovative legal financing solutions and ideas. Indeed, in 2022 interviews, nearly six in ten in-house lawyers said that their outside counsel had either talked to them about legal finance or that had they done so it would have aided their company’s success.²

This mainstreaming has been accelerating and will accelerate still more in 2023. Given that, as the industry leader with a global perspective based on the hundreds of billions of dollars’ worth of commercial disputes we review every year, we’d like to share our take on the trends that will matter most this year.

The courts will reach their fastest pace since before Covid

While it may take some time for courts to work through a sizable Covid backlog, in 2023 we’ll see the courts operating at their fastest pace since before the pandemic. To cite an example close to home, in Burford’s portfolio, in 2022 we had 11 matters go to trial or a merits hearing. By contrast, we entered 2023 with over 30 matters scheduled for trial or merits hearing this year, and many others in which some substantive litigation progress is expected to occur. We are already seeing positive outcomes in 2023, with a settlement in February, a trial win in February, an arbitration award in March and a successful appellate resolution in March. Beyond Burford, Lex Machina recorded 329 US federal civil cases that had ended in a trial in 2023 as of March 31. By contrast, for the same period of time in 2022, 180 cases ended at trial, and in all of 2019, 361 cases. Clearly, the system is not only back to normal but whittling down its Covid backlog.

Rising commercial disputes will create demand for risk-sharing

As the pace of adjudication picks up, we’re also seeing an increase in disputes driven by precarious economic conditions, inflation and higher interest rates.³ Bankruptcies long predicted following the pandemic are on the rise, and according to Bloomberg data as of January 30, 2023, large Chapter 11 filings are at their highest level since 2010. In 2023, we will likely see an increase in breach of contract disputes stemming from Covid, just as disputes stemming from the 2008 financial crisis surged in the 2010s. And financial stress very often uncovers and exacerbates fraudulent activity—as Warren Buffet famously said, “You only find out who is swimming naked when the tide goes out.”

As commercial disputes increase against a backdrop of economic uncertainty, companies and law firms will increasingly look for risk-sharing solutions to offset the impact of pursuing meritorious claims. And with the recent run on a handful of regional banks still in the headlines, companies will be on heightened alert to offload risk wherever and whenever they can.

Short-term pressures needn’t mean short-term thinking

Clearly, economic conditions are top of mind: 70% of CFOs are very concerned about the impact of macroeconomic conditions on their businesses,⁴ and inflation and anticipation of an economic downturn put pressure on companies and their legal teams to manage expenses and cashflows. Simultaneously, law firms face declining client demand for legal services and for lucrative dealwork.⁵ According to the 2023 Citi Hildebrandt Client Advisory, “firms are carrying high levels of unbilled time in their inventory, up 5.8%” in 2022.

But while there are urgent pressures to cut costs, companies and law firms can avoid making decisions that may reduce expenses in the short-term but negatively impact future earning potential and growth—for example, as some firms are already doing in cutting talent.

The positive trend we see is that companies and law firms are using legal finance as a hedge against short-term pressures. For corporate clients, an increasingly popular form of legal finance is monetization, in which a portion of the expected damages of an ongoing litigation or arbitration claim is accelerated on a non-recourse basis, as in the Sysco example discussed above. We also frequently fund the fees and expenses of companies’ affirmative recovery programs or individual high value claims to equip them with the means to be made whole without blowing legal budgets in the short term.

Law firms also increasingly consider legal finance as a hedge against short-term pressures, by providing the funding and flexibility to invest in practices that traditionally perform well in a down cycle rather than reactively cost-cutting, redeploying underutilized lawyers towards affirmative litigation (demand for which is likely to increase amidst economic instability). A portfolio-based capital facility allows law firms to represent clients with strong claims on a contingent or other alternative fee basis regardless of clients’ ability or willingness to pay hourly fees.

Entrepreneurialism from the plaintiffs’ bar will inspire innovation in Big Law

Another noteworthy trend is Big Law drawing inspiration from the entrepreneurialism of smaller firms, particularly litigation boutiques—and given the economic pressures in the business of law, this trend is likely to become more pronounced in 2023.

Large law firm profits took a hit in 2022—there were fewer mega deals, stronger demand for middle-market M&A, and more litigation work went to the AmLaw “second hundred”⁶ as clients sought lower rates for similar quality,⁷ creating economic incentives for shifts at the biggest firms.

Among the entrepreneurial examples borrowed from smaller firms, Big Law increasingly uses legal finance not just to bridge the gap with fee-fatigued clients but to initiate or expand practice areas where there is growth opportunity. Burford, for example, has received funding inquiries from 93 of the 100 largest US law firms by revenue and 89 of the 100 largest global law firms by revenue according to the 2022 rankings by The American Lawyer, as well as large regional firms and litigation boutiques.

Institutions affiliated with Big Law reflect this trend. Legal finance is being taught in law schools—normalizing the industry and along with it plaintiffs’ lawyers’ commercial best practices. Law schools in the US offering courses in legal finance include Harvard, the University of Pennsylvania, New York University, Vanderbilt University, Georgetown University, Boston University and UC San Francisco (Hastings). Students at Harvard Law formed the Harvard Plaintiffs’ Law Association in 2019—upending previously assumed default options for the most elite young lawyers.

As AI makes headlines, data-driven decision-making is needed in litigation and arbitration

ChatGPT gets the headlines, but the real story for lawyers is that there’s not enough data-driven corporate decision-making in litigation and arbitration.

Other areas of the business already routinely use data to model decisions about how to use the company’s resources and available capital: 53% of CFOs say they plan to accelerate digital transformation using data analytics, AI, automation and cloud solutions.⁸ While companies and law firms increasingly recognize the important role of data in modeling disputes,⁹ commercial disputes are often a data-based decision-making blind spot, largely because companies lack sufficient data and breadth of experience in-house to evaluate their litigation portfolios. As an assistant GC and director of litigation at a health insurance company put it, “We don’t have a portfolio of cases from which we can create metrics for application to future matters. Many of these cases tend to be their own little unicorns.”¹⁰ Even large litigation boutiques may lack robust data.

Burford continues to close this data gap for our funded clients. We have built a significant proprietary data set since our inception in 2009, and we use this data alongside third-party data to undertake quantitative modeling using our own proprietary analytical tools. Clients receive the benefit of our robust data sets on high stakes commercial disputes as well as our acumen and precision in modeling to help their companies better identify, prioritize and extract value from litigation and arbitration assets.

As companies become much more selective about spending, advanced scenario planning and modeling can inform strategic capital decisions—and the legal department should be no exception.¹¹

The legal finance landscape will bifurcate

In recent years, it has become increasingly evident that very large companies are using legal finance at scale. In 2023, that trend will continue—and will in turn accelerate a tendency toward bifurcation in the marketplace, in which very large companies and law firms increasingly turn to large and established legal finance partners that have the scale and stature to provide service at the same level as those large companies’ other institutional-quality partners. Already, in-house lawyers are most likely to cite reputation and experience as the most important factors in choosing a legal finance partner.¹²

Burford has shown year after year that we are operating at an institutional-quality level, and that we have professionalized the business of legal finance. Since inception, we have generated more than $2 billion in cumulative realizations to Burford,¹³ and multiples more in recoveries to our clients. More than 90% of the concluded matters in which we have invested since inception have resulted in wins for our clients. We have the best-known brand in the space,¹⁴ and “professionalism” is the most frequent noun clients use to describe what it's like to work with us.¹⁵

It makes us proud to see Burford’s capital and expertise benefit our clients—and we look forward to the opportunity to work with you in 2023.

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“Burford is responsive, thoughtful and an overall pleasure to work with.”¹⁸

Burford’s team of lawyers includes former GCs, senior in-house litigators and outside counsel for Fortune 500 clients. We’ve worked with hundreds of corporations and consistently hear how much they value our professionalism, expertise and responsiveness.

Capital raises and ample liquidity met client demand

Burford raised an additional $1 billion dollars in 2022, including a fund that makes Burford better equipped to finance all matters from pre-filing to post-settlement. Burford ended the year with a strong cash and liquidity position, augmenting our ability to finance all legal needs.

Corporate use of legal finance continued to grow

As of 2022, corporate clients represented 57% of Burford’s current commitments—up from 30% in 2016¹⁹ as CFOs and GCs became better educated about financing their companies’ litigation and arbitration assets. As the only NYSE and LSE dual-listed legal finance provider, Burford is the institutional-quality partner to our clients.

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“Not many [funders] have access to the kind of capital that Burford does.”²¹

With permanent capital, Burford can provide capital quickly and has the scale to provide $5 million to more than $100 million in financing at once.

Almost $1 billion in financing on behalf of clients in 2022

In 2022, Burford wrote almost a billion dollars’ worth of checks on behalf of our corporate and law firm clients—almost double the amount deployed just five years ago.²² Our clients used the capital to pay legal fees and expenses and invest in their businesses and teams.

More than double the size of the nearest competitor

Burford’s size²³ isn’t just for bragging rights. Clients benefit from the flexibility and stability that come with our scale, diversification and variety of capital sources, ensuring that they will have access to competitively priced capital for the duration of their commercial disputes.

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“Burford has the experience, skill and personnel to respond very quickly.”²⁴

Burford’s team of more than 155, including 60 lawyers,²⁵ has a track record of success based on thoughtful, innovative and responsive solutions to our clients’ unique needs.

Clients used our capital to finance a range of disputes

Burford works with law firms and Fortune 500 and FTSE 350 companies to finance their most complex, costly and time-consuming commercial litigations and arbitrations.

Proprietary data drove decision-making and value

Burford reviews hundreds of billions of dollars’ worth of litigation and arbitration—and has built a commercial disputes data set not available elsewhere. This data helps clients identify, prioritize and extract greater value from their litigation and arbitration assets.

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“Burford has attracted really smart, talented lawyers and that has helped them gain a reputation for being able to pick winning cases...”²⁸

Burford’s investment team has a sterling reputation for choosing matters that win and for sharing insights that help our clients get the outcome they want.

Experts at assessing matters for investment

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Burford’s global reach expanded to meet client demand

In 2022, Burford continued to grow with the addition of a Dubai office and a bigger European footprint. Burford has also continued to add leading legal talent to its global operation. Expanded client demand for legal finance offerings, combined with greater acceptance of and need for legal finance across global jurisdictions, have resulted in Burford’s continued growth.

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How Burford can help companies in 2023

In 2023, as businesses grapple with ongoing volatility and uncertainty, rising interest rates and global banking instability, conserving cash and managing risk are of paramount importance. Burford can help companies generate value from their litigation and arbitration assets—without impacting control.

Fund claims and recoveries

We take on the financial burden of paying lawyers to pursue meritorious high value claims.

Eliminate downside risk

As non-recourse financing, our investment and return are contingent on a client win, so clients can lock in guaranteed minimum returns and shift legal risk off their books.

Manage cash flow

We accelerate expected entitlements so companies can time cash flows from pending claims and awards based on their desired schedules and enhance their liquidity and working capital.

Identify opportunity

Our proprietary data and industry-leading insights help legal teams set priorities for their commercial litigation and arbitration portfolios.

Manage exposure

We can provide a hedge for litigation risk in the company’s portfolio.

Enforce judgments

Funded enforcement and asset recovery transforms unenforced judgments and non-performing loans from “legal paper” into cash.

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Monetization

Monetization advances a portion of the expected entitlement of a pending claim, judgment or award—enabling companies and law firms to unlock 2% to 50% of pending value rather than waiting years for matters to settle or resolve at trial.

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Fees & expenses financing

Burford provides capital to pay legal fees and expenses or provide working capital at any stage of litigation or arbitration.

Benefits

• Offset rising legal costs: Legal departments can use financing to ensure they have the capital they need to protect the business and pursue high value matters.
• Eliminate risk: Financing transfers litigation risk to Burford. Capital is provided on a non-recourse basis, with Burford earning its investment back and a return only if the matter resolves successfully; if a loss, there is no obligation repay Burford.
• Add value to business: Financing transforms claims from burdensome expenses to assets with upside potential.
• Work with counsel of choice: Legal finance bridges the gap for companies that prefer not to pay their lawyers by the hour.

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Asset recovery

Burford helps clients overcome the enforcement and collection hurdles that stand in the way of recovering money once a favorable judgment or award has been obtained but the opponent hides assets or refuses to pay.

Benefits

• Enforce without risk: Combining finance and asset recovery, Burford funds all legal, enforcement and investigative costs, with repayment contingent on a successful resolution.
• Asset tracing: When legal finance is not required, Burford can trace assets of individuals, commercial entities or sovereign states on a consultancy basis.
• Inform decision-making: Burford can gather intelligence that can inform engagement strategy and effect settlement.
• Sell judgment debts: Burford can immediately monetize a judgment by acquiring debts, either outright or by partnering with a creditor.

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How Burford can help law firms in 2023

As they prepare to weather contractions in legal budgets and reductions in lucrative deal work, legal finance can help law firms protect revenue by providing capital to represent clients in high value litigation and arbitration as well as to invest in growth, generate new business and improve client relationships.

Win new clients

Portfolio-based capital facilities enable the firm to pitch new business with client-friendly terms or to pursue new high-value growth areas without taking on unacceptable levels of contingent risk.

Keep current clients happy

We pay fees and expenses when hourly clients experience fee fatigue.

Maximize firm profitability

We provide a pool of capital to offset the risk associated with outcomes or realization rates.

Manage cash flow

Financing helps the firm time cash flows associated with pending contingent work based on their desired schedule.

Increase firm revenue

Financing can equip the firm to expand practice areas, grow contingency portfolios and open new offices—without added risk.

Protect profits-per-partner

We provide a portfolio-based capital facility that helps firms manage partner compensation for contingent work in a primarily hourly firm.

Accelerate client receivables

We advance fees for outstanding receivables—including both unpaid time already billed and WIP—facilitating revenue recognition while removing pressure to discount fees or harm client relationships.

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Portfolio finance

Portfolio finance gathers multiple litigation or arbitration matters into a single funding vehicle to unlock significant and flexible capital.

Benefits

• Better pricing: Because risk is diversified across multiple matters, cost is often lower.
• Revenue growth: Law firms can pitch new clients with attractive terms, expand geographically or grow a new or existing practice area
• Working capital: Companies and law firms can use portfolio-based capital for broad business needs.
• Financing defense: Companies can use the affirmative matters in their portfolio to pay costs associated with defensive positions.

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The Equity Project

As the world’s largest provider of legal finance, Burford is keenly aware that few of the high-stakes commercial disputes brought to us for funding are led by female or racially diverse lawyers. In 2018, we launched The Equity Project to begin to change this, earmarking $50 million in legal finance capital to fund matters led by women.

In 2021, we earmarked an additional $100 million to fund commercial litigation and arbitration led by female and racially diverse lawyers. We also committed to contribute some of our proceeds from future Equity Project funded matters on behalf of our clients to charitable organizations focused on closing the diversity gap in law.

As of 2022, we have committed a cumulative $145 million to fund qualifying Equity Project matters.

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References

1 Barrister in a leading chamber, 2019
2 Burford Capital, 2022 GC Survey
3 “With economic downturn, the need to pull the trigger on claims intensifies: Leading city litigators look at the key disputes tends for 2023,” Legal 500, January 25, 2023
4 “Finding growth within turmoil”, PwC Pulse Survey
5 “Q4 2022 Law Firm Financial Index: No surprises at the end of 2022, but could a turnaround emerge?”, February, 13, 2023, Thomson Reuters
6 Citi Private Bank Law Firm Group and Hildebrandt Consulting, 2023 Citi Hildebrandt Client Advisory, December 7, 2022
7 Aebra Coe, “Right place, right times: Midsize firms are having a moment,” Law360 Pulse, December 6, 2022
8 PwC, “What’s important to CFOs in 2023”
9 Steven Lerner, “Legal Analytics’ adoption buoyed by acceptance, versatility,” Law360, February 8, 2022
10 Burford Capital, 2022 Affirmative Recovery Programs Report
11 PwC, “What’s important to CFOs in 2023”
12 Burford Capital, 2022 Affirmative Recovery Programs Report
13 Burford Capital, business update dated March 16, 2023
14 Ibid
15 Based on client interviews with Burford staff, 2022
16 Founding partner, boutique firm focused on international commercial disputes, 2020
17 Burford Capital, business update dated March 16, 2023
18 Partner, Global 100 law firm, 2019
19 Burford Capital, Investor Event Presentation, November 2, 2021
20 Partner, Global 100 law firm, 2020
21 Partner, Global 100 law firm, 2022
22 This information, which is current as of 3 April 2023 has been compiled from public filings with regulatory agencies and other public information that is believed to be reliable, but Burford cannot warrant its accuracy. Firms that invest in litigation as one of a number of strategies are excluded both because of the absence of reliable data about their litigation-only investing. Firms that claim to have access to capital in press releases and otherwise are excluded if there are not confirmatory regulatory filings (required in many jurisdictions) and if there has not been observed market activity consistent with the claimed access to capital. All currencies have been converted to USD using exchange rates as of 3 April 2023.
23 Burford Capital, business update dated March 16, 2023
24 Managing partner, litigation boutique, 2019
25 Staff data cited here and elsewhere in this document is current as of December 31, 2022
26 Burford Capital, 2022 Affirmative Recovery Programs Report
27 Chambers rankings cited here and elsewhere in this document is drawn from the 2022 Chambers rankings
28 Partner, Global 100 law firm, 2019
29 Burford Capital, Capital Provision-Direct Portfolio
30 Burford Capital, Investor Presentation, November 2022; client data shown through June 8, 2022
31 Partner, AmLaw 100 law firm, 2020
32 Burford Capital, 2021 Legal Finance Report
33 Burford Capital, 2022 Affirmative Recovery Programs Report
34 Burford Capital, 2021 Legal Finance Report
35 Through June 30, 2022
36 Equity Project Capital recipient, litigation boutique, 2022