In response to demand for capital structures that meet the individual needs of companies and law firms, Burford pioneered portfolio financing. The subject of an earlier post in this series, a portfolio financing arrangement functions like a capital facility, in which two or more matters are used to advance capital that may be used for a variety of purposes, including legal fees and expenses and for business purposes unrelated to the underlying claims.
Portfolio arrangements take many forms. Below, we take five minutes to explore one type of portfolio financing arrangement: The going-forward portfolio.
What is a going-forward portfolio?
Under a going-forward portfolio arrangement, Burford commits capital at closing to be put toward future new matters, which law firms will vet and choose to take on full or partial contingency. Burford and the firm negotiate terms in advance and agree on criteria for the types of cases the firm will consider for the portfolio. The pool of capital can be drawn upon for current and future matters—dramatically improving the speed with which law firms can approach and respond to clients and finalize agreements for new cases.
How do law firms use going-forward portfolios?
There are a variety of reasons law firms choose to leverage going-forward portfolios:
Win new business
Lawyers often turn down promising high value cases simply because their firms’ level of risk tolerance won’t accommodate the clients’ desired fee structure. That’s especially true in areas like international arbitration, where even cash-rich clients increasingly expect firms to share risk. Going-forward portfolios enable law firms to to pursue new practice areas and to pitch existing clients on cases that otherwise would go to different law firms. Lawyers can initiate client conversations with capital already in hand, allowing for improved speed to market, risk capacity and flexibility.
Pursue market-based opportunities
In certain financing arrangements, law firms can earmark some of the capital for other business development needs, like expanding into new geographic regions in order to take advantage of emerging business opportunities. Global claimants’ firm Hausfeld had experienced growing client demand for competition claims in Germany, but lacking a local office and unable to offer contingent arrangements in Germany, Hausfeld sought an alternative. A €30 million portfolio arrangement from Burford enabled Hausfeld to expand its practice in Germany to pursue competition claims.
Arm emerging partners for growth
Legal finance can serve as a critical tool for emerging partners with meritorious cases who are trying to establish themselves at their firms. In instances where emerging partners have meritorious cases that simply need additional capital to proceed, legal finance can be a critical tool for them to win new business and gain the internal approval needed to pursue strong cases.
What about “preferred pricing” facilities from funders?
What is the advantage of going-forward portfolios over “preferred partner” or “preferred pricing” arrangements with funders? The latter purport to put pricing in place for a law firm to give a designated funder a first look at single cases where funding is needed, and thus offer speed and ease of use. However, this is a case of marketing versus reality: Pricing is always ultimately negotiated on a case-by-case basis, thus providing no advantage of speed or savings to the law firm or the client.
Why use a going forward portfolio?
As companies continue to scrutinize legal costs, and as the market for legal services becomes increasingly competitive, legal finance will continue to offer law firms a powerful marketing tool that can act as a fulcrum for growth.
Fundamentally, Burford’s capital allows law firms to pursue matters with potential value for the firm without being limited by concerns about risk tolerance or clients’ ability to pay hourly fees. Having going-forward portfolio financing in place gives the firm a huge competitive advantage in obtaining new business—and enables lawyers to focus on what they do best: Litigate strong cases.