Regular readers of this blog will know that I’m increasingly getting worried by the sheer level of money raised by alternative investment funds listed on the London Stock Exchange. Many of these funds are absolutely compelling and pushing money into very profitable niches, but overall the impression is of too much money flooding into too few quality opportunities.
Just two days ago on this blog (here), I observed that the big sovereign wealth funds are beginning to worry about the attractiveness of alternative assets, especially in Private equity and Property. These guys can ride out a huge spike in volatility but they’re seeing fewer, and fewer quality assets worth bidding for.
My worry is that this is true of more than just Pe and property. Whole swathes of the alternative asset spectrum are beginning to look a bit toppy.
Top of my list is litigation funding. I have been a long term fan of this alternative funding segment. I’m also a great enthusiast for Burford as an investment. Anyone who followed my frequent recommendations to buy the stock in my Financial Times columns will have made an absolute fortune by now. But I do worry that we might be nearing yet another ‘peak – ‘peak litigation funding’. Only a few weeks ago in this blog I warned that the big US business lobbies are coming after the litigation funders (again). See that particular blog at http://www.adventurousinvestor.com/2017/06/06/litigation-funders-meet-their-match/
Now we have the announcement on Wednesday that Burford Capital has closed an enormous $500m new fund. See the PR announcement below. If anyone is going to manage a fund of this size, then it should be Burford. It’s clearly spent many years building up a huge database of key cases to back. It’ll also be great news for its PLC investors – a 2 and 20 fee structure is increasingly unheard of but Burford has managed to pull it off.
But the cynic in me wonders whether we are close to the peak? Surely there’s not enough cases to support this sheer weight of money?
PR notice –
Burford Capital Closes $500 Million Complex Strategies Investment Fund
Burford Capital Limited (“Burford”), a leading global finance firm focused on law, announces that on 30 June 2017 its affiliate Burford Capital Investment Management LLC closed a new $500 million fund to invest in litigation-related complex strategies.
The new fund will invest in assets that Burford believes are mispriced and where value can be realized through recourse to litigation and regulatory processes. As such, Burford, through this new fund, generally will act as a principal as opposed to financier. The fund has already invested more than $100 million contemporaneous with its closing. Burford regards its investment strategies as proprietary and will not release information about its underlying investment strategies.
Burford will rely on its existing team of litigation and financial talent in connection with its investing activities in the new fund. It also has expanded the team by hiring a dedicated portfolio manager, Matthew Schoenfeld. Mr. Schoenfeld was most recently with Driehaus Capital and Morgan Stanley’s Special Situations Group and is a graduate of Columbia University and Harvard Law School.
The new fund is structured as an evergreen fund with a perpetual life based on continued LP commitments. Investors in the fund will pay Burford a management fee of 2% per annum on drawn capital and a performance fee of 20% of fund profits on each resolved investment, subject to a 5% per annum priority return to investors, after which the Burford performance fee will receive a traditional general partner catch-up.
Burford is enthusiastic about the opportunities in litigation-related complex strategies, and is attracted to a greater level of exposure to those investments than it would achieve simply through performance fee income. As a result, Burford has committed $150 million to the new fund from its own balance sheet (a commitment on which it will not pay fees). Burford’s employees and directors are similarly positive and have personally invested more than $5 million in the new fund. Thus, the amount raised from third-party investors on which fees will be paid is nearly $350 million.