The case against Burford Capital has been made, and Burford’s response has subsequently been laid out. We’ve from heard from both sides on the issue, and it seems the market has spoken (said market can be fickle, however, so we’ll see what it’s saying six months or a year from now). That said, Muddy Waters’ allegations of Burford’s accounting impropriety cast a very long shadow over the industry, as illustrated by one prominent institutional investor’s decision to sell its holdings in Burford Capital.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
The case against Burford Capital has been made, and Burford’s response has subsequently been laid out. We’ve from heard from both sides on the issue, and it seems the market has spoken (said market can be fickle, however, so we’ll see what it’s saying six months or a year from now). That said, Muddy Waters’ allegations of Burford’s accounting impropriety cast a very long shadow over the industry, as illustrated by one prominent institutional investor’s decision to sell its holdings in Burford Capital.
As reported in Law Gazette, institutional investor Hargreaves Lansdown has decided to sell its positions in Burford. Hargreaves is an LSE-listed UK financial services ‘supermarket,’ which provides ISAs, pensions and other funds for private investors. So fund manager Steve Clayton’s decision to drop Burford from three of its funds is not a particularly good sign for the industry.
Perhaps most telling of all is the fact that Clayton feels Burford’s response essentially ‘demolished’ the arguments of Muddy Waters. Yet even still, Clayton sold off Burford.
Why? Because Clayton now sees a fundamental structural problem as pertains to litigation funding. Funders value their claims at the outset, and as a case progresses, that value either increases or decreases. Investors in litigation funders would love to know if their case values are increasing or decreasing as the years progress, yet funders can’t divulge that information, because it would signal to the claim’s counterparty how they felt about the case.
With limited diligence at its disposal, Hargreaves Lansdown has opted to walk away from its Burford Capital investments. Whether or not other institutional investors follow suit is anyone’s guess.
