“Burford (BUR) is a great example that human intelligence can also create great value”
Vltava Fund, an investment management firm, has released its Q3 2021 letter to investors – a copy of which can be downloaded here. In its letter to investors for the third quarter, Vltava Fund mentioned the two companies they recently owned and provided updates on the fund’s assets at the end of the last quarter. You can take a look at the top 5 holdings of the fund to get an overview of their top bets for 2021.
In Vltava Fund’s Q3 2021 letter to investors, the management company mentioned Burford Capital Ltd (NYSE: BUR) and discussed its position on the company. Burford Capital Ltd. is a Chicago, Illinois-based financial services firm with a market capitalization of $ 2.4 billion. BUR has achieved a 12.31% year-to-date return, while its 12-month returns are up 20.00%. The stock closed at $ 11 per share on October 5, 2021.
Here’s what Vltava Fund has to say about Burford Capital Ltd in its Q3 2021 letter to investors:
“Very few people can say of themselves that they are pioneers and leaders in an emerging industry that they themselves are helping to create, moreover that they have founded and run a company in that same industry. which was not only very profitable from the start but now occupies a dominant and sometimes even monopolistic position in the industry. I think Christopher Bogart, the CEO of Burford capital, could say that on his own.
Bogart is a lawyer by profession, and during the first two decades of his career he gained valuable experience in investment banking, corporate legal services, and litigation. This experience and his knowledge of the environment led him with Jonathan Molot to the idea of founding Burford Capital 12 years ago.
Burford is a global leader in an industry known as litigation finance. In common parlance, this means that Burford helps various large corporations, law firms, individuals and possibly other entities fund their litigation in return for a share of any potential compensation awarded by the court. Of course, they also bear the risk of failure. It’s hard to imagine an industry where the outcome would depend more on the skills, knowledge and experience of the people doing the work. It is one thing to be able to assess a court case solely from a lawyer ‘s perspective. But you also have to know how to work with probabilities and time horizons and be able to express all this in monetary terms.
I think not many people are capable of this with consistent results. Burford is clearly one such entity, judging by its results to date, the breadth of its customer base and its ability to complete large transactions. This combination gives it a very strong competitive advantage with almost monopolistic elements in certain parts of the market, which is, moreover, enormous.
Burford can be thought of as a private equity firm, except that Burford does not need to strive to “exit” individual investments in its portfolio. These “exits” are brought there by the courts themselves, and with much faster delays. If you take all of Burford’s closed investments over the life of the business, their ROIC is 95%. This means that on average, they double every investment. The IRR, which is a performance indicator that also takes into account the execution time of each investment, is 30% per year over the life of the business. In an age where artificial intelligence is discussed everywhere and human intelligence is sometimes a bit neglected, Burford is a fine example that human intelligence can also create great value. “
Based on our calculations, Burford Capital Ltd (NYSE: BUR) was unable to land a spot on our list of the 30 most popular stocks among hedge funds. Burford Capital Ltd (NYSE: BUR) has generated a return of 7.10% in the past 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small-cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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