Burford Capital Limited (BUR) Q4 2023 Earnings Report, Transcript and Summary

Good morning and good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Burford Capital Fourth Quarter and Full Year 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Christopher Bogart, Chief Executive Officer. Christopher, you may begin your conference.

Thanks very much, and welcome, everybody. Thanks for taking some time to be with us today. As usual, I'm joined by Jon Molot, Burford's Chief Investment Officer; and Jordan Licht, Burford's Chief Financial Officer, and you're going to hear from all three of us, as we walk through the slides that have been put up on the website already, and after that, we'd be delighted to take your questions. When you look at these numbers, and I'm starting on Slide Four. When you look at these numbers, we're just so very pleased to be able to produce numbers like this for you and to have -- to be able to report on what was such a fantastic year. The last few years have been a little frustrating for us. We really started growing very rapidly in 2016. And if you look -- if you look back in history, in 2017, for example, we did a 11 times as much new business as we had done only four years earlier in 2013. And so given the life of our assets, we expected to be delivering great results a few years later from that growth. And instead of being able to do that, we ran headlong into COVID, headlong into the global pandemic. And so instead of delivering the results that we were expecting from that burst of growth that we've continued, we instead have spent the last two or three years saying to you, well, just wait for it, it's coming, trust us. And now this year, we can really say, instead of having another year of that, we can really show you what we've been so excited about over the last few years. Terrific results on sort of every quadrant of the business and these sort of speak for themselves. When I was walking through them with the team, they wouldn't even let me. The reason that we showed net income margin here, they wouldn't even let me put the rate of increase of actual net income. They thought it was too showy, at that mere 1,901%. And we're going to talk in a minute about YPF and YPF obviously was a substantial contributor to this, but it was far from the only thing that went well. Lots of things went well in the business and in the portfolio, and we're delighted to be talking about them. So turning to Slide Five. Slide Five gives you a little bit more data in a compressed form. And the headline of this slide is about our $7 billion portfolio, up 17%. I'd sort of add to that, the fact that if you look at the business on a perfect only basis, in other words, the piece of the business that delivers the greatest level of profitability for equity shareholders, that portfolio actually went up by $900 million, up 23%. So we're really pleased with what the future holds even though we've been able to deliver very meaningful realizations and cash generation during 2023. We saw a very significant portfolio activity, as we've discussed with you during the course of the year, and this really brings it all together. So a significant increase in portfolio velocity. Again, on a Burford only basis, $496 million of realizations. On a group-wide basis, that number is over $1 billion. And if you just sort of underline the second bullet there, taking YPF altogether, we nevertheless went up 67% over 2022. YPF, which Jon will talk about more in a minute, continues to progress. We're pleased with the asset management business and particularly with BOF-C. BOF-C has had the same dynamic that I talked about at the top of the call. We started investing BOF-C asset several years ago and they have been slower to come to fruition than we would have liked. But now they are just like the rest of the business, they're generating cash, and we are the beneficiaries of that cash generation. 88% of our asset management income this year came from BOF-C. And we've already now booked $135 million of income since its inception a few years ago. The business is not just seeing realizations. It's also generating cash. We had a significant amount of cash come into the business this year, $415 million, again, just on a Burford only basis. We ended the year with very strong liquidity. And we also ended the year with a significant receivable for a case that's a chunk of which was for a big case that settled in December, and that receivable is already paying. There's a payment plan in place for that, and we've already seen a bunch of cash from it in January and February. And I'll talk a little bit more later about that case. And AI and data science is something that we've talked about before, and it's something that we have been investing in for a number of years now. Sort of well ahead of the curve in terms of now the market enthusiasm for AI generally. And rather than take a lot of time to talk about it here, I actually just yesterday recorded a podcast hosted by John Quinn the Founder and the Managing Partner, Quinn Emanuel, the world's largest litigation law firm on this very topic. His podcast is called Law Disruptive. And I assume that episode will drop in the next few days. So if you're interested in that topic, you'll find a pretty fulsome discussion of what we do and how we do it on that podcast. Turning to Slide Six. This really goes back to what I saw at the beginning about 2016 being the beginning of our growth run. And so what we've done here is just to show you the scale of the change, we've picked a bunch of data points and showing you what the business looks like today compared to what it looked like in 2016. And it really as you just sort of pass your eyes over those dynamics, you can see that it's just been transformational in really quite a short period of time. And we're very pleased with how that's gone, and we're also very pleased with just what the market potential for Burford is, if you will, how many moats we've established and what that enables us to do in the market. Slide Seven is a slide that you've seen before, and it's really here just to remind you of the four pillars that we associate with the value proposition that we bring to the market. We've got this very large core portfolio. These are existing assets that are making their way through the litigation process. We obviously actively manage our portfolio, but at the same time, these are things that are going to have outcomes. And we've now got a 15-year track record of producing pretty predictable outcomes, and you can see there the kinds of consistent high returns we've been able to generate. So you start with a base of existing assets, you add to that the fact that we have this powerful origination platform that year after year has been able to write more than $1 billion of new business, an asset management business that is really showing it strikes now with BOF-C producing a significant amount of additional income for us. You can almost think of that as structural leverage, if you will. And then finally, we've got the icing on the cake, maybe quite a thick layer of icing from the YPF assets. Slide Eight gives you a little bit more detail about the fourth quarter. We didn't do this last year. People gave us some feedback that they'd like a little bit more information for the fourth quarter. So we've added this slide, and I'll -- through this slide and the next slide, I'll give you some -- a little bit more color about a big deal that we did during the course of the year that contributed to these numbers. But it's notable when you pass your eyes over these numbers comparing fourth quarter to full year, there does remain some real seasonality, some really year-end fourth quarter seasonality to this business. If you see in terms of committed dollars and in terms of realizations in both cases, we do a little bit less than half of the whole year's business in the fourth quarter. And that's just. I think a function of lawyers being procrastinators, very focused on year-end numbers, companies doing more settlements towards the end of the year. So the fourth quarter remains a significant dynamic in our world. And as you'll see from some future slides, there are also other points in the business, notably the first and third quarters, where things can be really very sleepy indeed. Turning to Slide Nine. This is, I think, a really interesting perspective on a couple of different dynamics in the business. So this describes a deal that we did in June. It was for a Fortune 50 public company in the US. We did a large deal, a $325 million commitment. We deployed $225 million of that commitment at the closing of the deal and the remaining $100 million was due to be deployed in December. That was across a portfolio of cases that this company has as a claimant. And this shows the unique capability that we bring to the market. First of all, virtually none of our competitors can do a deal of this size and scale. But beyond that, it shows that when we bring together the quality of the legal underwriting that we have, the quality of the financial services team, the data science work that we're able to do. All of that together enables us to structure innovative solutions for companies as opposed to just offering sort of an off-the-shelf litigation funding package, which is what you see a lot in this market. So this is the kind of thing that gets us to these clients in the first place and keeps them coming back. Now interestingly, what happens here does happen sometimes in litigation. We closed this deal in June. And rather than taking years and years and years to go through the process, this case settled pretty rapidly. It settled in December. We're going to get payments. This is the case I mentioned earlier that has already started to pay. And on that quite short exposure of our capital, we're going to make quite a lot of money, 32% IRR is just on the Burford direct capital, 37% IRRs when you include the fund income that we're going to make from it. So there's a -- and like anything, there's a pro and a con. That's terrific. It took us off risk immediately. We've made a nice profit in six months, who wouldn't like those kinds of returns on that profit. On the other hand, we didn't deploy the remaining $100 million because the case settled in time and we didn't get years of income flow from this case. And so as you turn to Slide 10, what you see there is a little bit of the impact of us. So if you start at the bottom, if you look at the deployments that we made, this is the bottom left-hand quadrant of the graphic. If you look at the deployments that we made there, if we had deployed the additional $100 million, that slide would have gone from what today looks like a decline to instead a new deployment record for us. And this is just the nature of the business. On a case-by-case basis, there is going to be variability like this. And it doesn't concern us because we're confident on a long-term basis of the ability of a number of cases to simply continue to take and use a lot of capital. And you can see in the sub-bullet, the other thing going on here is just a question of business mix of how many deals were monetizations that closed and how much capital each case uses during the course of its life. And so when we see variability like this, it doesn't cause us any particular concern because you go back to the top of this chart and you look at the top line, and what the top line is telling you is we're still writing a lot of new business, right? And the mix of that business changes a little bit, but we still are doing, we did on a group-wide basis, $1.2 billion of new commitments, on a Burford-only base of $691 million. So basically right on top of last year caused that's just a little variability caused by how much BOF-C takes. Obviously, would we always like more here? Sure. But one of the other dynamics is when the portfolio is really -- as it was in 2023 with so many trials and so many other litigation activities, there's effectively a finite limit to what the team can do between the combination of managing those activities and new business. And so we're very happy with the totality of the activity level during the course of the year. And the other thing, of course, this slide points out to you is that seasonality point that I've made before, this one is particularly stark in the top right corner, showing you the third quarter. And that's just lawyers not being very much interested in doing stuff like this during the summer and the early fall. And so with that, Jon will now take you through some of the real meat of the Portfolio Act.

Thanks, Chris, and thanks to you all for joining. I'm going to start with Slide 11 and like Chris, I'm very pleased and proud of what we're reporting here today. And there's a lot in here. But more than anything, I want to emphasize a point that Chris made that for a number of these calls now, I have said, I think the word is that I'm bullish about our portfolio, that I am very pleased with the matters that our team has rigorously underwritten and included in the portfolio and the deals we've closed and also monitoring closely the cases that we've already put on and watching them through the litigation process, I've been quite pleased with how they've been progressing. For a number of calls now, as Chris said, we've had to say yes, COVID slowed things down. We did have enormous growth some years ago that has increased the size of our portfolio and investors were waiting to see when would we see the realizations that would be a product of that growth. And my feeling was be patient, I'm bullish. There's been nothing negative. It's all been positive. And now finally, we can show you that, that is actually starting to kick in. I'm glad we can actually share those results with you, and you can see them with the tangible results. So from 2022 to 2023 on Slide 11, you see that our capital provision direct realizations just for the balance sheet, just for Burford-only were up 42% and were $496 million worth of those realizations. That's -- it's just a much bigger number and it reflects the growth in our portfolio and those matters, finally making their way through the process. And keep in mind, as the third bullet on the page shows, this is just balance sheet. If you look at group-wide, it's more than $1 billion in realizations, so more than twice that. And if you had a chance, there hasn't been much time to look at the shareholders letter, and Jordan will speak to it later, we've let everyone know that as we saw a greater opportunity in this market and we realized we could scale up our business. We decided the prudent way to do that was to finance that growth with fund capital. Based on how much debt was available to us in the UK markets before we had a US listing, and also just in terms of being prudent stewards of your capital, we didn't want to take on too much debt too quickly and fund capital seem the right way to do it. And so we've generated this machine that is capable of putting out much more capital than our balance sheet was putting out and, therefore, generating larger cash realizations than historically from our balance sheet alone, we could have generated. And that does endure to the benefit of the business and to you, our shareholders, now through the management fee and performance fee income that Chris has talked about, the fund business. But over time, we have begun to wean ourselves a fund capital and put more of our balance sheet capital to work so that or equity holders get an even larger share of those results. So it's pretty important that we're showing cash and showing positive realizations for the benefit of the balance sheet now, but also that we've built this machine that's generating even larger realizations that over time will in order to the benefit of the balance sheet as well. So I'm very pleased, as you can see from Slide 11. If we turn to Slide 12, this is a slide you've seen many times before. And the basic gist of it is this is a very attractive asset class. People may wonder, well, how do you produce this kind of returns? What is it about the asset class that has this return profile? And it's not that complicated, right? The majority of the matters we invest in settle and those produce very attractive returns, up 73%. Then of the ones that go to final adjudication, our gains far outstrip our losses. That's a result of rigorous underwriting and they outstrip it both in terms of number and size. And so from the adjudication gains, you get really outsized returns. And the adjudication losses in comparison are a relatively small amount, right? If $18 million realizations on $115 million, that's less than $100 million of losses. And the big thing is here that you've seen over time. But the big thing is that red circle that's $2.7 billion worth of realizations, right? Early on, people may have said, okay, that's an attractive business model. I understand this chart. So intuitively, I can see why it makes sense you're able to generate these kinds of returns. But are you going to be able to do it when you get to scale, once we're at $2.7 billion, that I think that question is answered. And keep in mind that red circle, the $2.7 billion, we first started reporting realizations to date in our life 10 years ago in 2013, and that number was less than $150 million at that point. That just shows how far we've come. And that $2.7 billion is just for the balance sheet, if that were a group number, it would be well over $5 billion. So we've shown that we've built a pretty good mousetrap that is able to scale and still produce great returns, given rigorous underwriting and careful monitoring of our portfolio and good work with our counterparties and law firms. The ROICs and IRRs, we've said continuously, they will bounce around from period to period, but within a pretty narrow band and the ROIC, why would it dip? Well, Chris mentioned that very large matter were we unhappy that it resolved early generating absolute cash of a significant number. Yes, we were perfectly happy having that happen. It's going to affect our ROIC numbers when in any given period, you have a large result with lower ROIC. But on the whole, we're just so pleased that with this kind of scale, we're producing this kind of returns. And if you turn to Slide 13, you kind of see graphically how that intuition about the litigation model plays out that there is an asymmetric return profile, right? If you look at the right side of that graphic, it looks a lot like venture capital that you have the potential for real home runs. But then when you look at the middle and left, it doesn't look at all like venture capital because the losses compared to the gains are fairly modest and not that frequent. So it's just the nature of the asset class and the way we underwrite the investments when you map that out into results, it's a very attractive asset class, the way we have structured our investments. If you turn to Slide 14, you can see the evolution of the business over time by vintage, right? You can see basically that the you can see the deployments and the realization by vintage with the red is the realizations that have come in. The black is the deployments that have concluded and the kind of shaded diagonally black and white striped are the deployments that are ongoing assets that haven't resolved. That doesn't capture everything. As Chris mentioned, their commitments beyond the deployments, particularly in more recent vintages. You put on a deal and you agree to fund a certain amount over time or you agree to a portfolio with the first matter and added and several additional matters to come in, the deployments bar doesn't show that, right? The numbers for deployments in 2023, it's $167 million when you add those up, and our commitments were $691 million. So there's more than is there. But you can see not just that the black to the red is a very attractive comparison. We've made money on the money that we put out, and we've had realizations from but also there's a lot there in that shaded area, and that's the potential for the future in addition to commitments that have not yet been deployed. One other thing worth noting, which is not something we shout from the rooftops about. But the second bullet on the page about the conclusions from pre-2020 vintage years, and you'll see more about this in the shareholders letter from some very old matters that have resolved profitably. I think there is probably a temptation on the part of investors because of experience with investment funds that when they have older matters in their portfolio, they sort of carry them without writing them down or writing them off because they're raising new funds and don't necessarily want to rush to report that. And so there might be a tendency among some people in modeling this business to assume, well, if things are still outstanding that are really old, they must be losers. And not just hasn't been the case. You see we still are generating profitable returns from older vintages. We wish they had resolved earlier and that would, of course, be nice, and we're not shouting through the rooftops. But nonetheless, they are not losses that they have produced for us. So if we turn to Slide 15, as Chris mentioned, there's YPF. And we've talked about this on public calls before, and there's probably not a lot more to say given that we're constrained in terms of only speaking about things that are a matter of public record. But it's pretty hard not to finish 2023 and look back on our accomplishments and not acknowledge the great success we achieved in winning the largest judgment ever in New York history. And this was the case mind you that we didn't just finance, we also managed it. And that's because the Spanish bankruptcy court on behalf of the creditors who had financed an equity investment in Argentina and had lost money were entitled to recover. They didn't have the resources or the ability to manage that case and take it through a multiyear complex cross-border litigation and they retained us to do it. And we were able to achieve that kind of result, and we're just so pleased. It's been a long journey to get to the judgment, which is now final and enforceable. The trial court has ruled that it is immediately enforceable. As I said, I can't say more then what is public. I can observe the appeal is pending, Argentina has appealed and the plaintiffs have cross-appealed against YPF as a defendant. And the enforcement process has begun. It's commenced. And we will report more as there's more public information. But we're very pleased. It's definitely a high point in a year filled with many other high points. And with that, I will turn it over to Jordan to turn to the next slide.

Thanks, Jon, and thank you, Chris for before. Good morning, everyone, and I think we flipped over into afternoon. I know we're a little bit earlier today, but good afternoon to everyone in Europe. I'm on Page 16, and I'll start going through some of the financials. 16 is on Burford-only basis. To reiterate some of the numbers that we hit on before, capital provision income more than quadrupled in 2023 versus 2022. That's driven by the strength in both realized and unrealized gains, and it's up close to $700 million year-over-year. We saw an increase in asset management revenue, which I'll go into more detail later, but that's primarily driven by the growth in BOF-C, which, as a reminder, is our arrangement with the sovereign wealth fund. In the fall of 2023, we were happy to announce the extension and expansion of that relationship through the end of this year and look forward to continuing that opportunity in the years to come. Net income for the year was a record, $2.74 and that drove tangible book value per share close to $10 at year-end. Overall, our capital provision assets finished the year at now $3.4 billion to dive a little bit deeper into that number, $1.6 billion of that is our deployed cost and $1.4 billion of that represents the YPF assets. As you recall, our valuation model or methodology now takes into account duration and time value of money. And so average discount rate for our portfolio over the year, decreased about 30 basis points since the end of last year. Certainly, volatility throughout the year, but point to point, it was 30 basis points. That resulted in approximately $50 million of positive impact on the fair value of the asset. But just as a reminder, the change in discount rate doesn't impact the ultimate exit value of our investments. I'm going to flip to Page 17. On this page, we show capital provision income and its various components, both the quarter and for 12 months. I talked about the $700 million increase year-over-year, which was obviously driven by two positive case milestones in YPF. But I don't want to make this a story of just of YPF related assets, year-over-year, the performance obvious was up in realized and unrealized gains across the rest of the portfolio, by about $140 million or 67%. This reflects the velocity that Jon and Chris have talked about as the courts continue to move forward and are fully back in business. Specifically, with respect to realized gains, our fourth quarter in 2023 was extremely productive, represented close to 50% of the full 2022 total with respect to realized gains. Page 18. Now talking a little bit more about the asset management business, which continues to perform and we continue to reap the rewards of using the funds to augment our balance sheet efforts. Asset management income grew in 2023 from $56 million to $64 million, cash receipts from asset management more than doubled in the year to around $32 million. Chris mentioned this, but as you can see, the overwhelming majority of this income is driven by income from BOF-C, that fund is dedicated to participating in 25% of nearly all of our new commitments on a pro rata basis. I'll pause here and actually take a moment to go a little bit deeper on where we are with Advantage Fund and our thinking around that and the Advantage Fund strategy, given the forthcoming end of the fund's investment period at the end of this year in December. We've had the opportunity after weighing a number of options for this segment of the litigation or legal finance market, and we've decided not to immediately raise a second Advantage Fund when the investment period for the current fund expires. As a frame of reference, this fund has historically targeted somewhat lower risk legal finance assets with an expected mid-teens or greater IRR and we've deployed approximately $300 million over the life of the fund over the last two years are $150 million annually into the strategy. In today's market environment, we're likely not to replicate the same terms of the current fund structure. That backdrop, combined with our increased access to affordable, sustainable and the long-term unsecured debt markets makes originating these assets on balance sheet, a potentially accretive opportunity. And fundamentally, we now have a greater opportunity in front of us given our range of financing options. So as a relative share of overall deployments, we don't anticipate a significant change in our mix of business going forward. And to the extent that we do decide to finance these assets on the balance sheet, we're still focused on our belief that the business can produce 20% returns on tangible equity over time. We believe that this is an appropriate use of our debt and equity capital to drive returns for our shareholders, then we'll continue to monitor the backdrop of raising incremental funds. Switching to Page 19, I'll switch from revenues now to talk about expenses. We've talked a lot about this page in the past couple of quarters, and I've gone through a number of the details. And so before jumping back into those details, I think it's important to pull back and look at some overall metrics. On the bottom of this slide, we show operating expenses and this includes everything, all the noncash accruals and onetime expenses as a percent of total revenues on the left and as a percent of the total portfolio on the right to give some historical context and perspective to these numbers. In a year with significant revenues, more of it was driven to the bottom line. The bottom left shows 2023, OpEx represented only 20% of revenues and the comp and benefits portion was 23%, which we believe compares favorably to peers in similar industries. In addition, operating expenses when compared to the group-wide portfolio has remained comparatively consistent over the last several years, adjusting for the onetime accrual with respect to YPF. With respect to the details, let's jump into 2023 totals, $130 million of the $270 million of expenses represent noncash accruals, onetime expenses or case related expenses that we can't include in the asset cost. And so let me remind you of some of the details with this. In the salary and benefit line, we were impacted by approximately $6 million to $7 million in the year, driven by the increase in our stock price. This is because as a reminder, our employees have the ability to invest their deferred compensation in our stock and when the share price increases, we have an accrual expense. We look to offset that economically by purchasing shares to hedge that exposure. Legacy asset recovery expenses will be limited in the future due to the impact of only one remaining asset in that historical arrangement. Our case-related expenditures that are ineligible for inclusion and our asset costs will fluctuate from time over time, and we saw it elevated at the beginning of this year, but it's returned to more historical levels and was approximately $1 million in the fourth quarter of 2023. And then finally, I want to point out on the long-term incentive compensation line, that's our carry program, which includes accruals for when the fair value of the asset increases, but it only pays out cash when cash is received in the 2023 carry payments on a cash basis those are approximately $10 million to $11 million. That's it for Page 19. I'll now move to Page 20 and talk about some of our liquidity metrics. So we sit in a very strong liquidity position at the end of the year. We have over $300 million of cash and securities as well as another $185 million of receivables. Through the end of February, we've already collected on $40 some odd million of that receivable balance, which has included some of the payments related to the settlement that Chris described earlier in the presentation. In addition, we took advantage of a robust high-yield market. In January, we tapped the markets for an incremental $275 million add-on to our 2023 June issuance and we were able to issue that at more than 120 basis points inside of the original issuance level and that's just a little over six months ago. So a strong result there. Turning back though, not just to what liquidity we have, let's look at the cash receipts that we received they were significantly higher in 2023, just shy of $500 million of cash receipts last year, significantly larger than the $330 million in 2022. And the core capital provision assets reached a record of $415 million. Overall, on the bottom to simplify it our cash spend on OpEx and interest expense was around $217 million, and that's less than half of the total $489 million of total cash receipts. Moving to Slide 21, a quick snapshot of the maturity schedule and our covenants. I've talked before and continue to stress the importance of the latter debt schedule that we enjoy that extends out to 2031. Our next maturity is in August of 2025. But as you can see, we feel well positioned with only 22% of our debt maturing in the next four years. We also get asked one question about our covenant levels and where do those stand and where would we operate the business you'll see this discussed briefly in the shareholder letter, but we frequently get asked about our debt capacity and how we think about that. We think it would be prudent to put a maximum leverage level out there at one point to five times debt to equity. Obviously, we're well within that threshold. And also note that's a maximum, not a target. We are constantly and continuously managing our liquidity levels in the short to medium to long term, thinking about our anticipated cash needs as well as our expected cash receipts. So overall that wraps up some of the highlights of the financial numbers. An exciting year to present, obviously. And with that, I will turn it back to Chris for final remarks and open up for questions.

Thanks, Jordan. And since we've gone on for more than 40 minutes, I think, I rather than talking at you anymore, I think it will be better for us to take your questions. But I think you've heard from all three of us how very pleased we are to be able to deliver this kind of this set of results to you. But with that, operator, we can take some questions, and we'll do them either from the phone or the webinar.

Thank you. [Operator Instructions]

Well, we'll start with the webcast. And we have a pair of questions from Rakesh at Bell that basically relates to OpEx, and Rakesh is trying to sort of determine how much of the OpEx base is sort of maintenance or existing and how much of it is for growth? And sort of as a follow-on, how much of the OpEx is fixed versus variable? So in reverse order, a lot of our OpEx is variable. So as Jordan was just saying a moment ago when he was talking to the slide on this, we have cash OpEx going out the door, which is basically base salaries and then the existence cost of the business. And since we're a professional services business, basically, those non-compensation costs are the usual existence cost, office rent, audit fees, listing and so on. But we don't have an enormous number of fixed costs in this business. And so -- and base salaries, virtually all of our compensation is variable. Its annual bonus, the compensation structure here is base salaries that are consistent with sort of the financial services model, in other words, not particularly high. And then annual bonuses and stock and long-term carry. And the reason you're seeing these pretty volatile accounting expense numbers is because of the portfolio performance. So when an asset goes up in value, we also accrue for a potential future carry payment, but we're obviously not making those payments until we get cash in the door. And that's why you see such a sharp disparity, as Jordan pointed out, between the carry payments we actually made across the business this year, which were sort of $10-ish million as opposed to the kind of accruals that you saw, which were many multiples of that. So that's the dynamic going on there. In terms of how much of the OpEx is necessary for the maintenance of the current business as opposed to growth. It's pretty difficult to break that apart because we don't segment the business that way. So if you look -- just pick a random part of the business, if you look at the patent and intellectual property part of the business, we have a team of people there, and those people do it all. They're cradle to grave. They know that market. They're well known in that market. So they maintain client relationships, they originate business. They underwrite the business that comes in the door, and they manage that business after we close it all the way to its concluded. And so it's not as though I have a team of people who is just originating patent business, but I can separate from the team of people who are doing the business. But the thrust of the question is to try to model sort of runoff value, there's no question but a decent portion of what we do relates to that second pillar of the business, the fact that we're originating more than $1 billion a year of new business. So if we were -- if you were to throw the business into runoff, you clearly would not be originating that new business any longer, and you could, I think, have meaningful cost savings. We approach the business in entirely the opposite direction because we think there's an extraordinary opportunity here over time to continue to grow this business. And so we continue to invest in growth. But that, I think, is the modeling question. And operator, I think we're ready for a question on the phone.

Your first question comes from the line of David Chiaverini from Wedbush Securities. Please go ahead.

Hi. Thanks. Great to see the realizations come through in 2023, you mentioned about seasonality in the business. Now is it fair to assume 2023 was an outlier on the high side? And can you talk about the realizations pipeline looking forward?

Yes. I don't know that you can assume that in terms of seasonality. When you think about what drives lawyers and litigation, we've talked before, there's the new business side and then there's the realization side. The new business side, it's simply the case that there's a big year-end rush in this business, and that drives year-end traffic. And that means as well that the people who are going to do a deal are almost certainly going to do it in November and December as opposed to doing it in January or February. And so we've got this phenomenon of having a very busy November, December, on every single year we've been in business, we have closed multiple deals on -- literally on the last day of the year. But nobody then turns around and says, oh, well, I didn't bother during December, so I'm going to come in January and do my deal with you that. And so the first quarter tends to be fairly sleepy and the summer and September tends to be extremely sleepy because lawyers are simply trying not to do anything that they don't have to do during that time. And so you can see that -- and that's been a trend that you've seen in our numbers for years and years. It hasn't been as visible because we've only started reporting quarterly in the last little while. But it's the fourth quarter dominance has certainly been a trend that you've seen in the numbers for a long time. In terms of realizations, it's a little bit less predictable than that. Because some realizations are driven by just the court schedule. So if you've got a case that is likely to settle as it's heading into trial and it's heading into trial in May, you might well extract a settlement rather than having that case go to trial in May. But the other dynamic that you see in corporate litigation matters is that companies will regularly wait to see what their year is looking like. And then at the end of the year, sort of figure out how much money they're going to make available to subtle cases. And years ago when I was the General Counsel of Time Warner, this was a dynamic that I had. So Time Warner at any given time had a huge portfolio of litigation. And the CFO would sort of come along in November and say, okay, I've got a pretty good sense of the year. I can give you x million dollars this year to go and see what are these cases you can buy off. And to some extent, that's what you do, you go out to a bunch of the cases being litigated, and you'd say, look, I've got a finite pool of money. And so whoever hits my bid the first, you're going to be getting it. And so we do see a fourth quarter level of activity for that reason as well.

That's helpful. And my follow-up, could you talk about the new deal pipeline, how it compares to prior periods?

I think the answer is one, I guess, the way that I talk about new deals is the constant evolution of what's going on in the market in this business. And you heard Jon say when he was talking through the slides about the increase in our average ticket size. And so what we see in new deals is an increasing trend towards corporate use of our capital for monetizations and portfolios in addition to our traditional more law firm driven litigation financing model. And so we see both things in the pipeline. The corporate stuff probably has a longer gestation period. Because you're still at a stage in the market where people are, for the most part, doing it for the first time. So when I took you through that sort of mini case study of the Fortune 50 company that did a deal with us last June, that's not a deal that walked in, in May, and we just did it in the space for a couple of weeks. That was a relationship that we have been cultivating, we have been working with the client to help our contacts with the clients, educate their internal peers more broadly about the use of legal finance. And so it's a process. And so that's what we're excited to see when we go and have ongoing interaction with people. So we're constantly building relationships to turn them into matters that will ultimately close.

And so I would just add in any one period like right now, we'll have matters that come in that are more conventional, single-case litigation finance, they could have come in, in late in the year and not closed by year-end, and then there's the ability to close them now. And there could be larger opportunities where you're putting out much larger ticket sizes and the cultivation may have started in the fall or even we have some that the cultivation has been going on a long time, and we're working on those and progressing them through.

Your next question comes from the line of Julian Roberts from Jefferies. Please go ahead.

Hi guys. Thanks very much for the presentation. I'm afraid I missed the first few minutes, and so this could be something that you've already covered. Am I right in thinking that the large investment that realized quite quickly, only accounted for about half of the realized gains in Q4 looking at the schedule of capital provision direct asset data?

I think that, that is right. Although Jordan, can you check the amount?

Yes, that's correct. Not -- give or take. I mean, yes, it's around that.

Yes, sorry, my point being that actually, that means that even in Q4 with a pretty big realization, you still had quite diverse sources of realized gains. Sorry, that's all I had actually. Thank you very much.

Well, thank you very much, Julian.

I would just say that is consistent with, as Chris said, the number of trials going on at any given time. There's just a lot going on in the portfolio. And as Chris also said, some number of them may settle on the courthouse steps and some number will go through and then companies will take a time to pay through the appellate process often. And so it makes sense that the money is coming from diverse sources.

Your next question comes from the line of Alex Bowers from Berenberg. Please go ahead.

Hi, everyone. Just three questions from me, if I may. Just firstly, can we get sort of a latest update on the sort of COVID-related case backlog and sort of how much further you believe there is to go on that? And sort of more specifically to Burford, what your sort of outlook is for '24 in terms of cases that are sort of nearing completion? So the first one. Second one is, I think you mentioned in the presentation that sort of transaction size has doubled since 2019. How do you think about sort of mix or diversification of the portfolio between sort of larger and smaller cases? And then just sort of lastly on YPF. I think you saw a small markup in Q4 get sort of the understanding of what drove that? Is that sort of primarily the sort of post-judgment interest accruing on that? And then sort of secondly on YPF, sorry, I guess it makes me four questions. But in terms of the appeal, I think, we've seen Argentina's opening briefing come out. Was there anything in there that sort of surprised you? Thanks.

So we're going to split these up. And Jon will take the last two, the two YPF-related questions. I'll do the COVID backlog and Jordan can speak to diversification. In terms of the COVID backlog, I think that where you really -- if you look back at Slide 14, that slide is really there to try to illustrate the backlog in the portfolio. And as I said at the outset of the presentation, you would -- all things being equal, without COVID, you would expect the middle of that slide to be further along towards realization of this. Now we've made big strides this year, but we've still got more to do in terms of clearing that backlog. And that's why we said that we expected a continued -- I forget the language we use, but a continued robust level of activity in 2024 as yet more of those cases move through the litigation process. We've got -- as we had last year, we've got a significantly larger number of trials scheduled, for example, in 2024 than we did in, let's say, 2022. So I think that's sort of where we're headed for clearing the COVID backlog. And then before I turn it over to Jordan, the numbers there, just my sort of macro comment about diversification is that yes, we've got increases in transaction size. But of course, we've also got increases in total business volume and portfolio side. So in some ways, the business is as diversified as it's ever been in terms of the relative share of the portfolio that any single thing represents when we were much smaller, we had a world where we were actually somewhat less diversified because we simply didn't have that much capital. So even if you were only putting a comparatively smaller amount of capital on the things they were taking more of total portfolio. But Jordan, do you want to carry on with that and then we'll turn to Jon?

Yes. Look, Chris, I think you hit on some of the right points. Obviously, from a mass perspective, the increasing in transaction size is going to slowly over time, increase the average size of an asset. That being said, I think, Chris, you hit on the right point, which is that overall diversification when you think about it with respect to client concentration or the asset type in terms of commercial versus arbitration versus patent and so forth. We consistently monitor that and I don't think that we have any undue or different exposure levels now than we've reported in the past and that, that diversification is consistent with years past. I'm actually going to steal from Jon one part of the YPF question and which was how did the values change in the fourth quarter. And I'll just remind folks that like every asset, given our valuation methodology, the change in discount rates and duration have slight changes to the change in value. And so you're going to see that in every asset class in every asset, regardless period-over-period, regardless if you saw a specific milestone occur in that period.

And actually, just before turning to the YPF specific question, I did want to address the question about diversification and ticket size, which is I wanted to remind everyone that we -- I'm often asked this question about are we looking for a particular kind of case? Are we too full on one case and looking for another. And we have built this business by making sure for everyone in the market for legal assets, whether it's companies or law firms, we are a taker if the risk reward on the individual matter is attractive. And so we have teams that are able to underwrite in various jurisdictions, various subject matters, whether it is investors state arbitration, commercial arbitration and I trust intellectual property contract breach in various jurisdictions. We have people that can underwrite and evaluate those matters and shepherd them through. And so we achieved diversification because it's a robust, diverse legal market. And I found there's a nice mix of small and large matters. There's a nice mix by jurisdiction. Does it ebb and flow one quarter to the next, where we'll have a very rich arbitration pipeline for a couple of months, and then there's a whole bunch of patent matters that come in. Yes, but generally, we're firing on all cylinders in all the pipelines. On the YPF point, I can't get into as much as I'd love nothing more than to keep you on the phone for hours talking about the merits of the case. I can't really get into it, and I don't want to sort of preview our pellet briefing, but all I can say is it shouldn't come as a surprise to you that we've been litigating this for nine years. We would be very familiar with all the traps that Argentina would run and all the points their lawyers would make. And so I don't think there's going to be anything surprising, but I can't really comment on the merits. And you'll see our brief will be filed, and you'll get to see all the responses.

So operator, we are two minutes past the hour, but I think we have time for one more question.

Our last question today will come from Andrew Shepherd-Barron from Peel Hunt. Please go ahead.

Okay. Thank you very much and thanks for the presentation. Well, actually, I had three questions, so let's see how we do. One is on IRRs. I don't think you've actually published what IRR was for the cases completing this last year. But if I look at lifetime, lifetime has dropped from 29% a year ago to 27% now, which suggests that IRRs were probably somewhere around 23%, 24% for last year. So can you talk a little bit about that? And if that is right, and if you're thinking -- if you're going to be taking the advantage funds in-house, which I think you said we are teen IRRs, what does that say about future IRRs? Second question, if I may. As you said that -- I think you said that you throttle back effectively a new business because you have a sort of resource constraint, and so much of your team was focused on settlement. Isn't that going to repeat next year when logic continue there? And thirdly, if we have time, I wonder if you could talk about at all about what are the large deals might be out there outside of YPF? Thank you.

Sure. So maybe I'll take them in reverse order. So I think we're not really in a position to talk about individual matters that are out there. But just looking at the nature of even if you just look at the US, looking at the nature of the US litigation market, there are a significant number of large matters there. And if the premise of your question is what we wrote in the shareholder letter, about basically being able -- being willing to take on to consider to take on a couple more Pearsons, if you will. What we're seeing there is that there are matters that are very potentially large, but also come with probably outsized risk and we are very careful about how much risk we're prepared to take in the business and we calibrate it very carefully. But when we can find something like Pearson that has such an asymmetry between the risk that we're taking, the capital risk that we're taking and the potential upside, those are potentially attractive to us. And so we keep our eyes open for things like that. In terms of the new business point, I think the answer is sort of yes, but. And what I mean by that is we have a finite number of people I'll keep on using the patent group that I just described. And those people are, as I said a moment ago, they're sort of doing it all. And so it's a natural outcome, but if they have a lot of time being spent on a case in a particular week that because that case is going into trial, they're probably going to spend less time during that particular week on originating new business. But the week following that, they might not have a case going to trial and they can be full bore on new business. And we don't -- they would never be in a position of being 100% full bore on new business anyway. So is it a constraint? Sure. It's a constraint. If I were to double or trouble the size of the patent group and devote all the new people that we've just hired to only trying to find and originate new business, would we probably do somewhat more new business, yes. But is that a sensible way to run the business? Jon and I have not historically taken that view. We've been pretty moderate in how we've expanded both with an eye to cost base and with an eye to not trying to get it over our skis. And so if the price of that is that in some periods, when we're breaking in the cash, we're not doing quite as much new business activity, that's from our perspective of sort of an acceptable short-term compromise. But the stuff always from our perspective, comes back and rights itself.

I would just add to that, we are hiring. And as Chris said, the idea is hiring a new patent Pearson, you don't want to double the size of the team in a short period of time and change the quality control. But integrating people one by one is a good way to do it. And we're in the process of doing that now. Not just in patent, but in various areas too.

Yes, on the IRR point, we don't and we never have produced sort of annual IRRs, we produce vintage IRRs, which you see on Slide 14. And the 2023 vintage IRR right now, even though it's early on in its life is 32%. You see the IRRs and the ROICs moving around in this business. And they are affected by a variety of factors, including actual performance, obviously, but also time and duration. And so as Jon noted earlier, we're going to see and what we did, in fact, see a reduction in our ROICs because of the fairly rapid settlement of that large matter. And so when you settle a case that quickly, you're inherently going to take a hit on your ROIC because we're not going to double our money with capital that's only out for six months, wish that it were. No, I hope that was responsive.

And with that, since we're now materially pass time, I think, we'll call it a day. As usual, we're always delighted to engage with investors directly as well. So please don't be shy about being in touch with us. Thank you very much for taking more than an hour today with us and helping us celebrate a little bit what was a terrific year. And now we're excited to see what we can do in 2024. So thank you all.

This concludes today's conference call. Thank you for your participation and you may now disconnect.