I am confused about the 12 year cumulative rate of return. Burford states like 30% annualized. Here it is cumulative? Does it mean the 78% return is stretched over 12 years? (which would be significantly lower than Burford)? Or am I completely off here?
It's the traditional IRR calculation, but calculated across the entire portfolio of investments over the past 12 years. So likely comparable to Burford. There may be subtle differences in methodology between the two. What's interesting is, it isn't showing signs of degrading despite an increase in deployed capital. The Fund model also has the potential to improve it further.
Appriciated! I find it difficult to read the annual reports in this industry. Like they use the same words as everyone else, but the meaning is different. Maybe one of the reasons for their mispricing together with the Muddy Waters report still asssociated with the industry.
You're right—it's a little different. IRR and ROIC are related to the deployed capital only—the underlying investment in litigation. They are further diluted by operating costs and fund fees. Return on Invested Capital for the whole business is lower but still very impressive. Look at cash generated through settlements and resolutions vs. the deployed capital 2 or 3 years ago that generated that cash. Take an average over time; that will give you some idea of the cash this business is generating vs. the original investment. Then consider the operating costs and fund fees 2 or 3 years ago. This will give you some idea of returns on capital. Ultimately, it's how much capital they are actually deploying (not managing or committing) and the cash they eventually generate when resolution or settlement is reached 3 years later. Burford is similar but somewhat more complicated. LCM is also ramping up the fund side of the business, which amplifies their return on capital. In LCM, you have a business with high returns on capital and the ability to deploy capital at a CAGR of perhaps 20%+. I may post my deeper analysis at some point in the future.
I am confused about the 12 year cumulative rate of return. Burford states like 30% annualized. Here it is cumulative? Does it mean the 78% return is stretched over 12 years? (which would be significantly lower than Burford)? Or am I completely off here?
It's the traditional IRR calculation, but calculated across the entire portfolio of investments over the past 12 years. So likely comparable to Burford. There may be subtle differences in methodology between the two. What's interesting is, it isn't showing signs of degrading despite an increase in deployed capital. The Fund model also has the potential to improve it further.
Appriciated! I find it difficult to read the annual reports in this industry. Like they use the same words as everyone else, but the meaning is different. Maybe one of the reasons for their mispricing together with the Muddy Waters report still asssociated with the industry.
You're right—it's a little different. IRR and ROIC are related to the deployed capital only—the underlying investment in litigation. They are further diluted by operating costs and fund fees. Return on Invested Capital for the whole business is lower but still very impressive. Look at cash generated through settlements and resolutions vs. the deployed capital 2 or 3 years ago that generated that cash. Take an average over time; that will give you some idea of the cash this business is generating vs. the original investment. Then consider the operating costs and fund fees 2 or 3 years ago. This will give you some idea of returns on capital. Ultimately, it's how much capital they are actually deploying (not managing or committing) and the cash they eventually generate when resolution or settlement is reached 3 years later. Burford is similar but somewhat more complicated. LCM is also ramping up the fund side of the business, which amplifies their return on capital. In LCM, you have a business with high returns on capital and the ability to deploy capital at a CAGR of perhaps 20%+. I may post my deeper analysis at some point in the future.
That's very helpful. Would indeed be curious about your deeper analysis, especially considering your high conviction.