Yet Another Value Podcast - Artem Fokin discusses Burford winning the YPF case + fundamental thesis post-trial $BUR

Episode Date: September 25, 2023

Artem Fokin, Portfolio Manager at Caro-Kann Capital LLC, returns to the podcast (for the fourth time) to discuss Burford winning the YPF case and the fundamental thesis post-trial. For more information about Caro-Kann Capital, please visit: http://caro-kann-capital.com/ Artem's first appearance on BUR: https://youtu.be/qBuH8pyc8Y0 Artem's second appearance on BUR: https://youtu.be/OIFGrfx1O88 Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [1:41] Burford won the case - quick overview of the case and how we arrived at this final judgement [15:15] Enforcement and collection [28:55] Examples of collection efforts [33:14] Timing of enforcement and potential settlement payouts [44:02] Tax implications [54:22] Why hasn't $BUR management answered the question about whether any of the funds they manage bought YPF? [1:03:35] $BUR core business [1:14:04] $BUR asset management business model / recent results / management and employee incentives [1:28:26] $BUR valuation without YPF included [1:39:38] ROE on the core business on a per share basis and final thoughts Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you.

But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. Hello and welcome to the yet another value podcast.

I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe. review wherever you're watching or listening to it. I'll take the glass off because I got a weird go there. Anyway, today I am happy to have on for, I believe it is the fourth time, third time talking Burford, fourth time overall. My friend Arden, how's it going? Hi, Andrew. Nice to be back. You're right, 100%. It's fourth time and three out of four is about warfare. Well, it's been a great call. Well, we'll get there. Let's start with the disclaimer. Remind everyone, nothing on this podcast is financial advice. That's always true. Maybe particularly true today because neither Arden our lawyers and we're

going to be talking about a company that is completely about legal and litigation and all that type of stuff. So please remember, please do your own work, consult financial advisor, all that type of stuff. Artem, we're coming on today because, you know, last week, we've taught, this is our third podcast on Burford. Last week, Burford got the final, final judgment, right? Final judgment rule that they won. They won the Peterson case about a month ago or a couple weeks ago. We got the preliminary ruling that said, hey, Burford, you're winning, full interest, full damages, all that sort of stuff. And we wanted to do an update on Burford now that YPF, they can start collecting the claims. And then I think we also wanted to do a update on maybe,

you know, a little bit more of the fundamental business value, the core business value here. So I'm going to toss it over to you in one second. Before I do, I will just remind everyone, Arden and I have done two previous podcasts on Burford. And if you go back and listen to the second one we did. That was in April. That was right after the judge gave her summary judgment ruling that said Burford, we're going to win. We just need to go determining damages and interest rates. If you go listen to that, that holds up very, very well. And we'll cover a lot of the questions that we'll probably discuss here anyway, because Artem, I like the chat, but a lot of the questions we were kind of getting from other people. So if there's a question we don't address,

or you want to diving deeper, go look at that or go look at the blog. I've got tons of writing on Burford on the blog. So I'll just remind people of that. But Berford, Ardom, here we sit. It is mid-September, 2003, we've got the final ruling. How are you looking at Burford these days? Okay, so before I answer that question, I need to say two things. Number one, I need to give my disclaimer, which is Caracan Capital LLC and its related entities and related parties along Burford broadly defined, meaning regardless of the particular instrument.

So that's number one. Then there is a second in second, which is not really disclaimer. And obviously, this is not investment advice. We own shares. We may own other instruments, et cetera, including bonds. So not investment advice. That's number one. Number two, you said that none of us is a lawyer.

So technically, I am a lawyer. Oh, I thought you were just inter... Okay, go ahead. I lied. And technically, I'm still admitted to the practice of law in the state of New York, but I have a status of retired. So I'm retired from the practice of law. Okay, perfect, perfect.

So that's important clarification. You work so hard. You know, if you're a retired man now, I can't imagine how hard you were working when you were still officially on the giant. Exactly, exactly. So that's a clarification. So, and yes, I will echo Andrews, what Andrews said, we did two prior podcasts.

Many of those things still remain relevant and true today. The older one, I have longer hair. The more recent one, I have shorter hair if you need to differentiate between the two. And also, I enjoyed everything that Andrew wrote on his blog about Buford. Thank you. So I think if you are too tired of listening to people talking, and instead of you want to read one-man writing, go to the blog, reread those posts. And I believe that many of them have been made publicly available.

Yeah, yeah, tons of them, including did a lot of expert calls with the people who, you know, had experience at the Burford, at the Burford Asset Recovery Place with people that experience in Burford. So yeah, I think they hold up pretty well. well. I'm subscribed over your blog. So that's why I don't know which materials are available for everybody, which people, or for which materials people need to subscribe. That's why I want to make sure. So they're all there. They're available for free. I think that great writing, great examples, great analysis. Go back, read them. So now, where do we stand with Burr for today? So as you said, final final judgment happened on Friday. Today is Wednesday, September 20th.

So it happened on Friday several days ago. So what does final final actually mean? So let's explain. on March 31st, there was a summary judgment. Yep. It was partially granted. Then there was a trial on July 26, 27, 28, which is ironically, 26 and 27, are two days when I took the bar exam in 2005. So I don't know whether the time that because of that, I don't think so, but it was a funny coincidence. And after the trial, the judge released her ruling, and that ruling asked two parties, Peterson and Argentina and Ethan Park in Argentina, please go sit down and I already ruled on the date

for the tender. And tender date is very important because it would impact the exact amount of damages and how those damages calculated. And the judge, Loretta Presker, also ruled on the prejudgment interest. And the range was 6 to 8%. She said 8. And she said, I'm paraphrasing obviously, the math is clear, two of you go sit down, pull out your HP12c or Excel or pen and paper, whatever you need, and come up back to me with a proposed order and I will enter into that order and that will be the final amount. Surprise, surprise, two parties could not agree. If I can the Argentina proposal, the Argentina proposal was so crazy. Like the judge had ruled on all of these things and she said, just come back to me. And the Argentina

the proposal was like, hey, let's live in a theoretical world where the judge didn't rule on anything and get some numbers. Like, I was reading it. It was so crazy. I can't believe that they, with a straight face, entered it into the court docket, to be honest with you. I echo many things that you just said. So, and two parties went back to the judge, proposed there, orders, and judge said, like, wait a second. It's very nice that you couldn't agree. I need to rule. And on Friday, the judge issued her final ruling. That's called Final Judgment. Yep. Now, important. Final judgment doesn't actually mean that the legal system stops working. Correct. It will be likely an appeal. Argentina so far indicated that it would likely appeal the judgment. And second circuit court will listen that appeal at some point in the future. It's going to take some time. not going to happen tomorrow.

It's probably we're talking probably about a year, maybe longer, before they start taking the case probably. But what is important is this, once the final judgment becomes final for the lack of the better word, Burford, and when I say Burford, I mean Peterson in it in part as plaintiffs, so I will use those terms interchangeably, even though technically it's inappropriate to say that. Burford could start its collection out.

So that's very, very important. there are only two possibilities where Burford will not be able to start its collection efforts. Possibility number one, Argentina posts a board that must be obtained from a high quality, typically, typically high quality insurance company that will do that, that line of business, that will say, listen, we trust this counterparty, they're incredibly reliable and credit worthy, we love them. So if they don't pay, we will pay effectively. simplifying again here. It's literally like if you follow the movies and somebody goes to jail,

it's the bail bondsman, right? Hey, we'll put up the money and say you'll go to court. And if you don't go to court, like the money's there. And yeah, that's kind of what people can think of when they say an insurance bond. You know, in this case, a Berkshire would have to put up because it's a big, big bond if they did it. It's most likely going to be a very sizable bond. So Berkshire and Warren Buffett and Charlemagne can obviously do that. If they do that, I will be thrilled. We'll talk I'm laughing because there's no way I'll ruin the punchline there's no way in heck

that anyone would put up this bond for Argentina it's so big and there's nobody who's I think it's unlikely and given the Argentina's history it would be probably a very risky endeavor for an insurance company to oppose the bond which means that I don't think it will happen

and if that doesn't happen Buford should be able to start collection and enforcement when I say collection and enforcement I use them interchangeably Yep. There can be another possibility if the court puts a stay on the enforcement. It could happen. It rarely happens.

We cannot rule it out completely, but it's fail and likely. I would say it's very unlikely. And I'll just add, it's very unlikely because in the most of the time when you put a stay, you go to the judge who just ordered that you lost the ruling and you say, hey, we think there are serious errors with your judgment. We want you to put a stay on the collection on your own ruling. And guess what? Judges generally don't like to do that. So, again, not impossible.

I do think there are places where they could get an emergency stay from a appeals court or something. But generally, you have to go back to the judge who you just lost and say, hey, can you pause collection on your ruling? Guess what? Doesn't tend to fly. Pretty much. Pretty much. And now, adding to your point about Argentina going back to Judge Loretta Presker and submitting their order, which was quite, in my opinion, divorced from reality. the judge in her final judgment issued on September 15 put this language,

which I think is just terrific language, so we'll read it. The Republic, not satisfied with the extraordinary latitude, afforded to it at trial to insert new factual and legal issues, attempts a final ambush by arguing that the court's findings that insurance should run from blah, blah, blah, blah, blah, blah, right? So, like, by the way, so I love generally legal writing by American judges. Many decisions by Supreme Court, I think it's masterpieces. And I love the writing of Judge Loretta Prescott.

So if you, you know, have nothing better to do, you can pull out some of those decisions and read them. You know who else loves her writing? Burford loves their writing because there's, we'll probably talk about when we talk to the Corpies, but there's a line where, you know, a lot of plaintiffs, a lot of defendants say, Oh, you're getting litigation financing. It's a perversion of the system. And she had that great footnote, which Burford highlighted in their earnings call, where she said, hey, it doesn't matter if Berford's involved or not.

Argentina harmed people here and the fact that Burford is financing. People can go read it. People can listen to their earnings call. But you are not the only one who loves their writing is all I wanted to say. Oh, I'm definitely not pretending to be original on this issue. That's for sure. So, and, yes, I would definitely encourage. you and I spoke before that one of potential risks for Burford business model is in general

the regulatory risk. What if someone will come and say, by someone we're talking about regulators and say like, oh, you should not be legal finance should not be allowed or it should be heavily regulated or if you whatever unnecessary and probably harmful regulations can be passed. So that's always a risk and we discussed why we think it's not a big risk. And there are two ways how those regulations would happen. One way is by the Congress of the United States getting together, passing the law, President signs it and gets into the law.

And then obviously it will be only federal matters, no, state matters, because each state would regulate its own matters. So it's pretty complex in the US because it's a federal state. But another way is if courts and judges start implicitly regulating litigation finance, implicitly, again, but we live in the common law country, precedents are important, and that could happen. And I think when even though we're talking about trial court, which is the lowest level of the judicial system in the U.S., when we talk about at the federal level, but Southern court, federal court for the Southern

District of New York is probably one of the most sophisticated parties. courts in the nation, especially when we're talking about finance methods. And Judge Prescott is a very well respect to judge. And when she put her footnote, which is worth rereading, and say, like, no, a defendant cannot argue that because a plaintiff had to obtain third-party funding to help enormous efforts put by that very sovereign nation who violated the rights in the first place, to defend itself, and got to the finish line. And now the defendant who caused all that harm

and caused massive delays and tried to kind of run out of money the counterparty is saying you should not give them full award because they used third party litigation provider. This is nonsense. So it's a wonderful footnote. It's, you know, one of the things that always strikes me is the law is not always fully rational

or doesn't always come to fully rational conclusions, but a lot of times it does. And like from a rational standpoint, the fact that you have, have somebody financing you so you can sue a more powerful party who damaged you, like it shouldn't change any of the conclusions, right? Like it would have been great if Peterson had enough money to go see this through to the end. But the fact is, Argentina threw them into bankruptcy by doing this, right? And Burford being there actually helped affect justice here. And if you said, hey, Burford couldn't fund this

so they couldn't pursue this, then you're basically saying, hey, sovereigns, you can go screw over your counterparties because if you do and you do it good enough, then nobody will ever be able to hold you accountable. So it just from the part of it, the rational part of me, I just, I love that piece of it. Yes. From the policy perspective, I agree with you 100%. Cool. Anyway, so I let's go back. So the ruling's been entered. At this point, let's start talking about enforcement. You said the only way they can't enforce at this point is, A, if the judge are an appeals court issues an emergency stay, or B, in the extremely unlikely event that an insurance company is willing to write a 12 to $16 billion bond that would say, hey, once all the appeals are exhausted, Burford will

collect 100 cents on the dollar because they'll collect this bond once all the appeals are exhausted. Both of those probably aren't happening. So let's talk a little bit about the enforcement and how you see. You know, Burford now is owed 16.1, sorry, Argentina owes $16.1 billion to Eden Park plus Peterson combined. That will compound at about 5.24% compound interest going forward. That's the post-judgment interest. So the question is going to be, how does Burford the Peterson Eden Park claimants, how do they start collecting? How much can they collect? So why don't we talk about that? Okay, let's talk about collection. Just to clarify a couple of numbers here.

16 billion, this is the headline number, including damages itself and pre-judgment interest that ran at 8%. It was simple, not compounded. Yep. This is the number that will go to Peterson, mostly, and a little bit of will go to Ethan Park because they owned a lot less shapes, a lot fewer shapes. However, Burford will receive only a portion of that, not all 16 billion go to Burford. I just don't want anybody who's new to Burford topic, think that it's 16 billion going all to Burford.

Before, you can vouch for my numbers, before any discounts, any haircuts, any taxes, any incentive fees that go to the Burford things. If Burford collected their full share, so the, you know, the $16 billion, $100,000 come through. If Burford collects all that, their share would round to $6.3 billion, is what my math says. Correct. It's about $6.29 exactly billion. And if we talk, if we take the Burford share count outstanding and divided per share, it's about $20.70. I have it as $28.32 per share. So I don't want to have it. It's possible. It's possible. that I may be using weighted average and you're using end of the period, it's possible that I'm looking at the period and you're using weighted, or maybe you included some options.

How many shares do you have out? Do you know? So in this mass that. Because I think they have 220 million shares. And I don't want to get into an Excel talk on a podcast because I'm sure that's not interesting. I've got $6.3 billion divided by 220 and that gets you to $28.57 per share is kind of the rough math I've got. So I'm using 220 million shares. I think you've got a I think you've just got a quick Excel error

or something there. But let's not get too dragged down by it. Yes, definitely less important. So I'm happy to work with your number. So which number do you have? I've got 6.3 divided by 220 comes out to $28 per share. Yeah, perfect.

If there was no discount. Yes, to $28, good to me. So that's the number. now collection so did you originally say 28 or 20 i heard 20 when you said it no no no i did not say 20 oh i heard 20 yeah we're on the same page okay great i think i think you and i were all about like 30 cents oh okay yeah yeah i would never argue over 30 cents yeah i heard 20 versus 28 and that's why i said maybe i used no oh no big deal absolutely no and it's like no no it was very tiny number yeah so don't worry eight dollars did not disappear

I thought it was $8. I was like, ooh, me and Artimer, way off here. Yeah, okay, great, great, great. Like, when they say page, so when we talk about collection, in my opinion, there are two important ideas that we need to address first. And it's partially addressing ideas, partially fighting misperceptions. A big idea number one. Burford does not need to collect the entire.

16 billion from Argentina via pursuing enforcement and collection. That's big idea number one. Big idea number two, you need either collect or threaten to collect and create enough nuisance value where you, where Burford will be forcing the counterparty, the sovereign nation, to sit at the negotiation table and figure out a settlement. Many people based on my observations like, 16 billion sounds surely very nice, but how are they going to collect all that money? And that's you don't have to. You need to collect a little. And then there is idea number three, which is there is a big difference between financial value and strategic value. Financial value of certain enforcement

strategy can be very, very small, maybe $3 million, $5 million, which is nothing when we talk about 16 billion in the world. However, strategic value and disturbance and disruption to the otherwise smooth operational processes of Argentina or related entities can be tremendous. I totally agree. I'm just shutting the door that opened up. Like, so one thing, I'm magically back. One thing I think a lot of people have been saying is, I can't remember if it was Karen energy or Seneca energy, but Burford helped them to, I believe Burford helped them to enforce. And what they did was, was it was a judgment against India. And India bought some of their ambassadors apartments. And now you cannot seize things that a country is using in the function of being a country. Right. So you can't

go seize the Argentinian embassy or in this case the Indian embassy. But India had bought some of their ambassador's apartments in Paris. And the company, they used this judgment to go seize the ambassador's apartments in Paris. And guess what? The ambassadors are like very high ranking, very influential officials. And when they come home and all of their, they cannot get into their apartment and they do not have a home and, you know, their family's there and there's people locking the doors. And they call up and they say, hey, we lost our home. All of a sudden, a few weeks later, the government is sitting down at the table and settling. And I think that, as you said, the apartments, you know, they're Paris apartments. They're worth two or five million

dollars. They're not worth a lot financially. But strategically, you have, you know, shut down the lives of these high-ranking, influential people, very strategically valuable. And I don't know what, I don't know if Argentina, if Argentina has bought apartments for their ambassadors, but I bet you there are several strategic assets like that, that Burford has lined up and has thought, hey, this doesn't really move the needle on $16 billion financially, but strategically, this is going to throw a lot of sand into the gears for Argentina and get them to the table with us. Correct. And I am not privy of the details of the enforcement.

action where apartments in Paris were ceased. But I will add a couple of points there. And again, I don't know all the facts of that particular situation. So the big concept that you Andrew alluded to, but I want to re-highlight here is this. Every country has two capacities, egos or alter egos, whatever you call them. One is sovereign nation. For example, as a sovereign nation, you have a military aircraft. As a sovereign nation, you have embassy in Washington, D.C.

Or consulate in New York or San Francisco. After losing a commercial dispute, which was a commercial dispute in the southern district of New York, a plaintiff cannot go and say, hey, I'm going to grab your embassy. Like, no, unfortunately, fortunately, that's not allowed. However, many nations, or rather all nations, also have various roles where they act as a commercial entity, broadly defined. It can be export import operations, selling

your own oil that you extract or your copper or whatever the case is. And in that case, you cannot, you can actually go after those assets because they have nothing to do with the country being a member of United Nations or passing international resolutions or participating in any other activity as a sovereign. In your example of What I find very interesting about your example, and I've heard about it as well, about the Indian apartments. What I don't know is this.

If I were to represent India in that situation, I would go to a court with jurisdiction over this matter. In this case, I assume it will be somewhere in parents, and I would say, Your Honor, in French, which I don't speak, so it will be difficult, but I will try. I would say, Your Honor, this is Ambassador's apartment. on behalf of the sovereign nation. Yes, we bought this apartment for our ambassador, but it's not a commercial activity. We bought it for our government employee,

high-ranking employee that performs important functions to live in. We're still acting here as a sovereign nation. You cannot take it over. Now, and I think it's a winning argument. I cannot guarantee you that, but I think it's a winning argument. But I will get there and I will try to reconcile. what you shared and what I think here and what I heard about this story.

Now, it will be very different if, in this case, India and near the country bought apartment in Paris and it was renting it on the Airbnb Beach or Andrew or Arz and when we fly to Paris. Sure, that's commercial activity. However, this is very important. I would not be surprised

if a party, again, I'm using this hypothetical, this India situation because I don't know the details. I would not be surprised if it was the process worked like this. Let's try to cease and freeze as many assets as we can,

disrupt the functioning of the government. Then we'll go to court and debate in court adnosing whether this particular apartment is protected by sovereign immunity or not. Because that's a complicated legal argument. And you know, to use the India

example, and I'm with you, I don't know the, I don't know this particular person and cold it off my head. I just know overall story I heard, but hey, maybe India argues you can't seize our ambassador's apartment. And Paris says, okay, you're right. But then India's bought all the assistant ambassador's apartments. And then you have to have a debate, hey, can you seize the assistant ambassador's apartment? Can you see the security guys department? Like, you know, there's just probably 50 apartments there. And at some point, you are going to get to the point where the court

says, hey, like, no, you didn't need to buy all these apartments for all these people. And you're just throwing sand into the gear. And it's, it's not huge dollar value, but it's very disruptive. And if they run a country, like, it's better to, it's better for everyone if they kind of get these settlements disputed because it's really going to bring a lot of personal headache to a lot of high-ranking people. Correct. Another example. And again, Burford, rightfully so, does not comment on its enforcement strategy. Yeah. What we only can do is we can look at prior cases in the history of worldwide jurisprudence where certain judgments were enforced against sovereign nations and see what was done in those cases and see like, hey, maybe

Burford can borrow from that playbook and do that. And also, let's not forget that Burford has an enforcement arm within Burford that does those things for a living. In other words, if there's any company on the planet that is positioned to do this type of activities, probably will be Burford. Look, not only do they have an enforcement arm. I mean, nobody, it's not like sports where you can point to this is the best, this is the best sports team. We've played a game. But they have an enforcement arm that I believe is widely regarded as the best enforcement arm in the world. Right. So not only do they have an arm, they've got what's rightly regarded as the best arm. And as they've said on their calls, hey, this is a massive judgment, right? It's like four times our book value, five times our

book value at face. We have been thinking about this for years. You can expect that we've worked with our enforcement arm. Like we've got a strategy. We're ready to go. And I've said this previously, I'll say no. Like, I am probably less bullish based on my loose socks with them and what I've heard. I'm less bullish on the recovery number than I think they are. But, you know, my benefit of the doubt, I'd give it to them because they are the experts. They are the ones who know what their plan is. So just to throw that out there. That's fair. I would also build upon that by saying throughout the history of Peterson legal proceedings, the number of people who said, Peterson is a zero. Peterson will be paid in pesos. Maddie Waters famously is on the record,

on Twitter and on their short report saying that Peterson is zero or they will get paid on passes. It's worthless. So go back, I think it's March 20s or something like this of 2020, you can find a tweet. And so far, Burford has proven all people who

were skeptical wrong. Berfer bought these claims. Now, I think they bought a couple on top of this, but the core of their holdings, they paid $16 million for. And now if Burfer collected 100% of face value, they would get about $6 billion. they've already monetized about a hundred million of it, right? So they've already made more than

their money off of it. And there's a lot, like this is a, as we said in our last podcast, this is a Facebook style venture investment. And you only get that because for years, people doubted that Peterson, they'd ever recover. People thought it was a zero. I think when you and I got involved, especially me, it was much later and it was clear that there was going to be, there was likely to be value here. But, you know, people have always doubted it. So yeah. Correct. So, but let's go back to other examples of what could be done on the collection efforts. For example, Argentina, as a sovereign, as a government, owns a number of commercial enterprises. For example, I believe, and everybody, you should check that, I can be mistaken,

I believe that Argentina owns 100% of the, or at least control, of the airlines of Argentina. It means that, and by the way, they own many other commercial enterprises, either 100% or less. And what is important is that if it's a wholly owned government entity that conducts commercial activity, the plaintiff who has an outstanding judgment, can go after the assets of the commercial entity. You need to prove ownership,

which is generally not that difficult to do, and you need to prove control by the government. For example, if a representative of the Ministry of Economy, or Ministry of Finance, or name any other government entity, sits on the board and participates in quarterly or annual semi-annual meetings, etc., etc., that's what lawyers will call indicia of control, an indicator of control. And if you prove ownership control, you can go after those.

assets. And Argentina has a number of such enterprises that do business international. Another example, if Argentina does export of some of its natural resources, they may or may not, I don't know, have a trading company in Switzerland or in Ireland or Luxembourg or any other place where they choose to have a trading company from a legal perspective. In that case, freezing that company may have very nominal value because it may be trading company, money coming in in the morning, they live in the afternoon and exaggerating a little bit, but the book value of the company can be diminuous. But strategic value for proper functioning of the e-commerce is massive. That is one specific example when I talk to one of the Burford performers and people can find

the links. That is one specific example they mentioned, hey, you start seizing trading companies and there's not really money there, but all of a sudden Argentina finds it hard to do any trade with name your country once you've seized that. Like the bank accounts just stopped functioning. You can't trade. And yeah, there was no nominal value there, but strategic value, all of a sudden you could shut off huge pieces of their GDP. And that's another thing that can just bring them to the table to force a settlement.

It gets even worse to build upon what you said. Not only Argentina in this case cannot function properly. Imagine how happy would be their counterparties. Like, wait a second. We send you money, but you cannot send us. whatever it's, whether it's oil or something else, you cannot sell us, you cannot send it to us. Why? Ah, because you have outstanding judgment.

Wonderful. We need to find another counterparty. So it's get embarrassing at the perception level, but also it could, it may or may not trigger subsequent lawsuits by your counterparties who have not been paying you properly, but have not been receiving what they need. So it gets very, very complicated. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete?

According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced byside analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge,

all for 40% less than you would pay for 20 calls in a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. Yeah, no, I completely agree. Let me have spent time. I mean, I believe the enforceability starts. I can't remember if enforceability starts now that the final judgment's been entered, or if it starts 30 days after a final judgment.

Do you know? Don't hold me for that. I believe it's 30 days. I think it's 30 days, too. I had that tickling my mind because I was kind of wondering, you know, the final judgment got entered on Friday. I was wondering if we wake up Monday morning and see like, Argentine, like, wouldn't boat off the coast seas or something.

But I would not be surprised we're talking September 20th. The final judgment came September 15th, I think, was the day. I would not be surprised if October 18th, we start seeing little signs of this company freeze, this bank account freeze, like little things. I would be surprised if we start seeing quick wins from Burford. So let me turn to this. We've discussed that people, I just want to hit bottom line. Like as you and I sit here, now the enforcement starts. Now the settlement starts thinking.

How are you thinking of the valuation of Burford's Peterson and Eden Park claims right now? So I would guess that the end game here is to, through all those activities that you and I discuss and share, you shared your thoughts, I share my thoughts. And I think the game plan here is to get the counterpart to the negotiation table and say, okay, let's make peace and figure out what we can do. And in that case, probably it will be some sort of installment plan, you know, like by now to pay later on a firm or Klarna, right? So it's something like this in a way. So it will be some installment plan. Presumably, there will be some cash component upfront. And then there will be an installment plan running several years with certain amounts. And Argentina will be paying everybody involved here. In exchange, Argentina should legitimately ask for a lower price point. So $16 billion should be haircut by some substantial amount. You and I spoke last time with you. And I think the range was somewhere for a high cut between 40 and 60%. That was kind of the range that you and I collectively, I believe, thought was reasonable. Could it be higher? Possible? Could it be lower? Also possible. It partially depends on the structure of that settlement.

If it's like if it's five billion tomorrow or October 18 and 19 and then 500 million for the next five years, that's a lot more valuable than one billion today. And people, a number of installment sales for the next 10 years. So it's time value of money exercise as well. So it's not only a not only notional haircut, but also time value of money in this structure of the deal. And people need to remember Argentina, one of my favorite quotes when I was reading up on this is there's like the international history, the history of international sovereign

defaults or something. And the first line is there have been, you know, 28 sovereign defaults in the modern era, and half of them are Argentina. So when people are thinking the time value of money, you have to remember it's not just discount rate. It's the fact like you're discounting Argentina discount. rate. So there's going to be a high. Let's get as much of it up front because there's a decent chance of another default in six years or something. Okay. So yes and no. Those papers, legal papers, reasoned by legal scholars that you're referring to, mostly deal with default of sovereign nations defaulting on their sovereign debt.

Very true. Very true. Right. In this case, and this is important, if I have a word for the deal structure would be, again, I'm picking up this numbers like $5 billion today. Okay, let's say $3 billion today. and then one billion for the next five years every year. It's hypothetical, to be clear. Let's say it happens, and three billion got swired, year goes by. Burford picks up the phone and says, Minister of Finance, we haven't checked, we have not received check for one for the next billion.

Would you like me to dictate you the numbers of my checking account? And like, no, no, it's fine. I have it. We're not sending. So in that case, the way you structure the agreement, you had 16 billion, we cut it by 50%, just for the sake of the argument. You paid in our example three,

so it should be 8 minus 3, 5, 5 is owed. That 5 will immediately revert back to 16 minus 3, which is 13. Yep, yep. And then you go and enforce, and you go, presumably, you go to the court and say, most likely we'll be in Southern District of New York,

and you say, Your Honor, we have this agreement with Argentina, they wired us $3 billion and they're missing the next payment. An agreement says that if you miss a payment by more than 30 days, it balloons back

to $16 billion in our example minus 3 that already won't. We need $13 billion. You do not go, you are not sitting at the same table with the bond holders of a bond that defaulted again, if it happens again, right?

You have your own separate small table. It's like there is, you know, cheap cafeteria and there is very expensive gourmet restaurants with three rational stars. You're at that table. The way one of the calls I did described it, they were like, look, if you get a lump sum payment up front and then they default on the payment on one of the principal, sorry, one of the settlement payments on the back end, it's almost the best of all worlds, right? You've gotten some of your money up front and then it's so easy to go and start collecting again. and now you're looking at full face value. So the country is really incentivized not to do that second default

because if they do, they paid full face value on the upfront payment and now you're just collecting again. So it's just a disaster for them is kind of how they laid it out to me. That's, I very much agree with that. Yeah. Yeah.

So 40 to 60% haircuts, I agree with you. You know, I still think the number that I kept hearing from people was, hey, in NPV terms, they're not getting an $8 billion upfront check tomorrow. Argentina just doesn't have that much cash. But in NPV terms, most of what I've heard from, like, people who are better at collection than me have said about 50% of face is probably where a settlement should shake out.

And that's probably like, you know, $2 billion upfront with $2 billion of payments every two years after that for the next 12 years or something would be about how they would look at it. I think that's right. So, you know, if you said, you tell me if I'm wrong, but I've kind of been thinking, hey, in my model, I think about a 50% haircut is about where I think. And, you know, in a bear case, maybe it's a 60% haircut. And in a bowl case, maybe it's a 40% haircut. But that's how I've been personally thinking. I think it's very reasonable. One thought that I would put out there and I could easily argue against this thought myself, but it's still worthwhile to remember. Repsul, I'm not mistaken. pretty much on 50 cents on the dollar. I think that's right. And people have argued, oh, there were political reasons and country reasons, and I hear that, but there's going to be political reasons

to settle the Peterson case for 50 cents on the dollar at some point, too. This is very important. So, number one, Rep Sol and Argentina settled 50 cents on the dollar very, very, very, very early. There was no, the legal case hasn't even started really yet. Yep.

They settled. Now, I'm not privy to Argentina. politics or Spanish politics, if I want to guess, probably Rep Soll, being a big multinational company out of Spain, probably asks Spanish governments, say, like, hey, could you help us broke a deal or do something? Like, you as a government should protect your corporations, very reasonable view. And it's very possible that Spain indeed tried to help. I don't know, but I would not be surprised. So that's positive. On the other hand, at that point in time, Repsol did not have any stick. Zero.

Literally, they could not go and freeze your assets. They cannot freeze your Swiss or Guernsey or Jersey trading company. They couldn't do anything. It was simply early. They couldn't even point to, hey, if we sue you and take you all the way through, we will win, right? They couldn't even point to that at that point. And Bergerner certainly can point to that. Correct.

So that would argue for a smaller discount than 50%. How it will happen, I don't know. Now, what I think will be... I think it's also a fascinating study in this. So Chris Boggert and Jonathan Malone, two brilliant lawyers, and Jonathan also is a brilliant legal scholar, studied Burford when it was tiny. And understandably, back in 2009, and finance, you know,

small matter here, small matter there, and relatively small, right? And they've grown, grown, grown. So I would not be surprised if in three months from now, Chris Bogart and Jonathan Malone will be finding themselves inside an IMF conference room where they will be debating with IMF officials or World Bank officials or whoever else could be involved, where they will be saying, Mr. Bogart and Mr. Mollett, we need Argentina to be active member of international community and trade and commerce and blah, blah, blah, so help us out find a solution where they will be saying, listen,

we owe fiduciary duty to our shareholders. We're entitled to 16 billion and we're not going give 50% higher cap. We need 80% on the dollar or something. By the way, another fascinating possibility. By the way, I don't think it's going to happen, but something to entertain. You can also get a backstop from IMF. Argentina will pay you $3 billion upfront and $1 billion for the next five years and IMF is a guarantor. For example, to be clear, I don't know whether IMF allowed by its bylaws and other charter documents to do that. It's possible that it's not allowed. I'm not I don't know that I don't know, but something like this is a thought experiment. It's interesting.

Will I.MF want to get involved? Maybe yes, maybe no. We'll find out. What I'm saying is that I think Chris Boggart and Jonathan Malo finding themselves in a new kind of uncharted territory, which will be very interesting to watch as a shareholder. And the best in general would be interesting to watch the evolution of the management team. You are absolutely not the only one who has said, look, there are going to be, it's a big award. It's New York jurisdiction.

the IMF in some way or super form will come into play, whether it's them hauling the company in and saying, hey, how can we negotiate and maybe backstop, maybe give you something, or whether it's the IMF going to Argentina and be like, we cannot get you funds if you have this outstanding judgment and they are enforcing on it. We simply can't get you funds.

You need to go settle. And yeah, it sucks for you. You need to settle a $16 billion. But do you want IMF loans? Do you want IMF money? That's got to be out the way. Let me turn to, so we said 50 cents on the dollars, kind of our base case.

if people want, if you do the math there, that would imply a net award to Burford of, well, actually, there's one other thing I want to talk about. Taxes. I think both you and I have mainly you, because you were the one who suggested to me, and I've just done some work to confirm, but it taxes. Burford has said frequently over time, you can find this in their 20th. Over time, we expect our tax rate to flow to the low to mid teens is kind of what they've said on the tax rate. I think a lot of people take that to mean, hey, your cost basis and Peter is basically zero. So anything you get from Argentina, let's apply a 12% tax rate to it, right? And I think both you and I, I don't want to spoil it, but I think both of you and I think,

hey, you know, tax rate might be lower here. So alternative view, how are you thinking about the taxes on any proceeds Berford gets from YPF? Okay, so punchline, I think it will be the minimum. And I believe this is right now non-consensus view. And you and I spoke about this. don't remember whether it came up on the last podcast or not, but I've held this view for a very, very long time. So that's the punchline. Now, the next question becomes, wait a second, how's it possible? Like, you're getting all this money, blah, blah, blah, right?

So now, remember, Warford is a Guernsey company. They have presence across multiple other countries. UK, London, US, via Chicago and New York, maybe some other cities I forgot right now, etc. And people are assuming that someone, some tax in jurisdiction, meaning some country, will tax it. And the question becomes which country? So it's not guarantee because they don't really tax. UK, okay, unlikely because there is no real linkage between this case and UK.

So I assume that people by default assume that the United States of America will exercise its tax jurisdiction and tax this proceeds. So the next question becomes, what are the ground? So now we're getting into a quick tax, international text tutorial in 20 seconds. Do you know any former international tax attorneys who might be... Who are you on this call? But as you don't know, Arden, do you want to say what you did in a prior life? Yes, so in the prior life, when I came to the U.S. in 2004, I came to study law.

I came to do master of laws in international tax law program at NYU, School of Law. which quick advertisement, which is unpaid for my legal alma mater in the US, which has the best tax program in the country, maybe worldwide. So, and then I practice at a law firm called Greenville-Trowrick in New York for about three and a half years. And then I went to Stanford for Business School and then I went into investing. So the bottom line is, is literally a former international tax attorney. So he's not just me, some random dude in the hat commenting on this. He actually knows his stuff here. So with that caveat and I appreciate the compliments, I will say that it's impossible to know with certainty unless you're inside the company.

It's just impossible. Based on, as public investors, in pretty much any company that we're investing, we actually have no real idea what's going on inside in terms of taxes. We've got some idea because they report your income tax expense on the income statement. They report cash taxes or cash flow statement. And then they may or may not provide a little bit more color. But big picture, all investors are kind of flying blind. And by the way, so I love those situations where I come to the conclusion that taxes are very low

and whatever the report on income statement is just noise and people miss that. So sometimes it creates an opportunity. So I think going back to Borford, let me share the screen with you. And I apologize to those who are listening to this instead of watching YouTube. Happy to have this screen share. Obviously, most people listen to this audio. So maybe they can give them a video. I will describe it.

I just want to make sure if you share something, you're comfortable with it being shared on the YouTube because I will not be able to pull it off. I'm sharing the document 2020 to Burford Annual Report. Okay, okay. So this is in public domain, anybody can pull it out anytime they work. Let's see. I cannot see it. Holes disabled.

Why don't you just talk me through a row? Okay, that's what I will encourage people to do. Go to page 25 of the PDF of the 2022 annual report. It plays out Burford, capital structure. Sorry, corporate structure. I feel very confident that it's grossly oversimplified. I can vouch for that, yes. So, simplistically, at the top, you have Guarancy company.

Then you got, and I will ignore some of that, which is less relevant for our matter. But then you got side-by-side, another Guarancy holding company, and then you got UK holding company. And most of the US operations come under UK holding company. And what is important here is that Burford Capital LLC is US operating company. So, like, keep this in mind. This is LLC. How US may exercise tax jurisdiction over Peterson is two or threefold depending on how you

this pie. Possibility number one, based on residence, meaning a company that is a US company doing business in the US, derive certain income and that income is taxed by the US. No different from making widgets or making Coca-Cola in the US. That's one possibility. Another possibility, if income is derived by a foreign person receives what is called US source income. For example, if U.S. company pays dividends to a shareholder in Germany or Switzerland, it will be U.S. source income because it's defined by the residence of the pay-yo. So paying company. And in that case, U.S. will impose what is known as withholding tax.

So let's first address the residence matter here. And by the way, there is also another possibility where a foreign person doing business in the U.S. without creating a company. But they are here, they're running around, they're doing stuff. In that case, US will view such foreign entity having this implodes

engaged in US trade business. And then there is this concept of ECI, effectively connected income. And if there is a foreign person, individual or entity, that is engaged in US trade of business and derives effectively connected income with that US trade of business,

US will tax it. Okay? So now, I suspect, that the part of Borough structure that relates to this is probably relies on an exception in the tax code under Section 864, which is trading for your own account. And I believe that's why Peterson proceeds should not be taxed in the hands of Buford. And I think there is, so when you first mentioned it to me, because you were the first one

who mentioned to me, I was skeptical. And I will say, if you talk, if you've talked to Buford an hour, if you listen to their most recent earnings call, people ask, hey, what's the tax rate? And I feel like they're somewhat cagey where they say, we've guided to our tax rate over time. But they talk, they're talking two different things, right? I'll ask them, what's the tax rate? And they'll say, what's the tax rate on YPF? And they'll say, we've got it to our tax over time, which I think is them kind of like playing poise, so they don't have to say we're paying nothing. But there's one example you pointed me to that I think is really powerful evidence that they will not pay taxes here. Do you want to talk about that? Because you're the

one who pointed out to me. So, and then, so what I describe here gives me more of a foundation to think that there may be a possibility that they're not paying taxes on Peterson in the US. But then I also believe there is a piece of tangible evidence. And this, For that, we need to go to 2019 financials. And let's remind what happened in 2019. In late June, I think June 26, but I can be off. Burford announced two things. They announced that Supreme Court of the United States

declined to take sovereign immunity defense and listen to that defense by Argentina. And immediately, Burford sold a good chunk, about 100 million. They received 100 million. for 10% of the time of their remaining entitlement, two third parties. Which, again, they invested 60 million plus they did expenses

and they bought a little bit more, but this took more than all of their, more than all their costs and cost basis off the table. Correct. That was the biggest sale of Patterson up to that point, actually up to this one. The only sale of Patterson, I believe. You're right, they did some more. You're a couple of smaller sales earlier.

So there was a lot of money. What Andrew is saying was a lot of money, and you definitely would have had gains, because it was such a big amount of proceeds. And if you look at cash, if you look at cash taxes and income and income tax expense line item on Burford 2019 annual report, you will see that those line items continue to be the minimums.

And there is not that much observable difference between 2018 and 2019. That makes me think that that sale by Burford in 2019 was not subject to US tax jurisdiction. And that makes me think that there is no logical reason why subsequent realization events, whether through sale or collection or settlement, should be taxed in the hands of Burford by US either. Again, can I be wrong? Yeah, can be wrong.

Like, I'm not opining that this is truth. It's impossible to know it unless you inside the company. As Zendri pointed out, Burford on public calls said, we're not coming and say, their position is factual with this. Long term, it will be mid-since. And we're not commenting on how any particular case is that. There's their position. I respect that. So I can only do my own work and try to figure out what's happening, but I don't know.

And just so people know, so I want to move on to the core business now because I think we've covered YPF pretty nice, but just so people know, Arden Mai said, hey, 50% haircut is about right here. If you do 50% haircut and you think there's zero tax rate on it, and I've got, they've guided to a little bit of incentive fees on this and stuff. If you say zero percent haircut, the YPF and Peterson claims would be worth, about 1350 per berfer chair. if you bump that tax rate up to 13%, it'd be worth about $11.50 per share. So you're talking about a $2 per share difference, which is material on a $15 stock as we talked about. But again, YPF, you know, at 11 versus 15, at 11 on a 15 stock, it's a huge piece of the proceeds. 13 on 15 is huge pieces of proceeds.

All right, we've talked YPF extensively. I'm going to force move us over. And look, this is, okay. There is one more thing, which is relevant. And it came up on the last call as well on the earnings call. and Burford doesn't give an answer. So I am using all publicly available data here to come to my own conclusion. But remember Mission Impossible?

I think it was four when Tom Cruise is in Moscow. Okay. No, no, no, no, no. Sorry, it was the next one. Do you remember when he's one of his associates is testifying in front of the Congress and he's been asked different difficult questions? and he says, I can neither confirm nor deny the existence of such operation without a secretary prior approval. And the secretary was killed and there is nobody who approved that. So this actor keeps

saying, like, I can neither confirm or deny, right? So now, it's a little bit how Burford answered this question when they were asked, do any of the funds that you merge, bought YPF? Great point. Yes, yes, great point. And like, we can neither confirm or deny and understand, right? There are tons of legal limitations on what they can say and there may be confidentiality agreements there may many many many other things so they don't say they said we can either confirm but there might be press reports on if some of the funds we manage have have exposure or not which I now yes and now back in 2019 maybe 19 maybe 20 there were reports that Burford that funds managed by Burford bought about

30 million out of those 100 million that Burford sold. Yep. And remember, by the time, it was a big transaction because about 100, 100 million was sold by Burford. And then unrelated parties also traded around as part of that big deal. And I think it was around another 40 or change. So it was like good amount traded hands. And some reporters found out that 30 million, 30 million was purchased by Burford managed

funds. Madi Woters used it as a claim to say that in time Mark, on Peterson is Bogus because it's not in the parties. Murphor publicly in writing, and I believe on the calls, I believe in both, commented, listen, we cannot comment on that,

but what we can tell you is that there is a bunch of securities laws in the US that would prohibit funds from doing a related party transaction with a management company. And if you do that, you're going to get yourself into trouble. What it means is that,

limited partners alone, typically it's done by a limited partners advisory committee could get together and say, we like this deal, we don't care, we like this investment, we don't care that it's a related party, we still want it. And in that case, a manager can sell something to the fund. And it's very helpful if you have third parties that are doing it at the same time, that are giving you a mark. Correct, because in that case, it's not like they set up some price, no, there's entire market. So that was Buford said, and they said, we cannot comment what it happened.

But if it had happened, then that will have been a procedure. So we believe that it would have been proper anyway. If you go and download the PDF file from Burford website with the where they give you this 8 or by now probably 11 pages PDF with this tiny, tiny, tiny, tiny font which you need a magnifying glass to look at, where they give you every single case. Yep. you will see an interesting thing.

A new case appeared on June 30th, 2019, if I'm not mistaken. And commitment, so it didn't, that case did not exist on December 31st, 2018. It appeared on June 30th, 2019. And so it's six months. And committed capital and deployed capital was immediately the same number, 30. We know that generally it takes some time to commit capital and then deploy capital. Normally, those deployments take time, sometimes a year, sometimes two years. It could be even longer.

In that case, it was 30 and 30, which is unusual. And I think it matches very nicely with this theory that public was disseminated by reporters, that about 30 million was invested by Bufour funds. And it was Buford Opportunities Fund, not sovereign wealth, but B.OF, based on that document. So my hypothesis is that that's the same case. And why is it relevant?

Well, I think it's relevant for this reason. That valuation was about and we don't know all the numbers here, but this is my understanding. Burford at the time owns 71.25% out of the entitlement from Peterson.

And that 71.5% was valued at a billion, and they sold 10% of that 71.5, 400. Again, I need to approximate here because I don't have all the inputs. But most likely, that one billion today is closer. So, sorry, that 100 million in terms of notional value is probably closer to 16 billion divided by 0.7, roughly, and then you take 10% of that. So, again, that mass is flawed. I don't know the exact mass.

But it's quite a substantial number. That's my main point. It's called it 7% of 16 billion, roughly, I think. That would be, call it close to a billion dollars. Is my math right? Well, I think there's an easier way to do it, which is when they sold, they value, at a billion dollars 16 billion dollar headline number i think what you actually want to do is say hey you and i have been saying that uh they're going to get 50 cents on the dollar is the haircut so i

think that billion dollar valuation if i'm right would be worth eight billion so the 100 million value they sold let's do before the haircut but i think you're taking you equating one billion to 16 billion and i'm saying that one billion is equivalent to 71.5 percent of 16 billion. Okay. Okay. So that's where... I see what you're saying.

Yep. I see what you're saying. It's possible that, again, I think I'm missing some inputs. So I'm really approximating here. But if it's 10% of 71.5%, 10% of 71.5%, 10% of 71.5%, it's 7% of 10% of entire 16 billion and 16 billion multiply by 7%. How much you then? Sorry, I was looking at, I was just looking at the numbers of 7% of 16 billion.

Okay, yeah, it's approaching 1.1. Is that right? So I threw one billion just like rounding, because I'm sure I'm missing some leakage there. And if my hypothesis is correct, 30 million just turned into one billion notion. Let's use one billion because it's easy math, right? Let's do a haircut. It will be 600 million using 40% higher. Again, 30 just multiplies nicely into 600. That's what I'm doing. Well, you can do 50% haircut.

It will be high 500 million. 30 cost basis, call it 470. And Burfer, if it's indeed B.OF, is entitled to get 20% incentive fee on this number. So it's approaching 100 million. Of the incentive fee? I think you're a little too high. I don't want to belabor the point because 100 million is 50 cents. I think you're a little too high, but I don't want to belabor the point because I do want to belabor the point because I do want to

talk about the rest of the business. But this is notional. This is notional amounts, meaning before haircut. But the bottom line is whether it's 20 million, 50 million, 100 million, there's going to be, it seems there's set up to be a nice incentive fee here that Perford's going to get, which, you know, if it's 20 million, that's an extra 10 cents per share of value. It's 100 million that's an extra 50 cents, but there's a nice, on top of everything we've talked

about, there's incentive fee is coming. All right. That's why, we might have to do this as a two-part podcast where we're just break it up because this is going to be the longest podcast we've ever done. This is why on Twitter, I said two hours or three hours. But let's talk about the core business because, look, the YPF stuff is exciting. It's a $15 stock. You and I have said the fair value here is over 66% of the stock value just from the YPF wins, right?

But the core business is doing really well. I personally have a hypothesis that the core business is going to do better on the heels of this because I think people are going to get more excited. But let's talk about how you look at and think about the core business today. And we probably don't need to go too deep because especially the first podcast, I think we did a really nice job hitting on it. But let's talk about the core business today. So based on, so Buford reported second quarter results a couple of weeks ago, September 13, so actually one week ago, so very new. And in my opinion, the results were quite sought. I would also add that the changes in accounting have made already complex reporting even more complex.

Yes, agreed. I would also add that, in my humble opinion, Burford. doing quarterly reports is not a very good fit for the business. They have to report, that's why they're doing that, but I think semi-annual was a lot better cadence. Frankly, I think annual is a lot better cadence. Do you remember this story about Warren Buffett, who said when he was running Buffett partnership,

he said to his LPs, I will be reporting to your results to you once a year, and you will have an opportunity to leave or stay, and otherwise I'm not talking to you. Well, you know, when you do 50% I think Buffett Partnerships was doing 50% annualized. I think when you're doing 50% annualized, you know, I think it was Ted who did,

he launched his fund and the first thing he did was the post reorg, I think it was the grace investment or whatever. And his fund was up like 3X over two years when he launched his fun. Ted Westler, the Buffett's. And, or it was a, I can't remember, but his phone was up 3X over two years. And then he just sent his LPs a letter.

He was like, hey, I'm just going to be writing you guys. has an annual letter now. I'm not going to report quarterly anymore. You know, when you do 50% IRA or you do 3x in two years, you can write those letters. But for mere humans like me, I won't include you, but for mere humans like me, you can't go with that. But I do understand what you're saying. This is a business that, you know, they make the legal investments today, and they're probably, in Burford's case, it takes 10 years to realize, like reporting quarterly versus semi-annually, there's not a lot to add a lot of the times. Like, it's focusing too much on the forest and missing the trees, or focusing too much around the trees and missing the

forest. Correct. So that's the thought number three on this topic. Now, let's talk about fair value methodology, because that played in the port control. So just by way of the ground, Securities and Change Commission in the US and Burford had some conversations, which resulted in Burford changing its fair value methodology. Before, they were marking up cases up or down only on milestones, meaning judge issued a certain ruling. Judge, a case went to appeal. We lost this petition and if it's substantial enough, they will mark it up or down. And then, now with new methodology, Burford does also mark in based on time value of money. And conceptually, it makes sense. A case, holding everything else equal, a case

that got launched two years ago with the same merits as the case launched yesterday, should be a lot more valuable because we are two years closer to resolution. However, you need to apply some discount rate and those discount rates are not constant and as a result Burford has been applying high discount rates for some period of time

because rates were rising. That makes sense. And in the second quarter of 2023, application of high rates resulted in negative markdown of a value of its portfolio if you look at it at the aggregate level. And remember Burford report

Consolidated and then report Burtford only. I think consolidated has a lot of noise. I look mostly at Buford only. So on the consolidated, correct me if my numbers are off right now, I don't have Excel in front of me. So I believe that they had $94 million markdown at the consolidated level and $60 million plus at Buford only. That sounds correct to me.

I don't have all those tabs open. I'm kind of focused on this, but that all sounds about right to me. And obviously, when you look at the income statement and you see that your revenue is not going, way it's supposed to be going. And this happens in the time period when Burford had its biggest win in its entire history, arguably, it raises questions. But that's the accounting. By the way, I expect that in the next probably couple of months, there will be filings where Burford and SSC, whatever they corresponded with each other, they would be posted. And sometimes those letters are

really fun to read, especially if you look at some companies that have gone public and then you pull out and like as he says, you are not disclosing this metric properly and the company like, sorry, sorry, sorry, yes, here you go. And like, very interesting. They didn't want to report this metric. What does it mean? So sometimes it means nothing. Sometimes it means something. It's up to you to decide. So I think it will be very interesting to read those letters in exchange what Burford was advocating for and what SACA was advocating for. I think we'll be facilitating read. So I look forward to that. The other thing that, you know, in the Q3 earnings, they will report, obviously, I don't believe that they marked YPF up in Q1 and Q2 because they just

had the prelim judgment. They didn't know what the rulings were. I think they might have done it a little bit, but they marked it somewhat. I think it was a very small markup, but they got final judgment this month as we just spent over an hour discussing, right? So I will be very interested in the Q3 earnings what they mark the YPF rolling out because it'll be interesting to see how they're thinking about it. But I don't want to bring this back to YPF. So I would agree with you. Like, look, there is noise, right? Interest rates went up by about 2%. You know, if you kind of think interest rates going from

three to five percent in a quarter, that makes a big, big difference if you're fair value and everything. So there was noise in the income statement. And I think a lot of people, a lot of headlines, there was a lot of commentary on the print. But if you looked beyond that, you know, I think what Burford's saying, I think rightly, the business is just absolutely firing on all cylinders. All of the COVID delays

are starting to resolve themselves. They deployed a lot of capital. And even X, YPF, you're starting to see wins. You're starting to see a lot flow through. I don't know if you want to talk about any of that. Look, so let's talk a little bit about this because this is important. As much as YAPF is exciting from intellectual perspective, because it's a fascinating case, as well as from financial reward perspective, which is substantial, that's not why I got interested in the workforce in the first place.

Yep. And it's the co-business that I think is very, very attractive and interesting. So let's talk about that. So I will start with this. Sometimes when very young students interview for banking internships or other internships, they ask like, hey, if you only could look at one financial statement out of three to evaluate a company, which one would you choose? And the returns, of course, cash flow statement.

So some people get right. Some people don't, but that's it. You know, that is funny because I think I would say balance sheet. And here's my reason. Some people say that. Well, you didn't say what the company was. if you looked at the cash flow statement for a bank, it would be completely meaningless, right?

So a balance sheet statement, like at least I could see how much earnings they got from last year to this year. I could do a return to equity, like a cash flow statement. It's tough. I do hear you. But I think the right answer is actually, dude, you can't do that. Like every statement is connected to each other, but I hear you.

I agree with you, right? This is the question that asks, you know, for junior positions. So, and why I'm bringing it up the story is this. There are a few metrics in Buford disclosures that have been consistent for many, many years

and that we know and I think they indicate the health of the business. So number one, I want to know commitments. So in other words, paraphrasing that question if you asked me, Artham, if you could look only at 5, 6, 7 metrics out of probably 25 or 30

that we have in Buford reporting, which one would you choose? So they will be, I want to know commitments because this is the best leading indicator. I need to know deployments. I want to know realizations. Why?

Because I want to see that those deployments at some point come back and they got cashed. Then I will want to know aggregate IRR and RIC. Because that will show to me whether the business is detailed, whether the quality of cases, they return and reward profile is getting better, worse, or it's stable. Yeah. Those are the metrics that I would like to know. And those five metrics alone, probably. should tell me enough about normalized top line revenue over some period of time.

They're going to tell me nothing about next quarter revenue or even next year, but on a two, three, four year time horizon, they will tell me enough. It's the same. Just think about it like a private equity firm, right? If you get 10 years of deployments and you can see what they're doing, like in private equity firms, there's obviously huge variability, probably more variability. Well, there's a lot here. But if you've got 10 years worth of deployments and you can see consistently they're deploying

at 20% IRRs and all that sort of stuff, you say, hey, this is a private firm that's probably doing pretty right, very similar. Very good analogy, agree. And then the last thing I will want to know is OPEX. Why? Because those five metrics roughly will tell me something about top line. And remember, top line is only gains, either realized or unrealized. That's not total precedes. Yep.

And OPEX will tell me, okay, are we spending too much money to run this business versus this magnitude of those gains that we're getting? So I will want to know OPEC. So, and I think on commitments that were up very, very nicely, deployments that were very nicely, living indicators to me are lining up very strong for Burford. And remember, a couple of things. Burford reports group-wide commitments, group-wide deployments, Burford only, et cetera. And I think right now, Burford have said publicly that they are deprioritizing the asset management

business. They will be invested more and more from their own. budget. So I think it's a lot more important to look at work from only commitments and deployments than group-wide. But even if you look at group-wide, they're still growing very, very strong. I just want to comment, and I'd love to hear your thoughts on it, too. You know, a lot of people love the private equity model where we take LP's money and we use that to invest, and then we just get the two-and-twenty fee, right? We get the incentive fee and the management fee. They love that because that's a capital-like business, that management fees locked in. The incentive fee gives you

plenty of upside still and they love that. And Burford, they've got the asset management business, right, which again, you could consider private equity. And they're actually going to other direction and saying, we want to put more of our balance sheet in. And I know I have pushed them and a lot of people have pushed them. They've been like, dude, like two and 20, that's the end all be all. You guys are actually getting three and 30 for some of these. Why aren't you doing it? And they're saying, look, we only did that because we had so many cases. We couldn't fund them on our balance sheet. We wanted to do that. These cases are so attractive. The more of them we can keep for ourselves, the more value will create in the long run, which I think speaks to a shareholder-friendly and value-focused group,

and I think is the right decision for anyone who's focused on like long-term value creation versus kind of short-term metrics, that type of stuff. I don't know if you agree, disagree. I'll toss that over to you. I can pretty much sign that petition so that you just articulated. In my opinion, the key issue here is capacity. Yeah. If you could deploy unlimited amount of money, sure. Just deploy both your own balance sheet and $2.20.

If it was investing in shares of Amazon, which is not investment recommendation, I don't know much about Amazon, so other than they sell books and I buy them, they have a bunch of other stuff. So if you are unlimited in terms of how much money you can invest, of course, have both. It's terrific, $2.20, and you're paying a lot of salaries for your team just with other people money while paying only a little bit with your co-business. However, if it's capacity constraint strategy and you choose between the two, you probably want to prioritize your own capital.

This is why Greenblatt, who is like one of my, you know, idle investors with his credit trajectory where he was running a fund, Gotham Partners, and it was so successful with the returns that disclosed in you can't be stock market genius book somewhere at the back that he had church on capital. Renison, a lot of these quant funds, they run huge money and they charge 2 and 20,

and then they get big enough and they say, hey, our returns are starting to drag us down and we're all billionaires now. Return all the outside money and just run our, we're making 50% annualized,

run it all our money and just keep returning all the outside money because you'd rather make a hugely risk of attractive return. Maybe one day you and I will face the same issue. So let's start, business firing all cylinders. I want to talk about value.

of the core business, but there is one question that I've gotten from several people that I have some answers. Nobody has a great answer here, but there was a widely publicized, Burford invested $140 million into Cisco antitrust claims. And it went off the rails. People can look, there was a little bit of the 60 Minutes piece. There was some back and forth. Burford actually published an op-ed in the Wall Street Journal responding to it. But at this point, Burford controls the Cisco antitrust claims that they invested about $140 million into a year or two ago. And a lot of people have started saying $140 million, you know, that's 60 cents per share to Burford. I believe they own all that stake. If you look at what they've done historically,

there might be a real pot of gold sitting here when this case comes to conclusion. Have you thought or talked to anyone about the Cisco claims in case here? Number one, I agree that it can be highly attractive. Number two, one of the pieces of indirect evidence that we have that it can be very attractive is because that there was a potential settlement that according to Cisco, Burfer did not let them pursue, and that resulted in the dispute between Cisco and Burford that's subsequent level 7. So which makes me think that the settlement that was on the table was not big enough.

It means that there is probably how much bigger? Probably not 10%. Probably they would not be arguing about 10%. So probably it's substantially bigger. How much bigger? I don't know. Number three, I don't know that case as well as I know IPF. So I probably will be reluctant to provide very strong opinions about the magnitude.

I agree with everything you said. But as you said, if the settlement was, if Burford invested 140 million and it was a, choose the number 200 million settlement and Burford rejected it, it's probably because they think there's three or 400 million at the end of the rainbow, maybe more, like, you know, people, people view YPF as a one-off and rightfully so, right? You're probably never getting another YPF like thing. But to me, one of the things people miss is YPF is such a business confirmation that there are, this is a VC style thing and there are going to be other big wins in there.

And you think about the portfolio they've accrued, you know, this moves actually nicely to book value. You know, tangible book value of the, of Burford right now is what? It's about $5 per share. 540, excluding the YPF, right? So I exclude YPF. It's about 540 for share. Obviously, there's an asset management business here, but you really want to think about they're increasingly just investing their balance sheet.

So you have to look at it as a balance sheet style. But the question is, they're investing their balance sheet at 20, 30% in investments. Like, how much can they reinvest? How long can they continue to do that? How do you look at valuing the core business here? Okay. So I apologize. Before we got into that question about core valuation, there are two points that I think

are important to make about recent results, that I think people confused. So, number one, let's start with asset management. All of a sudden, asset management had very bad headline revenue number in second quarter. And the question, like, wait a second, like, what happened? You had some realizations in your business. There was this thing, like, what's happening? So, and I think what's happening is this, a very substantial part of the earnings of revenue, let's start with revenue, of asset management business come from server.

World Fund arrangement, B.O.F.C. Because BOF, I believe, is in European structure, so you cannot mark a top. It's only when there is a final realization. That's correct. Yep. You only so really, kind of day-to-day, when you mark cases up or down, blah, blah, blah, blah, it's only B.O.F.C. Sovereign Walls found. And I think that in most cases, there may be some weird exceptions, but pretty much all the time, the mark of the case should be the same on Burford's own book and in the fund, which they manage. Because otherwise, it will be very awkward conversation with the auditor, why he hits $100 and he hits $70. So it's kind of the same mark, should be. There may be some with exceptions, but generally it is the case, I believe. And it means that they most likely

Woodford also marked a bunch of cases down that BOFC invested. And before they were presumably accruing some future incentive gains based on markup of cases. And now they had market down. So that's what I think probably happened, and that's what I think created very low number in asset management revenue when you look at it. Again, this is my analysis, impossible to know for sure, but I think that's the dynamic. And then the second question that I've kind of seen a lot come up is OPEX was quite substantial in the second form, based on the way it was reported. And people, because of that, started worrying. in my case, the worries are not very well-funded, that Burford may create a lot of value,

but it may not be captured by shareholders. It may be captured by employees. So let's first start with small picture, which is second quarter, and then we can talk about big picture, which is culture, incentives, etc. So in the small picture, there was some, in my opinion, true one-offs,

which is three and a half million, roughly, went into new evaluation methodology, and establishing infrastructure for quarterly reporting. Some of that I think will not be recurring. Some of that may be a little bit recurring because you need to provide, you need to do quarterly reports going forward

and maybe a little bit more expensive to do it from accounting perspective. Just like, look, they recast results I think eight quarters back for this, right? Obviously in Q2, they were finalizing, they were talking to the SEC nonstop. Like you're incurring overtime and you're incurring recast.

Is there ongoing SEC compliance costs? Yes, absolutely. But you don't have to recast eight quarters ago every quarter going forward. you've already got it recast. You don't have to pay over time to establish the framework going forward. You've already got the framework.

So, yeah, 100% agree. We're on the same page here. Then there was another $6 million that was paid as a compensation for legacy asset recovery business case. And remember, a number of years ago, Burford bought asset recovery business. I believe it was called Focus. And they were presumably based on what we know,

there were some cases that they were pursuing. And I guess they structured the deal. It was kind of contingent value rights in a way in the farmer deals. Instead of you and me arguing how much this highly promising drug that has all the risks of being approved, instead of arguing, let's agree on the payout based on contingency. I think it was something done here as well. And one of those cases, I guess, played out,

which is, you know, good for everybody involved. And that triggered additional $6 million payment to the former owners and maybe employees of that group. So again, that is one-off. And obviously, they pay off on those cases that already hunted and got on their platform and started pursuing will be higher than on normal cases that would forget. So that's another, which I've used one-off.

Then on the call, CFO, Jordan, talked about how the bonuses may be looking high, but there is a true-up at the end of the year, etc. We don't know all the numbers, obviously, for the future. But I think where CFO was leading to is that you should not be looking at the bonuses accrued as one-line item. on one single quarter, multiply by four, and say this is run rate. There is a lot more movements, and that's what I think he was referring to when he was talking about true up at the end of the year. So we need to see at the end of the year how it will be true that.

Maybe I'm wrong, and it will be like, you thought it was high back then? No, at that time it was low. Who knows? But I think it will be, we need to see. We need to get more data. And then there is a final piece that I think Chris Bogart on the call spoke about, which is the following. He said, we give shares to, I believe Burfer gives shares.

to almost every single employee in the company. And when they do it, they buy them in the open market instead of issuing, which I appreciate as a shareholder, and give it to the employees. But when they buy, they bought some time ago, I'm making this up at 7. And now they hire the new person who is great. They give him a share.

Now it's 15. And they need to expand it at a higher price, which makes sense. But CEO, I believe, was saying, like, hey, but we don't get any credit for buying it. Effectively, they did this kind of mini buyback an issuance. So we're not getting, we're not recognizing any game. So those are all the pieces. And one last piece I would say, and this is more important in my opinion than all this tactical

minutia is this. You hire people and spend money to originate cases today. And they bring you cash based on their maturities in two years and change. But some cases, as we know, run a lot longer. We'll get a IPF. So I think it's important to keep in mind. And now going to the bigger picture, which I've heard some people. I was honestly surprised when some people brought it up, like, oh, how do we know that management and employees will not capture all the value being created? So my pushback on that is the following.

Number one, we do not have any evidence of behavior where Burford employees and top management benefited at the expense of shareholders by extra reasonable compensation. We just do not see that pattern of behavior, and I am relying here that private behavior is likely to be a good predictor of a future behavior, until proven otherwise. If it changes, I will change my mind, I will get on your podcast,

or maybe not, and we'll say I was wrong. Right. Before the Burford podcast, yep. So that's point number one. Point number two, if you look at the annual compensation of Chris Bogart and Jonathan Mallet as two key leaders of Burford, it's running, and correct me, there are different components, but call it $5, $6, $7 million a year. And each of them owns roughly 4.5% of Burford trade outstanding. $220 million, I guess, 4.5% of that do mass multiplied by 16. We're talking about the difference between the annual camp and their shareholdings of 20, 25, 30 times. And one thing that struck me in the call, I mean, I don't know what the individual shareholders, what the individual employees own, but one thing that Burford has said and

that struck me in calls when I was doing with former's was everyone does own stock here. And look, if you own stock in Burford and you own 100 shares, like, yes, I'm sure the $1,600 that you own as employee, I'm sure you wanted to go up, but if you're a lawyer getting paid $400,000 a year, doesn't matter much. But I do think there is something to, they pay everyone in shares, employees have a long-term shareholder mindset, they own shares throughout the company. I do think there is a little bit of something to that. So I'm just kind of guessing on that. But yeah. Yes, I think we're on the same page there. I generally like the companies by almost everybody or everybody. I said almost everybody was commenting because what if there is someone who

actually doesn't, right? But in my opinion, as far as I know, it's all the employees, I just put that caveat to be safe. It's one, it's a post I'm working on. You know, the longer I do this, like Charlie Munger said, I think I'm in the top one percent of thinking incentives are powerful, and I'm always surprised by how powerful incentives are. And it's just one thing, you know, I work with these companies all the time. And I sometimes I think they're incompetent, but a lot of times they don't think they're incompetent. They just don't own shares. And like, if you don't own shares and you get paid 500,000 a year and you could sell the whole company for a huge premium say, you're just incentivized to say, hey, the sale will be

there next year. But let me see if I can create a little more value and, you know, capture another 500,000 shares and maybe get a little more shares. And then I can see and so you saw it. And like, I just love having ownership throughout the company, especially at the top because then, yes, there's always that conflict, but ultimately they're rewarded for doing what's going to put money in you and I's pocket. And that's create shareholder value. Okay. That's a ramble. let's just real quick. Burford, if you exclude WIPF, the book value here is, where's my number? Okay, if you exclude YPF, the book value here is $4.20 is the right number.

If you are only looking at tangible book, it's $3.60. Now, there are a lot of issues with that number, right? A, as you said, they've made investments today that won't pay it off, but they've got the expense to say. B, they've been investing for years at 20, 30 percent plus IRAs. So, you know, that book value should compound very, very nicely, all that type of stuff. So, and there's the asset management business, which is on the books for basically nothing, but which generates very high margin income. How do you look at the core business X, Y, PF valuation?

So conceptually, I'm looking at the same way as when we did our first podcast in July, 2021, quite frankly. So there is not that much change conceptually. So what I did back then I still do now, I take. all the assets, and I subtract those that are not producing financial outcomes today. For example, I will take YPF because I evaluate completely separately. Yep, yep. We take the entire mark for YPF. And fortunately, Burford discloses that mark so it's easy to do.

I will take goodwill out. You cannot invest goodwill in cases in financial, tangible way. And then usually I would also take some cash cushion out saying Burford will just know that deployments drawdowns are somewhat unpredictable even though they have good models and this is the management team that I believe like to be conservative on those matters, we will keep certain amount of dry powder no matter what on the balance sheet. So I take that out and say, okay, that leaves me with assets that could be producing financial outcomes for new cases. I take that number and then I apply the, the, the, the,

IRR of 24%. Again, Burford says that IRR is about 29%. Got to take expenses out, overhead, all that sort of stuff, yeah. No, no, no, no, no, no, no. That's separate. The separate analysis. So, and then what we, the last number that we've heard publicly was that excluding YPA, but it was quite some time ago, it's 24%. So I take that number and say, okay, this is the gains that should be producing in some normalized way and that normalized year will never happen. All years will be the better or worse. But that's hypothetical. You know, in law, there is this concept of a reasonable man and nobody ever seen that person. So it's kind of the same normalized year. And this is the

gains. And then I say, okay, in order to produce those gains, they need certain level of operating expenses, GNA, compensation, public company costs, et cetera, et cetera. I subtract that. And recently, I obviously updated that number, given the new data points that we got. I took some of the adjustments out that you and I already talked about. That leads me to their pre-appearating income and then you take out their finance costs and then you got to pre-tax income you apply some tax rate you can use meetings if you like this will be said publicly that's where they will be approaching you can take some low number based on the current trends it's up to you and that's how i get to normalize nothing and then what i do and this is important

i think that normalized income sorry like this is like one block on else's i do and then there's another block analysis you can do, which is you do, you take their earnings for the last, for this, I like more half than second quarter alone. I take their first half year earnings. I make some normalization adjustments. And then I calculate normalized equity, meaning I will take goodwill out. I will take YPF out. And also when I do the earnings in the second, in the first half, 2023, I will subtract any markups of YPF, because I want to evaluate completely separately. And then I am getting to my normalized earnings in first half to normal and normalized equity in the second half. And I compare the two. So, and based on my math, which has a number of

adjustments and reasonable people may argue with some of my adjustments. And by the way, some people I think will argue that I am too conservative. Some people may say, you're a little bit to lean in here. And I'm getting to normalized ROE based on the first half to roughly 15.5%. 15.5%. So again, I can see how it can be increased if you make more adjustments. I can see how it can decrease if you want to be very, very pleased. Just to throw in, I did not do anywhere near the amount of adjustments you do, but in my head, I run this as a high team's ROE business on the assumption that I probably would do something similar to what you did, but on the assumption that some of the expenses they're doing now are for future growth.

So you kind of add them back. So I've kind of always thought this is a high-teens ROE business. And one thing we haven't talked about is we didn't give them any, or as far as I know, you didn't give them any credit for the asset management side there. I don't give them credit there. I give that separate, but just throwing that out as well. Yes. So in a way, if you want to value asset management separately, which you could and I've done that

as well in the past, you will need to make more adjustments to your normalized earnings. and you will be just taken down from Burford, like only own balance of the business as opposed to asset management, right? So you can either do either way it's fine. Yeah. As long as you're consistent. So, and I'm getting and also I'm not giving them any credit for this future expenses, meaning we spend it up today to get something two or three years from now. Like, I'm not doing them any credit for that. And this is what I alluded to when I said some reasonable people, sounds like you will be one of them who will say, like, no, you're

too punitive. Like, you're too conservative here. This X dollars, when, to create something two years from now. Right now there is no payoff. You need to adjust for that. If you do that, we'll be in high teens, maybe even 20. So, and I think 20% ROI probably achievable for this business, again, on this normalized basis. We know that on Q1, 2023, Jonathan Mueller talked about that they want to run the business at 20% ROI. I believe they also said that they started thinking more, they started educating the team more and more not only about IRR and RIC, but also how it impacts ROE and profits. So I think, based on the management comments on the calls, I believe there is more movement

to focus on those metrics. The one thing I would add there is this business, you could run it more lever. And they run lever, and they've talked a couple times about, hey, we've got all this leverage capacity. We've got all this. I don't think you want to. But you and I've been seeing ROEs in the high teens, low 20s, midteens, whatever, if they wanted to, they could probably take the ROE to 35, 40%.

They could just juice it by really lepring it up. Or again, they could sell cases off to third parties and kind of go with the 2 and 20 model. So we've been doing the ROE, I think that that's right. But there are ways you could get higher ROEs. You know, the ROE is just the number. It's the output of a bunch of different inputs. I don't know where I'm going on that. I'm just throwing it out.

No, no, it's a very, very valid comments. What you're saying is that, yeah, sure, their high teens, maybe 20, but 20 meaning goal approaching. But with the different cap structure, they could achieve a lot, a lot more. I agree with it. It's one pushback. A lot of people have had, both investors and non-investors, why don't they buy back shares? Like, they could just go buy back shares. And their point is, hey, we can invest at great returns into these cases.

And I've kind of pushed them and said, hey, you could do both, right? You could take out a little more debt, but yeah. Number one, I wish they did try buy back, especially like six months ago or during COVID or after COVID or March or February of this year. Like, I wish they did. So that's number one. Number two, I understand, I think, where management is coming from. And this is not just an opportunity to invest capital at very high IRR and ROIC.

I think it's also making sure that you have enough capital. If a big corporate clients comes to you, which kind of happened last reported quarter when they announced $35 million. Well, Cisco is a good example. But also in the second quarter, they announced another portfolio deal for $325 million with Fortune 50 company. That's a lot of money.

Most litigation hedge funds have less than that in the entire fund. I don't have that in my fund. I'll tell you that. You don't want, I think, both management doesn't want to be in a position when someone comes and says, Burford, we got these great portfolio of cases. Look at it.

It's pure beauty, pure magic. we need $325 million and Burford says like we don't have I think that's what they want to prevent and I think the management team tends to be conservative on this matters which I understand

and that's one of the reasons why they have not done buyback and I believe Chris Bogart on one of the calls back in 2020 during COVID time said when he was like why don't Paschapu do buybacks he said we don't want to churn a client because we spend cash on the buyback

so I think that's the tension what I wish Burford did apparently I'm surprised that they haven't done it yet, is having a revolver with, you know, I don't know, name a bank, Bank of America, GPMorgan Chase, whatever. Exactly. Because you, with the buybacks, it's not like we're asking them to go crazy into debt to buy back to sell. It's like a consistent buyback program as long as you're, like, as you said, if they had bought any point before the past two weeks at all this year, they would have been buying for less than

I think you and I think they'll get in the proceeds from YPF. So they kind of would have been buying the core business free. And yeah, I want them to go do this $325 million deal. But you could just take out a revolver, you know, $25 million a quarter as the proceeds, as the business. Eventually the growth will slow and you'll, you know, get the fruits of this year's investment. As you get the fruits of this year's investment, pay down the revolver or keep it constant, ramp it up if that $325 million deal comes in and say, hey, we're not going to buy back shares for the next half of a year so that we can pay this investment down. But yeah, I wish they did that. Just to clarify, when I said, I don't have that in my fund.

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Head over to their website at streamrg.com to learn more. thanks for listening and we'll catch you next time so let's just we're approaching the two-hour podcast i think this is the longest podcast we've done we've talked a lot about it so we mentioned high teens mid-teens are we on the core business what do you think that comes out to you like on a kind of per share basis oh boy i'm a little bit hesitant to throw the numbers out because what was likely to happen this normalized year will never happen and i would look either someone who put too high of a number and it doesn't happen for the next year, or they have some blockbuster second half, 2023, and it would be looked like, dude, you're so

low. I didn't mean in terms of a normalized GPS. I just meant like in terms of how you, on a per share basis, how you value the core business. Look, so in my opinion, given that we're talking about the business that should be having high teens, maybe even 20 are we. I think it should be trading at a multiple load of book value if you want to approach that methodology. And I think it probably should be any way between, if I want to be conservative,

I would say 2x. If I want to be a little bit more optimistic and aggressive, I will say 3.54X. So that's the point in my opinion is that this type of business should be trading on a substantial P. I call it at least market P. I think it's not unreasonable. Why? I always believed that Burford, if we fast forward five or 10 years and we're doing another podcast, hopefully we're doing it from your yacht called Burford. I think it would be called Eden Park. I like the Eden Park name for a yacht. But yeah, there you go.

Okay, I will take Peterson for my yacht if I buy one with Burford investment. So in a moment, jokes aside, I hope that this business will become, and it's in the process of becoming already, it will be a blackstone of litigation finance. That's what I said at the very, very beginning. That was my thesis.

There were ups and downs along the way. So, but I think we're much. there. Burford has roughly scale of 3x of the second competitor. I think it's a big scale in an industry where scale matters. 325 million portfolio deal that they announced is a good evidence for that. I've loved the book by Steve Schwartzman, what it takes, an autobiography. And I think he makes a number of interesting examples how Blackstone being the biggest and having the most scale allowed them to do certain deals that almost nobody could. even try and is that the one where he claims he has a 48 inch vertical i don't remember that

i think that's the one where he claimed he has a 48 inch vertical which would put him like you know in NBA athlete levels and he's like a five or he said he did uh but i i only mention that i agree with you he gives all the benefits of scale i shouldn't have cut you off but i i just always think about oh man this guy he's really uh he's really believing the hype if he's if he put in writing that he had a 48 inch vertical and thought nobody would call him out as, hey, man, you would have been in the Olympics with that type of thing. That don't know, but I did enjoy the book. That's what I can say.

And while I was reading the book, I was thinking a lot, understandably, about parallels between Steve Schwartzman and Blackstone story and Bufelstor. And, again, you and I spoke about this earlier. 14 years ago, they launched a small fund, I peoped in London, because for whatever reason, London investors, after financial crisis, were more perceptive to invest in something like this. And now, you and I are speculating that they may be having conference calls or face-to-face meetings with IMF officials. You know, I just... That's a big step up. When I wake up on the right side of the bed, I guess the two things I would add to is one, if you go back to, it's starting to come back, but if you go back to before, so, like,

If you had a bank that did a 20% ROE, they would be valued at three to four times book would probably be about where they're valued. And, you know, people might hear Burford, if you exclude the YPF claims, has never been valued. It may be before the money orders at the three to four times book, but look, they've got the point of YPF proved they can have huge wins in here. And even when you exclude it, they can do 15 to 20% ROI. I don't think based on that 3x book is crazy. That's point number one. And then point number two, when I wake up on the right side of the bed, the comparison you made to Blackstone because when I wake up on the right side of bed, I say, look, you know, 15 years ago, people would have said, oh, KKR, Blackstone, all these guys. They're long under two PE funds. But scale matters here. And Burford is an N of one in terms of there's, there are other publicly traded litigation firms that know them with their size, no one with their scale. But this is all the kind of the only one that's investable institutional level. Nobody knows how to value them today. But 10 years from now, like they won't even have YPF on their balance sheets any years from now. But they will still almost certainly be. the largest litigation player. And I think if you go back and you look at, hey, you could have

invested in one of these private equity guys when they first went public and everybody like didn't really know how to value them and look at them, you would have done quite well. And I think that's going to be the answer for Burford in 10 years from now. And that's why, you know, if you can do a 20% ROE, three times book, two and a half times book, it's not crazy. And, you know, not only is it not crazy, it compounds really, really nicely. So all right, we're approaching the two hour mark. We've covered a lot. I think people can get an idea of fair value based on everything that we've laid out, we don't have to sell out specifically. But anything else you would add to our discussion on Burford today?

Probably not. After two hours, it's difficult to add, quite frankly, that much more. Well, look, Artem, I called you the King of Burford on Twitter. You've done incredible work. I thank you because, in large part, based on the stuff, I've been a multi-year Burford. As you said earlier, investor throughout all the Burford complex because of this. And it's been a rewarding experience both so far financially, but also just following doing the work on it has been really fun. And I know you and I know several other sharp

investors who are invested in Burford, and we've met some of them through it. So Arndt, this has been great. I'm looking forward to Pod. Five, maybe it'll be the fourth on Burford. I know you've got a few other ones, but this has been great. We'll wrap it up here. And look, I'll include a link to all of Arden's previous appearances, everything in the show notes if you want to follow up on that. So we can go over there. Arndon, please. Thank you. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

Thanks.