Emily Slater is a Managing Director with responsibility for assessing and underwriting legal risk across a broad range of practice areas and for identifying high-value investments in the marketplace.
You joined Burford in 2010—at the height of the last recession. If, as many experts suggest, another downturn is looming, what will that mean for legal finance and its users?
In general, litigation is counter-cyclical—litigation increases as the economy contracts, but a litigation may outlast the recession that prompted it. This means that companies may take on the expense and distraction of litigation but won’t see benefits until years later, if the company survives the downturn.
Before filing suit, companies need to understand the cash constraints caused by litigation—and that legal finance can be an excellent tool to manage that risk. We expect that with continued economic uncertainty—and underperformance in the manufacturing sector—companies will increase their use of legal finance, both to finance the cost of litigation and to generate cash through monetizations of claim value.
In December you spoke on a panel at the 26th Annual Distressed Investing Conference. What should these investors know about legal finance as they look ahead?
Legal finance is smart money when it comes to assessing litigation risk associated with a distressed investment. Often, the market overreacts to litigation developments associated with investments. Investors can have a difficult time quantifying litigation exposure or value and how it may impact their investments, particularly where litigation exposure may be the primary reason for distress or bankruptcy. Legal finance investment in litigation can be a guidepost as investors assess distressed investments. In addition, legal finance can play a crucial role in litigating matters related to a bankruptcy, such as the priority dispute on behalf of unsecured creditors in the GM bankruptcy, or financing other recovery actions to obtain creditor recoveries.
You helped build Burford’s investment process from the ground up. What is the most common misunderstanding in-house and law firm lawyers seeking capital have about that process?
Most lawyers have heard of litigation finance, but they often know little about it unless they’ve seriously explored using it. For instance, lawyers and clients often believe that the tool is too expensive or that they will lose control of their case. The latter is an easy misunderstanding to address, as Burford is a passive investor that does not control strategy, decision-making, settlement or choice of lawyers. Those decisions remain with the client. Though it is true that legal financing is expensive compared to other, more traditional forms of corporate finance, legal finance is non-recourse and is comparable to—but generally much more flexible than—law firm contingency agreements, which were previously the only available finance for legal claims. Finally, Burford can provide operating capital financed by litigation—something lawyers cannot do.
In addition, when we speak with users of legal finance, the focus tends to shift from cost to experience, and Burford has a team of highly experienced litigators that underwrite and oversee our investments that are resources to clients both in the diligence process and over the life of a case. As one interviewee in the 2019 Legal Finance Report said, clients are looking for “what legal finance providers can offer beyond capital.”
Burford's recent research reveals that GCs, CFOs and law firm lawyers all view legal finance as a recession hedge. What strategies would you recommend to companies and law firms preparing for a downturn?
When the economy is in a down cycle, companies cut costs as aggressively as they can—and even in an expansion, companies face intense pressure to increase profitability. Legal finance can be a tool for legal departments to manage their costs, gain predictability in their legal spend and generate liquidity by monetizing affirmative claims that have not yet resolved.
Legal finance is also critical recession hedge for law firms. Firms that work on an hourly basis can generate revenues by working with a legal finance provider if they have a cash-strapped client. Or, if firms are willing to take risk, legal finance can help generate partial revenues while the case is being litigated, thereby protecting it against an investment loss if a contingent matter is unsuccessful.
Burford recently celebrated its 10th anniversary. What do you expect from legal finance's second decade?
In legal finance's second decade, I expect broad adoption. Legal finance is already widely known amongst law firms, but we will continue to work with law firms to find new ways for legal finance to address some of their persistent pain points and liquidity needs.
Companies have just scratched the surface with third-party legal capital. I expect the second decade to be driven by huge growth from very large companies adopting legal finance, and we will continue to work with in-house legal departments to help them develop affirmative recovery practices.
Name 5 unexpected ways Burford has changed in the last decade
- Size: I always believed Burford would be successful, but I had no idea that nine years later we would have 130 people and have committed over $1.5 billion in a single year.
- Geographic expansion: Who knew we’d have offices from Chicago to London to Sydney when we started in two rooms in NYC with spotty internet?
- Business foundation: We built the business from the beginning to be able to scale, and while our fundamental underwriting process and systems have become more sophisticated, they have not fundamentally changed—I’m pleased an maybe a little surprised that what I think of as “The Burford Way” that has resulted in strong portfolio performance over time hasn’t changed all that much!
- Culture continuity: The core values of Burford’s culture, entrepreneurial spirit, teamwork, intellectual rigor and focus on client service have remained true since our founding. They are our formula for success and another instance of being pleased that things haven’t changed.
- Our team: Burford’s core team has been together since the beginning and we’ve built such an incredible team, slowly at first and more rapidly in the last few years. We are thrilled we’ve built a business that so many incredibly talented people want to join, and how much we enjoy working together.