Thursday 8 August 2019 4:48 pm

Listed litigation funders scramble to avoid Burford contagion

Listed litigation funders have distanced themselves from Burford Capital today, after a short seller attack yesterday sent Burford’s shares on a rollercoaster ride.

Manolete Partners and Litigation Capital Management (LCM) today pointed out how their models differ to Burford’s after their shares fell steeply yesterday in reaction to the short-seller attack on Burford.

Activist Muddy Waters yesterday criticised the accounting practices used by Burford to value its litigation cases, which it says it is “aggressively marking” – something that Burford denied.

Manolete chief executive Steve Cooklin told City A.M. “Their’s [Burford’s model] is James Bond, ours is Play School compared to them.”

Read more: Shares crash as short seller Muddy Waters savages Burford Capital

Manolete’s shares fell 16 per cent to 410p yesterday before rebounding 11 per cent to 457p today.

LCM’s share fell five per cent to 77p yesterday before rebounding nearly 19 per cent to 91p today.

Shares in listed law firm Rosenblatt, which has a litigation funding arm, were also hit yesterday, falling nearly eight per cent to 82p, before bouncing back nearly seven per cent to 87p today.

Research analysts at broker Arden Partners said: “Its been a sensationalist piece of news in a quiet market and, as a result, several sector stocks have been wrongly impacted despite having highly differentiated business models.”

Manolete buys insolvency cases from insolvency practitioners and then pursues the claims itself, largely aiming to achieve a settlement.

Cooklin said: “It is all very plain, vanilla stuff, not this esoteric stuff in Argentina and backing divorcees against Russian oligarchs like Burford.”

Read more: Burford left reeling as shortseller takes aim at business

Manolete – like Burford – uses fair value accounting, where unrealised gains are included in its accounts, but Cooklin said the short turnaround time of Manolete’s cases meant that the criticisms levelled at Burford for the opacity of its accounts, did not apply to Manolete.

“When we get to year-end we have got about 50 cases open, but they are closing on average in eight-to-nine months, so by the time the audit is signed off three months later most of those cases have finished and we know what has happened. Burford gets to its year end and the case has another four-to-five years to run, it is completely different.”

LCM, which like Burford finances major pieces of litigation as well as financing portfolios of cases for companies and law firms, said that it did not use fair value accounting for its cases.

LCM’s chief executive Patrick Moloney said: “LCM has consistently prepared its accounts and its return metrics on a conservative cash accounting basis. There is no fair value accounting in our numbers. We are committed to providing investors with the disclosure and transparency needed to assess the underlying basis of our returns and performance.”

Australian-listed litigation funder IMF Bentham, which has a significant London operation, also defended its approach today.

IMF stressed the strength of its balance sheet and said it “does not record any unrealised gains attributable to market value adjustments of its litigation assets”.

Its shares fell 10 per cent yesterday from 335 Australian cents to 300 Australian cents, before rallying to 327 Australian cents today.

Rosenblatt declined to comment.