Vltava Fund, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In its Q3 investor letter, Vltava Fund mentioned the two companies they recently owned and provided some updates about the fund’s assets as of the end of the recent quarter. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
In the Q3 2021 investor letter of Vltava Fund, the management firm mentioned Burford Capital Ltd (NYSE: BUR) and discussed its stance on the firm. Burford Capital Ltd is a Chicago, Illinois-based finance service company with a $2.4 billion market capitalization. BUR delivered a 12.31% return since the beginning of the year, while its 12-month returns are up by 20.00%. The stock closed at $11 per share on October 5, 2021.
Here is what Vltava Fund has to say about Burford Capital Ltd in its Q3 2021 investor letter:
“Very few people can say of themselves that they are pioneers and leaders in an emerging industry which they are themselves helping to create, moreover that they have founded and run a company in that same industry that not only was highly profitable from the start but that today occupies a dominant and sometimes even monopolistic position in the industry. I think that Christopher Bogart, the CEO of Burford Capital, could say that about himself.
Bogart is a lawyer by profession, and in the first two decades of his career he acquired valuable experience in investment banking, in the legal departments of large corporations, and also in litigation. This experience and his knowledge of the environment led him together with Jonathan Molot to the idea of founding Burford Capital 12 years ago.
Burford is a global leader in an industry known as litigation finance. In common language, this means that Burford helps various large corporations, law firms, individuals, and possibly other entities to finance their litigations in exchange for a share of any potential compensation awarded by the court. Of course, they also bear the full risk of failure. It is difficult to imagine an industry where the outcome would depend more on the skills, knowledge, and experience of the people doing the job. Being able to assess a court case purely from a lawyer’s perspective is one thing. It is also necessary, however, to know how to work with probabilities and time horizons and be able to express all this in monetary terms.
I think only few people are capable of this with consistent results. Burford is clearly one of these entities, if one can judge from its results to date, the breadth of it client base, and its ability to do large transactions. This combination gives it a very strong competitive advantage with near-monopoly elements in some parts of the market, which is huge, by the way.
Burford can be viewed as a private equity firm, except that Burford need not strive to “exit” individual investments in its portfolio. These “exits” are brought to it by the courts themselves, and with much quicker turnaround. If one takes all of Burford’s closed investments over the life of the company, their ROIC is 95%. That means that, on average, they double each investment. The IRR, which is an indicator of return that takes into account also the time during which each investment runs, is 30% p.a. over the entire life of the company. At a time when artificial intelligence is discussed everywhere and human intelligence is sometimes a bit overlooked, Burford is a nice example that also human intelligence can create great value.”
Based on our calculations, Burford Capital Ltd (NYSE: BUR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Burford Capital Ltd (NYSE: BUR) delivered a 7.10% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
