Burford Capital Share Discussion Threads

[tradertrev] 12/5/2021 12:35

From the FT - Gladstone having trouble with their Burford short. Aaah - bless...

Gladstone Capital, one of Europe’s top-performing hedge funds of recent years, has been hit by a rebound in stocks that suffered early in the pandemic, the latest sign of how many managers are struggling to navigate 2021’s market swings.

London-based Gladstone, which manages about $2.7bn in assets, lost 10 per cent in the first quarter of this year, according to people familiar with its performance. It recovered 5 per cent last month, leaving it down roughly 5 per cent for the year, the people said.

The MSCI World index of global developed market equities rose 9.3 per cent in the year to April 30. Gladstone declined to comment. The hedge fund industry overall has posted a strong start to the year, gaining 6 per cent in the first quarter in the best annual debut since before the financial crisis, according to HFR.

But behind the headline numbers, which were skewed by the performance of some smaller funds, many managers are posting far more mundane returns as they struggle to cope with gyrations under the surface of the market caused by an improving global economic outlook.

Some, such as London-based Sandbar Asset Management, have been hit as many stocks this year have failed to rally in response to strong earnings numbers or improving earnings expectations. In fact, US and European companies that have posted better than expected first-quarter results have barely outperformed markets on the day they were reported, according to research by Bank of America and Morgan Stanley.

Managers’ stock picks have actually lost investors money this year and have performed much worse than the average over the past 10 years, according to data from Morgan Stanley. “I think they [hedge funds] are finding it tricky,” said Graham Secker, Morgan Stanley’s chief European equity strategist. “Everyone is struggling for new ideas, long or short.”

Gladstone, a low-profile firm set up by former Lansdowne Partners equity analyst George Michelakis in 2005, had posted gains of about 23 per cent last year, 14 per cent in 2019, 23 per cent in 2018 and 37 per cent in 2017, according to numbers sent to investors and a person familiar with the performance, ranking it among the world’s top equity funds over this period.

Gladstone lost 6 per cent during this January’s market volatility, when huge levels of buying by retail investors sent the price of GameStop and some other beaten-down stocks soaring, the person said. While the hedge fund did not have direct exposure to the most heavily-traded names, it was still hit in the wider market tumult. Gladstone is the 13th most active short seller in European stocks, according to Breakout Point.

It has also been wrongfooted as many stocks across the region have rallied on expectations that progress on coronavirus vaccinations will fuel a sharp rebound in earnings. Shares it has been betting against, including litigation funder Burford Capital, software company Micro Focus International and digital payments group Network International, have all risen this year.

The MSCI Europe index has increased 11 per cent since the end of 2020. In January the Financial Times reported that partner Martin Stapleton, a leading fraud investigator and respected short seller, had left Gladstone.

[1aconic] 12/5/2021 11:32

My view is that's exactly it... uncorrelated earnings but inevitably correlated to the market in panic times. BUR's main shareholder over recent times has been Invesco. They've hemorrhaged money from their funds over the last year or so and at times have undoubtedly been doing heavy selling as a result. A large part of the holding was in the High Income fund (or whatever they've rebranded it to this week) which was absolutely decimated by investor redemptions last year. Other factors like small investor profit taking/nerves also relevent. But in theory that should be short term noise and you'd hope a stock with uncorrelated earnings would bounce back pretty quickly once any forced/temporary selling dried up.

[williamcooper104] 12/5/2021 11:13

Exactly - beta 1.35

[gettingrichslow] 12/5/2021 10:15

Riverman, yes, agree, and that’s why I’m heavily invested here. Even with the threat of inflation and possible consequential impact of higher interest rates I’m expecting the share price to reach circa £20 by the end of 2022.

[riverman77] 12/5/2021 10:01

The share price clearly isn't uncorrelated, but the earnings should be largely uncorrelated, and in the long run you'd expect the share price to move in line with earnings - therein lies the opportunity.

[gettingrichslow] 12/5/2021 09:47

Loglorry, I think it’s more significant than you’re saying. Play around with a discounted cash flow model for 10 minutes by varying the interest rate up a little bit (from a very low base) and you’ll see that it’s very significant.

Maddox, the notion that BUR is ‘uncorrelated’ is a theoretical one rather than one that is observed in practise. Remember when the pandemic broke and stocks plummeted and gold plummeted too? That surprised a lot of people but the reality is that there are hidden connections between most assets. Forced sales for margin calls is one factor. Forced sales by index trackers or fund managers is another and there will be many more.

[loglorry1] 12/5/2021 08:11

Higher rates mean discounted cash flows of future settlements and wins are lower. Inflation and rates do matter to BUR valuations.

It's not massively significant.

[maddox] 11/5/2021 23:14

Hmmm good thoughts amigos, thanks

[djderry] 11/5/2021 22:56

Share prices move up and down every day.It's always entertaining to watch commentators 'explain'.Then,when the price goes in the opposite direction,they come up with alternative explanations.A little like football pundits predicting the results of games,once the game is over,no one cares.
I think one of the strengths of Burford is the non-correlated nature of the asset class and,in time,this should be reflected in the shareprice.
A few caveats,though.
Holding hard-to-value assets for an uncertain and indeterminate period will probably lead to quite some volatility in how (mostly short-term) investors value the company.
Secondly,and I know you all know this,but all stocks are correlated.When the lemmings get frightened and then greedy and then frightened again,then all shareprices tend to move in the same direction.It's nothing personal.
Thirdly,and this relates to correlation within the portfolio itself (which ,I think, warrants more investigation )is the effect of financing similar cases.In the last set of results we saw how this led to a hugely successful set of realisations for the company.If one case succeeds,then the related cases are almost certain to do so.It might be an exaggeration to say it's like shooting fish in a barrel,but perhaps it's not much of an over -exaggeration.When these cases go your way,this is ideal.However the overall portfolio may be more correlated than first thought.

[riverman77] 11/5/2021 22:44

Maddox - Burford always falls when the wider market tanks. Completely irrational as the underlying assets are uncorrelated, but that's the way it is and just to be treated as short term noise. Last year this provided a fantastic opportunity to buy at incredibly cheap levels. If we were to see a meaningful correction I'd certainly be adding more, but not even close to that at the moment.

[three black crows] 11/5/2021 21:32

I bet Burford are backing the compensation claim for the Hitachi
train problem

[maddox] 11/5/2021 21:22

Don't you love a down day - so apparently it's as a result of a fear of inflation leading to rising interest rates. Hmmm and what might the consequence be for an uncorrelated business like litigation finance I wonder? Well I'd say a positive as it will drive demand for external finance from firms.

Any one else care to speculate?

[tnt99] 11/5/2021 21:12

As the Romans always said Rome wasn't built in a day

[tnt99] 11/5/2021 21:06

Nice one flare must be one of those hitachi trains lol but the engineers are on it then we will continue our journey to 15 pound land together

[syoun2] 11/5/2021 19:27

Most of the volume was 3 or 4 really big trades

[rar100] 11/5/2021 18:08

large volume today, more than usual, I guess it's new investors taking profit - I hope the inflation fears peters out over the week, seems pretty extreme but that's markets!

[flare1] 11/5/2021 16:57

Hopefully it's not one of those Hitachi Class 800 trains?

[tnt99] 10/5/2021 08:30

Moving on up get on the train quick!!!Who woo next stop 15 pound

[three black crows] 09/5/2021 10:03

True value, not "fair value" is based on what one will pay for it. The current price may well be a reflection of it being a less risky asset class, compared to some that are currently seen as overpriced. The share price price in 2017- 2019 being £15+ shows what one will pay.
I am confident Burford is in a stronger position now than back then.

[maddox] 09/5/2021 00:00

Hi Kirkie,

Yes, all your stated criteria have been more than met. For example their IRR ratio has been remarkably consistent at c. 31%.

Perhaps you can justify your stance by quoting BUR's metrics where they fall short of meeting those criteria?

[williamcooper104] 07/5/2021 21:20

We don't have an annuity income stream yet - the management fees aren't material and the benefit of the fund is performance fees which could be material but won't be a regular recurring earning stream with an earnings multiple Other than that though I'd say we have either passed or are close to passing (as in we've just passed and need a bit more time to demonstrate it) your tests

[williamcooper104] 07/5/2021 21:12

Totally - I regret not buying more when management where buying - as that's the ultimate buy signal But, as they say, the goal in investing isn't to get a hole in one

[kirkie001] 07/5/2021 20:49

Hi Maddox - I'm not sure that they have yet, unless you can direct me to something I've missed?
Cheers
K

[tnt99] 07/5/2021 20:16

You know what they say let the trend be your friend!!!

[tnt99] 07/5/2021 20:14

Still cheap buy some more!!