SRA squandered “incredible potential” of ABSs, says Burford boss

Bogart: Bureaucratic ineptitude

The boss of the world’s largest litigation funder has accused the Solicitors Regulation Authority (SRA) of squandering the opportunities presented by alternative business structures (ABSs).

Chris Bogart, chief executive of UK and US-listed Burford Capital, said it was a “tragedy” that the UK had not made the best of the “incredible potential” offered by the Legal Services Act 2007

Speaking at yesterday’s European conference of the International Legal Finance Association in London, Mr Bogart said: “I think there was a sense among a number of people, including frankly us, that we would see the law version of the financial services big bang of the 80s here in London, because [the Act] was so progressive.

“But what unfortunately has happened, as seems to me happens far too often in the UK, is that it has been completely stymied by the bureaucratic ineptitude of the regulators here.

“So you start with this incredible path that people can follow, and then the SRA comes along and swallows up most of the entrepreneurial potential of that legislation.”

Burford has previously described itself as “the legal profession’s investment bank” and in 2020 took a minority stake in a London law firm, now called PCB Byrne, in return for providing finance.

Mr Bogart said it was “not easy” to make such investments. “It’s certainly not market friendly and the people at the SRA are not people who are thoughtful about the policy goals of that legislation.”

Instead, funders are now turning to the US states of Arizona and Utah, which have allowed ABSs since 2021 and 2020 respectively.

“Those are the jurisdictions now that are attracting capital and real energy around these kinds of new transactions… It’s a tragedy to watch what has happened here because right now the market is largely moribund.”

Asked about exit strategies from law firm investments, Mr Bogart said one approach was to view it as “a very long-term investment that is going to throw off dividends and dividend-style income, on an annual basis” – akin to a bond-style investment with a long-dated maturity.

“The other way of doing this, and the way that we did it in the UK, is where the law firm equity piece is coming adjacent to a financing transaction. It’s a frankly pretty straightforward dynamic. Option A is a high-rate financial transaction, option B is a lower-rate financing transaction with an equity kicker.

“It’s a pretty standard corporate financing tool. And that equity may well be able to be just bought out over time by the payment of dividends and interest.”

Neil Purslow, chief investment officer of fellow funder Therium, told the conference that funders investing in law firms was happening “much more than it’s talked about”. He added: “We certainly will be doing it and I think this is really interesting growth area.

Andrew Saker, chief executive of Omni Bridgeway, said it was not something his company would be doing for now. “For us, the separation of personal exertion returns and the types of returns that both shareholders and private investors would expect probably mean that it’s not going to work for us.”

Mr Purslow acknowledged the issue about “the return profile” and that it did not blend well with funds focused on backing individual cases.

“Return expectations of that duration, and the risk involved, are very different and probably need a separate structure, but I think it’s a huge opportunity.”

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