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Woodford and Barnett-backed legal fund drops after reshuffle

Woodford and Barnett-backed legal fund drops after reshuffle

Investors have taken profits in Burford Capital (BURF) after the legal finance hot stock – a rare bright spot in the funds of Mark Barnett and Neil Woodford this year – surprised the market with a management reshuffle.

Shares in the AIM-listed company dropped 6% on Friday and dipped another 1% to £11.48 today after announcing that the founders of Gerchen Keller Capital (GKC), the US legal investment management firm it bought a year ago, were stepping back earlier than expected.

GKC’s three principals – Adam Gerchen, Ashley Keller and Travis Lenker – will no longer have operational responsibility but will continue to serve on Burford’s investment committee, the company said.

Burford shares have more than doubled since the acquisition, which broadened the business and confirmed its position as the biggest legal finance provider in the world, extending a run that has seen the stock rise over 1,000% to a £2.4 billion valuation in five years.

This ascent has been a blessing for equity income fund managers Barnett and Woodford, both of whom have struggled this year. They were early backers of Burford and respectively own over 22% and nearly 10% of its shares through their funds.

Jefferies analyst Phil Dobbin said the move by the GKC three ‘may raise some eyebrows’ but accepted the company’s line that it reflected the success and speed with which the company, now known as Burford Capital Investment Management, had been integrated.

This has performed better than expected, generating around $16 million in management and performance fees this year plus a $2.9 million boost to group income from the successful resolution of one of its cases.

Elsewhere, the group, whose core business takes a cut of payouts from successful corporate litigation it finances, showed strong momentum for 2018, said Dobbin, who retained his ‘hold’ recommendation and target price of £13.00 on the shares.

Of the $500 million raised by Burford for a ‘complex strategies’ fund this year, $311 million had been invested in six cases, with one already generating $3.8 million profit from an initial $22.8 million outlay, according to the company.

Although the GKC trio will be free to pursue other interests, they remain subject to non-compete and non-solicitation agreements for three years and cannot sell their Burford shares for two years, the company said.

Burford also announced a raft of promotions within its rapidly expanding team of 90, including 40 lawyers. Among 11 changes, Elizabeth O’Connell, former head of investor relations, becomes chief financial officer and Aviva Will, former boss of its New York office becomes a senior managing director in charge of underwriting and investment management.

Chief executive officer Christopher Bogart, the former Time Warner general counsel who founded Burford in 2009, said: ‘The business is firing on all cylinders with its ability to access capital from public and private sources as well as a burgeoning secondary market.

'The entire operation is now operating seamlessly on the Burford platform. I look forward to the continued growth of the combined business,’ he added.

Bogart and chief investment officer Jonathan Molot have extended their contracts for a further three years.


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