I'm long Litigation Capital Management (LIT.L):which is an litegation financing company that is much smaller and so it has a larget oportunity set. I don't know if Burford can compound capital at the same rate historically given its size. There are a couple other litigation finance firms thatvare also the same size as LIT.L

Burford's size

**IS** it's advantage. It's gotten something like 2/3 of all new fund inflows into the space, ROIC's are still in the 30's, but the risk is far lower because Burford can spread its portfolio out over more bets. They can pay more, attract better talent, and have better institutional relationships and dealflow, which is very very important in this business. I wouldn't be long anyone else in this industry.

I'm very long Burford. My thinking is this: if they can compound off of book value at 30% falling to 25% over the next 3 years, and then 15% after that, they are easily a double from here. That leaves out the upside from their growing asset management business (which looks far worse than it is because performance carry won't likely start for another year or so). Note that at 3x BV today, 3 years of compounding at 30% means you trade at book value in 3 years.

What's the value of a business that can earn 15% IRR's unlevered, 20% ROE's, with a WACC of 10% (implying say 12% for the equity) that pays out 100% of earnings? 2x book value (I won't put the math here, but this is a provable fact). So even if returns compress very quickly, this business is still worth 2x book value, meanwhile book value/share should double from here quite easily. What happens, also, if ROIC's don't decline to 15% in 3 years? Well then you have a business earning probably 35-40% ROE's that can reinvest most of those earnings back into the business. That alone is worth far more than 3x book.

Over time, I think this evolves into a PE style industry, and Burford is going to be the Blackstone/BAM of it. Returns will fall, but they need to still be high because of the binary nature of the underlying litigation, so my guess is that they settle out in the 15% IRR range. Again, PE firms have tons of competition, but regularly earn mid teens returns, so there's no reason that competition here has to erode returns immediately.

Woodford owns a big stake, that's why the stock is where it is. I'd be buying hand over fist. I think the risk of permanent capital loss is very low, while the opportunity for this to be a 2-5x over the next 5 years is very high.