Litigation Capital Management Limited (LIT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Litigation Capital Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via our Investor meet company dashboard, and we will send you an e-mail to notify you when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll, and we'd be very grateful if you could give that your kind attention. And I'd now like to hand over to Patrick Moloney, CEO from Litigation Capital Management. Good morning to you.

Good morning. So for those of you who have not met me or had the benefit of a presentation, I'm the CEO of Litigation Capital Management. I'm joined by Mary Gangemi, our Chief Financial Officer; and Nick Rowles-Davies, our Executive Vice Chairman. Both of those 2 are in London, and I'm currently in Sydney, Australia. So this presentation is designed really to give people an introduction to LCM. It's not going to provide a vast amount of new material to the market. So it's very much an introduction to LCM as a company and its business. And we welcome new investors to this as well as investors which have already participated in LCM. So a quick introduction to myself. I'm a lawyer by trade. I was a dispute lawyer before I came into litigation finance. I've been involved in litigation finance now for 18 years. So I've probably had as much or more experience than most practitioners in litigation finance globally. Nick Rowles-Davies, similar background to myself, albeit in London, had a similar sort of level of experience in the litigation funding industry. And Mary, Chief Financial Officer, Chartered Accountant and has fulfilled that role in a number of both listed and unlisted public companies. So moving on to a snapshot of LCM. So LCM conducts a business of funding disputes globally. We're one of the -- LCM is one of the pioneers of this industry. So the industry started in Australia about 23 years ago. LCM, together with 2 other companies, very much a pioneer in this industry globally. During the 23 years that LCM has operated and provided litigation finance into the market, we've completed 231 separate investments. In other words, we've provided litigation finance in respect of 231 separate disputes, which have completed. And in respective of those 231 completed investments, we've lost money on only 11 of those. So a very strong track record. We have one of the most experienced teams globally in terms of litigation finance, and that has been built over many years. Our geographic footprint is that we started here in Australia. We have offices in all the major capitals of Australia. Then up into Asia, we have an office in Singapore, which really services the Asian market. And then we've got an office in London, which is headed up by Nick, which really services the U.K. market across into Europe and down as far as the UAE. LCM's track record in terms of the performance of its underlying investments is pretty much unparalleled in our industry. So if we look at our last 9.5 years and where, on the cusp of 10 years of tracking our performance, we have generated an internal rate of return of 78% inclusive of losses and a return on invested capital of 135%. So those performance metrics around the various investments that we've undertaken over the last 9.5, 10 years, are really just a very strong reflection of the way that we underwrite the risk and undertake due diligence in respect of each of these investments before we put more money to work. In respect of our Asset Management business, we have a very attractive fee structure in respect of that business, which I'll go into in more detail, but it involves a very large profit split in favor of LCM as the manager. And I'll talk more about that in respect of the fund dynamics. Just moving across now to LCM's business model. So LCM runs 2 distinct business models. First of all, it has direct investments from its balance sheet. And those direct investments fit into 2 categories. The first is where we are funding 100% of the capital commitment in respect of a dispute anywhere globally. In other words, from LCM's balance sheet, we are funding that dispute, and we enjoy the full economic benefits of that investment when it matures. And the second category of direct investments is co-investments. And the co-investments that LCM participates in is with our funds or our Asset Management business. So if I could just move to the Asset Management business, we are currently managing a pool of capital on behalf of investors of USD 150 million. And from that pool of capital that we manage, we co-invest eligible investments on a 25% to 75% basis. That is 75% of the capital commitment is derived from our Asset Management business and 25% of the capital commitment is derived from balance sheet. Below that, in terms of the investment strategies that we employ with respect to both direct and asset management investments, we have single case investments, and that is when an application or litigant comes to us with a single dispute. We provide the capital necessary to pursue that dispute through whatever forum that dispute is being adjudicated in, whether it be a court in a litigious environment or whether it be a dispute that's being resolved through arbitration. We often provide a risk management tool associated with that dispute in jurisdictions where there's cost shifting. And we also provide a management component. In other words, we assist the funded party who we're providing this product to or this service to, to manage that piece of litigation or that dispute very efficiently through the process. So single-case investments comprise -- this is, I should say, where the industry started. So single-case investing is very much historically what the bulk of litigation financiers are funding into. And if we look at the bulk of LCM's track record, that would comprise, largely, single case investments. Obviously, the most difficult part of the market comprises a single-case investments because you have a binary outcome, you win or you lose or you negotiate a profitable or unprofitable outcome. So LCM has performed incredibly well in terms of that part of the market. The second investment strategy that we have is portfolio investments. And the portfolio investments comprise principally 3 categories. First of all, law firm portfolios, where we provide a finance facility to a law firm across a portfolio of disputes. Secondly, an insolvency portfolio where we might provide a finance facility to an insolvency practitioner to pursue disputes, which might be inside an insolvent shell. And finally, corporate portfolios, which is a part of the market that LCM is very much pioneering and leading the world in, which is providing to a corporate entity, a finance facility to permit them to pursue their disputes off balance sheet. And we'll describe that in a little more detail in this presentation. And the final investment strategy of the LCM has as part of its business is the acquisition of clients. This is typically insolvency-related disputes where LCM actually acquires the cause of action themselves and pursues that as principal. And that gives us a significantly enhanced level of control over that dispute as to when we might settle it, how far we might push it and what have you. So those are the 3 broad investment strategies that are employed by LCM utilizing either our balance sheet, capital through direct investments, alternatively, our asset management business. If we could now turn just to talk about the Asset Management business as a specific business model that LCM pursues, in March of last year, 2020, we did a close of our first pool of third-party funds where LCM acts as an asset manager or a fund manager. USD 150 million was the fund that we commenced that business with. And currently, we have that committed to around 70% with a really strong pipeline of very advanced opportunities, which are feeding into that. And our expectation is that, that particular fund will be fully committed in the very near future, and we'll move into Fund II. Again, I'll talk in a little bit more detail as to precisely where we are up to in respect of Fund II. So I touched upon this before in respect of each eligible investment that LCM originates through its global network. 75% of the capital commitment in respect of that dispute will come from the Asset Management business and 25% will come from LCM's balance sheet. And the theory behind that process is really to maximize LCM's prospect of making a profit in respect of these investments. So in respect of the 25% capital commitment, which comes from LCM's balance sheet, LCM enjoys the full economic upside in respect of that. So whatever 25% of the profit of that particular investment will be, that will go back directly to LCM and the LCM's equity investors. In respect to the 75% component, which we have utilized from our Asset Management business or a pool of third-party capital, the fee structure or a profit split in favor of LCM as manager. And that profit split is up to an IRR of 20%, we get a 25% profit split. And then above that, we get outperformance of 35%. So what it allows LCM to do is really to leverage its own balance sheet and get access to much larger pools of capital, while still enjoying some of the economic upside in relation to those investments. So it really does enhance LCM's return on invested capital, and its general returns in respect of utilizing that model. Now in respect of the way that, that fund is structured, LCM enjoys a distribution in respect of the asset management portion of that, the 75% on a deal-by-deal basis. In other words, every time an investment matures and there's a liquidity event in respect of that fund, LCM's profit component will come through directly from its co-funding arrangement. And then its profit participation will also come through on a deal-by-deal basis. So what we don't have is a situation where LCM's profits are locked up into this structure until the structure comes to an end. So it should have the effect over a period of time of providing LCM with a reasonably steady flow of shared profits throughout the life of that investment. I want to move next to just to talk about LCM's experience and what part of the market it funds into. So LCM, perhaps unlike some other litigation financiers operating in the market, operates across the entire spectrum. So we fund insolvency and restructuring-related disputes, and that's something that LCM has considerable experience in having been the genesis of this industry 23 years ago. We fund into commercial disputes, generally, through the court system in all the jurisdictions we operate in. We fund class actions in those jurisdictions in which class actions operate. So that's predominantly historically been Australia. And it's an increasing area of activity in the United Kingdom and the U.K. market currently. The next one category is international arbitrations. So international arbitrations across the entire range, from trade disputes to -- bilateral trade disputes to domestic arbitrations. Now if we look at the arbitration market, predominantly, we are capturing a lot of activity out of our Asian office in Singapore, which has positioned itself as a global hub for the resolution of trade and other disputes. And we're also getting a lot of activity coming out of our London office in respect of being a historical hub for the resolution and disputes globally. The next area that we fund into is enforcement. So this is a category where an applicant might have an award from a court or an award from an arbitral dispute that they want assistance and financial help and expertise in actually recovering that from them. So we're not actually funding the adjudication of the dispute, but rather the proceeds or the outcome of that dispute and bringing those funds -- for the funded party and in return to LCM. And then finally, we have corporate portfolios and/or portfolio funding being very much a part of the market, which is developing relatively rapidly, and LCM itself is at the forefront of that. And that involves us approaching a corporate entity and providing them with a finance facility across all of their disputes. So rather than funding a single dispute, we are packaging a finance facility up, such that the corporate can utilize that across a range or a basket of disputes more generally. If I can just move now to how LCM, as a company, thinks about the risk associated with adjudicating or making a decision as to whether to invest in a particular dispute or not. And there's 5 principles that LCM adheres to very strictly in terms of making an assessment as to an application that might present to us as to whether we are going to commit LCM's capital or the Asset Management business' capital towards pursuing that dispute. And the first one is we're looking for disputes which have reasonably clear legal principles. And that is we are really looking at the predictability of the outcome of this dispute. And when the legal principles are clear, that enables us to predict the outcome of the dispute with greater accuracy. So we're very much looking for areas of the law which are well developed, and there's an area or a jurisprudence, which allows us to predict the application of a set of facts to legal principles. The second criteria that we look very closely at is that the underlying dispute relies upon predominantly written evidence as opposed to oral testimony. So what we are trying to avoid here is a situation where the merits or the outcome of a particular dispute will be relying upon on a particular witness' performance in the witness box. So we're very much looking at written documentary evidence as opposed to oral testimony as providing the underpin to the success of that claim. Thirdly, and likely importantly, is recoverability. So we look long and hard at -- in circumstances where we're successful in having a case adjudicated in favor of our funded party, we have a clear pathway and line of sight to recovery. In other words, a pot of money that we can actually go against in respect of a successfully adjudicated dispute. And that typically drives us towards dispute whether defendant or the target in respect of that dispute is backed by some sort of an insurance policy, whether that be direct as an offices and insurance or whether it be a professional indemnity policy. The next criteria that we apply very carefully to the due diligence process is proportionality. And this is really the relationship between the legal spend on the lawyers to pursue that claim through the court system with the arbitral process and the relationship between that and the ultimate size of the amount of money in dispute to ensure that the proportionality is well balanced. And that everyone who's participating in that, whether it be the funder, whether it be the funded party or the lawyers, all their interests are adequately aligned, and we don't get a misalignment anywhere. And the final criteria that we look at very carefully is the legal team that are attached to the application when it's presented to us for due diligence. And it may sound simple and straightforward that we would expect that the legal team would have experience and wherewithal to bringing about a successful and profitable conclusion for our investment. But what this particular criteria requires LCM to do is apply a great deal of discipline to the process. And what I mean by that is, if you get an application that's presented and we go through this process of applying these principles, and we see that each of the other 4 principles are very comfortably made out in respect of the application and we can see that this particular investment might be very, very profitable. If the legal team is not up to the task, we have to have the discipline to say, "No, we're not going to invest in that, and we're not going to invest balance sheet money or assets under management towards this particular opportunity." Then might move to the investment process. Now the investment process that LCM employs, I mean, it's slightly different to our competitors. And it may be one of the reasons why we have enjoyed such success with respect to our track record. And this process occurs inside LCM with our investment managers. And the investment managers is really the engine room of a litigation finance business. And typically, our investment managers have a similar background to Nick and myself. They have trained as a disputes lawyer, often come out of one of the large international firms. And they really undertake this process of due diligence inside LCM and make recommendations to investment committee as to whether we should invest balance sheet or third-party capital towards a particular dispute or not. And that process is, in broad terms, an application will come in, a single investment manager will undertake a preliminary due diligence of that form of view as to whether he or she would recommend that to the investment committee. The second process that occurs is that there's a peer review of that preliminary decision. So there's a committee of investment managers, which will endeavor to second guess the decisions that have been made by that single investment manager as to whether that should go to the investment committee or not. And what that process does is it really brings to bear the experience of a group of investment managers as opposed to a single investment manager. It brings to bear different backgrounds and different experiences to that process, and applies a whole lot more rigor to that process that would otherwise be brought to bear if it was just a single investment manager. Then a recommendation is made to an executive review, which is typically me in the Southern Hemisphere and Nick in the Northern Hemisphere, and we kind of act as a gatekeeper to the investment committee. And really, this process is probably not second-guessing the entire process that's occurred previously, but really we apply a very commercial layer of consideration in respect of this. And what I mean by that is, it is a particular defendant or target that we might be funding a claim against, going to react in a particular way to this claim because of something else they're doing in the marketplace? Are they a public company? Are they involved in mergers and acquisitions? All of these types of very commercial considerations would be undertaken by myself and/or Nick. We then typically, if we get to that level, it goes to the investment committee. The investment committee is not a static entity at LCM. It comprises different people with different forms of expertise, and we will typically bring on independent people to that investment committee, depending upon the nature of the dispute. So if it's an insolvency type matter or restructuring matter, we will bring on someone who has particular expertise in that area. Now if I just compare that process with the process that typically occurs in our competitors, it's typically far more one-dimensional than that. It has a single investment manager who may undertake that process, who then will pitch that to the investment committee. So I would like to think that we add a lot more rigor to the process than just having a single investment manager undertake that process. The next topic that I want to talk about is the management process of an investment once that investment has been approved. It's been documented, and we start to deploy capital. The one thing that LCM has got a lot of experience in is managing large and complicated commercial disputes through whatever process, whether it be the core process or the arbitral process. So we know through experience in resolving and funding and managing some 231 separate dispute through the conclusion, whilst we've been funded and then drawing on the experience that we have had as disputes lawyers in our previous lives that significant efficiencies can be brought to that process. And this active project management is really at the heart of that concept. So we are actively monitoring the process as it goes through this court system to such a degree that we -- when we have an investment, we'll go and sit in the back of the court and watch the dynamic between the parties and the judge, so that we can gain as much intel as we possibly can through this process. And where necessary, and when asked to provide insight to the funded party and assist them in terms of making -- giving advice in respect of tactics and the like. So this is something that brings about considerable efficiencies to the process of resolving a dispute. I want to hand over to Nick, just to talk about the market dynamics as they're presenting currently.

Thanks, Patrick. LCM operates in an area which is uncorrelated to the markets. Disputes in the form of litigation and arbitration are unaffected by political, economic or other market conditions. The courts in charge don't change their decision-making in different economic conditions, they remain consistent. So not only is the asset class uncorrelated, but each individual dispute within our portfolio is also entirely uncorrelated to the next. So what that means is that a lot in one particular investment is not reflective of the book, the portfolio or the merits of any other of the investments in the portfolio. In terms of the business being countercyclical, if you add to that, LCM's business benefits from that. It's countercyclical, it's counter recessionary. So in times of economic uncertainty, instability, financial pressure, businesses tend to transact outside of their normal business operating conditions. And that leads to an increase in disputes. So recessions have historically increased the number of pieces of litigation that take place. Economic uncertainty, instability are particularly brought about by COVID, is no doubt going to lead to an increased number of insolvencies and bankruptcies and restructuring. And that's an area that you've already heard from Patrick is an area of expertise that LCM has, and one of our core competencies, where we were a pioneer in the industry. So we anticipate a significant increase in investment opportunities arising from insolvency and restructuring. In particular, we think that, that will be both from areas where we receive corporate applications, those funding out of necessity, the impecunious applicants, those funding out of choice, the corporates who've have the financial ability to pay their legal fees but choose to use our funds. And we've seen that already in the last 12 months with an increase of 68% in applications from corporates compared to the previous year. In terms of market penetration, in the main international dispute resolution hubs, the use of disputes financing has continued to grow internationally. There have been a number of surveys on market penetration and depending on which one you read, the market is hugely underpenetrated and still represents a significant opportunity. So if you take the U.K. market, around the $35 billion to $40 billion per annum spend, the market penetration there is somewhere between 3% and 7%. So that means that the cases that have been brought, so the disputes that could be funded, only between 3% and 7% of those are actually being funded. So some 93% to 97% of the market is untapped. In the U.S., the annual spend is around USD 400 billion, just to put it in perspective. And the market penetration there is less than half of 1%. So over 99% of cases are not being funded. So there's still a lot to go at. And take Australia as well, where the market is slightly smaller than the U.K., the penetration rates are about the same between 3% and 7%. Turning to demand and what we think is a rapid expansion of demand. I think it's fair to say that the industry is in a healthy and positive state. And we've seen a marked increase in applications from the strategic alliances we've had, an uptick in interest in terms of discussion and application from those alliances with global law firms. And as we've introduced innovation and new thinking into those relationships, whether that's by way of education in the process as to how you reach a positive decision or innovation in our origination, it's been really positive. But generally, there's been an increase in demand from capital from corporate clients. The instability that I mentioned previously continues. And then that's going to add to the number of applications we see. Again, the 68% year-on-year increase from corporate clients is sort of fundamental and very important to us. So those observations on the effect of COVID will also have an impact. I think there's 3 elements to that, that I'll just run through very quickly in relation to what's happened with COVID just because it's permanent. Some of the corporates who were in the midst of a dispute, at the very least, reconsidered whether their allocation of budget to this legal spend is now appropriate and whether there's an alternative, which is a benefit to us. There are corporates who were considering, but haven't commenced their disputes. They've also paused the thought and started to reconsider whether they should consider dealing with their legal spend differently. And then the third effect of that is there's an increase in demand for knowledge and understanding and a marked acceleration in the education and understanding by law firms of what we do because of the previous 2 effects. Their clients are looking for different things, different ways to deal with legal spend, law firms have to respond. So a number of large law firms have taken a keen interest in better understanding what we do, how that can work with them, with their business development, client acquisition and client retention. And that's reflected in the applications that we've received. In terms of the industry growing globally, the global trend in litigation finance is very much tracking only in one direction, and that's growth. The international disputes hubs that want to attract business have opened up to the use of litigation finance, and they continue to embrace it. The markets moved significantly from the early days of funding single case insolvency matters, which, of course, continues, but it's now a much more sophisticated finance tool for corporate clients. And I think the last element there, the shifting legal market dynamics, there's a definite shift in the attitudes and demands of in-house legal teams. And that's towards a more flexible and innovative approach to billing and to fees. The use of the hourly rate being billed monthly continues, but there's a definite request and demand for flexibility in the approach. So the use of disputes financing on the part of corporates and law firms in meeting that demand can change the way that the corporate client deals with their legal spend, and that allows the law firms to offer something quite different. So on the whole, market dynamic is extremely favorable. That covers that. Back to you, Patrick.

Yes. I want to move next to the investment cycle of the individual investments. So on the one hand, the single case investment, which is depicted in this slide, and then I'll follow-on with a portfolio style investment. And the reason why it's important for investors to understand the investment cycle is because it gives investors a real insight and a way to measure LCM. So when we look at revenue events with investments maturing, really what you're seeing there is the culmination of an investment decision and an incurring of significant OpEx potential -- well, on an average of 27 months prior. So when investors are looking at our revenue line in a given 12-month period or a 6-month period, that really represents the activities of LCM that occurred some 2.5 to 3 years prior. So if we look at the slide, which is presented on the screen at the moment, you'll see that orange depicts OpEx, and then the dark blue is the cumulative investment. So when a dispute is the subject of due diligence and origination by LCM, there's a significant contribution of OpEx. We then enter into that investment once it's been approved by the investment committee. And then we progressively invest into that particular dispute on a monthly basis. And historically, over the last 10 years, the average time to completion has been 27 months. So the 27-month mark, on average, we get a liquidity event or a revenue event, which involves a profit component, and then secondly, a return of the invested capital to LCM. So when we're thinking about LCM and its performance and its growth, it's very important to bear in mind this investment cycle because it really underpins the way investors should look at LCM, the way that LCM is growing, its portfolio of investments, whether they be in the Asset Management business or whether they be balance sheet direct investments. If I can move on to the investment cycle, which is slightly different in respect of the portfolio. You'll see that whilst the fundamentals of the incurring of OpEx are the same, the profile of invested capital is very different, and you also get a number of liquidity events that occur in respect of that one portfolio of investments with the single client. So you're getting multiple liquidity events over a period of time. It's really important to understand the different financial profile of these investments for LCM. I want to move over now and just talk briefly about LCM's philosophy in terms of building a portfolio of disputes. So in respect, this slide here represents Fund I of our Asset Management business. And what we're looking for really in a similar way to what anyone who's building a portfolio of investments is variety. We're looking to ensure that the particular portfolio is not subject to concentration risk in any one particular investment. And we're looking at diversity, both across the source of that opportunity and the style of that dispute, whether it be coming from an insolvency or whether it be a commercial dispute or whether it be an arbitration. And we're also looking at diversity across jurisdiction. So all of these things we are building into this portfolio to ensure that we reduce the risk associated with capital loss as much as we can and build in balance. So we are very much looking at the same principles associated with our current portfolio of direct investments. Now if I could just touch upon our direct investments and the way that it brings diversity is through co-funding. So if I can use a really simple example, prior to LCM operating in Asset Management business, we may have invested in a dispute, which might have had a budget or capital commitment of GBP 10 million. With the ability for us to co-fund, we can spread that GBP 10 million across 4 or 5 different investments, thus, spreading the LCM's risk and spreading the risk associated with those investments to equity investors. So it provides us with not only -- this is the Asset Management business, not only the opportunity to leverage third-party capital and leverage the profits that the company is able to generate through these investments, it also acts to reduce the risk of LCM's direct investments on its balance sheet. So again, in respect of our direct investments portfolio, we are looking at all the same types of characteristics. So diversity across industry sector and across capital commitment and what have you. What we're seeing in respect of LCM in its evolution is a nice even split between the Northern and the Southern Hemisphere. So those opportunities for investment, which are being originated by Nick and his team in the London office has compared with the offices throughout Australia and into Asia. And we would expect, over a period of time, naturally for the number of investments that are originated in the Northern Hemisphere to increase proportionately to the size of the economies that are operating in the Northern Hemisphere compared to where LCM originally started its business back in Australia. I want to look now at the profile of the investments in LCM. It's important for investors who understand where the bulk of LCM's investments lie in terms of their maturity. So if we start on the right-hand side, our average time to completion in respect of these investments or maturity over the last 9.5 and now 10 years is 27 months. If we move to the middle bar chart on that slide there, that really depicts LCM's entire portfolio of investments by maturity by month. So we can see there that the center bar there, there's 17 separate investments, which were in the bracket of maturity between 13 and 24 months. So they're kind of on the cusp of our average of 27 months. And then going to the right, we have 7 investments that are 25 to 36 months. So in that window where we'd expect, if historically, they mature at the same rate and then 2 outliers. And then finally, I want to draw investors' attention to the portfolio by claim size, which is the bar chart on the left-hand side of that. And what that depicts is really a nice even spread across the size of those disputes. So in other words, LCM is investing in a broad portfolio of investments in terms of claim size. We're not putting all of our eggs in one basket, and we don't suffer from concentration risk where we're really just investing in really, really large investments, which are attended with large binary risks. I want to move now on to how we think about building scale inside LCM and how we would like to think that investors would look at LCM in terms of measuring LCM's performance during a year. So as I said, previously. This style of investing and this style of business tends not to have a linear revenue line. So we don't have a series of small incremental resolutions of these disputes over a financial period. We tend to have disputes, which are much larger, which resolve at different period over a financial year, and they tend to bring on to our balance sheet, very large amounts of capital in one go. So if we look -- if we start measuring growth, first of all, by looking at what's coming in the funnel, so what is building into LCM's portfolio investments, whether they be through asset management or whether they be direct investments. And the starting point there is the number of applications that LCM receives in a given year. So as at December 31, when we last reported to the market in respect of this, we had 266 investments, which at that time was up 5% on the previous year. Now if one considers that 6-month period was smack bang in COVID, very much interruption in the marketplace, we were very encouraged by the fact that we had enjoyed an increase in applications despite the market conditions. The second is an increase in the capital committed. So a very significant increase on the prior year, somewhere in the order of 130% increase on the prior year. And capital actually invested into those during the 6-month period, $40 million, which, from memory, was an increase of 116% on the prior period. So LCM has enjoyed very significant growth in building out its portfolio investments. If we then move to the middle of the page, if we're growing our portfolio of investments, we're investing more money, how are we going in terms of performance. Now if we look at performance, LCM's return on invested capital over the last 9.5 years, we're on the cusp of 10-year, is now 135%. And our internal rate of return in respect of these investments is 78%. So really, as long as investors see us operating within a really buoyant range in terms of our performance, they should get comfort that as we build the scale of this business and we build the size of the portfolio, if we maintain the strict standards of underwriting, it should produce a very similar and very favorable performance metrics. And then finally, we've got our increase overall in assets under management, whether that be the Asset Management business or our direct investments. So we currently -- we were, I should say, at December 31 at $322 million. So that's the way I would kind of encourage investors to think about LCM and its growth in respect of those particular boxes. And provided LCM continues to perform in the way that it's performed historically, automatically, these investments will mature because their disputes and they have an actual life, and they will create liquidity events in a revenue line moving into the future, which will place LCM in a really, really favorable economic position. And then finally, I want to finish the presentation with just Nick touching upon the outlook that we have for the company, the market conditions before we field some of the questions that you guys have.

Thanks, Patrick. In terms of third-party funds and our asset management model, we're tracking as expected as regards to commitments to the funds in relation to high-quality investments. So as we've said on regular occasions, we're considering carefully the next step in relation to the increase of our assets under management and fund size. In relation to geographical expansion, we've always taken a very conservative and disciplined view of expansion into new territories. The move to London was a considered expansion after a lengthy period of consultation and has proved successful. We regularly receive inbound inquiries from other jurisdictions, particularly from the United States. And the U.S. remains a largest global market for litigation finance. So we continue to monitor the market there and in other jurisdictions and what the opportunities are and any move that we make would be done on a very considered and careful basis. In terms of new routes to market, we do pride ourselves upon the way in which we approach our origination. We're consistently reviewing how we originate the methods that we adopt and how effective they are. A lot of the things we've done have been pioneering arrangements. So for example, strategic alliances, that approach, the strategic alliance approach with law firms has borne fruit. It's created strong relationships. It's driven an increase in volume and quality to the pipeline and sent learning back up the other way in terms of how the triage process is done in terms of early-stage review within those law firms. But we continue to innovate and strategize as to how we can drive new business, whether that be by way of alternative targets, jurisdictions or industries. And we found the partnerships or close cooperation with those high-quality law firms, gives us an edge in sourcing those good investments. These partnerships do represent an increase or marked increase in applications with the uptick in interest. And we continue to target new areas with those new routes, whether it might be by direct approach to corporate clients or through law firms or through the other channels and new areas that we're looking at. But in terms of target areas, we -- our investments range, as you've seen and as you know, from single case litigation funding through to portfolios or claims, whether they're by way of law firm or insolvency or corporate portfolios. And as a part of that, we identify certain industries where the use of our finance can make a significant difference. And by way of example, one example would be in terms of industries as we look specifically at business sectors that operate with high-volume or turnover and a low margin. So that would be, for example, construction. And if you remove the legal spend from their annual profit and loss, taking that out and using our external capital on a nonrecourse basis can make a real significant difference to their EBITDA and to their P&L. So we focus on those industries. Litigation finance is very much involved. The evolution of litigation funding into a corporate finance tool. For a number of years, we've been vocal advocates of that process and that evolution. So historically, single-case funding of one-off investments into a corporate finance tool, the funding by corporate of a set of disputes, funding out of necessity moving into funding out of choice, again, something we've been very vocal about. That evolution continues, and we very much remain at the forefront of that with our corporate portfolio offering. The shift from funding out of necessity into choice, the corporates who have the budget to fund the litigation, but decide to use our money rather than their own really is continuing and evolving and becoming much more prevalent in mainstream. It's a very much the main plank of our strategy going forward. And we continue to push the use of legal finance by well-heeled and financially healthy corporate entities. And we see that as very much the future for LCM. So all in all, the outlook is positive. I touched on that earlier with the favorable market dynamics, nothing has changed. In fact, going forward, I think everything appears to be going in the right direction in terms of adoption, acceptance and general outlook. Back to you, Patrick.

Yes. So just before we move to the question-and-answer. I have noted that there are a considerable amount of questions associated with our Asset Management business and the committing of our first fund and now moving into our second fund. I can give a bit of an update to the market because that will probably answer a lot of the questions, which are going to be posed. We have a very strong pipeline of very advanced investments, which have been approved by our investment community internally and are largely waiting on approval by the independent committee of the fund, which will take up a significant capacity in that fund and free us then to close a second fund. The second fund is -- we're currently targeting or expecting to target USD 300 million in respect of that second fund, which will bring our Asset Management business, as a whole, after somewhere in the order of sort of USD 450 million under management. Now what we are very careful about at LCM is making sure that the size of these funds that we are raising are on a third-party basis, are capable of being committed within a reasonable period of time. So we're building out our capacity to originate quality applications and quality investments at the same time as we are expanding our Asset Management business. We're well advanced in respect of marketing the second fund, and we would not expect that there would be any significant delay in respect to closing that second fund in the near future. So I hope that provides some answers in and around the second fund and building out LCM's Asset Management business. And I might now hand over to questions.

[Operator Instructions] I'd also like to remind you that your feedback is important to the company and immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. Patrick, just keeping an eye on the clock as well. We did have a number of pre-submitted questions, and thank you to those investors at the time to do so. And I think you probably addressed quite a through -- a number throughout the presentation. But perhaps I could just ask you just a couple of those, just maybe for you to elaborate where it's possible. The first one being, can you please elaborate on about -- the question actually is where you previously commented that the first half year results are not a guide to your performance. Please, can you elaborate on this and explain what investors should look for to better understand how to measure LCM's performance?

So it really comes back to an understanding of the investment cycle in respect of these particular investments that LCM makes. So if LCM is signing up and committing to a particular investment now, historically, that will take 27 months or indeed slightly longer as we start to invest in larger disputes before that has a revenue of the LCM. So there's no particular season for the resolution of disputes. They can happen at any particular time. It doesn't -- the fact that one or a number of disputes might mature and result in a revenue event on one side or other of the halfway point in a financial period shouldn't be any indication whatsoever to investors as to the financial performance. So what I would encourage investors to do is to keep a keen eye on the key performance indicators that LCM has committed to be focused upon. And they involve such things as maintaining the performance metrics in respect of our particular investments. So keeping that within a very buoyant band, which we've managed to do over the years, indeed, over the last 9.5 to 10 years. Second thing, increase the applications that are coming in, that are getting converted across into investments in the fund and increasing our Asset Management business. So giving us additional sources of capital in which to fund these disputes. So I think if you think about the growth in LCM's portfolio an assets under management, those investments that comprise that are going to have a revenue event in 27-odd months down the track or slightly longer, and assuming that we continue to perform in the way we're performing, it's going to generate those sort of returns in respect to each dollar invested in those disputes. So it's those concepts that I would encourage investors to think about when measuring LCM's growth rather than looking at whether we've had revenue land on one side or other of a particular financial period.

That's very kind. Thank you very much, indeed. And as you said, I think you touched on the new fund, and there were a number of questions relating to that. Patrick, Mary, Nick, perhaps I could ask you just to open the Q&A tab, which is on the right-hand side of your screen, you'll see the investors' or the attendees' name, along with the question that's submitted. If I could ask you, where appropriate, can I ask you to read the question and who it's from and give a response where it's appropriate to do so. I will remove the question from the panel, so it's not there hogging up. You've got quite a few questions there. So if I just hand back to you to pick out those that are the most relevant that perhaps haven't been covered through the presentation, that would be great.

Nick, can I just ask you to have a look at some of these? And all canvas, this one I see in no particular order, it's just the first one I read. Mandalay states that they have a turnaround of just under 12 months in respect to investments. They concentrate on solvency. Can you say if -- it just moved...

I can read it for you. It says Mandalay states that they have a turnaround of under 12 months of investment. They concentrate on insolvency. Can you say if you have any intention on investing more in this area? And that's from Patrick D.

Yes, absolutely. I'm sorry about that. The questions roll over, so I lost that as I was reading it. Yes, absolutely. LCM has vast experience in insolvency. This entire industry started in insolvency. So perhaps the first sort of 8 years of LCM's life as a company and as a litigation finance, we were solely focused on insolvency and restructuring disputes. We are certainly focused on insolvency and restructuring disputes globally currently. And you might have seen at least an announcement very recently in respect of the failure of Carillion. We are funding that. And investors should expect that there's some more large insolvency-related investments, which we are funding into, which we'll be announcing the market very shortly. There has been a slowdown generally globally, and there's been a pause by parliament in most jurisdictions in which we operate in respect of insolvency as a consequence of COVID, and that's really in an effort to safeguard global economies. We have an expectation that the backlog of insolvency will sort of come through the system, not immediately. But when those restrictions are lifted, there'll be an increase we expect in the number of external administrators appointed to insolvent shells and that will translate into opportunities, which LCM will be incredibly well placed, not only through experience over many years, but also in terms of referral lines.

So I'll just take some of these, which is slightly more industry-specific. So there's a couple of questions on the backlog and the court process due to COVID. I think that's jurisdictionally different. U.K. courts actually were not ever, in particular, difficulty. They were quite used to telephone and virtual hearings prior to COVID, not to the extent that they are now. But I think there are some statistics on it, and I don't have them to hand, but there was a definite slowdown, that's pretty much back to normal in terms of virtual hearing. So we haven't had a real backlog, although there was an initial challenge. I think in Australia, they took a little time to adjust to the technology, and maybe there was a 3- to 6-month drag, but my understanding from Patrick and the teams in Australia is, that's almost back to normal. And of course, Australia doesn't have quite the same restrictions that we have in the U.K., somewhat freer in terms of moving around and what's going on there for the reasons that we know. There's a question about -- if a potential investment is acceptable in all aspects, save a strong legal team, would we ask the owner of the claim to change the legal team. It's not something that we would do. It's not terribly impressive in the market to be asking clients to move lawyers. It rarely happens because there will be other aspects of the way the case is presented or other concerns, if it's been dealt with by a law firm or a department that doesn't have the right expertise. But to the extent that it did happen, we certainly wouldn't go to the client and say we'll invest in your case if you change lawyers, simply because that wouldn't go down to everyone in the market. And then in relation to competition, the competitive environment, high returns and how many of our RFPs are competitive versus direct award. Again, that depends on jurisdiction. In the U.K., we have quite a heavy broker-led market in some areas, which we, as an organization, try to avoid. We're very much against being dealt with on price and the commoditization of what we do. We consider that we offer a service and some value add. We operate in various specialist areas where we can add value, as I mentioned. So the majority of the time we become front-runner quite quickly, and we don't get into a competitive tender based on price. Where we're dealing with large corporates, there is often a procurement process, and you obviously have to go through that to make sure that you tick all of their boxes. But the majority of the time, and given what I've said about the market penetration, if you divide the market up into 2 areas, particularly, and I'll take the U.K. as the best example, where funding is being done out of necessity, which is where you're dealing with a one-off transaction, which is pretty much driven by price, then yes, there's competitive tension, and often that's broker-led. But the market that we very much directed that where we want to be operating in, is the market where clients are using our money out of choice. And that's vastly untapped. So to go back to the figures that I mentioned, instead of operating in the 3% or 7% market where people are using funding, where pretty much every other funder operates. We very much focus on the 93% to 97%, where the other funders are not and where we are, which is converting corporate clients to use our cash out of choice rather than necessity. So we don't have a massive issue in terms of competitive tender or competitive environment. And our DD process, just to touch that next question, it doesn't slow that down because we get into discussions earlier, we're becoming exclusive early, and we go through the DD process as a collaborative approach with the client. So it hasn't hindered or caused us a problem in terms of executing once we want the case.

I'll just canvas a quick question here, and then I think Mary is going to -- she's got a question. So one of the questions is, given LCM's growth in recent years, do you think that LCM will be in a position to maintain the return on invested capital and IRRs that we have enjoyed historically? We've been asked that question a lot. So we first moved into the public markets in Australia in 2016. We were faced with the question then. Two years later, we delisted from the Australian Securities Exchange and listed in the London Exchange. Again, we were asked a lot whether we'd be able to maintain that high level of performance. We've been doing that now for 9.5, and we're weeks off that performance, I'm doing it for 10 years. And we've managed to maintain that performance, both in the private sector, managing third-party funds, which we were doing previously and into public sectors. So we do have an expectation that if we apply the same rigorous discipline to choosing the investments that we will be participating in and the ones that we don't, that we will have point metrics that are commensurate with those. That said, investors should expect that as the scale of LCM grows, that there will be pressure, downward pressure in respect of those performance metrics. But the performance metrics are at a level where there's room for them to move down without impacting upon LCM's profitability whatsoever. Mary?

Yes. Thank you. There've been a couple of questions regarding the value of LCM and its investments. And I think what's important to note is that, currently, our investments, and some of you might be aware, that we report our assets under a conservative accounting policy, which is IFRS 15, which means that our balance sheet only reflects the cost of the investment we've deployed to date. So it's very important for investors to be mindful that those key performance indicators that Patrick touched upon earlier are where you should be looking because those commitments will eventually form part of the assets on the balance sheet and will attract a multiple on those in the future. We don't fair value our contract assets, so it very much is reflective of those costs that we have paid to date. But once those assets have come to a full life, and we've deployed the entire budget, you then have to apply the multiple on that, which would be more reflective of the intrinsic value that's not shown on our balance sheet.

There's a question here in relation to the Asset Management business and the management of third-party funds and whether we're able to recycle those profits. And the answer to that is we can recycle any resolutions that occur during the commitment period, which is the first 24 months. And then beyond that, we have an ability to recycle just profits, but not capital. So that deals with that. Then there's another question that given the unpredictability in respect of the maturities or resolutions of these disputes, how do we handle cash management? And the answer to that is incredibly carefully and very conservatively. So we are -- and in particular, Mary, highly focused upon continually modeling the portfolio against balance sheet. And we do so in a very conservative way such as to ensure that we've got buffers in place when we need them.

Patrick, just maybe an opportune time just to pop in. Obviously, we're coming through the hour. I don't know if there's anything perhaps that you want to just have a final scan through. Obviously, we'll present all the questions that have been submitted through to you after the event anyway in the likely event that there's anything that you would like to address afterwards. But just mindful of your time.

Yes. One final answer, and I think this is probably a question that we get asked a lot or have certainly in the last 12 months is, have the courts experienced delays due to COVID? And the answer is, yes, inescapably there have been delays. But what's really, I think, interesting and really quite important to understand is the delays and the interruption that's been occasion to the court and the justice system as a consequence of COVID helped the court with some revolutionary and innovation in the court system, which was simply not present there before. I think everyone will recognize that the court system and the judicial system in most jurisdictions is probably reasonably antiquated compared to other aspects of commerce. And what COVID has really done is brought the digital age to pretty antiquated court system. So what we're seeing is some really quite innovative efficiencies brought to the system, which will remain within the system beyond COVID and when life gets back to normal. So certainly, the expectation is, and we are seeing this, that our -- the period for resolution or maturity of our investments is being pushed out simply because the courts haven't been able to operate and they've had periods where they've been unable to adjudicate disputes. But over the long term, I think it will bring efficiencies, which may actually increase the speed with which the courts are able to resolve disputes, which are before them. So I think there's quite a few questions to go, but I think we're probably pressed now for time. We'll endeavor to answer those or have another session where we can deal with those in more detail.

Patrick, that's absolutely brilliant. And thank you very much to all the investors that have submitted questions today. Patrick and Mary, Nick, I know investor feedback is important. We will shortly redirect investors to provide you with some feedback in order that you can better understand their views. But perhaps before doing so, I could ask you for just a few closing comments just to wrap up.

Yes. So I think what I would say in respect to this is the outlook for LCM is incredibly bright and positive. So we are about to embark upon closing our second -- both our assets under management, but also the capital resources that LCM has to continue to build out its business more generally. We're moving in economic cycles where there's degrees of uncertainty across economies globally, which tend to drive corporations and people towards using an external source of capital to derisk their disputes, which really sort of makes LCM's offering pretty positive. So we've got market conditions, which might not be conducive generally to positive business outlook, but they certainly does provide LCM with an opportunity to assist companies with capital and risk management in respect of their disputes.

Patrick and Nick, Mary, thank you very, very much indeed, for updating investors today. Could I please ask investors not to close this session, as you'll now be automatically redirected for the opportunity to provide your feedback in order that the company can really better understand your views and expectations. This will only take a few moments and I'm sure it'll be greatly valued by the company. On behalf of the management team of Litigation Capital Management Limited, we'd like to thank you for attending today's presentation. That now concludes the session, and good morning to you all.