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

Good morning, ladies and gentlemen, and welcome to the Litigation Capital Management investor presentation throughout this recorded presentation. [Operator Instructions] The company may not be in a position to answer every question received or in the meeting itself. However, the company review all questions listed today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard and we notify you when they're ready for your review. Before we begin, we'd like to submit the following poll and your attention will be most appreciated. I'd now like to hand over to CEO, Patrick Moloney. Good afternoon.

Good morning, and thank you for participating in LCM's half year interim results for the 6-month period ending 31st December 2022. Starting off with highlights. There's really 2 principal factors which have dominated the 6-month period to 31 December. And they are growth in the building of scale in this business, which has occurred at a rate more significant than ever in LCM's history. And the second one was our first resolution in respect of a Fund I investment, which allows us really to demonstrate the leverage and the power that we are able to bring to equity investors through that model. So just starting with the growth in LCM's business most investors will be familiar with us branching out into asset management or funds management in March 2020.  We now have 2 funds under management. The first one, Fund I fully committed and Fund II, we are now committing into. So as at 31st December, $79 million have been committed. And as at the date of this presentation, we are at $114 million. Assets under management, we just tipped over $0.5 billion worth of assets under management at 31 December. And as at 28th February, $537 million, the largest amount of assets under management that LCM has ever had in its history. In terms of commitments, they were up very significantly as compared to the previous period. So to 31 December, we had commitments at $107 million and the largest level of commitments that we have ever had in LCM's history. Similarly, with capital invested up very significantly from the prior period, $31.5 million prior to $56.9 million. So not only are we increasing the commitments. We're increasing the funds under management. We're also increasing the capital, which were invested into that. In terms of financial performance, we suffered a loss for the period of $5.5 million, which is really a reflection of the timing of revenue recognition. As most investors know, we don't fair value our book or our portfolio. Therefore, we recognize revenue only when it is actually urged and when it's received. Had we recognized a few of the resolutions which have occurred very early in this second period. In other words, 2 of those investments, which were post period, it would have generated or converted across into a profit of $6.3 million.  In terms of our performance over the period at the 11.5-year mark, measuring the performance of every single investment that LCM has completed. We've generated a return on invested capital across that entire portfolio of 154% and an internal rate of return of 79%. So we're getting very consistent performance in terms of our investment performance over that period. During the half year to 31 December, we've increased our team globally, but most particularly here in the London office. So we've had a few incredibly experienced practitioners in litigation finance to join our London team. And then touching finally upon those 2 post-period resolutions. The first one in the Carillion model, which we'll talk about in a little more detail as an example of how the funds management business model really leverages our funds and also a class action in Australia both contributing very significant sums to our revenue line. In terms of LCM's business model, most people or investors are familiar with the way we run our business. We're running 2 models. First of all, this direct balance sheet investments. That's utilizing LCM's balance sheet capital to make direct investments into disputes and the second one is our asset management business, where we are managing third-party pools of capital through which we generate performance fees. And what we do is we have a crossover in respect to those 2 business models by co-funding every single investment that we generate across our platform.  Just moving on to talk about the business model in some more detail. So what is LCM's investment proposition at this point in time? First of all, and really importantly, in the current market is the returns on our underlying investments are uncorrelated with what else is happening generally in the market. What I mean by that is we've come out of a period of COVID disruption. We've come out into an economic site in cycle over the June involves inflation at a very high rate. We've got interest rates being increased by central banks in an effort to bring that inflation under control. We've got political risk. We've got disruption to supply lines. None of those factors influence the outcome of our investments, they're artfully uncorrelated.  Secondly, with all of those features of the market, they have a tendency historically to increase the opportunities available to the litigation finance sector. So we operate in that regard kind of cyclically to the market cycle more generally. So not only are our underlying investments unaffected by what's happening in global markets. It's actually producing more opportunity for investment. We're in a market with low market penetration, which gives us many opportunities across the sector. We've got growing demand globally for litigation finance. We're seeing an increase in the demand for the capital in our industry year by year.  Next, we are shifting to an asset management model or a co-funding model, and that's allowing us really to leverage LCM's balance sheet capital and increase the returns for our equity participants. And then you've got the shifting legal market dynamics, which really puts lawyers in a situation where they're recognizing the benefits of offering litigation finance to their clients really to help defray the very large costs associated with pursuing disputes through the court system or the arbitral process. We look at then our LCM's business model, again, as I mentioned, 2 business models, crossover through co-funding. We're still running our single-case investment model. We are investing in portfolios of disputes globally and through acquisitions of claims.  In terms of our asset management business, a number of features of this model, which are worth observing. And the first one is being able to leverage LCM's own capital by using third-party capital and defray the risk associated with every dollar that we invest from our balance sheet across a much wider range of investments. Just looking at the type of investor into our asset management business. We're looking at large and sophisticated investors such as U.S. university endowments, U.K. and European pension funds, large global investment banks, family offices and funds of funds a really important observation to make in addition to the sophistication of those investors is the fact that they have entrenched rights to participate in our third and fourth fund moving forward.  We look at next at market dynamics as they're presenting. I touched upon the COVID disruption, high inflation, increased interest rates, geopolitical disruption through the war in the Ukraine, supply logistics disruption and economic risks, all placing pressure on capital allocation into the disputes market. So all of those factors are really driving the demand for capital in the litigation finance industry and in particular, LCM. Secondly, we've got economic uncertainty. So we've got the risk of recession in many global markets. And the effect of that uncertainty and the risk of recession really drives demand by large and well-capitalized corporates to participate and use risk management tools such as LCM's capital.  We're seeing a significant increase in the number of insolvency events and restructuring. We've seen in the last 7 days, the corporate collapse of 2 U.S. banks. And that is really driving the number of insolvency and restructuring-related disputes that we're seeing coming through our pipeline. We're also seeing an increase in the number of investments that we're seeing in shareholder mis selling and fraud claims. And we're also seeing an increase in the number of investments, which we're seeing in the competition space as that market develops, most particularly here in the United Kingdom. So the market conditions across all of those sectors is increasing the demand for LCM's capital.  In terms of operations, we have had the largest capital commitments in LCM's history in the first half of this financial year at $107 million. In addition, we've had the largest amount of capital investment over that half year period at $57 million. In terms of our performance metrics, we're still achieving a very similar performance metric of our investments as we have over the last 11.5 years. In terms of assets under management, we just tipped over the $0.5 billion point as at 31 December, and we're at now 540-odd billion at 28th February. So we're seeing really an increase in all of those parts of our business.  What we're seeing in LCM now is really a transition from direct balance sheet investments where LCM was contributing 100% of the capital required to bring a dispute through to conclusion. to a co-funding model. And some of the factors which really weigh into that, the ability using third-party leveraged funds to increase the overall assets under management. If we look and compare financial year 2019 through to 2023, we're seeing very, very strong growth in the total assets under management, which is really building that portfolio and building LCM's business at scale. The second and middle graph there shows the contribution of LCM's balance sheet capital. So whilst we are increasing assets under management, we're utilizing less of LCM's balance sheet capital to fuel that growth.  And then finally, in the last bar chart there, we're showing the diversity of those investments. So even though we're using less of LCM's balance sheet capital to grow an ever-increasing and diverse portfolio, we are to frame that balance sheet capital across a much larger number of investments, thus reducing the risk. So we're getting all of those benefits by transitioning across to an asset management or funds management model. And whilst we're achieving that phenomenal growth, what we're doing that in a really disciplined way. So we, as a management and an executive team have been highly focused on making sure that we keep our OpEx under control. And if we look at the last sort of 2, 3, 4 years, we've been able to maintain that within a range of 5% to 3% of our overall assets under management. We've been very focused upon making sure that we deliver growth in terms of asset management and assets under management at the same time as maintaining that level of OpEx.  Now looking at the portfolio. So LCM's portfolio of direct investments, as I mentioned before, in a period of transition across. So we have a historic portfolio of investments where LCM is still contributing 100% of that capital commitment. All of those investments are at a very mature stage and starting to -- we're starting to see resolutions come through, and we should expect to see more of those resolutions coming through in the next 6 to 12 months. In terms of co-investment, you can see that the amount of capital allocated towards co-investment has now increased above 100% investments. And through that mechanism, we're defining the risk across many more separate investments. We look at the portfolio as a whole. We're still seeing great diversity across industry sector, across jurisdictions, across territory. And we're seeing a portfolio which is not punctuated by concentration risk in any one single investment. We're also seeing an increase in the number of investments, which we're seeing in the Northern Hemisphere in the EMEA region, which is really healthy. So what we're seeing really is us gaining traction in the U.K. market.  If we now move to the profile of Fund I. As investors know, this is a fully committed fund of USD 150 million. We have currently deployed just over half of or invested just over half of that capital. We look across, again, at the composition of that portfolio. We see diversity across industry sector. We see diversity across jurisdiction, and we don't see a portfolio which is -- has concentration risk. And then finally, we look at the profile of Fund II in its very early stages. So in terms of AUD 114 million so far committed, we're seeing, although early stages, the diversity, which we have seen in our other portfolios of investments, we would expect over a period of time as we fill Fund II or totally commit fund to, then it will exhibit sort of similar characteristics as Fund I and our direct balance sheet investments. Although with current trends such as increasing solvency, increasing competition claims, we might see a few more by way of percentage of those types of disputes present in the Fund II portfolio. Really importantly, I wanted to spend a little bit of time focusing upon the Carillion model, which is our first substantive resolution in Fund I. And I wanted to do this really to demonstrate the leverage that we are able to obtain to LCM's balance sheet and through the balance sheet to equity investors of using third-party capital. So if we look at the left-hand column, that is the investment performance of this stand-alone investment. So we see that it generated a return on invested capital of 140%. We see that it generated an IRR of 79%. So pausing there, those performance metrics are very characteristic of what LCM has been able to achieve over the last 11.5 years. So very commensurate with our track record in terms of performance metrics.  We then move to the middle column. This is LCM's balance sheet performance once it's paid its performance fees by Fund I. So it increases the return on invested capital coming back to LCM's balance sheet to 278%, and it increases the IRR to 109%. So we can see that we are really maximizing the return that comes back to LCM as a manager of third-party funds. And then finally, we look at the performance of Fund I for those who have invested in Fund I directly. And this is net of fees, still generating a return on invested capital of 90% and an IRR of 61%. So really, really strong performance metrics across that spectrum. So enhances LCM's performance and the amount of revenue that we are able to post to our profit line and balance sheet and really good metrics for those who have invested in Fund I.  We then look at sort of the maturity profile of LCM's overall investment. We are seeing a real transition, and we're seeing that those investments, which are the most mature are those ones where LCM's capital has been funding those investments at 100%. We should expect to see those investments coming to maturity and rich in liquidity event in the medium term and in the near future. And then we see a very good mix of LCM's balance sheet capital and our funds management capital across the balance of those portfolios. As we have said now for a number of years, we should expect to see an elongation of the time for those investments from historically 27 months to between 36 and 42 months. That is what we are predicting that the current portfolio will be. And then a bit more granular detail around what our investment portfolios look like. We start with direct investments. Our one direct investment in Australian class action has completed and concluded just past the post period that's generated a gross profit for the balance sheet of $5.8 million. Two investments have been successful at first instance, which are subject to a PR challenge. We then have one arbitral investment, which has been unsuccessful during the period. That is a feature of any investment class that we -- from time to time, will sustain losses. We're awaiting a judgment or award in 3 further direct balance sheet investments. And we have final hearings scheduled during the 2023 calendar year with respect to 3 further investments. So really good progress in advancing our direct investment portfolio.  With respect to Fund I, we've resolved 2 of the overall portfolio, one that just passed the -- or post period for the 6 months. The successful conclusion of the Carillion investment contributed $6.3 million gross profit, and we've talked about the metrics in respect of that, 2 additional Fund I investments to be successful at first instance and are subject to appeal or challenge. So those investments have been largely successful and derisked but are subject to challenge. One Fund I class action investment in Australia has had a partial resolution through settlement, and we're expecting resolution in that in the near future, the balance of the defendants in that matter. 6 for the Fund I investments have final hearings and awaiting judgment or awards and 2 further Fund I investments have final hearing date scheduled in this calendar year. In respect of Fund II investment, early stage, we're really in the commitment period of that fund, but things are looking really good. And the emphasis there is that we have had a large level of commitment in the 6 months of 31 December than we've ever had in LCM's history.  Building out our team of investment managers, 2 very senior investment managers have joined LCM in the 6 months to 31 December. Fiona Hayes has joined from one of our competitors to take up a position as Head of Underwriting. And Tim Mayer has joined again from one of our competitors as a Senior Investment Manager, both joined our London office, both very, very senior in their field and really building out our bench and our level of experience here in London. And then we have Daniel Kania, who has joined from the investment banking community really to head up our focus upon our corporate funding opportunities and portfolios. And then 2 other practitioners went out of Hong Kong joining our Singapore office and Alice joining Sydney with a particular expertise in class actions.  And I'll hand over to Mary just to talk about the financial review for the period.

For the interim results for the period ended 31st of December on a stand-alone basis, so LCM only performance, investments at cost increased to $119 million. More importantly, during upon a point that Patrick made earlier is as we grow assets under management, and we've now took over the 0.5 billion mark, we are investing less whilst investing 100% was delivered buoyant returns, investing alongside the third-party fund investors is showing through the Carillion model that we are able to enhance those returns by investing less into the underlying models.  Total capital invested in the period was $21.3 million, again, up on the prior period. Gross revenue was $3 million, but again, that is a product of the timing of recognizing the revenue on the resolution of matters. More importantly, just the 2 motors previously announced post the 31st of December being brought forward, gross revenues would have increased by $22.5 million and would have delivered an adjusted operating profit of $6.3 million. However, as a consequence of the timing of recognizing revenue, we had a loss of $5.8 million for the 6-month period end. And cash at the period end was at $16.6 million.  Turning over to the balance sheet. We've touched upon capital invested. Total equity, again, is down as a result of the timing of recognizing the revenue. Cash generation, again, timing of revenue that we expect that to increase in the second half of the year as a result of the 2 most recent resolutions. Cash as of the period almost $16.6 million. Post period end, we had $23.2 million as a result of the resolution coming through from Carillion. Subsequent to that, there is also the performance fee that we owed on that Carillion made as well as the class action in Australia, which would increase the cash position to over $40 million following those 2 resolutions. Other cash flow waterfall tends to follow a very similar trend every period with the main cash generated and the main cash deployed in the investments expenses broadly remain in line in the prior periods.  We have seen an increase in the interest charge as a result of the third party -- the -- sorry, the North fleet facility. Payment placement fees are increased due to the Fund II rate that we just recently did, and pretty much everything else remains in line.

So in terms of outlook looking forward, we are building the scale of our business. And during the 6 months to December 2022, we showed the greatest level of growth that we ever have in our history. And this is really expanding our global platform. We're growing our asset management model, which is producing enhanced returns for LCM's balance sheet and equity participants. We expect, given the economic conditions to see an increased demand for LCM's capital. And we're already starting to see that in terms of commitments in the period after 31 December. We're expecting an increase in insolvency and restructuring-related disputes as the moratorium rolls off and the number of insolvency events increases in global markets. We expect an increase in the resolution of LCM's mature portfolios in the near future and into the medium future. We are building out the capacity that we've got here in our London office so that we can really take advantage of the opportunities and the increased opportunities which we are seeing moving forward. So we are looking into the second half of this financial year and beyond that, we're seeing great opportunity for LCM. And that concludes the presentation. So we might move on to any questions that we have.

[Operator Instructions] And if I may hand back to [ Simon ]. And I believe, [ Simon ], you're going to moderate that Q&A. So thank you very much indeed.

First question, your core competence is clearly the assessment of cases. Given that you're a growing business, how can you guide against the deterioration and the quality of decision making about which cases to fund specifically a couple of bad decisions to fund very large cases, it could be a real drag on profits?

Yes. I think the way that I would address the answer to that question is, first, when you look at the construction of the portfolios that LCM has, whether it be its direct investments or Fund I portfolio or Fund II portfolio, we guard against concentration risk in respect of any single investment. So what we're looking for is diversity. And we're building that portfolio to ensure that any single one investment does not dominate and does not create concentration risk associated with that. The second way I would answer that question is to say that the way we guide against a deterioration in performance is through discipline. And I think if you look at LCM's track record over the last 11.5 years, it's remained remarkably strong and within a really tight band.  And even if you sort of break that down into 3-year rolling periods, representative of roughly the life of these investments, interestingly, what you're seeing is you're seeing an increase in performance in the last sort of 3-year period. And these are metrics which we tend to publish to the market at the end of each financial year as distinct from the interim period, but we're seeing actually an increase in our performance rather than a deterioration. And the final point I'd make in answer to that is we've been asked the same question. We moved into the public markets in 2016. We were asked exactly the same question then. And as we've moved forward to 2023, we're still performing in terms of our investment at a very similar level.

There's been a couple of questions about the one peer group in Australia on the bridge. The recently reported results show a much lower return on invested capital and term return on their funds compared to what they're doing when they're just investing from their balance sheet. As you pursue the same strategy and use third-party funds, are you doing differently to ensure a more positive outcome for shareholders?

Look, I think the way I'd answer that is in a similar way to the way I answered the previous question, which is we are approaching the process of underwriting risk and undertaking a rigorous due diligence process in determining which investments to participate in which are not in precisely the same way as we have done historically, and that's how we've generated the track record we've generated.  Now if we just look at the Carillion matter, for example, that is our first resolution in terms of Fund I. And it is as a stand-alone investment produced remarkably similar characteristics and return metrics than what we have in respect of every other investment, which we've concluded during the last 11.5 years. And we have an expectation that those performance metrics will stay in some way commensurate with that moving forward.

There are a few questions on this issue, too. If realizations remaining quite slow, do you foresee any additional cash flow needs in the coming years in order to meet the 25% co-investment requirements on third-party funds?

So obviously, LCM's cash flow and future demands with respect to balance sheet capital is something that we monitor up regularly, consistently and in a really conservative fashion. So we have modeled out our expectations with respect to returns for the life of balance of Fund I and into Fund II. We're starting to see resolutions in respect of fund wine that matters already. And we're very confident that we have sufficient capital to meet our requirements, not only in terms of operating expenses, but our 25% capital contribution towards that moving forward.  Now if we look out beyond that into sort of Fund III and Fund IV, the executives of LCM will look really carefully at what our capital needs are and we'll look across the board at whether it's appropriate for us to think about whether the 25% contribution is the right number, but also look at all sorts of other capital, which might be available to us as well. And the final point I'd make is LCM's business has a remarkable ability to generate organic capital. You can see that in terms of the return metrics. So it does really beyond any other business, have a remarkable ability to generate organic capital.

What can you do about [ key man or key woman risks ] given how much emphasis you placed on the ability and expertise of your team?

Patrick Look, I think in relation to Key-Man, it's -- the answer is somewhat similar to performance. We got asked similar questions when we went to the public markets, albeit in Australia in 2016. And if I think about what we've achieved in diversifying the investment managers across the period of time between 2016 to now, we are a very much more robust company with very many more experienced people inside LCM at a senior level that could step up and fulfill a role -- a role of leadership inside LCM. So something that we are focused on. It's something the Board considers on a regular basis, and it's something that we are always conscious of building into as we increase the scale and size of the business.

A little more granular question here. In the recent Australian class action in the return on invested capital is only 70%, which is lower than real historical averages. Given that this claim was quite old, how do you square that with a view that if settlement timings lengthen, returns have generally improved due to the rise in multiple?

The one area in which returns are not increased over time is in class actions in the Australian market. So class actions, the returns that a funder receives with respect to taking on the risk of that class action together with providing the capital source is controlled by the court. Now in respect of LCM's investments, they don't all exhibit exactly the same return profiles. Some of these, such as this one took longer than expected, it suffered delays as a consequence of COVID. But compared to other asset classes, it's still showing remarkably good return characteristics. And really importantly, it's despite being delayed as contrast with COVID, it is something that was sort of bought to a successful resolution and has provided a liquidity event for LCM's equity investors. I don't think that we should -- or investors should think about investments moving forward as having similar characteristics to that. Indeed, the performance metrics, if you block them out into 3-year running totals, suggest the complete opposite.

There's a few questions which I'm going to aggregate on shareholder returns versus your investment. Could you pass few words by whether you'd ever consider stock buybacks and whether you have a plan to introduce a dividend policy?

Yes. So I think these and matters, obviously, at sort of for LCM's Board. LCM's Board is very conscious of giving considerations to capital allocation. It's something that we talk about regularly. Certainly, we, as a Board, give consideration to whether a share buyback is a prudent thing and the timing in respect of that and other uses for LCM's capital in a very similar way, we're continually thinking about dividend and declaring dividends. So that is very much part of what LCM and its Board is considering together with other capital tools.

I'd be concerned that some resolutions are taking longer than your historic average. And is there anything you can do about?

Yes. I think if you look at LCM's business and the way we recognize revenue, I think perhaps one of the things that has created the most concern amongst investors is the effect of delays in terms of timing with respect to liquidity events in these investments. And I can say as a manager of this business, that's not something that I'm as focused upon as investors are. This is something over which LCM does not have control. So the resolution of these investments is either brought about through a commercial negotiation of the parties to the dispute, alternatively being adjudicated by the court. Now most of our investments with the exception of Australian class actions, the returns are protected by rising multiples over time. So time tends to enhance the performance of those investments. But if we look at the granular detail in respect to the life of these investments, which we published at the end of last year for the prior 11 years, you're seeing great diversity in terms of the length of time these investments take to achieve a liquidity event. So other than being highly focused on ensuring that we have sufficient capital for our OpEx and to continue investing. I'm very much less concerned about whether an investment falls on one side or other of the end of a financial period. It's not something that we can control, and it's not something that either the parties to that dispute or a judge would ever have regard to in terms of bringing about a resolution. And when I look at the progress of our portfolio as a whole, we've generated tremendous value in that portfolio as it advances towards a liquidity event, and that's probably something that's not as well reflected given our revenue recognition as perhaps we could achieve.

Question on OpEx. How has this moved over the period, actual numbers and what's behind the move?

We do maintain a very disciplined approach despite in the growth phase of this business, a very disciplined approach towards how we allocate resource and how we manage OpEx. You'll see from the breakdown provided whereby we provide a breakdown of LCM versus fund in a Consolidated view that OpEx has in fact come down on the prior period. And so we broadly remain in line with the prior period when it comes to operating expenses. However, there has been an uptick in costs overall because of the finance charges associated with the Northleaf facility. And there are some additional costs that were incurred in Rosin second fund. But broadly, we do maintain quite a disciplined approach towards costs.

Should we anticipate that the second half of the year will be similar to what we've seen in the first half?

Certainly, in terms of OpEx, we should expect that. We're not expecting that overall OpEx in terms of this financial year compared to the previous financial year is going to move anything more than marginally. In terms of the second portion of this financial year, we look forward to more resolutions of our investments and liquidity event.

And it already looks different as a result of the 2 resolutions post balance sheet. So.

Do you have a time line to launch of Farmers 3 and 4? And any indication on the potential size?

I don't think in terms of size, I don't think we have yet settled on a size with respect to Fund III. I mean if we look at our Fund I, we started off at USD 150 million, Fund II, USD 300 million. Perhaps we'll be looking at the sort of 0.5 billion mark or slightly above that in respect to Fund III, very much depend upon commitments and how quickly we commit Fund III. As you can see from our performance -- key performance metrics, we've had the most buoyant or successful period in respect of commitments in the period leading up to 31 December. If that continues, which market conditions would suggest it would -- we are probably looking at about 12 to 18 months before we launch our fundraising activities for Fund III.

Could you talk about the factors influencing the time frame for case resolutions. And specifically, has the COVID impact back in Potomac, is that clear in courts globally?

Yes, definitely. I think when you look at the disruption in terms of COVID, any investment that we have entered into, probably for about a period 18 months leading up to the beginning of cover, which was essentially the beginning of 2020 right through to the end of COVID and a little bit beyond, all of those investments will be in some way or rather affected or elongated in terms of time. Now it's not just a matter of bottlenecks through the court system or the arbitral process. It's also availability of experts and a whole myriad of factors which have all sort of contributed towards the elongation of time in respect of those investments. But I should say, in terms of the way I think about this business and I think about the progression of those investments as a manager and someone who has worked in this industry for north of 20 years, I'm very much more less concerned than the market more widely about delays in those investments.

The new Korean case study, there's a performance fee of $3.2 million. Is that certain more could pull back?

The fund itself does have the ability, not so much to pull back, but we get distributed our performance on an investment-by-investment basis. So unlike some of our peers, whose funds are very much back ended. We have a -- every time an investment crystallizes or we have a liquidity event, there's a distribution of capital and LCM gets paid its performance fees. In circumstances where there needs to be a squarer a callback, it happens pretty quickly in respect of the next distribution event.

As your expected duration of investments has increased, do you have any contractual mechanisms in place to protect against IRR dilution and inflation going forward?

Yes. So the way that the way that these transactions are structured between us and the funded party, they are typically structured on the basis of a rising multiple or rising percentage over time. There are limited exceptions to that. One of those is class actions in the Australian jurisdiction. But other than that, we have the performance of those investments is pegged to a rising multiple of invested capital or an increased percentage over a period of time.

Final question, I'm afraid we are a trying to ask a time. Let's make that one by the general one. How will the current volatility in the markets and the failure of SPD impact?

So no direct impact upon us. We certainly didn't bank with that institution. So there's no direct investment. But I think that the failure of that bank really is symptomatic of pressures which are running right across markets globally at present. I think what we probably expect to see is a very much increased number of insolvency events, failures, bankruptcies, restructurings and what have you. Now those types of activities and in particular, Silicon Valley Bank will lead to an enormous amount of litigation. There's no question that there will be, in terms of the fallout of that across multiple jurisdictions across the world, there will be an increased number of disputes as between people who banked with it as between insolvency practitioners and the like.  Now our industry, in particular, LCM will be exposed to those. And on a wider basis, we would expect to see when you have instability uncertainty in global markets and increased demand for our capital. So I think it probably not a bad segue into what we look at moving forward is increased number of opportunities for us to invest and being able to put that capital, which we've got in our funds management business to work and leverage the returns for our equity investors moving forward.

That's great. [ Simon ], Patrick, Mary, thank you very much indeed for addressing those questions you can from investors. And of course, for all the questions that we haven't got through, we'll make those available post today's presentation. Patrick, I know investor feedback will be particularly important to you and to Mary into the company, and I'll shortly agree Directors on the call to give you their thoughts and expectations. But before doing so, I wondered if I may, Patrick, just ask you for a few closing comments.

Look, as I said before, I can't add any more to the fact that market conditions are really conducive to LCM's business. We're building out our capacity in the jurisdictions we operate, and we've increased the amount of capital we have available for us to take advantage of those opportunities. So we are feeling very, very positive about the second half of this financial year and moving forward from that.

That's great. Patrick, Mary, thank you once again for updating investors this afternoon. Ladies and gentlemen, please if I ask you not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Litigation Capital Management Limited, would like to thank you for attending today's presentation. And may I wish you all a very good afternoon.