Artem Fokin discusses Burford winning the YPF case + fundamental thesis post-trial $BUR (podcast #194)
Artem Fokin, Portfolio Manager at Caro-Kann Capital LLC, returns to the podcast (for the fourth time) to discuss Burford winning the YPF case and the fundamental thesis post-trial. You can find Artem’s first appearance on BUR here and his second (right after they won summary judgement) here.
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Transcript begins below
Andrew Walker: Hello and welcome to The Yet Another Value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, review it, wherever you're watching or listening to it. I'll take the glass off because I got a weird go there. Anyway, today I am happy to have on for, I believe it is the fourth time, third time talking Burford, fourth time overall, my friend, Artem Fokin. Artem, how's it going?
Artem Fokin: Hi, Andrew. Nice to be back. You're right, 100%. It's fourth time and three out of four is about Burford.
Andrew: It's been a great call. We'll get there. Let's start with the disclaimer. Remind everyone, nothing on this podcast is financial advice. That's always true. Maybe particularly true today because neither Artem or our lawyers, and we're going to be talking about a company that is completely about legal and litigation and all that type of stuff. So please remember, please do your own work, consult a financial advisor, all that type of stuff. Artem, we're coming on today because last week, we've talked... this is our third podcast on Burford. Last week, Burford got the final judgment. Final judgment rule that they won. They won the Petersen case about a month ago or a couple of weeks ago. We got the preliminary ruling that said, "Hey, Burford, you're winning full interest, full damages, all that sort of stuff." And we wanted to do an update on Burford now that YPF they can start collecting the claims. And then I think we also wanted to do a update on maybe a little bit more of the fundamental business value, the core business value here. So I'm going to toss it over to you in one second but before I do, I will just remind everyone, Artem and I have done two previous podcasts on Burford. And if you go back and listen to the second one we did, that was in April, that was right after the judge gave her summary judgment ruling that said, "Burford, we're going to win. We just need to go determine damages and interest rates." If you go listen to that, that holds up very well. We'll cover a lot of the questions that we'll probably discuss here anyway, because Artem and I like to chat, but a lot of the questions we were kind of getting from other people. So if there's a question we don't address, are you going to dive in deeper? Go look at that or go look at the blog. I've got tons of writing on Burford on the blog. So I'll just remind people of that, but Burford, Artem, here we sit. It is mid September, 2023. We've got the final ruling. How are you looking at Burford these days?
Artem: Okay, so before I answer that question, I need to say two things. Number one, I need to give my disclaimer, which is Caro-Kann Capital LLC and its related entities and related parties along, Burford broadly defined, meaning regardless of the particular instrument. So that's number one. Then there is a second, which is not really disclaimer. And obviously this is not investment advice. We own shares, we may own other instruments, et cetera, including bonds. So not investment advice. That's number one. Number two, you said that none of us is a lawyer. So technically I am a lawyer.
Andrew: Okay, go ahead. I lied.
Artem: And technically I'm still admitted to the practice of law in the state of New York, but I have a status of retired. So I'm retired from the practice of law.
Andrew: Okay, perfect.
Artem: So that's important clarification.
Andrew: You've worked so hard, if you're a retired man now, I can't imagine how hard you were working when you were still officially on the job.
Artem: Exactly. So that's a clarification. Yes, I will echo what Andrew said. We did two prior podcasts. Many of those things still remain relevant and true today. The older one, I have longer hair. The more recent one, I have shorter hair if you need to differentiate between the two. And also I enjoyed everything that Andrew wrote on his blog about Burford. So I think if you are too tired of listening two people talking and instead you want to read one man writing, go to the blog, read those posts. And I believe that many of them have been made publicly available.
Andrew: Yeah, tons of them, including, did a lot of expert calls with people who had experience at the Burford, expert at the Burford Asset Recovery Place with people that experienced in Burford. Yeah, they hold up pretty well.
Artem: I'm subscribed to your blog. So that's why I don't know which materials are available to everybody, for all, which materials people need to subscribe. That's why I want to make sure. So they're all there. They available for free. I think that great writing great examples. Go back, read them. Now, where do we stand with Burford for today. As you said, final, final judgment happened on Friday. Today's Wednesday, September 20. It happened on Friday, several days ago. What does final final actually mean. Let's explain. On March 31st, there was a summary judgment. It's partially granted. Then there was a trial on July 26, 27, 28, which is ironically 26 and 27 are two days when I took the bar exam in 2005. So I don't know whether they time it because of that. I don't think so, but it was a funny coincidence. And after the trial, the judge released her ruling and they truly asked two parties, Petersen and Argentina and Ethan Park in Argentina, please go sit down. And I already ruled on the date for the tender. And tender date is very important because it would impact the exact amount of damages and how those damages calculated. And the judge, Loretta Presker, also ruled on the prejudgment interest. And the range was six to 8%, she said eight. And she said, I'm paraphrasing obviously, "The math is clear. Two of you go sit down, pull out your HP 12C or Excel or pen and paper, whatever you need, and come up back to me with a proposed order and I will enter into that order and that will be the final amount." Surprise, two parties could not agree. If I can just...[crosstalk]
Andrew: The Argentina proposal was so crazy, like the judge had ruled on all of these things and she said, "Just come back to me", and the Argentina proposal was like, "Hey, let's live in a theoretical world where the judge didn't rule on anything and gets some numbers." It was so crazy I can't believe that they with a straight face entered it into the court docket to be honest with you.
Artem: I echo many things that you just said. Two parties went back to the judge, proposed their orders, and judge said like, "Wait a second, it's very nice that you couldn't agree, I need to rule." And on Friday, the judge issued her final ruling. That's called final judgment. Now, final judgment doesn't actually mean that the legal system stops working. It will be likely an appeal. Argentina so far indicated that it would likely appeal the judgment and second circuit court will loosen that appeal at some point in the future. It's going to take some time, not going to happen tomorrow. We're talking probably about a year, maybe longer before they start taking the case probably. But what is important is this, once the final judgment becomes final for the lack of the better word. Burford, and when I say Burford, I mean, Petersen in it, the [crosstalk] of explain tiffs. So I will use those terms interchangeably, even though technically it's inappropriate to say that. Burford could start its collection efforts. So that's very important. There are only two possibilities where Burford will not be able to start its collection. Possibility number one, Argentina posts a board that must be obtained from typically, high quality insurance company that will do that, that line of business that will say, "Listen, we trust this counterparty. They're incredibly reliable and credit-worthy. We love them. So even if they don't pay, we will pay a factual and oversimplifying the game here."
Andrew: It's literally like if you follow movies and somebody goes to jail, it's the bail bondsman. Hey, we'll put up the money and say you'll go to court and if you don't go to court, like the money's there, that's kind of what people can think of when they say an insurance bond. In this case, a Berkshire would have to put up because it's a big bond if they did it.
Artem: It's most likely going to be a very sizable bond. So Berkshire and Warren Buffett and Charlie Munger can obviously do that. If they do that, I will be thrilled. We'll talk....
Andrew: I'll ruin the punchline. There's no way in heck that anyone would put up this bond for Argentina. It's so big and there's nobody who trusts them.
Artem: I think it's unlikely and given the Argentina's history, it would be probably a very risky endeavor for an insurance company to oppose the bond, which means that I don't think it will happen. If that doesn't happen, Burford should be able to start collection and enforcement. When I say collection and enforcement, I use them interchangeably. There can be another possibility if the court puts a stay on the enforcement. It could happen, it rarely happens. We cannot rule it out completely, but it's fairly unlikely. I would say very unlikely.
Andrew: I'll just add, it's very unlikely because most of the time, when you put a stay, you go to the judge who just ordered that you lost the ruling and you say, "Hey, we think there are serious errors with your judgment. We want you to put a stay on the collection on your own ruling." Guess what? Judges generally don't like to do that. Again, not impossible, I do think there are places where they could get an emergency stay from a appeals court or something, but generally you have to go back to the judge who you just lost and say, "Hey, can you pause collection on your ruling?" Guess what? Doesn't tend to fly.
Artem: Pretty much. Now, as into your point about Argentina going back to judge Loretta Presker and submitting their order, which was quite, in my opinion, divorced from reality, the judge, in her final judgment issued on September 15, put this language, which I think is just terrific language. So I will read it. The Republic not satisfied with the extra ordinary latitude afforded to it a trial to insert new factual and legal issues, attempts, a final ambush by arguing that the court's findings that interest should run from blah, blah, blah. By the way, so I love generally legal writing by American judges, many decisions by Supreme court. I think it's masterpieces. And I loved the writing of judge Loretta Presker. So if you have nothing better to do, you can pull out some of those decisions and read them. They're fine.
Andrew: You know who else loves her writing? Burford loves their writing, we'll probably talk about when we talk the Corbis, but there's a line where a lot of defendants say, "Oh, you're getting litigation financing." It's a perversion of the system. And she had that great footnote, which Burford highlighted in their earnings call where she said, "Hey, it doesn't matter if Burford's involved or not, Argentina harm people here and the fact that Burford is financing", people can go read it, people can listen to Arne's call, but you are not the only one who loves their writing is all I wanted to say.
Artem: Oh, I'm definitely not pretending to be original, that's for sure. Yes, I would definitely encourage. You and I spoke before that one of potential risks for Burford business model is in general, the regulatory risk. What if someone will come and say, by someone we're talking about regulators and say like, "Oh, legal financial should not be allowed, or it should be heavily regulated." Whatever unnecessary and probably harmful regulations can be passed. So that's always the risk and we discussed why we think it's not a big risk. And there are two ways how those regulations could happen. One way is by the Congress of the United States getting together, passing the law, President signs it and gets into the law. And then obviously it will be only federal matters, not state matters, because each state would regulate its own matters. It's pretty complex in the US because it's a federal state. But another way is if courts and judges start implicitly regulating litigation finance, implicitly again, but we live in the common law country, precedents are important, and that could happen. Even though we're talking about trial court, which is a lowest level of the judicial system in the US when we talk about at the federal level, but federal court for the southern districts of New York is probably one of the most sophisticated courts in the nation, especially when we're talking about finance matters. And judge Presker is a very well-respected judge. And when she put her footnote, which is worth rereading, and say like, "No, a defendant cannot argue that because a plaintiff had to obtain third party funding to help enormous efforts put by that very sovereign nation who violated the rights in the first place to defend itself and got to the finish line. And now the defendant who caused all that harm and caused massive delays and tried to kind of run out of money the counterparty is saying, you should not give them full award because they used the party litigation provider. This is nonsense." So it's a wonderful footnote.
Andrew: One of the things that always strikes me is the law is not always fully rational or doesn't always come to fully rational conclusions. But a lot of times it does form a rational standpoint, the fact that you have somebody financing you so you can sue a more powerful party who damaged you, like it shouldn't change any of the conclusions. It would have been great if Petersen had enough money to go see this through to the end. But the fact is Argentina threw them into bankruptcy by doing this. And Burford being there actually helped affect justice here. If you said, "Hey, Burford couldn't fund this, so they couldn't pursue this", then you're basically saying, Hey, sovereigns, you can go screw over your counterparties because if you do and you do it good enough, then nobody will ever be able to hold you accountable." The rational part of me, I love that piece of it.
Artem: Yes, from the policy perspective, I agree with you 100%. Cool.
Andrew: Anyway, so let's go back. So the ruling's been entered. At this point let's start talking about enforcement. You said the only way they can enforce at this point is A, if the judge or an appeals court issues an emergency stay, or B, if in the extremely unlikely event that an insurance company is willing to write a 12 to $16 billion bond that would say, "Hey, once all the appeals are exhausted, Burford will collect a hundred cents on the dollar because they'll collect this bond once all the appeals are exhausted." Both of those probably aren't happening. So let's talk a little bit about the enforcement and how you see. Sorry, Argentina owes $16.1 billion to Eden Park plus Petersen combined. That will compound at about 5.24% compound interest going forward. That's the post judgment interest. So the question is going to be, how does Burford, the Petersen Eden Park claimants, how do they start collecting? How much can they collect? So why don't we talk about that?
Artem: Okay, let's talk about collection. Just to clarify a couple of numbers here. 16 billion, this is the headline number including damages itself. And pre-judgment interest that ran at 8%, it was simple, not compounded. This is the number that will go to Petersen mostly and a little bit of will go to Eden Park because they owned a lot less shares, a lot fewer shares. However, Burford will receive only a portion of that. Not all 16 billion go to Burford. I just don't want anybody who's new to Burford topic think that 16 billion going all to Burford.
Andrew: You can vouch for my numbers, before any discounts, any haircuts, any taxes, any incentive fees that go to the Burford thing. If Burford collected their full shares, the 16 billion dollars, a hundred cents come through, if Burford collects all of that, their share would round to 6.3 billion dollars, is what my math says.
Artem: Correct. It's about 6.29 exactly billion. And if we take the Burford share account outstanding and divided per share, it's about $20.70.
Andrew: I have it as $28.32 per share. So I don't want to have it...
Artem: It's possible that I may be using weighted average and you're using end of the period. It's possible that I'm using end of the period and you're using weighted, or maybe you included some options.
Andrew: How many shares do you have out? Do you know?
Artem: So in this mass that....
Andrew: Because I think they have 220 million shares and I don't want to get into an Excel talk on a podcast because I'm sure that's not interesting. I've got 6.3 billion divided by 220 and that gets you to $28.57 per share is kind of the rough math I've got.
Artem: So I'm using 220 million shares.
Andrew: I think you've just got a quick Excel error or something there. But let's not get too dragged down by it.
Artem: Yes, definitely less important. So I'm happy to work with your numbers. So which number do you have?
Andrew: I've got 6.3 divided by 220 comes out to $28 per share. If there was no discount.
Artem: Yes, to $28, good to me. So that's the number. Now, collection. So the...
Andrew: Did you originally say 28 or 20? I heard 20 when you said it.
Artem: No, no, no, I did not say 20.
Andrew: Oh, I heard 20. Yeah, we're on the same page. Okay, great.
Artem: I think you and I were all about like 30 cents.
Andrew: Oh, okay. Yeah, yeah. I would never argue over 30 cents. Yeah, I heard 20 versus 28.
Artem: And that's why I said maybe I used...
Andrew: No big deal. Absolutely no big deal.
Artem: And it's like, no, it was a very tiny number. So don't worry, $8 did not disappear.
Andrew: I thought it was $8. I was like, ooh, me and Artem are way off here. Yeah, okay, great.
Artem: We're on the same page. So when we talk about collection, in my opinion, there are two important ideas that we need to address first. And it's partially addressing ideas, partially fighting misperceptions. A big idea number one. Burford does not need to collect the entire $16 billion from Argentina via pursuing enforcement and collection. That's big idea number one. Big idea number two, you need either collect or threaten to collect and create enough nuisance value where Burford will be forcing the counterparty, the sovereign nation to sit at the negotiation table and figure out a settlement. Many people based on my observations, like $16 billion sounds surely very nice, but how are they going to collect all that money? And the answer you don't have to. You need to collect a little. And then there is idea number three, which is there is a big difference between financial value and strategic value. Financial value of certain enforcement strategy can be very small. Maybe $3 million, $5 million, which is nothing when we talk about $16 billion award. However, strategic value and disturbance and disruption to the otherwise smooth operational processes of Argentina or related entities can be tremendous.
Andrew: I totally agree, I'm just shutting the door that I opened up. I'm magically back. One thing I think a lot of people have been saying is, I can't remember if it was Karen energy or Seneca energy, but I believe Burford helped them to enforce. What they did was it was a judgment against India and India bought some of their ambassadors apartments. And now you cannot seize things that a country is using in the function of being a country. So you can't go seize the Argentinian embassy or the, in this case, the Indian embassy, but India had bought some of their ambassadors apartments in Paris and the company, they used this judgment to go seize the ambassadors apartments in Paris. Guess what? The ambassadors are like very high ranking, very influential officials. And when they come home and they cannot get into their apartment and they do not have a home and their family's there and there's people locking the doors and they call up and they say, "Hey, we lost our home." All of a sudden a few weeks later, the government is sitting down at the table and settling. And I think that, as you said, the apartments, they're Paris apartments, they're worth $2 or $5 million. They're not worth a lot financially, but strategically you have, shut down the lives of these high ranking, influential people, very strategically valuable. And I don't know if Argentina has bought apartments for their ambassadors, but I bet you there are several strategic assets like that, that Burford has lined up and has thought, "Hey, this doesn't really move the needle on $16 billion financially, but strategically, this is going to throw a lot of sand into the gears for Argentina and get them to the table with us."
Artem: Correct. I am not privy of the details of the enforcement action where apartments in Paris were seized, but I will add a couple of points there. Again, I don't know all the facts of that particular situation. The big concept that you Andrew alluded to, but I want to re-highlight here is this, every country has two capacities, egos or alter egos, whatever you call them. One is sovereign nation. For example, in sovereign nation, you have a military aircraft. As a sovereign nation, you have embassy in Washington DC or consulate in New York or San Francisco. After losing a commercial dispute, which was a commercial dispute in the Southern District of New York, a plaintiff cannot go and say, "Hey, I going to grab your embassy." No, like unfortunately, fortunately that's not allowed. However, many nations or rather all nations also have various roles where they act as a commercial entity, broadly defined. It can be expert in preparations, selling your own oil that you extract or your copper or whatever the case is. And in that case, you can actually go after those assets because they have nothing to do with the country being a member of United Nations or passing international resolutions or participating in any other activity as a sovereign. What I find very interesting about your example, and I've heard about it as well, about the Indian apartments, but I don't know is this, if I were to represent Indians in that situation, I would go to a court with the jurisdiction of this matter. In this case, I assume it will be somewhere in Paris.
I would say, your honor, in French, which I don't speak, so it will be difficult, but I will try. "I would say your honor, this is ambassador's apartment. Ambassador acts on behalf of the sovereign nation. Yes, we bought this apartment for our ambassador, but it's not a commercial activity. We bought it for our government employee, high-ranking employee, that performs important functions to live in. We're still acting here as a sovereign nation. You cannot take it over." I think it's a winning argument. I cannot guarantee that, but I think it's a winning argument, but we'll get there and I will try to reconcile what I said and what I think here and what I heard about this story. Now, it will be very different if in this case, India, any other country bought an apartment in Paris and it was rented on the Airbnb to Andrew, or Artem, when we would fly to Paris. Sure, that's commercial activity. However, this is very important. I would not be surprised if a party, again, I'm using this as a hypothetical in this situation because I don't know the details. I would not be surprised if the process worked like this, let's try to seize and freeze as many assets as we can, disrupt the functioning of the government. Then we'll go to court and debate and court, and know then whether this particular apartment is protected by sovereign immunity or not, because that's a complicated legal argument.
Andrew: I'm with you, I don't know this particular person, cold off my head, I just know the overall story I heard, but maybe India argues, "You can't seize our ambassador's apartment", and Paris says, "Okay, you're right", but then India's bought all the assistant ambassadors' apartments and then you have to have a debate, "Hey, can you seize the assistant ambassadors' apartment? Can you seize the security guys' apartment?" There's just probably 50 apartments there and at some point, you are going to get to the point where the court says, "Hey, no, you didn't need to buy all these apartments for all these people." As you said, you're just throwing sand into the gear and it's not huge dollar value, but it's very disruptive. And if they run a country, it's better for everyone if they kind of get these settlements disputed because it's really going to bring a lot of personal headache to a lot of high-ranking people.
Artem: Correct, another example, and again, Burford, rightfully so, does not comment on its enforcement tradition. What we only can do is we can look at prior cases in the history of worldwide jurisprudence where certain judgments were enforced against sovereign nations. And see what was done in those cases and see, hey, maybe Burford can borrow from that playbook and do that. And also let's not forget that Burford has an enforcement arm within Burford that does those things for a living. In other words, if there is any company on the planet that is positioned to do this type of activity, it's probably will be Burford.
Andrew: Look, not only do they have an enforcement arm, it's not like sports where you can point to this is the best sports team we've played a game. But they have an enforcement arm that I believe is widely regarded as the best enforcement arm in the world. So not only do they have an arm, they've got what's widely regarded as the best arm. And as they've said on their calls, hey, this is a massive judgment. It's like four times our book value, five times our book value at face. We have been thinking about this for years. You can expect that we've worked with our enforcement arm. We've got a strategy. We're ready to go. And I've said this previously, so I'll say it now, like I am probably less bullish based on my loose talks with them what I've heard, I'm less bullish on the recovery number than I think they are. But my benefit of the doubt, I'd give it to them because they are the experts. They are the ones who know what their plan is. So just to throw that out there.
Artem: That's fair. I would also build upon that by saying throughout the history of Petersen legal proceedings, the number of people who said, "Petersen is a zero. Petersen will be paid in pesos." Muddy Waters famously is on the record on Twitter and on their short report saying that, "Patterson is zero or they will get paid in pesos.
It's worthless." So going back, I think it's March 20th or something like this of 2020. You can find the tweet. So far, Burford has proven all people who were skeptical wrong.
Andrew: Burford bought these claims. Now, I think they bought a couple on top of this, but the core of their holdings, they paid $16 million for. Now if Burford collected 100% of face value, they would get about six billion. And they've already monetized about 100 million of it. So they've already made more than their money off of it. As we said in our last podcast, this is a Facebook style venture investment and you only get that because for years, people doubted that Petersen they'd ever recover. People thought it was a zero. I think when you and I got involved, especially me, it was much later and it was clear that there was likely to be value here. But people have always doubted it.
Artem: Correct. Let's go back to other examples of what could be done on the collection efforts. For example, Argentina as a sovereign, as a government owns a number of commercial enterprises. For example, I believe and everybody you should check that I can be mistaken. I believe that Argentina owns 100% or at least control of the airlines of Argentina. By the way, they own many other commercial enterprises in the 100% or less. What is important is that if it's a wholly owned government entity, that conducts commercial activity, the plaintiff who has outstanding judgment can go after the assets of the commercial entity. You need to prove ownership, which is generally not that difficult to do. And you need to prove control by the government. For example, if a representative of the ministry of economy or ministry of finance or name any other government entity sits on the board and participates in quarterly or annual seminal meetings, etcetera, that's what lawyers will call indisha of control, an indicator of control. And if you prove ownership control, you can go after those assets. Argentina has a number of such enterprises that do business international. Another example, if Argentina does expert of some of its natural resources, they may or may not, I don't know, have a trading company in Switzerland or in Ireland or Luxembourg or any other place where they choose to have a trading company from a legal perspective. In that case, freezing that company may have very nominal value because it may be trading company money coming in the morning delivered afternoon and exaggerating a little bit, but the book value of the company can be diminished. But strategic value for proper functioning of the commerce is massive.
Andrew: That is one specific example when I talk to one of the Burford former and people can find the links. That is one specific example they mentioned. Hey, you start seizing trading companies and there's not really money there, but all of a sudden Argentina finds it hard to do any trade with name your country once you've seized that. The bank accounts just stopped functioning, you can't trade, and yeah, there was no nominal value there, but strategic value, all of a sudden you could shut off huge pieces of their GDP. And that's another thing that can just bring them to the table to force settlement.
Artem: It gets even worse to build upon what you said. Not only Argentina in this case cannot function properly, imagine how happy would be their counterparts who are like, "Wait a second, we send you money, but you cannot send us whatever it is, whether it's oil or something else, you cannot sell us, you cannot send it to us. Why? Because you have outstanding judgment. Wonderful. We need to find another counterparty." It's get embarrassing at the perception level, but also it may or may not trigger subsequent lawsuits by your counterparties who have paying you properly, but have not been receiving what they need. So it gets very complicated.
Andrew: Yeah, no, I completely agree. Let me ask on timing. I believe the enforceability starts... I can't remember if enforceability starts now that the final judgment has been entered, or if it starts 30 days after a final judgment. Do you know?
Artem: Don't hold me for that. I believe it's 30 days.
Andrew: I think it's 30 days too. I had that tickling my mind because I was kind of wondering, the final judgment got entered on Friday. I was wondering if we wake up Monday morning and see like Argentina and like one boat off the coast seas or something. I would not be surprised, we're talking September 20th. The final judgment came September 15th, I think was the day. I would not be surprised if October 18th. We start seeing little signs of this company freeze, this bank account freeze, like little things. I wouldn't be surprised if we start seeing quick wins from Burford. Let me turn to this. I just want to hit bottom line. As you and I sit here, now the enforcement starts, now the settlement starts thinking, how are you thinking of the valuation of Burford's Petersen and Eden Park claims right now?
Artem: I would guess that the end game here, through all those activities that you and I discussed and shared your thoughts, I shared my thoughts. And I think the game plan here is to get the counterpart, Argentina, to the negotiation table and say, "Okay, let's make peace and figure out what we can do." And in that case, probably, it will be some sort of installment plan, like buy now to pay later on a firm or Clarna. It's something like this in a way. It will be some installment plan, presumably there will be some cash component upfront. And then there will be an installment plan running several years, it's with certain amounts. Argentina will be paying everybody involved here. In exchange, Argentina should legitimately ask for a lower price point. So 16 billion should be haircut, choose by some substantial amount. You and I spoke last time with you. I think the range was somewhere for a haircut between 1460%. That was kind of the range that you and I collectively believe, thought was reasonable. Could it be higher? Possible? Could it be lower? Also possible. It partially depends on the structure of that settlement. If it's five billion tomorrow, or October 18 or 19, and then 500 million for the next five years, that's a lot more valuable than one billion today. And pick a number of installment sales for the next 10 years. It's time value of money exercise as well. It's not only notional haircut, but also time value of money and this structure of the deal.
Andrew: One of my favorite quotes when I was reading up on this is, there's like the history of international sovereign defaults or something. The first line is there have been 28 sovereign defaults in the modern era, and half of them are Argentina. When people are thinking the time value of money, you have to remember it's not just discount rate, it's the fact like you're discounting Argentina discount rate. There's going to be a high, let's get as much of it up front because there's a decent chance of another default in six years or something.
Artem: Okay. Yes and no. Those legal papers, reasoned by legal scholars that you're referring to, mostly deal with default of sovereign nations defaulting on their sovereign debt. In this case, and this is important. If I were Burford, the deal structure would be, again, I'm picking up this numbers. Okay, let's say three billion today and then one billion for the next five years every year. It's hypothetical to be clear. Let's say it happens and three billion gets wide, the year goes by, Burford picks up the phone and says, "Minister of Finance, we have not received check for the next billion. Would you like me to dictate you the numbers of my checking account?"
"No, it's fine. I have it. We're not sending." So in that case, the way you structure the agreement, you had 16 billion, we cut it by 50% just for the sake of the argument. You paid in our example three, so it should be eight minus three, five, five is owed. That five will immediately revert back to 16 minus three, which is 30. Presumably you go to the court and say most likely we gain southern districts of New York and you say, "Your honor, we had this agreement with Argentina. They wired us three billion and then missing the next payment. The agreement says that if you miss a payment by more than 30 days, it balloons back to 16 billion", now example minus three that already void. "We need 13 billion." You do not go. You are not sitting at the same table with the bond holders of a bond that defaulted again, if it happens again. You have your own separate small table. It's like there is cheap cafeteria and there's very expensive gourmet restaurants with traditional stuff. You're at that table.
Andrew: The way one of the calls I did described it, they were like, "Look, if you get a lump sum payment upfront and then they default on one of the settlement payments on the back end, it's almost the best of all worlds. You've gotten some of your money up front and then it's so easy to go and start collecting again and now you're looking at full face value. The country is really incentivized not to do that second default because if they do, they paid full face value on the upfront payment and now you're just collecting again." So it's just a disaster for them is kind of how they laid it out to me.
Artem: I very much agree with that. .
Andrew: 40 to 60 percent haircuts, I agree with you. I still think that the number that I kept hearing from people was, "Hey, in NPV terms, they're not getting an $8 billion upfront check tomorrow." It's interesting that it just doesn't have that much cash, but in NPV terms, most of what I've heard from people who are better at collection than me have said, about 50 percent of face is probably where a settlement should shake out. That's probably like two billion upfront with two billion of payments every two years after that for the next 12 years or something would be about how they would look at it. I think that's right. You tell me if I'm wrong, but I've kind of been thinking, hey, in my model, I think about a 50 percent haircut is about where I think, and in a bear case, maybe it's a 60 percent haircut and in a bull case, maybe it's a 40 percent haircut, but that's how I've been personally...[crosstalk]
Artem: I think it's very reasonable. One thought that I would put out there and I could easily argue against this thought myself, but it's still worthwhile to remember. Repsol, if I'm not mistaken, settled pretty much on 50 cents on the dollar.
Andrew: That's right. And people have argued, "Oh, there were political reasons and country reasons." hear that, but there's going to be political reasons to settle the Petersen case for 50 cents on the dollar at some point too.
Artem: This is very important. Number one, Repsol and Argentina settled 50 cents on the dollar very early. The legal case hasn't even started really yet. They settle. Now I'm not pretty into Argentinian politics or Spanish politics. If I was to guess probably Repsol being a big multinational company out of Spain probably asks Spanish governments, like, Hey, could you help us broke or do something? You as a government should protect your corporations." Very reasonable view. And it's very possible that Spain indeed tried to help. I don't know, but I would not be surprised. So that's positive. On the other hand, at that point in time, Repsol did not have any stick, zero, literally, they could not go and freeze your assets. They cannot freeze your Swiss or Guernsey, your Jersey trading company. They couldn't do anything. It was simply early.
Andrew: They couldn't even point to, "Hey, if we sue you and take you all the way through, we will win." They couldn't even point to that at that point. And Burford certainly can point to that.
Artem: Correct. So that would argue for a smaller discount than 50%. How it will happen, I don't know. It's also fascinating study in this so Chris Bogart, Jonathan Molot, two brilliant lawyers and Jonathan also is a brilliant legal scholar. He started Burford when it was tiny and understandably back in 2009 and finance, small matter here, small matter there and relatively small and they've grown. I would not be surprised even three months from now, Chris Bogart, Jonathan Molot will be finding themselves inside an IMF conference room where they will be debating with IMF officials or World Bank officials or whoever else could be involved, where they will be saying, "Mr. Bogart, Mr. Molot, we need Argentina to be active member of international community and trade and commerce so help us out, find a solution", where they will be saying, "Listen, we owe fiduciary duty to our shareholders. We're entitled to 16 billion and we're not going to give 50% haircut. We need 80% on the dollar or something." By the way, another fascinating possibility, and by the way, I don't think it's going to happen, but something to entertain, you can also get a backstop from IMF. Argentina will pay you 3 billion a front and 1 billion for the next five years and IMF is a guarantor. For example, typically I don't know whether IMF allowed by its bylaws and other charter documents to do that. It's possible that it's not allowed. I'm not a pioneer that I don't know, but something like this is a thought experiment is interesting. Will IMF want to get involved? Maybe yes, maybe no, we'll find out. What I'm saying is that I think Chris Bogart, Jonathan Molot, are finding themselves in the new kind of uncharted territory, which will be very interesting to watch as a shareholder and as a ambassador in general, it will be interesting to watch the evolution of the management team.
Andrew: You are absolutely not the only one who has said, "Look, it's a big award. It's New York jurisdiction." The IMF in some way or shape or form will come into play, whether it's them calling the company in and saying, "Hey, how can we negotiate? Maybe backstop, maybe give you something", or whether it's the IMF going to Argentina and be like, "We cannot get you funds if you have this outstanding judgment and they are enforcing on it. We simply can't get you funds. You need to go settle", and yet it sucks for you. You need to settle 16 billion, but do you want IMF loans? Do you want IMF money? That's got to be out of the way. We said 50 cents on the dollars kind of our base case. Well, actually there's one other thing I want to talk about. Taxes. Both you and I have, mainly you, because you were the one who suggested to me and I've just done some work to confirm, but taxes. Burford has said frequently over time, you can find this in their 20th. "Over time, we expect our tax rate to flow to the low to mid teens" is what they've said on the tax rate.
A lot of people take that to mean, "Hey, your cost basis in Petersen is basically zero. So anything you get from Argentina, let's apply a 12% tax rate to it." I don't want to spoil it, but I think both you and I think, hey, tax rate might be lower here. So I'll turn it over to you. How are you thinking about the taxes on any proceeds Burford gets from YPF?
Artem: Okay, so punchline, I think it'll be the minimums. And I believe this is right now, non-consensus field. You and I spoke about this. I don't remember if it came up on the last podcast or not, but I've held this view for very long time. So that's punchline. Now, the next question becomes, wait a second, how is it possible? You're getting all this money, blah, blah, blah. So now remember, Burford is a currency company. They have presence across multiple other countries, UK, London, US, via Chicago and New York, maybe some other cities I forgot right now, et cetera. And people assuming that someone, some taxing jurisdiction, meaning some country will tax it. And the question becomes which country? So it's not the currency because they don't really tax. UK, okay, unlikely because there is no real linkage between this case and UK. So I assume that people by default assume that the United States of America will exercise its tax jurisdiction and tax this proceeds. So the next question becomes what are the grounds? Now we're getting into a quick tax, international tax tutorial in 20 seconds.
Andrew: Do you know any former international tax attorneys who might be? Who I know, this call? Because I actually don't know, Artem, do you want to say what you did in a prior life?
Artem: Yes, in the prior life, when I came to the US in 2004, I came to study a law. I came to do master of laws in international tax law program at NYU School of Law, which quick advertisement, which is unpaid for my legal alma mater in the US, which has the best tax program in the country, maybe worldwide. So and then I practiced at a law firm called Green Beach Traurig in New York for about three and a half years. And then I went to Stanford for business school and then I went into investing.
Andrew: The bottom line is Artem is literally a former international tax attorney. He's not just me, some random dude in a hat commenting on this. He actually knows his stuff here.
Artem: So with that covered[?] and I appreciate the compliments, I will say that it's impossible to know with certainty unless you're inside the company. It's just impossible. As public investors, in pretty much any company that we invest in, we actually have no real idea what's going on inside in terms of taxes. We got some idea because they report your income tax expense on the income statement, they report cash taxes or cash flow statement. And then they may or may not provide a little bit more color, but big picture, all investors are kind of flying blind. By the way, I love those situations where I come to the conclusion that taxes are very low. And whatever the report on income statement is just noise and people miss that. Sometimes it creates an opportunity. So I think going back to Burford, let me share the screen with you. And I apologize to those who are listening to this
Andrew: instead of listening to YouTube. Happy to have this screen share. Obviously, most people listen to this audio.
Artem: So maybe I will describe it. I will just want to share if you share something, you're comfortable with it being shared on the YouTube because I will not be able to pull it off. I'm sharing the document 2022 Burford annual report. Okay. Okay. So this is in public domain. Anybody can pull it out anytime they want. Let's see. Do you see my screen?
Andrew: I cannot see it.
Artem: Host disabled.
Andrew: Why don't you just talk me through it?
Artem: Okay. That's what I will encourage people to do. Go to page 25 of the PDF of the 2022 annual report. It plays out Burford capital structure, sorry, corporate structure. I feel very confident that it's grossly oversimplified.
Andrew: I can vouch for that. Yes.
Artem: So simplistically at the top, you have currency company, and I will ignore some of that, which is less relevant for our matter, but then you got side by side, another currency holding company, and then you got UK holding company. Most of the US operations come under UK holding company. What is important here is that Burford capital LLC is US operating company. So keep this in mind. This is LLC. How US may exercise tax jurisdiction over Petersen is two or three fold, depending on how you cut this pie. Possibility number one, based on residence, meaning a company that is a US company doing business in the US, derived certain income and that income is taxed by the US. No different from making widgets or making Coca Cola in the US. That's one possibility. Another possibility, if income is derived by foreign person, receives what is called US source income. For example, if US company pays dividends to a shareholder in Germany or Switzerland, it will be US source income because it's defined by the residence of the pay-all, so paying company. In that case, US will impose what is known as withholding tax. Let's first address the residence matter here. By the way, there is also another possibility where a foreign person doing business in the US without creating a company, but they are here, they're running around, they're doing stuff. In that case, US will view such foreign entity having this in quotes, "engaged in US trade-off business." Then there is this concept of ECI, Effectively Connected Income. I there is a foreign person, individual or entity that is engaged in US trade-off business and derives effectively connected income with that US trade-off business, US will tax it.
Okay? So now, I suspect that the part of Burford structure that relates to this probably relies on an exception in the tax code under section 864, which is trading for your own account. I believe that's why Petersen proceeds should not be taxed in the hands of Burford.
Andrew: When you first mentioned it to me, because you were the first one who mentioned to me, I was skeptical. And I will say, if you've talked to Burford[?], if you've listened to their most recent earnings call, people ask, "Hey, what's the tax rate?" I feel like there's somewhat cagey where they say, "We've guided to our tax rate over time." But they're talking two different things. I'll ask them, "What's the tax rate?" They'll say, "What's the tax rate on YPF? We've guided to our tax rate over time." Which I think is them kind of like playing poise, so they don't have to say we're paying nothing. But there's one example you pointed me to that I think is really powerful evidence that they will not pay taxes here. Do you want to talk about that? Because you're the one who pointed out to me.
Artem: What I describe here gives me more of a foundation to think that there may be a possibility that they are not paying taxes on Petersen in the US. But then I also believe there is a piece of tangible evidence. For that, we need to go to 2019 financials. Let's remind what happened in 2019. In late June, I think June 26, well, I can be off, Burford announced two things. They announced Supreme Court of the United States declined to take sovereign immunity, defense, and listened to that defense by Argentina. Immediately, Burford sold a good chunk, about 100 million, they received 100 million, for 10% at the time of their remaining entitlement, two third parties.
Andrew: Again, they invested 60 million plus they did expenses and they bought a little bit more but this took more than all their costs and cost basis of the table.
Artem: Correct. That was the biggest sale of Patterson up to this moment.
Andrew: The only sale of Patterson, I believe. You're right. They did some more.
Artem: A couple of smaller sales earlier. So there was a lot of money. What Andrew was saying was a lot of money and you definitely would have had gains because it was such a big amount of proceeds. If you look at cash taxes and income tax expense line item on Burford 2019 annual report, you will see that those line items continue to be the minimums. There is not that much observable difference between 2018 and 2019. That makes me think that-that sale by Burford in 2019 was not subject to US tax jurisdiction. That makes me think that there is no logical reason why subsequent realization events, whether through sale or collection or settlement, should be taxed in the hands of Burford by US either. Again, can I be wrong? Yeah, I can be wrong. I'm not opining that this is true. It's impossible to know it unless you're inside the company. As Zezendra[?] pointed out, Burford on public calls said, "We're not commenting, their position is actually this." Long-term, it will be mid-scenes[?] and we're not commenting on how any particular case is taxed. That's their position, I respect that so I can only do my own work and try to figure out what's happening, but I don't know.
Andrew: I want to move on to the core business now, because I think we've covered YPF pretty nice, but just so people know, Artem and I said, "Hey, 50% haircut is about right here." If you do 50% haircut and you think there's zero tax rate on it, and they've guided you a little bit of incentives on this and stuff. If you say 0% haircut, YPF and Petersen claims to be worth about 1350 per Burford share. If you bump that tax rate up to 13%, it'd be worth about 1150 per share. So you're talking about a $2 per share difference, which is material on a $15 stock as we talked about. But again, YPF at 11 on a 15 stock, it's a huge piece of the proceeds, 13 on 15 is huge piece of the proceeds. All right, we've talked YPF extensively. I'm going to force move us over. Look...[crosstalk]
Artem: There is one more thing which is relevant and it came up on the last call as well on the earnings call and Burford doesn't give an answer. I am using all publicly available data here to come to my own conclusion. Remember Mission Impossible? I think it was four when Tom Cruise is in Moscow. No, sorry. It was the next one. Do you remember when he's one of his associates is testifying in front of the Congress and he's been asked difficult questions and he says, "I can neither confirm nor deny the existence of such a operation without the secretary prior approval." The secretary was killed and there is nobody who approved that. So this actor keeps saying like, "I can neither confirm nor deny." Now it's a little bit how Burford answered this question when they were asked, "Do any of the funds that you manage bought YPF?"
Andrew: Great point, yes, great point.
Artem: We can neither come from the deny and I understand there are tons of limitations on what they can say. And there may be confidentiality agreements, there may be many other things. They don't say.
Andrew: They said we can neither confirm nor deny, but there might be press reports on if some of the funds we manage have exposure or not. Which I...
Artem: Yes. Now back in 2019, maybe 19, maybe 20, there were reports hat funds managed by Burford, bought about 13 million out of those 100 million that Burford sold. Remember at that time it was a big transaction because about 100 million was sold by Burford and then unrelated parties also traded around as part of that big deal. I think it was around another 40 or change. It was like good amount traded hands. And some reporters found out that 30 million, was purchased by Burford managed funds. Muddy Waters used it as a claim to say that in time our competition is bogus because [crosstalk] Burford publicly in writing and I believe on the calls, I believe in both commented, "Listen, we cannot comment on that, but what we can tell you is that there is bunch of securities laws in the US that would prohibit funds from doing a related party transaction with the management company. If you do that, you're going to get yourself into trouble." What it means is that limited partners alone, and typically it's done by a limited partners advisory committee, could get together and say, "We like this deal, we don't care, we like this investment, we don't care that it's a related party, we still want it." In that case, a manager can sell something through the fund.
Andrew: It's very helpful if you have third parties that are doing it at the same time, that are giving you a mark. Yep.
Artem: Because in that case, it's not like they set up some price, no, there's entire market. So that was Burford and they said, "We cannot comment on what happened, but if it had happened, then that would have been a procedure. We believe that it will have been proper anyway." If you go and download the PDF file from Burford website where they give you this eight or, by now probably 11 pages PDF, with this tiny fund, which you need a magnifying glass to look at, where they give you every single case, you will see an interesting thing. A new case appeared on June 30th, 2019, if I'm not mistaken. That case did not exist on December 31st, 2018. It appeared on June 30th, 2019. It's six months and committed capital and deployed capital was immediately the same number, 30. We know that generally it takes some time to commit capital and then deploy capital. Normally those deployments take time, sometimes a year, sometimes two years, it could be even longer. In that case, it was 30 and 30, which is unusual. It matches very nicely with the theory that public level was disseminated by reporters that about 30 million was invested by Burford funds. And it was Burford Opportunities Fund, not sovereign wealth, but BOF based on that document. My hypothesis is that that's the same case. Why is it relevant? Well, I think it's relevant for this reason. We don't know all the numbers here, but this is my understanding. Burford at that time own 71.5 out of the entire settlement from Petersen. 71.5% was valued at a billion. They sold 10% of that 71.5, 400. Again, I need to approximate here because I don't have all the inputs, but most likely that one billion today is closer, so that hundred million in terms of notional value is probably closer to 16 billion divided by 0.7 roughly, and then you take 10% of that. Again, that math is flawed. I don't know the exact math, but it's quite a substantial number. That's my main point. It's 7% out of 16 billion roughly, I think. That would be, call it close to a billion dollars. Is my math right?
Andrew: Well, I think there's an easier way to do it, which is when they sold, they valued at a billion dollars, 16 billion dollar headline number. I think what you actually want to do is say, "Hey, you and I have been saying that they're going to get 50 cents on the dollar is the haircut. I think that billion dollar valuation, if I'm right, would be worth 8 billion, so the hundred million value they sold would be worth 800 million.
Artem: Let's do before the haircut. But I think you're equating 1 billion to 16 billion, and I'm saying that 1 billion is equivalent to 71.5% of 16 billion.
Andrew: Okay. I see what you're saying. Yep, I see what you're saying.
Artem: Again, I think I'm missing some inputs, so I'm really approximating here. But if it's 10% of 71.5%, it's 7% points roughly, of entire 16 billion, and 16 billion multiplied by 7%.
Andrew: Sorry, I was just looking at the numbers, 7% of 16 billion. Okay, yeah. It's approaching 1.1, is that right?
Artem: Yeah, I threw 1 billion just like rounding, because I'm sure I'm missing some leakage there. If my hypothesis is correct, 30 million just turned into 1 billion notional. Let's use 1 billion because it's easy math. Let's do a haircut. It will be 600 million using 40% haircut. Again, 30 just multiplies nicely into 600. That's what I'm doing. Or you can do 50% haircut that will be 500 million. 30, cost basis, call it 470. Burford, if it's indeed BOF, is entitled to get 20% incentive fee on this number. It's approaching 100 million.
Andrew: The incentive fee? I think you're a little too high. I don't want to belabor the point, because 100 million is 50 cents. I think you're a little too high, but I don't want to belabor the point because I do want to talk about the rest of the business.
Artem: This is notional, this is notional amounts, meaning before haircuts.
Andrew: But the bottom line is whether it's 20 million, 50 million, 100 million, it seems there's set up to be a nice incentive fee here that Burford is going to get, if it's 20 million, there's an extra 10 cents per share of value. It's 100 million, that's an extra 50 cents. On top of everything we've talked about, there's incentive fees coming.
All right, that's YPF. We might have to do this as a two-part podcast where we just break it up because this is going to be the longest podcast we've ever done. This is why on Twitter, I said two hours or three hours. But let's talk about the core business because the YPF stuff's exciting. It's a $15 sock, you and I have said the fair value here is over 66% of the sock value, just from the YPF points. But the core business is doing really well. I personally have a hypothesis that the core business is going to do better on the heels of this, because I think people are going to get more excited. But let's talk about how you look at and think about the core business today. We probably don't need to go too deep because especially the first podcast, I think we did a really nice job hitting on it. But let's talk about the core business today.
Artem: Burford reported second quarter results couple of weeks ago, September 13th. So actually one week ago, so very new. In my opinion, the results were quite sought. I would also add that the changes in accounting have made already complex reporting even more complex.
Andrew: Yes, agreed. I would also add that in my humble opinion, Burford doing quarterly reports is not a very good fit for the business. They have to report, that's why they're doing that. But I think semi-annual was a lot better cadence. Frankly, I think annual is a lot better cadence. Do you remember the story about Warren Buffett who said when he was running Buffett Partnership, he said to his LPs, "I will be reporting two results to you once a year and you will have an opportunity to leave or stay. Otherwise I'm not talking to you."
Andrew: Well, when you do 50%, I think Buffett Partnership was doing 50% annualized. I think it was Ted he launched his fund and the first thing he did was the post-reorg. I think it was the grace investment or whatever and his fund was up like three X over two years when he launched his fund, Ted Weschler, the Buffett's...Or was it, I can't remember, his fund was up three X over two years and then he just sent his LPs a letter. He was like, "Hey, I'm just going to be writing you guys an annual letter now. I'm not going to report quarterly anymore." When you do 50% IRR or you do three X in two years, you can write those letters. But for mere humans like me, I won't include you, but for mere humans like me, you can't go with that. I do understand what you're saying. This is a business that they make the legal investments today and in Burford's case, it takes 10 years to realize. Reporting quarterly versus semi-annually, there's not a lot to add a lot of the times. It's focusing too much on the forest and missing the trees, or focusing too much on the trees and missing the forest.
Artem: Correct. That's the third number three on this topic. Now let's talk about fair value methodology because that plays an important role. By way of background, Securities and Change Commission in the US and Burford had some conversations which resulted in Burford changing its fair value methodology. Before they were marking up cases up or down only on milestones, meaning judge issued a certain ruling. Judge case went to appeal. We lost this petition. If it's substantial enough, they will mark it up or down. Then now, with new methodology, Burford has also marked it based on time value of money. Conceptually it makes sense. Holding everything else equal, a case that got launched two years ago with the same merits as the case launched yesterday, should be a lot more valuable because we are two years closer to resolution. However, you need to apply some discount rate. And those discount rates are not constant. As a result, Burford has been applying high discount rates for some period of time because rates were rising, that makes sense. And in the second quarter of 2023, application of high rates resulted in negative markdown of fair value of its partfaller if you look at it at the aggregate level. Remember, Burford reports consolidated and then report Burford only. I think consolidated still has a lot of noise.
I look mostly at Burford only. So the consolidated, correct me if my numbers are off right now, I don't have Excel in front of me. So I believe that they had 94 million markdown at the consolidated level and 60 million plus at Burford only.
Andrew: That sounds correct to me. I don't have all those tabs open. I'm kind of focused on this, but that all sounds about right to me.
Artem: And obviously when you look at the income statement and you see that your revenue is not going the way it's supposed to be going, and this happens in the time period when Burford had its biggest win in its entire history arguably, it raises questions, but that's the accounting. By the way, I expect that in the next probably couple of months, there will be filings where Burford and SSC, whatever they corresponded with each other, they would be posted. And sometimes those letters are really fun to read, especially if you look at some companies that have gone public and then you pull out and like SSC says, you are not disclosing this metric properly. And the company like, "Sorry. Yes, here you go." Very interesting. They didn't want to report this metric. What does it mean? Sometimes it means nothing. Sometimes it means something. It's up to you to decide. I think it'll be very interesting to read those letters in exchange what Burford was advocating for and what SSC was advocating for. I think it will be fascinating to read so I look forward to that.
Andrew: Obviously I don't believe that they marked YPF up in Q1 and Q2 because they just had the pre-limb judgment. They didn't know what the rulings were. I think they might have done it a little bit but...
Artem: They marked it somewhat.
Andrew: I think it was a very small markup, but because of the final judgment this month as we just spent over an hour discussing. I will be very interested in the Q3 earnings what they mark the YPF rolling out because it'll be interesting to see how they're thinking about it. But I don't want to bring this back to YPF. So I would agree with you. Look, there is noise. Interest rates went up by about 2%. If you kind of think interest rates going from 3% to 5% in a quarter, that makes a big difference if you're fair value and everything. So there was noise in the income statement. I think a lot of people, a lot of headlines, there was a lot of commentary about it in the print. But if you looked beyond that, I think what Burford's saying, I think rightly, "The business is just absolutely firing on all cylinders." All of the COVID delays are starting to resolve themselves. They've deployed a lot of capital. Even XYPF, you're starting to see wind. You're starting to see a lot flow through. I don't know if you want to talk about any of that.
Artem: Look, so let's talk a little bit about this because this is important. As much as YPF is exciting from intellectual perspective because it's a fascinating case, as well as from financial reward perspective, which is substantial, that's not why I got interested in Burford in the first place. It's the core business that I think is very attractive and interesting. So let's talk about that. I will start with this, sometimes when very young students interview for banking internships or other internships, they ask like, "Hey, if you only could look at one financial statement out of three to evaluate a company, which one would you choose?" There are tons of cost-cash flow statement. Some people get it right, some people don't, but that's it.
Andrew: That is funny because I think I would say balance sheet and here's my reason.
Artem: Some people say that.
Andrew: Well, you didn't say what the company was and if you looked at the cash flow statement for a bank, it would be completely meaningless. A balance sheet statement, like at least I could see how much earnings they got from last year to this year. I could do a return to equity, like a cash flow statement. It's tough I do hear you. But I think the right answer is actually, "Dude, you can't do that. Like every statement is connected to each other", but I hear you.
Artem: I agree with you. This is the question that I ask for juniors positions. Why I'm bringing it up, the story is this, there are few metrics in both of this closures that have been consistent for many years and that we know, and I think they indicate the health of the business. Number one, I want to know commitments. In other words, for a phrase in that question, if you asked me, Artem, if you could look only at five, six, seven metrics out of probably 25 or 30 that we haven't moved from reporting, which one would you choose? So they will be, I want to know commitments because this is the best leading indicator. I need to know deployments. I want to know realizations. Why? Because I want to see that those deployments at some point come back and they got cashed. Then I will want to know aggregate IRR and ROIC. Because that will show to me whether the quality of cases, their return reward profile is getting better, worse or it's stable. Those are the metrics that I would like to know. Those five metrics alone, probably should tell me enough about normalized top line revenue over some period of time. They're going to tell me nothing about next quarter revenue or even next year, but on a two, three, four year time horizon they will tell me enough.
Andrew: Just think about it like a private equity firm. If you get 10 years of deployments and you can see what they're doing, in private equity firms there's obviously huge variability, probably more variability. Well, there's a lot here, but if you've got 10 years worth of deployments and you can see consistently they're deploying at 20% IRRs and all that sort of stuff, you say, "Hey, this is a private equity firm that's probably doing pretty all right, very similar."
Artem: Very good analogy, good. The last thing I will want to know is OPEX. Why? Because those five metrics roughly will tell me something about top line. Remember, top line is only gains, either realized or unrealized. That's not total precedes. OPEX will tell me, okay, are we spending too much money to run this business versus this magnitude of those gains that we're getting? I will want to know OPEX. I think on commitments that were up very nicely, deployments that were very nicely, leading indicators to me are lining up very strong for Burford. Remember a couple of things, Burford reports, group-wide commitments, group-wide deployments, Burford only, et cetera. I think right now, Burford have said publicly that they are deprioritizing the asset management business. They will be investing more and more from their own dollar ship. It's a lot more important to look at Burford only commitments and deployments than group-wide. Even if you look at group-wide, they're still growing very strong.
Andrew: I just want to comment, and I'd love to hear your thoughts on it too. A lot of people love the private equity model where we take LPs money and we use that to invest and then we just get the two and 20. We get the incentive fee and the management fee. They love that because that's a capital-like business that management fees locked in. The incentive fee gives you plenty of upside still and they love that. Burford, they've got the asset management business, which again, you could have considered private equity. They're actually going the other direction saying, "We want to put more of our balance sheet in." I know I have pushed them and a lot of people have pushed them to like, "Dude, two and 20, that's the end all be all. You guys are actually getting three and 30 for some of these. Why aren't you doing it?" They're saying, "Look, we only did that because we had so many cases, we couldn't fund them on our balance sheet. We wanted to do that." These cases are so attractive. The more of them we can keep for ourselves, the more value we'll create in the long run, which I think speaks to a shareholder friendly and value-focused group and I think is the right decision for anyone who's focused on like long-term value creation versus kind of short-term metrics, that type of stuff. I don't know if you agree, disagree, I'll toss that over to you.
Artem: I can pretty much sign the petition so that we just articulated. In my opinion, the key issue here is capacity. If you could deploy unlimited amount of money, sure, just deploy both your own balance sheet and 2 and 20. If it was invested in shares of Amazon, which is not investment recommendation, I don't know much about Amazon other than they sell books and I buy them there and bunch of other stuff. If you are unlimited in terms of how much money you can invest, of course, like have both. It's terrific, 2 and 20 and you're paying a lot of salaries for your team just with other people money while paying only a little bit with your core business. However, if it's capacity constraint strategy and you choose between the two, you probably wan't to prioritize your own account. It goes back to Greenblatt[?] who is like one of my idle investors with his career trajectory where he was running a fund, Gotham Partners, and it was so successful where the returns are disclosed and you can just take[?] Mark Eugenius book and somewhere in the back that he had to return capital.
Andrew: Renaissance, a lot of these quad funds, they run huge money and they charge 2 and 20 and then they get big enough and they say, "Hey, our returns are starting to drag us down and we're all billionaires now, return all the outside money and we're making 50% annualized, run in all our money and just keep returning all the outside money, because you'd rather make a hugely risk-adjected return", maybe one day you and I will face the same issue. Business firing all cylinders, I want to talk about value of the core business, but there is one question that I've gotten from several people that I have some answers. Nobody has a great answer here, but there was a widely publicized, Burford invested $140 million into Cisco anti-trust claims and it went off the rails. There was a little bit of, fit into the 60 minutes piece. There was some back and forth, Burford actually published an op-ed in the Wall Street Journal responding to it, but at this point, Burford controls the Cisco anti-trust claims that they invested about $140 million into a year or two ago. A lot of people have started saying $140 million, hat's 60 cents per share to Burford. I believe they own all of that stake. If you look at what they've done historically, there might be a real pot of gold sitting here when this case comes to conclusion. Have you thought or talked to anyone about the Cisco claims in case here?
Artem: Number one, I agree that it can be highly attractive. Number two, one of the pieces of indirect evidence that we have that can be very attractive is because there was a potential settlement that according to Cisco, Burford did not let them pursue, and that resulted in a dispute between Cisco and Burford that subsequent level set. Which makes me think that the settlement that was on the table was not bigger enough. It means that there is probably how much bigger, probably not 10%, probably they would not be arguing about 10%. Probably it's substantially bigger. How much bigger? I don't know. Number three, I don't know that case as well as I know YPF. I probably will be reluctant to provide very strong opinions about the magnitude.
Andrew: I agree with everything you said, but as you said, if Burford invested 140 million and it was a, choose a number, 200 million settlement and Burford rejected it, it's probably because they think there's 300 or 400 million at the end of the rainbow, maybe more. People view YPF as a one off and rightfully so. You're probably never getting another YPF like thing. But to me, one of the things people miss is YPF is such a business confirmation, this is a VC style thing and there are going to be other big wins in there and you think about the portfolio, they've crude, this moves actually nicely into book value, tangible book value of Burford right now is what it's about $5 per share. 540 excluding the YPF. So I exclude YPF it's about 540 for share. Obviously, there's an asset management business here, but you really want to think about their increasingly just investing their balance sheet. So you have to look at it as a balance sheet style. But the question is they're investing their balance sheet at 20, 30% of investments, like how much can they reinvest? How long can they continue to do that? How do you look at valuing the core business here?
Artem: Okay, so I apologize. Before we get into the question about core valuation, there are two points that I think are important to make about recent results that I think people confused. Number one, let's start with asset management. All of a sudden asset management had very bad top headline revenue number in second quarter. The question like, where's the second click? What happened? You had some realizations in your business. There was this thing like what's happening? I think what's happening is this, a very substantial part of the earnings of revenue, let's start with the revenue of asset management business come from sovereign wealth foundation, BOFC, because BOF, I believe is an European structure so you cannot market top. It's only when there is a final realization. So really kind of day to day when you mark cases up or down, it's only BOFC, sovereign wealth foundation. I think that in most cases, there may be some weird exceptions, but pretty much all the time, the mark of the case should be the same on Burford own book and in the fund which they manage, because otherwise it will be very awkward conversation with the auditor why he hits $100 and he has 70. It's kind of the same mark, should be. With maybe some weird exceptions, but generally it is the case, I believe.
It means that they most likely would also mark a bunch of cases down that BOFC invested. Before they were presumably accruing some future incentive gains based on markup of cases and now they had market down, so that's what I think probably happened and that's what I think created very low numbers in asset management revenue when you look at again, this is my analysis, impossible to know for sure but I think that's the benefit. And then the second question that I kind of seen a lot come up is OPEX was quite substantial in the second quarter. Based on the way it was reported. People because of that started worrying. In my case, the worries are not very well founded, that Burford may create a lot of value, but it may not be captured by shareholders it may be captured by employees. Let's first start with small picture, which is second quarter and then we can talk about big picture, which is culture incentives etcetera. So in the small picture, there was some, in my opinion, true one-offs, which is three and a half million roughly went into new valuation methodology and establishing infrastructure for quarterly reporting[?]. Some of that I think will not be recurring. Some of that may be a little bit recurring because you need to do quarterly reports going forward and maybe a little bit more expensive for to do it from account perspective.
Andrew: Just to add, look, they recast results, I think eight quarters back for this. Obviously, in Q2, they were finalizing, they were talking to the SEC nonstop, like, you're incurring overtime and you're incurring recast. Is there ongoing SEC compliance costs? Yes, absolutely. But you don't have to recast eight quarters ago, every quarter going forward, you've already got it recast. You don't have to pay overtime to establish the framework going forward. You've already got the framework. So yeah, 100% right.
Artem: We're on the same page here. Then there was another 6 million that was paid as a compensation for legacy asset recovery business case. Remember a number of years ago, Burford bought asset recovery business, I believe it was called Focus. Based on what we know, there was some cases that they were pursuing and they structured the deal. It was kind of contingent value rights in a way in the pharma deals, instead of you and me arguing how much this highly promising drug that has all the risks over being approved, instead of arguing, let's agree on the payout based on contingency. I think it was something done here as well and one of those cases played out, which is good for everybody involved, and that triggered additional 6 million payment to former owners and maybe employees of that group. So again, that is one off and obviously, they pay off on those cases that already hunted and gotten their platform and started pursuing will be higher than on normal cases that would again. That's another which I've used one off. Then on the call, CFO Jordan talked about how the bonuses may be looking high, but there is a true up at the end of the year, etcetera. We don't know all the numbers obviously for the future, but I think what CFO was leading to is that you should not be looking at the bonuses accrued as one line item on one single quarter multiplied by four and say this is run rate.
There is a lot more movements and that's what I think he was referring to when he was talking about true up at the end of the year. We need to see at the end of the year how it will be true up. Maybe I'm wrong and he'll be like, "You thought it was high back then. No, at that time it was low." Who knows, but I think it will be...We need to see, we need to get more data. Then there is a final piece that I think Chris Bogart on the call spoke about, which is the following. I believe Burford gives shares to almost every single employee in the company. They do it, they buy them in the open market instead of issuing, which I appreciate as a shareholder and give it to the employees. They bought some time ago, I'm making this up at seven and now they hired a new person who is great, they give him a share now it's 15 and they need to expand it to the higher price, which makes sense. But CEO I believe was saying like, "Hey, but we don't get any credit for buying it." In fact, what they did is kind of mini buyback in issuance[?] So we're not recognizing any gain. Those are all the pieces. One last piece I would say, and this is more important in my opinion than all this tactical minutia is this, you hire people and spend money to originate cases today and they bring you cash based on their maturities in two years and change. But some cases, as we know, run a lot longer, we'll get a YPF. I think it's important to keep in mind. Now going to the bigger picture, I was honestly surprised when some people brought it up like, "Oh, how do we know that management and employees will not capture all the value being created?" My pushback on that is the following. Number one, we do not have any evidence of behavior where Burford employees and top management benefited at the expense of shareholders by expense and reasonable compensation. We just do not see that pattern of behavior and I'm relying here that prior behavior is likely to be a good predictor of a future behavior until proven otherwise. If it changes, I will change my mind, I will get on your podcast or maybe not and we'll say I was wrong.
Andrew: [crosstalk] podcast. Yep.
Artem: That's point number one, point number two, if you look at the annual compensation of Chris Borgat and Jonathan Molot as two key leaders of Burford, it's running and correct me, there are different components, but call it 5, 6, 7 million dollars a year. Each of them owns roughly 4.5% of Burford shares outstanding, $220 million, 4.5% of that, do the math, multiply by 16. We're talking about the difference between the annual comp and the shareholders of 2025 30 times.
Andrew: One thing that struck me in the call, I don't know what the individual employees own, but one thing that Burford has said and that struck me in calls when I was doing with formers was everyone does own stock here and look, if you own stock in Burford and you own a hundred shares, like, yes, I'm sure this $1,600 that you own as employee, I'm sure you want it to go up but if you're a lawyer getting paid $400,000 a year, doesn't matter much. I do think there is something to, they pay everyone in shares, employees have a long term shareholder mindset. They own shares throughout the company. I do think there is a little bit of something to that. So I'm just kind of guessing on that.
Artem: Yes, I think we're on the same page there. I generally like the companies where almost everybody or everybody, I said almost everybody was commenting because what if there is someone who actually doesn't. But in my opinion, as far as I know, it's all the employees. I just put the caveat to be safe.
Andrew: It's a post I'm working on. The longer I do this, like Charlie Munger said, I think I'm in the top 1% of thinking incentives are powerful and I'm always surprised by how powerful incentives are. I work with companies all the time and sometimes I think they're incompetent, but a lot of times they don't think they're incompetent. They just don't own shares. If you don't own shares and you get paid 500,000 a year, and you could sell the whole company for a huge premium, say, you're just incentive, I say, "Hey, the sale will be there next year. But let me see if I can create a little more value", capture another 500,000 dollars, maybe get a little more shares and then I can see and see you saw it. I just love having ownership throughout the company, especially at the top, because then, yes, there's always that conflict, but ultimately, they're rewarded for doing what's going to put money in your nice pocket and that's create shareholder value. Okay, that's a ramble. Real quick, Burford, if you exclude YPF, the book value here is... Where's my number? Okay, if you exclude YPF, the book value here is $4.20 is the right number. If you are only looking at tangible book, it's $3.60. Now, there are a lot of issues with that number. A, as you said, they've made investments today that won't pay it off, but they've got the expense to say. B, they've been investing for years at 20, 30% plus IRR so that book value should compound very nicely. All that type of stuff. There's the asset management business, which is on the books for basically nothing, but which generates very high margin income. How do you look at the core business XYPF valuation?
Artem: So, conceptually, I'm looking at the same way as when we did our first podcast in July, 2021, quite frankly. There is not that much change conceptually so, what I did back then, I still do now, I take all the assets and I subtract those that are not producing financial outcomes today. For example, I will take YPF because I value it completely separately. We take the entire mark for YPF and fortunately, Burford discloses that mark so, it's easy to do. I will take goodwill out. You cannot invest goodwill in cases in financial tangible way. Usually, I would also take some cash cushion out, saying Burford will just knowing that deployments drawdowns are somewhat unpredictable, even though they have good models and this is the management scheme that I believe like to be conservative on those matters. We will keep certain amount of dry power no matter what, on the balance sheet. I take that out and say, "Okay", that leaves me with assets that could be producing financial outcomes for new cases. I take that number and then I apply the IRR of 24%. Again, Burford says that IRR is about 29%.
Andrew: Take expenses out, overhead, all that sort of stuff. Yeah.
Artem: No, that's separate analysis. The last number that we've heard publicly was that excluding YPF, but it was quite some time ago, it's 24%. I take that number and say, "Okay, this is the gains that should be produced in some normalized way and that normalized year will never happen. All years will be the better or worse." But that's hypothetical. In law, there is this concept of a reasonable man and nobody ever seen that person. It's kind of the same normalized year. And this is the gains and then I say, "Okay, in order to produce those gains, they need certain level of operating expenses, GNA, compensation, public company cost, et cetera." I subtract that and recently I obviously updated that number, given the new data points that we got, I took some of the adjustments out that you and I already talked about. That leads me to their operating income and then you take out their finance costs. And then you got to pre-tax income. You apply some tax rate. You can use mid-teens if you like, this will be said publicly that's where they will be approaching. You can take some low number based on the current trends it's up to you and that's how I get to normalize nothing. Then what I do, and this is important, I take the normalized income, this is like one block or analysis I do and then there's another block analysis you can do, which is you take their earnings for the last, and I like more half than second quarter alone. I take their first half year earnings, I make some normalization adjustments and then I calculate normalized equity, meaning I will take good will out, I will take YPF out. Also when I do the earnings in the first half, 2023, I will subtract any markups of YPF because I want to evaluate completely separately. Then I'm getting to my normalized earnings in first half and normalized equity in the second half and I compare the two. Based on my math, which has a number of adjustments and reasonable people may argue with some of my adjustments. By the way, some people I think will argue that I am too conservative. Some people will say you're a little bit too lenient here, and I'm getting to normalized ROE based on the first half to roughly 15.5%. Again, I can see how it can be increased if you make some more adjustments. I can see how it can decrease if you want to be very [inaudible].
Andrew: Just to throw in, I did not do anywhere near the amount of adjustments you do. But in my head, I run this as a high teens ROE business on the assumption that I probably would do something similar to what you did, but on the assumption that some of the expenses they're doing now are for future growth so you kind of add them back. I've kind of always thought this is a high teens ROE business. One thing we haven't talked about is, as far as I know, you didn't give them any credit for the asset management side there. I don't give them credit there I give that separate, but just throwing that out as well.
Artem: Yes. In a way, if you want to value asset management separately, which you could and I've done that as well in the past, you will need to make more adjustments to normalize earnings and you will be just taking them from Burford like only own balance sheet business as opposed to asset management. So you can either do either way is fine. Also I'm not giving them any credit for this future expenses, meaning we spend a lot today to get something two or three years from now. I'm not doing them any credit for that and this is what I alluded to when I said some unreasonable people sounds like you will be one of them who will say like, "No, you're too punitive, like you're too conservative here. This X dollars went to create something two years from now, right now there is no payoff, you need to adjust for that." If you do that we'll be in high teens, maybe even 20. I think 20% ROE probably achievable for this business again, on this normalized basis. We know that on Q1 2023, Jonathan Molot talked about that they want to run the business at 20% ROE. They started educating the team more and more, not only about IRR and RYC, but also how it impacts ROE and profits. I think based on the managemental comments on the calls, I believe there is more movement to focus on those metrics.
Andrew: The one thing I would add there is this business, you could run it more lever and they've talked a couple of times about, hey, we've got all this leverage capacity, we've got all this, I don't think you want to, but you and I have been seeing ROEs in the high teens, low 20s, mid-teens, whatever. If they wanted to, they could probably take the ROE to 35, 40%. They could just juice it by really levering it up, or again, they could sell cases off to third parties and kind of go with the two and 20 model so we've been doing the ROE, I think that's right, but there are ways you can get higher ROEs. The ROE is just a number, it's the output of a bunch of different inputs. I don't know where I'm going with that, I'm just throwing it out there.
Artem: No, it's a very valid comment. What you're saying is that, yeah, sure, their teens made it 20, 20-minute goal approaching, but with a different cap structure, they could achieve a lot more. I agree with that.
Andrew: It's one pushback a lot of people have had, both investors and non-investors, why don't they buy back shares? They could just go buy back shares and their point is, hey, we can invest at great returns into these cases and I've kind of pushed them and said, "Hey, you could do both, you could take out a little more debt, but yeah.
Artem: Number one, I wish they did try buy back, especially like six months ago or during COVID or after COVID or March or February of this year, I wish they did. So that's number one. Number two, I understand where management is coming from and this is not just an opportunity to invest capital at very high IRR and ROIC. I think it's also making sure that you have enough capital, if a big corporate clients comes to you, which kind of happened last reported quarter when they announced... Cisco is a good example, but also in the second quarter, they announced another portfolio deal for 325 million with Fortune 50 company. That's a lot of money. Most litigation hedge funds have less than that in the entire fund.
Andrew: I don't have that in my fund. I'll tell you that.
Artem: I think most management doesn't want to be in a position when someone comes and says, "Burford, we've got this great portfolio of cases to look at it. It's pure beauty, pure magic. We need 325 million." And Burford says, "We don't have it." I think that's what they want to prevent and I think the management team tends to be conservative on this matters, which I understand and that's one of the reasons why they have not done buyback. I believe Chris Bogart, one of the calls back in 2020 during COVID time said when he was like, "Why don't [inaudible] do buybacks?"
He said, "We don't want to turn a client because we spend cash on the buyback." So I think that's the tension. What I wish Burford did and kind of I'm surprised that they haven't done it yet, is having a revolver with, I don't know, name a bank, Bank of America, Japan Morgan Chase.
Andrew: Exactly. With the buybacks, it's not like we're asking them to go crazy into debt to buyback stock. It's like a consistent buyback program as long as you're like, as you said, if they'd bought any point before the past two weeks at all this year, they would have been buying for less than I think you and I think they'll get in the proceeds from YPF so they kind of would have been buying the core business free. I want them to go do this 325 million deal, but you could just take out a revolver, 25 million a quarter as the proceeds, as the business, eventually the growth will slow and you'll get the fruits of this year's investment. As you get the fruits of this year's investment, pay down the revolver or keep it constant, ramp it up if that 325 million deal comes in and say, "Hey, we're not going to buy back shares for the next half of a year so that we can pay this investment down." I wish they did that. Just to clarify when I said, I don't have that in my fund. I obviously meant my personal funds. I cannot afford the litigation expense. We're approaching the two hour podcast. I think this is the longest podcast we've done. We've talked a lot about it. We mentioned high teens, mid teens, ROE on the core business. What do you think that comes out to you like on a kind of per share basis?
Artem: Oh boy, I'm a little bit hesitant to throw the numbers out because what was likely to happen this normalized year will never happen. I would look either someone who put too high of a number and it doesn't happen for the next year, or they have some blockbuster second half 2023 and it would be look like, "Dude, you're so low. "
Andrew: I didn't mean in terms of a normalized EPS. I just meant like in terms of how you want to per share basis, how you value the core business.
Artem: Look, in my opinion, given that we're talking about the business that should be having high teens, maybe even 20 ROE, I think it should be trading at a multiple over book value. If you want to approach that methodology. I think it's probably should be anywhere between if I want to be conservative, I will say two X if I want to be a little bit more optimistic and aggressive, I will say three and a half four X. The point in my opinion is that this type of business should be trading on a substantial P. I call it at least market P. I think it's not unreasonable. Why? I always believed that Burford, if we fast forward five or 10 years, and we're doing another podcast, hopefully we're doing it from your yard called Burford.
Andrew: I think it would be called Eden Park. I like the Eden Park name for a... But yeah, there you go.
Artem: Okay, I will take Petersen for my yard if I buy one with Burford investment. In any event, jokes aside, I hope that this business will become and it's in the process of becoming already, it will be a Blackstone litigation finance. That's what I said at the very beginning that was my thesis. There were ups and downs along the way but I think we're marching there. Burford has roughly scale of three X of the second competitor. I think it's a big scale in an industry where scale matters. 325 million portfolio deal that they announced is a good evidence for that. I've loved the book by Steve Schwartzman, What It Takes, an autobiography and I think he makes a number of interesting examples, how Blackstone being the biggest and having the most scale allowed them to do certain deals that almost nobody could even try.
Andrew: Is that the one where he claims he has a 48 inch vertical?
Artem: I don't remember that.
Andrew: I think that's the one where he claims he has a 48 inch vertical, which would put him in NBA athlete levels and he's like a five foot, or he said he did. I agree with you, he gives all the benefits of scale I shouldn't have cut you off. But I just always think about, oh, man, this guy, he's really believe in the hype. If he put in writing that he had a 40 inch vertical and thought nobody would call him out as, "Hey, man, you would have been in the Olympics with this", that type of thing.
Artem: That don't know. But I did enjoy the book. That's what I can say. While I was reading the book, I was thinking a lot, understandably, about parallels between Steve Schwartzman Blackstone story and Bullfrog story. Again, you and I spoke about this earlier. 14 years ago, they launched a small fund IPO in London because for whatever reason London investors after financial crisis were more perceptive to invest in something like this. Now you and I speculate in that they may be having conference calls or face to face meetings with IMF officials. That's a big step up.
Andrew: When I wake up on the right side of the bed, I guess the two things I would add to is one, it's starting to come back, but if you go back to before Silicon Valley bank failed, if you had a bank that did a 20% ROE, they would be valued at three to four times below, would probably be about where they're valued. Burford, if you exclude the YPF claims has never been valued, maybe before the money was at the three to four times. YPF proved they can have huge wins in here and even when you exclude it, they can do 15 to 20% ROE. I don't think based on that three X book is crazy, that's point number one. And then point number two, I love the comparison you made to Blackstone because when I wake up on the right side of bed, I say, look, 15 years ago, people would have said, "Oh, KKR, Blackstone, all these guys, they're long into two PE funds." But scale matters here. Burford is an N of one in terms of there are other publicly traded litigation firms that know them with their size, know them with their scale but this is kind of the only one that's investable institutional level. Nobody knows how to value them today but 10 years from now, like they won't even have YPF on their balance sheets 10 years from now but they will still almost certainly be the largest litigation player. I think if you go back and you look at, hey, you could have invested in one of these private equity guys when they first went public and everybody like didn't really know how to value them and look at them, you would have done quite well and I think that's going to be the answer for Burford in 10 years from now. That's why, if you can do a 20% ROE three times book, two and a half times book, it's not crazy. Not only is it not crazy, it compounds really nicely. All right, we're approaching the two hour mark. We've covered a lot. I think people can get an idea of fair value based on everything that we've laid out. We don't have to sell out of specifically, but anything else you would add to our discussion on Burford today?
Artem: Probably not. After two hours, it's difficult to add quite frankly, that's much more.
Andrew: Well, look, Artem, I called you the king of Burford in Twitter, you've done incredible work. I thank you because in large part, based on the stuff I've been a multi year Burford, as you said earlier, investor throughout all the Burford complex because of this, and it's been a rewarding experience both so far financially, but also just following it, doing the work on it has been really fun. I know you and I know several other sharp investors who are invested in Burford and we've met some of them through it. Artem, this has been great. I'm looking forward to pod five, maybe it'll be the fourth on Burford. I know you've got a few other ones, but this has been great. We'll wrap it up here and look, I'll include a link to all of Artem's previous appearances, everything in the show notes, if you want to follow up on that. So we can go from there. [inaudible]
Artem: Thank you.
Andrew: Let's see....