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Burford management or Muddy Waters: who do we trust?

07/08/2019 · Burford Capital Ltd (BUR) 

AIM UK

Scales of Justice legal statue

In 2017, we claimed that Burford Capital “might be a case of a share that appears too good to be true, and is". At the time, we said, "extraordinary claims require extraordinary evidence, and while Burford apparently hasn’t put a foot wrong yet, this is likely to be an instance where the warning about past performance’s tenuous relationship with future performance is particularly apt!”

Here are our updated thoughts now that our warnings have evolved into “a perfect accounting storm”.


The first line of Muddy Waters’ note on Burford Capital (LON: BUR) sums up the issue with this company: “For years, it was the ultimate “trust me” stock”. Investors have required a lot of trust in management’s claims of “robust demand” for its litigation services and the value it has placed on the ongoing cases.

Now investors are faced with an even greater trust issue. Is Muddy Waters – which has built up a sizeable short position in Burford over a number of months – simply trying to line its pockets as investors scarper? Or are the series of claims that the company has been “egregiously misrepresenting” its internal rate of return (IRR) and return on invested capital (ROIC), true?

Burford Capital is structured as a closed-ended investment company which channels funds into separate special purpose vehicles to support the funding of legal claims. For further background, we point you to the premium article we wrote in 2017 which reviewed the…

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