Litigation funder Burford could buy stakes in US firms

Litigation funding giant Burford Capital has revealed plans to buy stakes in US law firms via a new mechanism which avoids most states' rules on non-lawyer ownership. The funder's co-founder, Jonathan Molot, has told the Financial Times that Burford is in talks with 'several' firms about buying minority shares. 

Burford made headlines five years ago by acquiring 32% of the equity in PCB Litigation Ltd in England and Wales. 

The Financial Times quotes Molot, Burford's chief investment officer, as saying it is 'crazy' that US law firms are largely unable to raise money in capital markets despite several firms being multi-billion-dolllar businesses. 

Burford's aims to sidestep state bar assocation rules on ownership by buying stakes in so-called 'managed services organisations' (MSOs). These are entities which take on most of a law firm's assets, such as property and IT, leaving only those which have to be owned by lawyers.  

Similar models already exist in healthcare and accountancy, according to US firm Holland & Knight, which has examined the model. A practice note on the subject states that MSOs can remain closely connected with the parent law firm so long as they do not interfere with the professional judgment or decision-making of the firm or its attorneys and do not take a share of professional fees. 'Rather, the management fee must generally be structured as a “flat” monthly fee, “cost-plus” fee or another fee structure that is not directly tied to the revenues of the firm or profits from any particular case or cases.'

'Properly structured, MSOs can assist law firms in innovating and professionalising their operations,' the note concludes.

Molot declined to identify any firms considering taking investment by this route, but said he was 'confident that in the years ahead this will become a bigger part of our business and of the market'. 

Meanwhile, Burford said it is seeking further investment opportunities in the UK. Travis Lenkner, chief development officer said: 'As the world’s leading legal finance provider, we understand the business of law and the importance of law firm culture and professional independence. We are pursuing strategic minority investments in UK firms where we can support firms’ growth and expansion plans as a passive investor.'