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ST PETER PORT Aug 1, 2020 (Thomson StreetEvents) — Edited Transcript of Tetragon Monetary Group Ltd earnings convention name or presentation Friday, July 31, 2020 at 2:00:00pm GMT

* Stephen L. Prince

Tetragon Monetary Administration LP – Member of The Funding Committee & Danger Committee

Good afternoon. Thanks for becoming a member of Tetragon’s Investor Name. (Operator Directions) The decision might be accompanied by a dwell presentation, which could be considered on-line by registering on the hyperlink offered within the firm’s convention name press launch. This press launch could be discovered on the homepage of the corporate’s web site, As well as, questions could be submitted on-line whereas watching the presentation. And as a reminder, this name is being recorded.

I’ll now flip you over to Paddy Pricey to start the presentation.

As one of many principals and founders of the Funding Supervisor of Tetragon Monetary Group Restricted, I would wish to welcome you to our investor name, which is able to deal with the corporate’s first half outcomes for 2020. Paul Gannon, our CFO, will overview the corporate’s monetary efficiency for the interval. Steve Prince and I’ll discuss you thru a number of the element of the portfolio and efficiency, and Steve will spend time discussing the outlook. As typical, we’ll conclude with questions, these taken electronically through our web-based system on the finish of the presentation, in addition to these obtained because the final replace. The PDF of the slides are actually out there to obtain on our web site and, when you’re on the webcast, instantly from the webcast portal.

I want to remind everybody that the next might include forward-looking feedback, together with statements concerning the intentions, beliefs or present expectations regarding efficiency and monetary situation on the merchandise and markets by which Tetragon invests. Our efficiency might change materially because of numerous potential occasions or components.

So with that, I would wish to cross over to Paul.

Thanks, Paddy.

As a reminder, Tetragon continues to deal with three foremost metrics. We take a look at how worth is being created through NAV per share complete return. We additionally take a look at funding returns measured as a return on fairness or ROE, and we monitor how worth is being returned to shareholders by distributions, that are primarily within the type of dividends.

The totally diluted NAV per share was $24 at 30 June 2020. After adjusting for dividends reinvested on the NAV, the NAV per share complete return year-to-date is down 1.9%, which compares to up 8.1% for a similar interval in 2019.

For monitoring funding returns, we proceed to make use of an ROE calculation. And for H1 2020, this was down 2.9%, which is web of all charges and bills. The graph you can see proper now additionally reveals what the return could be if it had been annualized for the complete yr, which is down 5.8%.

On the subject of that concentrate on, the typical ROE achieved since IPO is 11.8%, which is inside our goal vary of 10% to 15%. In a while within the name, we’ll give extra shade as to how the particular asset lessons contributed to the return this yr.

Lastly, transferring on to the final key metric, which is dividends. As a reminder, throughout the first half of the yr, Tetragon modified its dividend to capital return coverage to take away any particular dividend goal payout ratio referenced to normalized earnings.

Tetragon declared a dividend of $0.10 for the second quarter, which represents a year-to-date dividend of $0.20. Based mostly on the quarter finish share worth of $8.76, the final 4 quarters’ dividend in combination represents a yield of roughly 6.5%. As well as, throughout the second quarter, the managers took benefit of the fund’s widened low cost to NAV to repurchase $25 million of shares, which was accretive to NAV by 1.8%.

So now on to what we name the NAV bridge. This breaks down into its element components the gross Tetragon totally diluted NAV per share from $24.76 on the finish of 2019 to $24 per share on the finish of the primary half.

So trying intimately at a number of the element components. Funding earnings lowered NAV per share by $0.47 per share. Working bills and supervisor charges lowered NAV per share by an extra $0.21, with $0.04 per share discount because of curiosity expense. On the capital facet, gross dividends lowered NAV per share by $0.29.

There was a web dilution of $0.20 per share, which is labeled as different share dilution. This bucket primarily displays the influence of dilution from inventory dividends plus the extra recognition of equity-based compensation shares. Lastly, the impacts of the $25 million share buyback I discussed beforehand, which closed at June 2020, resulted in $0.45 of NAV accretion.

I’ll now hand over to Paddy.


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [4]


Thanks, Paul.

As on earlier calls, I want to put the corporate’s first half efficiency within the context of the long term. Tetragon started buying and selling in 2005 and have become a public firm in April 2007. So the fund has 15 years of buying and selling historical past. This chart reveals the NAV per share complete return, which is the thick line on the prime; and the share worth complete return, which is the dashed line. The chart additionally consists of fairness indices, the MSCI All-Share and the FT All-Share; and the Tetragon hurdle price of LIBOR plus 2.65.

As you’ll be able to see, Tetragon has returned 287% since IPO on a NAV complete return foundation to a close to fourfold enhance in worth since IPO. The final 6 months’ return of minus 2.9% on an ROE foundation within the first half compares with minus 17.4% for the FT All-Share and minus 6% for the MSCI World Index. As you recognize, there’s been an amazing disparity in numerous worldwide fairness indices as a result of each the U.S. NASDAQ and S&P are at their highs for the yr, and their efficiency is dominated by a slender vary of predominantly tech corporations.

Persevering with the theme of trying on the long-term, listed below are some extra efficiency metrics. Our return on fairness or funding return goal is 10% to 15% over the cycles. The typical return since IPO is 11.8%. And as Paul has proven, return on fairness for the primary half of 2020 was minus 2.9%. Lengthy-term rates of interest are right down to their lows. The U.S. Ten 12 months Treasury Yield is roughly 0.57%. So with danger price charges so low, we should always naturally count on all danger belongings to return on the decrease finish of long-term expectations. And thus, with respect with Tetragon, which means that [ex ante], our return expectations are on the backside finish and will presumably even be beneath our 10% to 15% vary.

The final determine on this desk reveals that 32% of the general public shares are owned by the principals of the Funding Supervisor and workers of TFG Asset Administration. We imagine this is essential, because it demonstrates a powerful perception in what we do in addition to a powerful alignment of curiosity between the supervisor, TFG Asset Administration workers and Tetragon shareholders.

This subsequent slide reveals the composition of Tetragon’s belongings. So trying on the breakdown of the $2.Three billion of web asset worth. And these coloured discs present the share breakdown of the asset lessons and methods as of the tip of 30 June this yr on the correct compared with the tip of final yr on the left.

I’d spotlight some notable modifications, first, development in personal fairness from 12% to 15%. And that is because of the expansion within the worth of investments throughout the Hawke’s Level Fund, which we’ll discuss extra about in a second. Second, the hedge fund publicity has really remained fixed, however value noting that we have redeemed from QT a quantitative supervisor and put recent capital into each the Polygon European Occasion Fund and the Polygon Convertible Alternative Fund. And thirdly, would be aware there’s been a small enhance in money over the primary half.

Transferring on to the following slide. We are able to transfer on and focus on the primary half efficiency in a little bit bit extra element. The NAV bridge that Paul confirmed was a high-level overview of NAV per share. And what this desk does is present a breakdown of the composition of Tetragon’s NAV at 30 June 2020 versus year-end 2019, and it does so by asset lessons and the components contributing to the modifications in NAV. Thus this desk reveals funding efficiency plus capital flows, and thus tying again to the change in NAV.

Now as you’ll be able to see from the underside right-hand facet of the tables, the combination funding efficiency, labeled Good points and Losses, generated a gross lack of $44.Three million year-to-date. And this was the sum of the varied segments above.

So briefly on these. TFG Asset Administration, our personal fairness holdings in asset administration corporations, had good points of $14.1 million, pushed primarily by Equitix. Our hedge fund methods misplaced $50.9 million, and there have been losses within the QT Fund, which is the externally managed [qual] fund. And these losses have been realized by the redemption from that fund. We even have losses, hopefully unrealized, within the European Occasion Pushed Fairness Fund. And these had been offset barely by a small optimistic within the first half from the Convertible Alternative Fund.

Thirdly, financial institution loans misplaced $42.2 million within the first half. These losses had been pushed by precise defaults in addition to modifications to forward-looking assumptions for U.S. loans. So default expectations, recoveries, prepayments, low cost charges, et cetera.

Transferring down the desk. Actual property had losses of $13.6 million for the primary half. And you will be aware that that is not a lot new from the place we had been at Q1. After which, personal fairness and enterprise capital had the strongest efficiency, with $39.Three million optimistic. And the first supply of these earnings being from the Hawke’s Level Fund would have robust efficiency from investments as these initiatives progressed and benefitted from the rise within the gold worth. And at last, different equities and credit generated good points of $7.9 million led predominantly by investments in public biotech corporations.

Now for extra element on every class, we’ll begin with TFG Asset Administration. And [after] that, I am going to cross over to Steve.


Stephen L. Prince, Tetragon Monetary Administration LP – Member of The Funding Committee & Danger Committee [5]


Thanks, Paddy.

Our personal fairness investments in asset administration corporations by TFG Asset Administration represented the most important asset class within the portfolio on the finish of the primary half and produced $14.1 million of good points throughout the interval.

Equitix was essentially the most vital contributor throughout the first half, with an funding acquire of $33.2 million. This acquire was primarily pushed by a mix of funding efficiency, capital elevating and capital deployment.

In the course of the first half of the yr, European Fund I reached a last shut of EUR580 million. Fund VI was launched together with related managed accounts, elevating roughly GBP500 million of capital and is anticipated to lift additional capital by the third quarter.

Equitix additionally had a primary shut of roughly $400 million for its [inaudible] three way partnership with Oman Infrastructure Funding Administration. This efficiency was partially offset by a rise within the low cost price utilized within the discounted money circulate mannequin to worth the enterprise. In the course of the first half of the yr, Equitix repaid GBP25.7 million of their mortgage notes plus accrued curiosity, or together with accrued curiosity, to Tetragon.

Transferring on to BentallGreenOak. This funding is valued utilizing the current worth of the varied money circulate components of the merger deal. That is comprised of fastened quarterly distributions, variable distributions, carried curiosity from funds and a put name possibility in 2026-2027. In the course of the first half of the yr, this funding made a lack of $8.6 million. This displays a rise within the low cost price utilized to the carried curiosity and the put name because of the prevailing uncertainty within the COVID-19 atmosphere. TFG asset administration (technical problem) 13% of the mixed entity.

LCM recorded a lack of $5.Four million, primarily reflecting a better low cost price used within the discounted money circulate mannequin. The AUM of LCM barely decreased to $9 billion in June 2020 from $9.1 billion in December 2020.

Polygon’s worth fell by $2.Four million throughout the interval, primarily reflecting a better low cost price in its [DCF] mannequin. The worth of Tetragon Credit score Companions decreased by $2.7 million within the first half, primarily because of a lower within the projected carry. The Tetragon Credit score Companions Alternative Fund, an open-ended hedge fund investing primarily in CLO debt securities, launched on 1 Might. As well as, Tetragon Credit score Companions’ TCI III automobile deployed the remaining 17% of its un-invested capital throughout the interval.

The NAV of Hawke’s Level stays small, with AUM of $121.Four million on the finish of the primary half. Nonetheless, the Hawke’s Level workforce, as beforehand talked about, skilled robust outcomes throughout the interval in two of their investments. The valuation of this enterprise is unchanged from the tip of 2019.

Banyan Sq. Companions was based by TFG Asset Administration in 2019 and is an funding administration enterprise centered on offering non-controlled, structured and customary fairness options to monetary sponsors. Tetragon’s funding in Banyan Sq. Companions has not but been valued by a third-party valuation specialist.

As of June 30, 2020, TFG Asset Administration’s EBITDA was $37.Eight million, 51% increased than the earlier yr. Greater administration charges, efficiency and success charges and elevated distributions from BentallGreenOak had been all key drivers for the rise. Administration charges elevated by 34% year-over-year, pushed primarily by Equitix. Efficiency and success charges additionally grew. They had been up by 37% versus the primary half of 2019, once more pushed by Equitix. Different price earnings, which is essentially made up of earnings generated by Equitix on supervisor and repair contracts, was steady year-on-year.

Distributions from BentallGreenOak replicate: one, distributions from ongoing operations; and, two, distributions from carried curiosity. As much as 2019, June 2019, carried curiosity has made up practically 80% of those distributions. Submit the BentallGreenOak merger, carried curiosity distributions are supplemented by the fastened and variable funds agreed as a part of that deal.

For the primary half of this yr, fastened funds contributed $7 million with carried curiosity accounting for the rest. Working bills elevated by $11.6 million year-on-year. Nonetheless, on an annualized foundation, they’re broadly in line with the complete yr 2019.

Paddy will now go over our hedge fund investments.


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [6]


Thanks, Steve.

Tetragon invests in event-driven equities, convertible bonds and quantitative methods by hedge funds. And on the finish of the primary half, nearly all of these investments are by Polygon managed hedge funds, as you’ll be able to see from this slide.

Our funding within the Polygon European Occasion Pushed Methods misplaced $47.1 million within the first half. Our investments in Polygon Convertible Bond Fund made plus $2.9 million within the first half. Our investments within the Polygon World Equities Fund made $0.Four million within the first half. And lastly, our investments within the QT Quantitative Fund misplaced $7.1 million within the first half.

And as talked about earlier, this lack of the QT fund has been realized by redemption. And our funding is sort of totally redeemed out. We really obtained $42.Four million in redemption proceeds throughout the first half, and we made extra investments within the Convertible Alternative Fund and into each variations of the European Alternative Fund, as you’ll be able to see from the desk.

So now transferring to financial institution loans. Tetragon predominantly invests in financial institution loans by CLOs by taking the bulk place within the fairness tranches. Tetragon’s investments are cut up, as we present within the desk right here, between LCM offers, non-LCM offers; after which within the numerous funds, TCI II, TCI III and, as Steve has simply talked about, the nascent, newly fashioned TCP Alternative Fund.

As you’ll be able to see, in combination, our financial institution mortgage publicity recorded a $42.2 million loss throughout the first half of 2020. And this was clearly within the context of the COVID-induced weakening U.S. company credit score fundamentals. ECLOs skilled some precise losses but additionally misplaced worth to modifications within the forward-looking assumptions with respect to default recoveries, [prepen] unfold, low cost charges, et cetera.

However that, throughout the first half, Tetragon obtained $19.2 million in money distributions and direct U.S. CLO investments, $2.Four million from TCI II fund and $Three million from the TCI III fund. And moreover, on the finish of the primary half, all our CLOs had been passing web curiosity diversion checks. Tetragon’s dedication to TCI II is $70 million, which is totally funded. And Tetragon’s dedication to TCI III is $85.9 million, which can be totally funded.

On Might 1, Tetragon Credit score Companions launched the open-ended funds that had been simply talked about, referred to as the Tetragon Credit score Companions Alternative Fund. And that is seeking to monetize dislocation alternatives, significantly in CLO mezzanine tranches. And Tetragon has invested $5 million into that technique.

Subsequent, transferring on to actual property. Tetragon holds most of its investments in actual property by BentallGreenOak managed funds and co-investment automobiles. And nearly all of these are personal fairness fashion funds, concentrating on opportunistic investments, concentrating on middle-market alternatives within the U.S., Europe and Asia, the place BentallGreenOak believes it might enhance worth and product optimistic unlevered returns by sourcing off-market alternatives the place it sees pricing reductions and market inefficiencies. The actual property investments had losses of $13.6 million within the first half. And that is not a lot modified from the place we had been on the finish of Q1.

In the course of the first half, Europe fund and co-investments generated good points of $11.6 million. And these had been primarily pushed by disposal of logistic belongings in Spain and Italy. The U.S. funds and co-investments had web losses of $23.Eight million, primarily pushed by the [damad] valuation of a single constructing in New York. And in Asia, the funds and co-investments generated small good points of $2.1 million. Debt funds generated the very small optimistic of $0.1 million for the primary half.

Along with the industrial actual property investments by BentallGreenOak managed actual property funds, Tetragon additionally has investments in industrial farmland in Paraguay, managed by Symitar, a specialist supervisor in South American farmland. And throughout the first half, the farmlands had been revalued, which lowered the market worth by $3.6 million.

Now I am going to hand you again to Steve.


Stephen L. Prince, Tetragon Monetary Administration LP – Member of The Funding Committee & Danger Committee [7]


Thanks, Paddy.

Tetragon’s personal fairness and enterprise capital investments are cut up into the next subcategories: investments managed by Hawke’s Level, investments managed by Banyan Sq. Companions, different funds and co-investments the place Tetragon invests in a non-affiliated fund as a restricted accomplice or in a special-purpose automobile as a co-investor, and at last Direct, comprising direct personal fairness investments on the steadiness sheet together with enterprise capital investments. This bucket generated the most important good points for Tetragon’s portfolio year-to-date in 2020, with web earnings of $39.Three million, we we have talked about, pushed by the Hawke’s Level funding.

Tetragon’s funding into mining finance through a automobile managed by Hawke’s Level generated $33 million of web earnings throughout the first half, pushed by substantial challenge growth and company progress in two Australian gold initiatives by which Hawke’s Level is the cornerstone investor. Each initiatives are anticipated to come back on-line in calendar yr 2021. This phase represents 5.2% of Tetragon’s NAV.

Tetragon’s funding in Banyan Sq.’s fund generated a lack of $6.2 million throughout the first half of the yr in opposition to a difficult macroeconomic backdrop. Since inception, the supervisor has been disciplined in using new capital given the heightened valuation atmosphere. Nevertheless it does anticipate a extra favorable atmosphere to make opportunistic investments towards the tip of the yr.

Tetragon had a 2% allocation to investments in personal fairness funds and co-investment automobiles in Europe and North America. This class generated a small acquire of $0.2 million throughout the first half.

Investments in direct personal fairness states, together with enterprise capital, generated web earnings of $12.Three million throughout the interval. This class at present holds the funding in Ripple Labs.

Our direct steadiness sheet investments within the different equities and credit score class produced good points of $7.9 million throughout the first half. Our different equities bucket generated a acquire of $9.2 million. These investments comprise European and U.S. listed public equities. The opposite credit score bucket generated a lack of $1.Three million within the interval, pushed by company bond positions.

Transferring on to Tetragon’s money. Our web money steadiness, which is money adjusted for identified accruals and liabilities, was $105.5 million on the finish of June. At June month finish, Tetragon had a $150 million revolving credit score facility in place, which was totally drawn. This legal responsibility had been integrated into the online money steadiness calculation.

We’re happy to have introduced that since month finish, we’ve elevated the dimensions and length of Tetragon’s revolving mortgage facility whereas additionally reducing its annual price. Tetragon now has a $250 million facility in place with a 10-year length.

The corporate actively manages its money ranges to cowl future commitments and to allow it to capitalize on opportunistic investments and new funding alternatives. In the course of the first half of the yr, Tetragon used $93.2 million of money to make investments, $25 million to repurchase its shares within the public markets and $18.7 million to pay dividends. $222.Eight million of money was obtained as distributions and proceeds from sale of investments.

Future money commitments are roughly $206.7 million, comprising exhausting funding commitments, which embody BentallGreenOak funds of $65.6 million and personal fairness funds of $26.Three million; and gentle funding commitments, which incorporates Banyan Sq. Companions Fund of $85 million and the Hawke’s Level Fund of $29.Eight million.

Our last slide seems to be at our future funding expectations. I am going to undergo a number of of our expectations. Nevertheless it’s at all times value declaring that one among our benefits is our means to be opportunistic because it pertains to investing in what we see as essentially the most compelling funding alternatives at any given time.

As talked about earlier than, we launched Banyan Sq. throughout 2019. Except for Banyan Sq., we’ve no upcoming new companies to report. This stays the most important unknown when it comes to money necessities. We count on our event-driven fairness exposures and our publicity to our convertible technique to stay comparatively steady.

Our [pre-crisis] CLOs are actually totally amortized. However we count on to proceed to spend money on CLOs through numerous Tetragon Credit score Companions automobiles on the price of roughly $25 million to $50 million per yr.

Whereas we do have commitments to BentallGreenOak funds, as I discussed, we might additionally count on a few of our current investments to proceed distributing capital. So on the entire, we might count on our actual property investments to be comparatively steady over the following 12 months.

We count on our personal fairness allocations to develop over time. There are a number of small extra LP commitments we’ve but to fund. And we count on the Hawke’s Level and Banyan Sq. allocations to proceed to develop.

The opposite equities and credit score is a bucket much like TFG Asset Administration. We count on to proceed to spend money on these alternatives, however the timing of these investments is much less sure.

Now going at hand it again to Paddy to start our Q&A.


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [8]


Thanks, Steve. In order that concludes the principle presentation. However we have fairly a number of questions. So I will kick off.


Questions and Solutions


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [1]


Firstly, the query reads: Has the Board ever thought of altering the performance-related element of the supervisor charges to be based mostly on share worth as an alternative of NAV?

And I feel one of the simplest ways to reply that, or maybe the one method, is to offer you some context of the historical past. Pre-IPO — so that’s in 2005 and pre-2007 — the charges had been customary hedge fund charges, so 2% administration charges and a 20% efficiency price with no hurdle. After which, at IPO, there was a brand new settlement amongst the prevailing buyers about $1 billion of current buyers — clearly, new buyers; i.e. these doubtlessly coming in at IPO, and certainly the Board. And lots of issues had been contemplated, together with — one of many issues contemplated, albeit rejected, was that the efficiency price needs to be on the share worth, not the NAV.

However in the end, what was agreed was the price construction that we’ve at this time. So it has been in place since 2007 with one minor adjustment. It introduced a discount of roughly 40% from the [2 and 20] price construction, to the 1.5 plus 25 efficiency over what was initially an 8% hurdle after which moved to LIBOR plus 2.65, which was 8% on the time of the construction. So that may be a historical past of how we received to the price construction that we’ve.

And there is a second query right here that I am going to hyperlink it, as a result of it is about charges as effectively. And the query reads: An increasing number of closed-end funds are reducing their price prices. Given the acute low cost worth to NAV at Tetragon and the horrible inventory efficiency, would not or not it’s a good suggestion to decrease additionally the price prices to make the inventory extra enticing for buyers?

Effectively, as I’ve simply defined, the charges themselves had been negotiated to be a few 40% low cost to a regular hedge fund transaction. However maybe extra importantly than that, I feel the online return to buyers over the 15 years of slightly below 11.5% web return, so web of these charges; and sounds to me like a really affordable return.

The opposite level I’d make is, while the short-term share worth has been disappointing actually this yr, with the widening of the low cost to NAV, really over the long run, the share worth has carried out effectively however the low cost to NAV.

However I’d agree, if folks — effectively, not agree, however I’d say that clearly, if folks do not just like the price construction, they should not spend money on Tetragon. They usually’re completely able to making that call.

Second query right here: Have you ever thought of radically improved reporting to attempt to scale back the black field notion?

And I feel that is an fascinating and really pertinent query. As a result of we’re clearly very eager to supply what I’d describe as optimum info for shareholders. We do fastidiously monitor what different funds disclose. And as you recognize, we offer month-to-month knowledge sheets, we’ve a extra [fulsome] quarterly. After which we’ve actually a a lot bigger semiannual, as you have simply seen, with 63 pages of data and certainly a a lot bigger annual report once more.

So we do spend loads of time specializing in what our disclosure is to the market. I additionally acknowledge that extra info is just not at all times higher info. And I’d be aware that we’re at all times attempting to steadiness transparency on the one hand with a sure want for confidentiality to both funding positions or buying and selling methods on the opposite.

However with these caveats, we would definitely welcome any recommendations. When you suppose there’s info that we do not present that might be helpful, please get involved with the IR workforce.

Not too surprisingly, there are fairly a number of questions on the dividend and share buybacks. So I am going to attempt to form of deal with these in some form of thematic course of.

So one reads: Though I applaud the tender at a gorgeous low cost to NAV, I would like to see Tetragon liquidate a few of its marginal investments relatively than reduce its dividend. With a destructive market worth return over the previous 7 years, Tetragon’s solely supply of investor return to current years has been its dividend.

So clearly, I fully perceive the frustration with the share worth efficiency, which I’d form of deal with the final 6 months specifically, given the widening of the low cost, so over the COVID interval. However I do not agree that promoting an asset to pay a dividend is an appropriate or sustainable answer in the long term.

I’d additionally say that the empirical proof — and that is from our personal buying and selling historical past, however I feel it is the identical for a lot of different closed-end funds — is it is really, I suppose, low if any correlation between buybacks and dividends, and truly how shares commerce versus their NAV. So even when we did promote belongings to pay the dividend, I am unsure that it might make a lot distinction on the low cost.

So one other one right here tackling related strategy: Why do you not purchase again shares to scale back the low cost to NAV? On the present worth of NAV, this is able to lead to 100% return. This is able to be an environment friendly use of capital. As a substitute, shares are issued in lieu of dividends at a reduction to NAV, additional decreasing the NAV. These actions inform me that the fund is run for the only good thing about the Funding Supervisor, therefore the share worth of lower than half NAV.

And equally, on an analogous vein, let me learn another query: Do you notice you are working on a treadmill? By paying the dividend in inventory at an enormous low cost, you fully offset the inventory buybacks? Or alternatively, the inventory dividend is simply as dilutive because the buybacks are accretive to NAV. You would not promote shares at such an enormous low cost, but you do it each quarter with the dividend.

So the reply is, I imply, loads of issues to deal with right here. Clearly, we do purchase again shares. And actually, we purchased again $25 million value final month. And to place it within the long-term context, since IPO, we have repurchased $685 million value of inventory. So in precept, we completely and in observe agree with the proposal that purchasing again shares is accretive to the NAV per share.

The second level concerning the scrip dividend as a substitute for buyers. Sure, completely we’ve one. We at all times have. It is on the request of buyers. For a sure group of buyers, it is a significantly enticing method for them to take their dividends. They usually get a significant profit from taking dividends in inventory. So that’s the intention.

However to place it in perspective. When you assume the present dividend and the present scrip take-up and the present low cost, then the precise dilution on NAV per share is about $0.04 per quarter. And that’s on the NAV per share of $24.

So it is related, but it surely’s a small quantity. And the extra essential level is through the years we have purchased again many extra shares than have been issued by the scrip dividend. So we’re very cognizant of it.

And I suppose, to the final level, which is about run for the only good thing about the Funding Supervisor — I clearly disagree with that time. However I feel the one reality I’d level you in the direction of is that together with dividends and share buybacks, the corporate’s returned over $1.Four billion to buyers since IPO. So that is the quantity I’d deal with there.

So nonetheless on the theme of the low cost to NAV, the query reads: The low cost is at its widest than it has been for 7 years. Are you able to please remark in your views, re initiatives, endeavor to slender the low cost, and whether or not a brand new strategy is required?

So I feel firstly, let’s deal with the widening of the low cost from, as an example, gentle of very broadly 45 to 60 over the past Three to six months. And I’d say, when you watch the way it moved, the share worth moved down in March with the COVID selloff of all markets, however then has solely had a really muted restoration however the share buyback. So has not tracked the NAV in any respect.

And I feel there are a number of causes for that. I imply, the primary and possibly most pertinent is there was a vendor placing stress on the inventory that we all know of. And that clearly, in a comparatively low-liquidity atmosphere, has a big effect. I imagine there’s actually some warning broadly over corporations with illiquid belongings. And definitely there’s been some concern, as many buyers have mentioned with us, over the U.S. company mortgage and particularly the CLO market.

So these are form of some short-term points. However I feel on the danger of, I assume, stating the apparent, invariably, we have to create extra consumers than sellers for the share worth to rise. And we’re centered on — and I feel I’ve talked about these earlier than — however we continued to deal with persevering with to construct a superb enterprise that compounds returns. And that is the important thing measurement. So a constant ROE development, a constant NAV per share development, and paying dividends.

We did exhibit that the belongings — and I’d say specifically TFG Asset Administration — not solely can develop however have repeatable incomes streams and subsequently help a sustainable return on fairness for the enterprise.

I feel — and this will get to the purpose made earlier — we have to try to make the enterprise simpler to grasp, not only for potential buyers however current buyers, analysts and the road normally. We might love to extend the liquidated and definitely are attempting to encourage buyers to commerce on a single trade relatively than a number of exchanges. And we’re doing what we are able to to broaden the universe of shareholders. We’re attempting to get out to intermediaries who’re the dominant holders of U.Okay. closed-end funds, establishments each in U.Okay., Europe, but additionally within the U.S. We’re actively selling to attempt to get analyst to comply with the corporate and write in the event that they so will.

So there’s rather a lot that we’re doing. And even, clearly, we’re doing much less bodily conferences in lockdown. We have performed a good quantity of Zoom and Microsoft Groups conferences with present buyers and potential new buyers. So that’s the path that we’re on and proceed to be on.

I feel there are a few questions right here that I feel Paul might be finest set to reply. So Paul, can I get you to fireplace in on a pair right here?


Paul Ronald Gannon, Tetragon Monetary Administration LP – CFO [2]


Certain, sure.

So there’s two on valuations. First one: Non-public fairness valuations, these have been robust. Is there a hazard that these are lagging valuations to weaknesses within the subsequent 6 months?

So instantly held investments that we’ve in personal fairness, these displays up-to-date valuations at June 30. The place investments are held in personal fairness or actual property comingled funding automobiles, then sometimes there’s a quarter’s lag when it comes to the reporting that we obtain from these fund directors. So sure, there would doubtlessly be a lag for these investments.

So simply to place it into context, at 30 June, it was roughly $112 million in RE funds and $55 million in PE fund automobiles. That comes to simply over the 7% of the NAV.

Subsequent query: For the calculation of the NAV, are all of the investments checked for the brand new multiples post-COVID outbreak at present used within the completely different financial sectors?

So once I take into consideration stage Three valuations, stage Three belongings that we’ve throughout the fund and the portfolio, there’s two key investments, [inaudible] buckets investments. First one is TFG Asset Administration. We use a third-party valuation specialist to worth TFG Asset Administration. They worth these investments as at June 30 and so, sure, have utilized all of the related market knowledge as at that time.

Secondly, we’ve a CLO portfolio. And the assumptions there have been recalibrated. The default price assumptions have been roughly doubled for the following 12 months. And the low cost charges utilized to the projected money flows aren’t at 13% versus 11% at year-end. Extra particulars within the interim monetary statements, be aware Four on Web page 10.

I even have one other couple of questions, which I’d simply rattle by as effectively, Paddy. Query: Your dividend cowl is far decrease than it has been. Please remark in your means to pay a dividend going ahead.

Firstly, only a reminder of how we calculate dividend cowl, which is outlined within the interim report. Nevertheless it’s the final full quarterly earnings per share divided by the combination of the final dividends per share, full dividends per share, as at 30 June 2020. So given the destructive return of $0.74 per share recorded within the first half of 2020, this has clearly led to a discount within the calculated dividend cowl.

Nonetheless, given inaudible solely method of trying on the means to pay a dividend, clearly out there money could be very related; actually, possibly extra related than a dividend cowl calculation. And Tetragon had $105 million of money on the finish of H1 versus slightly below $19 million of declared dividends in H1, to offer you some context there. And as well as, when one considers the distributable reserves, Tetragon has virtually $1.Four billion of retained earnings and fairness, out of which future dividends are permitted to be paid.

Ultimate query I’ve is: Why is the NAV of the Equitix funding down, though you say that it gained $33 million within the interval?

So the valuation of Equitix, when transformed into U.S. {dollars} from GBP, fell by $18.9 million throughout H1. Nonetheless, this valuation lower is offset by simply over $19 million of realized acquire on FX hedges employed in opposition to the GBP publicity. And as well as, there was $32.9 million of distributions obtained regarding additional repayments of the mortgage notes held by Tetragon.

Going at hand again to you now, Paddy.


Operator [3]


Are you able to please proceed?


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [4]


Thanks, sorry.

Sure, we have had a pair extra right here on dividends and reductions. However let’s deal with them particularly.

So the primary reads: The dividend reduce appeared a little bit excessive earlier within the yr. Others strictly within the CLO area have adjusted their dividend coverage upwards in mild of the truth that market circumstances have improved markedly since March. Disappointing that we appear to be we’re persevering with to run with a low dividend.

And the second reads: With the low cost the place it’s, ought to the corporate not be endeavor extra aggressive buybacks? On face worth, there are few investments on the market available in the market that appear to supply higher worth. Are you actually discovering alternatives which supply a lot better returns than shopping for again your personal inventory? The brink should be exceptionally excessive if there are. It might be helpful to know what the thresholds are so that you can think about bigger investments.

So actually, that is about use of money. And clearly, I’ve talked a bit about it. However simply so as to add a number of ideas. We attempt to take a really balanced view at any time limit after we’re deploying money. And that’s to say we’re trying on the professionals and cons of all makes use of. And I assume that covers new investments and/or dividends and/or share buybacks.

In order I discussed earlier than, we have really spent $685 million on buybacks since IPO. So a reasonably large quantity has been spent that method, and we’re robust advocates of share buybacks and in addition, clearly, can do the maths and know the way accretive they are often to NAV per share.

Nonetheless, we do imagine that the long-term success of our enterprise is about making good investments and constructing beneficial asset administration companies, and thus creating rising compounding enterprise worth for shareholders.

So I feel buybacks should not be seen as a panacea for narrowing reductions. Additionally they have limitations, as they’ll at all times scale back liquidity of the shares. By their nature, they focus the danger in current belongings, they do not create new worth. So it is at all times a steadiness. So I simply needed to form of add that to what I have been saying earlier than.

And there is another on this matter, which reads: The market is telling you, and has for a few years pre-COVID, that no matter NAV you produce might be valued at an enormous low cost. So your efficient share return to buyers is half what you suppose it’s. When will you cease saying the market is flawed, or cease making low efficient return investments and begin an actual asset sale or cap shrinkage program to drive the NAV increased, and get an actual return for all these investments you have made? If the NAV is reasonable, you get an enormous IRR shopping for again down right here and never by investing in additional issues that the market will worth at $0.50 per greenback or much less.

So a part of the reply to that’s the reply I gave to the earlier query, which is all a few steadiness. Simply utilizing all money to purchase again shares is just not a panacea for both the low cost and certainly would not assist develop the corporate.

However the second level on the assertion is that I feel mathematically, I’d disagree. When you purchase into the shares at a reduction, what issues to you is whether or not the low cost widens or narrows relatively than the low cost itself. Clearly, when you purchase in at a [60] low cost and it stays at a 60 low cost, you get the return of regardless of the belongings are getting. So that might be the opposite piece I would add there.

Couple extra right here, really. There’s one for Steve right here, so I am going to let Steve deal with that.


Stephen L. Prince, Tetragon Monetary Administration LP – Member of The Funding Committee & Danger Committee [5]


Sure, thanks, Paddy.

There is a query: It has been pretty quiet concerning the potential IPO of TFG Asset Administration. Is that this nonetheless within the playing cards?

So what I would say is we’re centered on constructing TFG Asset Administration, which implies enhancing and rising the companies we’ve an including new companies. And we’re fairly pleased with our progress to date.

We consistently take a look at methods to boost the trajectory of the expansion of all our companies. And I’d say GreenOak’s take care of Solar Life is one such instance of that.

So for an IPO, that additionally may very well be one other method to entry capital and speed up development. However as you all know, we’re extremely opportunistic, and we would solely think about that on the proper time.

Again to you, Paddy.


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [6]


Thanks, Steve.

So a pair extra questions coming in: Given the enhancing scenario with CLOs, are there any ideas of no less than restoring a number of the dividend discount earlier within the yr?

Effectively, clearly, I am not going to make any forecast of dividends, however there are a few issues I feel value mentioning.

Firstly, CLOs are about 14% of the NAV of Tetragon. So whereas clearly, if one goes again to IPO — and within the early years, it was a big majority of the asset lessons we invested in — it’s now related and significant however solely 14% of the whole. So it isn’t the be-all and end-all for both driving the dividend or certainly the NAV per share.

The second factor I’d say is that while markets have been enhancing, I do not suppose we’re by a COVID disaster but. I do not wish to predict what is going on to occur, however I feel there are many completely different outcomes that may occur over the following 6 months, 12 months, 18 months; and definitely too tough to be making any forecasts. And lastly, simply to say that the dividends are selected on the time and never months upfront. So these are the items I’d simply form of add to that.

After which, there’s one different right here that I feel in all probability Paul’s going to deal with. Paul, do you wish to deal with the one on the specifics on the [inaudible]?


Paul Ronald Gannon, Tetragon Monetary Administration LP – CFO [7]


Certain, Paddy: Please, are you able to give us a view on what number of buyers select money as dividend, and what’s the proportion of scrip dividend?

So sometimes — and clearly, this modifications quarter to quarter, as a result of buyers are in a position to change their choices for every dividend — about 30% select the scrip dividend, subsequently 70% money.


Patrick Giles Gauntlet Pricey, Tetragon Monetary Administration LP – Principal [8]


Thanks, Paul.

And that finishes all of the questions. So relatively neatly wrapping up in slightly below the hour. However a lot admire you all taking the time to be with us. And stay up for talking with you individually over the following coming months.



Operator [9]


This now concludes at this time’s webcast. Thanks for attending. You could now disconnect your traces.

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