Tetragon Financial Group Limited · EURONEXT:TFG
Tetragon Financial — H1 2022 Earnings Presentation
56 slides from Tetragon Financial's earnings presentation, Jul 29, 2022
Slide 1: 2022 Half-Yearly Report
2022 Half-Yearly Report Tetragon Financial Group
Slide 2: Contents
Contents 4 Delivering results since 2005 7 Executive summary 14 Investment review 26 Financial review 29 Other information 40 Unaudited condensed financial statements for the six months ended 30 June 2022 2 Tetragon Financial Group
Slide 3: About us
About us Tetragon* is a closed-ended investment company that invests in a broad range of assets, including public and private equities and credit (including distressed securities and structured credit), convertible bonds, real estate, venture capital, infrastructure, bank loans and TFG Asset Managem
Slide 4: Delivering results since 2005
Delivering results since 2005(3) Building Value Ownership(4) $2.7bn 36.3% Principal & Employee Ownership at 30 June 2022 30 June 2022 NAV per share total return(5) Investment returns / return Dividends on equity(6) 10.0% $0.11 One Year to 30 June 2022 (5.0)% Q2 2022 Dividend 2022 YTD ROE 9.9% Five Y
Slide 5: H1 2022 Snapshot
H1 2022 Snapshot Tetragon aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles. Figure 1 Tetragon Financial Group – performance summary 30 June 2022 31 December 2021 Change Net Assets $2,674.1m $2,876.8m $(202.7)m Fully Diluted NA
Slide 6: Notes
Notes 1 Euronext in Amsterdam is a Please refer to Figure 12 for further Comparisons to indices have regulated market of Euronext details. limitations because, for example, Amsterdam N.V. (Euronext 6 Tetragon seeks to deliver 10-15% indices have volatility and other Amsterdam). Return on Equity (RoE
Slide 7: Executive Summary
Executive Summary In 2021, risk assets enjoyed strong returns due to a continued economic rebound aided by accommodating monetary policy. By the first quarter of 2022 however, many of these positive trends began to reverse as headline year-on-year CPI inflation rose over 8%, highlighting concerns th
Slide 8: Executive Summary
Executive Summary The company’s allocations to bank loans generated over $40 million of gains in the first half. The floating rate nature of the underlying loans benefitted CLO equity as the U.S. Fed rate hikes drove three-month LIBOR from 21 basis points to 229 basis points by the end of June. Allo
Slide 9: Manager's review
1 Manager’s review /10 /12 Investment objective Key performance & strategy metrics This section includes commentary from Tetragon’s investment manager and includes market context, our investment objective and strategy, and key performance metrics. 2022 Half-Yearly Report 9
Slide 10: Investment objective & strategy
Manager’s review Investment objective & strategy To achieve Tetragon’s investment objective of generating distributable income and capital appreciation, the company’s current investment strategy is: 2 4 Identify Own Asset Managers Asset Manager 1 3 Identify Structure Asset Class Investment 1 2 3 4 T
Slide 11: About us
To achieve Tetragon’s investment management businesses that derive objective of generating income from external investors. distributable income and capital appreciation, the company’s Certain considerations when evaluating current investment strategy is: the viability of a potential asset manager ty
Slide 12: Key Performance Metrics
Manager’s review Key Performance Metrics Tetragon focuses on the following key metrics when assessing how value is being created for, and delivered to, Tetragon shareholders: ◆ NAV per share ◆ Investment ◆ Dividends Returns / Return on Equity Figure 3 14.1% 13.6% Fully diluted NAV per share NAV Per
Slide 13: Investment returns / return on equity and dividends per share
Figure 4 Investment returns / return on equity1 17.3% Return on Equity 2018-2022 YTD RoE for H1 2022 was -5.0%. 13.4% Adjusted Earnings Per Share (EPS) 12.1% for the period was -$1.62. 1 Average RoE is calculated from Tetragon’s IPO in 2007. Tetragon seeks to deliver 10-15% RoE per annum to 7.6% sha
Slide 14: Investment review
2 Investment review /15 /16 /17 Investment review Net asset breakdown Detailed investment overview summary review This section covers details on Tetragon’s investment performance during the first half of 2022. 14 Tetragon Financial Group
Slide 15: Overview
Investment review Overview Tetragon’s Fully Diluted NAV Per Share decreased from $29.86 per share to $28.59 per share during the first half of 2022. Losses led by “other equities and credit” and private equity in asset management companies outweighed positive returns from bank loans, private equity,
Slide 16: Net Asset Breakdown Summary
i Any gains or losses on foreign exchange Figure 7 hedging instruments attributable to a particular strategy or sub-asset class have Net Asset Breakdown Summary been included in “additions” or “disposals/ receipts” respectively. For example, where a The table shows a breakdown of the composition of
Slide 17: Detailed Investment Review
Figure 10 Detailed Investment Review The table breaks out more detail showing the effect of capital flows and performance gains and losses on the NAV of each asset class during H1 2022. All figures below are in millions of U.S. dollars. Asset Classes NAV at Additions(i) Disposals/ Gains/ NAV at % of
Slide 18: Detailed net asset breakdown December 2021
Detailed net asset breakdown 31 December 2021 TFG Asset Management Event-driven equities, Bank loans Private equity & convertible bonds & other HF venture capital Other equities & credit Real estate Legal assets Polygon European Equity Opportunity Fund – Absolute Return Polygon European Equity Oppor
Slide 19: Detailed net asset breakdown 30 June 2022
30 June 2022 TFG Asset Management Event-driven equities, Bank loans Private equity & convertible bonds & other HF venture capital Other equities & credit Real estate Legal assets Equitix BentallGreenOak Other asset managers LCM Polygon European Equity Opportunity Fund – Absolute Return Acasta funds
Slide 20: Detailed investment review
Investment review Detailed investment review 1 Equitix gained $37.4 million during H1 2022. Equitix is an integrated core infrastructure LCM’s AUM has been growing at a five- Private equity investments in asset management and primary project year CAGR of approximately 11%. In the platform. Tetragon’
Slide 21: Event-driven equities, convertible bonds and other hedge funds
2 Other hedge funds • Tetragon Credit Partners Funds(5): TCI II, TCI III, and TCI IV are CLO investment • Investments in hedge funds managed vehicles established by Tetragon Credit by third-party managers lost $2.0 Event-driven equities, million during the first half. Partners, a 100% owned subsidia
Slide 22: Real estate, legal assets, private equity
Investments in this segment generated balance sheet restructurings and companies achieved strong operating $2.0 million in cash distributions other distress-related factors results, particularly within the during H1 2022. Tetragon did not that motivate sellers. Tetragon is travel sector. However, th
Slide 23: Other equities, other credit and cash
• Other equities: This segment generated a loss of $125.7 million during the first half; these investments comprised European and U.S. listed public equities in technology, biotechnology, and financial services sectors, with approximately $90 million of this driven by biotechnology exposures. Four t
Slide 24: Notes
Notes 1 BentallGreenOak, a manager of refer to overcollateralisation or “O/C” global real estate funds, was formed tests, which are CLO-specific tests in July 2019 upon the merger of the that measure the par amount of GreenOak Real Estate joint venture underlying CLO collateral (adjusted with Bental
Slide 25: Further Portfolio Metrics
Further Portfolio Metrics Figure 11 Exposures at 30 June 2022 By geography1 By exposure2 Banyan Square(i) Contingency Capital(i) Hawke’s Point(i) Tetragon Polygon(i) Credit Partners(i) 5% 17% North America 46% 4% 1% 48% Europe Equitix(iii) 23% 1% LCM(i) 16% 2% BentallGreen 8% 12% Oak(i) 7% 5% 4% Lat
Slide 26: Financial review
3 Financial review /27 Financial highlights A summary of Tetragon’s 2022 year-to-date financial highlights, and pro forma statements of comprehensive income and financial position. 26 Tetragon Financial Group
Slide 27: Financial highlights
Financial review Financial highlights Figure 12 Financial Highlights Through H1 2020 - H1 2022 H1 2022 H1 2021 H1 2020 Reported GAAP Net income ($MM) ($149.5) $31.9 ($74.6) Fair Value Net income ($MM) ($144.7) $37.6 ($68.9) Reported GAAP EPS ($1.68) $0.36 ($0.80) Adjusted EPS ($1.62) $0.42 ($0.74) R
Slide 28: Pro Forma Statement of Comprehensive Income
Figure 13 Pro Forma Statement of Comprehensive Income H1 2021 - H1 2022 H1 2022 ($m) H1 2021 ($m) Net (loss)/gain on financial assets at fair value through profit or loss (160.5) 82.9 Net gain/(loss) on derivative financial assets and liabilities 42.6 (9.1) Net foreign exchange gain 2.0 - Interest i
Slide 29: Other information
4 Other information /30 /34 /36 TFG Asset Management Share repurchases Additional CLO portfolio & distributions statistics /38 /38 Certain regulatory Equity-based employee information compensation plans This section provides further detail about the business, including TFG Asset Management and detai
Slide 30: TFG Asset Management
Other information TFG Asset Management One of Tetragon’s significant investments is TFG Asset Management, a diversified alternative asset manager that owns majority and minority private equity stakes in asset management companies. TFG Asset Management, as a unified Figure 15 business, is intended to
Slide 31: TFG Asset Management businesses
Primary offices 500 headcount Global London | New York Excluding BentallGreenOak Operating platform $38bn $1.21bn Assets under management(1) Total valuation 30 June 2022 30 June 2022 Established 2009 2007 2014 2015 2019 2020 Joined Tetragon 2012 2015 2014 2015 2019 2020 A global asset A manager of A
Slide 32: TFG Asset Management AUM by Business
Figure 16 TFG Asset Management AUM by Business at 30 June 2022(i) This chart shows the breakdown of the AUM by business in billions of U.S. dollars. TCICM Tetragon Credit Partners $2.5 LCM $11.5 $0.8 $0.9 Equitix $10.4 $1.0 $0.9 $10.0 Acasta Polygon BentallGreenOak Figure 17 TFG Asset Management AUM
Slide 33: TFG Asset Management Pro Forma Statement of Operations
Figure 18 TFG Asset Management Pro Forma Statement of Operations(i) H1 2022 ($m) H1 2021 ($m) H1 2020 ($m) Management fee income 80.6 68.4 65.4 Performance and success fees(ii) 20.7 23.6 22.2 Other fee income 13.4 11.2 7.7 Distributions from BentallGreenOak 10.1 10.7 9.2 Interest income 2.8 0.6 1.8
Slide 34: Share repurchases & distributions
Other information Share repurchases & distributions Figure 19 Share repurchase and dividends history ($ millions) Year Amount Cumulative Amount Dividends Cumulative Repurchased Repurchased Dvidends 2007 $2.2 $2.2 $56.5 $56.5 2008 $12.4 $14.5 $60.4 $117.0 2009 $6.6 $21.2 $18.8 $135.7 2010 $25.5 $46.7
Slide 35: Share reconciliation and shareholdings
Other information Share reconciliation and shareholdings Notes Figure 21 1 (i) The Total Escrow Shares of 10.2 million consists of shares held in separate escrow accounts in relation to certain equity-based IFRS to Fully Diluted Shares Reconciliation Shares at compensation. 30 June 2022 (ii) Dilutio
Slide 36: Additional CLO portfolio statistics
Other information Additional CLO portfolio statistics Figure 23 Tetragon’s CLO Portfolio Details as of 30 June 2022 Transaction (i) Status (ii) Primary or Original Deal Year of End of Wtd Avg Original Current Current Jr- Jr-Most Annualised IRR(x) ITD Cash Secondary Invest. Closing Maturity Reinv. Sp
Slide 37: CLO reinvestment, maturity and O/C cushion distributions
Figure 24 Reinvestment End Date of Outstanding Investments Based on Original Investment Size ($ Millions) CLO Deal Maturities of Outstanding Investments Based on Original Investment Cost ($ Millions) Current Junior-Most O/C Test Cushion Distribution of Outstanding Investments (by Number of Transacti
Slide 38: Certain regulatory information
Other information Certain regulatory information This annual report is made public by of its securities in the United States or “Knowledgeable Employee” (each as means of a press release, which contains to conduct a public offer of securities in defined in the Investment Company Act inside informati
Slide 39: Shareholder information
terms of this agreement, Mr. Griffith stock dividend programme, and as a that will be required to cover employer received $9.5 million in cash in July 2019, result of subsequent dividends, further taxes. At 30 June 2022, approximately $3.75 million in cash in July 2020, 0.3 shares will be added to t
Slide 40: Unaudited condensed financial statements
5 Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) /41 /42 /43 Consolidated Statement of Consolidated Statement of Consolidated Statement of Financial Position Comprehensive Income Changes in Equity /44 /45 Consolidated Statement Notes to the Financial of Cash
Slide 41: Consolidated Statement of Financial Position
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Consolidated Statement of Financial Position As of Note 30 Jun 2022 31 Dec 2021 US$ MM US$ MM Assets Non-derivative financial assets at fair value through profit or loss 4 2,763.6 2,852.4 Derivative financial as
Slide 42: Consolidated Statement of Comprehensive Income
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Consolidated Statement of Comprehensive Income For the six months ended Note 30 Jun 2022 30 Jun 2021 US$ MM US$ MM Net (loss)/gain on non-derivative financial assets at fair value through profit or loss (160.5)
Slide 43: Consolidated Statement of Changes in Equity
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Consolidated Statement of Changes in Equity Share Other Retained Share-based Total capital equity earnings compensation US$ MM US$ MM US$ MM US$ MM reserve US$ MM As at 1 January 2022 0.1 814.7 2,001.9 60.1 2,87
Slide 44: Consolidated Statement of Cash Flows
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Consolidated Statement of Cash Flows For the six months ended 30 Jun 2022 30 June 2021 US$ MM US$ MM Operating activities (Loss)/profit for the period (149.5) 31.9 Adjustments for: Losses/(gains) on investments
Slide 45: Notes to the financial statements
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements The Directors are satisfied that it is appropriate of judgement, assumptions or estimates that Note 1 to continue to adopt the going concern basis in are significant to the fina
Slide 46: Notes to the financial statements (continued)
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements (continued) Note 4 (Continued) Financial assets and financial liabilities at fair value through profit or loss The following table shows financial instruments measured at fair v
Slide 47: Valuation techniques
The following is a reconciliation of the Fund’s assets in which significant unobservable Valuation process (framework) inputs (Level 3) were used in determining fair value at 31 December 2021. TMF Group Fund Services (Guernsey) Limited (the “Administrator”) serves as the Fund’s CLO Unlisted Investme
Slide 48: Notes to the financial statements (continued)
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements (continued) When determining the fair value of the non-refinancing period, in which case the deal equity tranches, a discount rate is applied internal rate of return (“IRR”) is
Slide 49: Unobservable inputs for TFG Asset Management valuation
The following table shows the unobservable inputs used by the third-party valuation specialist in valuing TFG Asset Management. 30 June 2022 Investment Fair Value AUM Valuation Significant unobservable inputs US$ MM (billion) methodology WACC EV/EBITDA DLOL Control Forecast 5Y Multiple premium CAGR
Slide 50: Notes to the financial statements (continued)
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements (continued) Sensitivity analysis: 30 June 2022 Investment Effects on net assets and profits (US$ MM) WACC EV/EBITDA multiple DLOL Control premium Forecast 5Y CAGR -100 bps +100
Slide 51: Investment funds and vehicles; unlisted stock
Investment funds and vehicles Unlisted stock Investments in unlisted investment funds, classified as Level 2 and Level 3 in the fair At 30 Jun 2022, the Level 3 unlisted stock includes three investments value hierarchy, are valued utilising the net in private companies. asset valuations provided by
Slide 52: Note 5 Credit facility
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements (continued) 30 Jun 2022 30 Jun 2021 Note 5 US$ MM US$ MM Credit facility Drawn balance at start of the period 75.0 100.0 In July 2020, the Fund obtained a 10-year US$ 250.0 mill
Slide 53: Treasury Shares and Share Repurchases; Dividends
Treasury Shares and Share Repurchases In April 2022, under the terms of “modified Treasury shares consist of shares that Dutch auctions”, the Fund accepted for have been bought back by the Fund from purchase approximately 4.3 million non- its investors through various tender offers voting shares at
Slide 54: Contingencies and commitments; related-party transactions
Unaudited condensed financial statements for the six months ended 30 June 2022 (H1 2022) Notes to the financial statements (continued) 30 Jun 2022 31 Dec 2021 Note 9 US$ MM US$ MM Contingencies and commitments BentallGreenOak investment vehicles 36.0 42.8 Private equity funds 19.6 18.4 The Fund has
Slide 55: Segment information
Accordingly, all significant operating decisions Note 12 are based upon analysis of the Fund as Segment information one segment. The financial results from this segment are equivalent to the financial IFRS 8 Operating Segments requires a statements of the Fund as a whole. ‘management approach’, unde
Slide 56: © Tetragon
© TETRAGON
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