Tetragon Financial Group Limited

Good afternoon. Thank you for joining Tetragon's 2020 Annual Report InvestiCool. You are all in listen-only mode. The call will be accompanied by a live presentation, which can be viewed online by registering at the link provided in the company's conference press call release. This press release can be found on the homepage of the company website, www.tetragoninv.com. In addition, questions can be submitted online whilst watching the presentation. As a reminder, this conference call is being recorded. I will now turn you over to Paddy Deer to commence the presentation.

Good morning, good afternoon. As one of the principals and founders of the investment manager of Tetragon Financial Group Limited, I'd like to welcome you to the investor call, where we'll focus on the company's 2020 annual results. Paul Gannon, our CFO, will review the company's financial performance for the period. Steve Prince and I will talk you through some of the detail of the portfolio and performance, and Steve will spend some time discussing the outlook. And as usual, we'll conclude with questions, those taken electronically via our web-based system at the end of the presentation, as well as those received since the last update. The PDF of the slides are now available to download on our website. and if you're on the webcast, directly from the webcast portal. Before I go into the presentation, just some reminders. First, Tetragon shares subject to restrictions on ownership by US persons and are not intended for European retail investors. And these are described in some detail on our website. Tetragon anticipates that its typical investors will be institutional and professional investors who wish to invest for the long term in a capital appreciation and income producing investment. These investors should have experience in investing in financial markets and collective investment undertakings and can be capable themselves of evaluating the merits and risks of Tetragon shares. And they should have sufficient resources both to invest in potentially illiquid securities and to be able to bear any losses which may equal the whole amount invested that may result from the investment. I'd also like to remind everyone that the following may contain forward-looking comments, which include statements regarding the intentions, beliefs, or current expectations concerning performance and financial condition of the products and markets in which Tetragon invests. Our performance may change materially as a result of various possible events or factors. So with that, I'd like to pass over to Paul.

Thanks, Paddy. So as a reminder, Tetragon continues to focus on three main metrics – We look at how value is being created via NAV per share total return. We also look at investment returns measured as a return on equity or ROE. And finally, we monitor how value is being returned to shareholders through distributions. The fully diluted NAV per share was $26.57 at 31st December 2020. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the year was 9.5%, which compares to 13.6% in 2019. For monitoring investment returns, as in previous years, we used an ROE calculation, which in 2020 was up 7.6% net of all fees and expenses. With reference to that target, the average ROE achieved since IPO is now 12.1%, which is within our target range of 10% to 15% per annum. Later on in the call, we'll give more colour as to how the specific asset classes contributed to the return this year. Finally, moving on to the last metric, distributions. As a reminder, during the first half of the year, Tetragon modified its dividend and capital return policy to remove any specific dividend target payout ratio referenced to normalized earnings. Tetragon declared a dividend of $0.10 for the fourth quarter, which represents a dividend of $0.40 for the year. Based on the year-end share price of $9.50, the last four quarters dividend represents a yield of approximately 4.2%. In addition, during Q4, the manager took advantage of the fund's widened discount to NAV to repurchase a further $25 million of shares, which, in addition to the $25 million purchased in H1, was accretive to NAV per share by $0.92. Finally, now on to the NAVBRIDGE. This breaks down into its component parts, the growth of Tetragon's fully diluted NAV per share from $24.76 at the end of 2019 to $26.57 per share at the end of December 2020. So going through the key elements, investment income increased NAV per share by $3.20. Operating expenses, management and incentive fees reduced NAV per share by $1.22 with a further $0.07 per share reduction due to interest expense. On the capital side, gross dividends reduced now per share by 49 cents. There was a net dilution of 53 cents per share, which is labeled as other share dilution. This bucket primarily reflects the impact of dilution from stock dividends, plus the additional recognition of equity-based compensation shares. And finally, the impact of the $50 million share buyback across the year resulted in an accretion to NAV per share of 92 cents. With that, I will now hand over to Paddy.

Thanks, Paul. As on previous calls, I'd like to put the company's performance in the context of the long term. Tetragon began trading in 2005 and became a public company in April 2007. So the fund has approximately 15 years of trading history. And this chart shows the NAV per share total return, which is the thick top line, the share price total return, which is the dashed line. And the chart also includes equity indices, the MSCI All Share and the FTSE All Share, and it includes Teptagon's hurdle rate of LIBOR plus 2.65%. As you can see, Teptagon has returned 332% since IPO on a NAV total return basis, so over a four-fold increase in the value since IPO. The last 12 months' return of 7.6% on a return on equity basis compares with minus 9.7% for the FTSE All Share, and plus 16.8% for the MSCI World Index. And as shown by the huge difference between those two indices, really due to the COVID disruption in the world, there's been great disparity in the performance of various sectors. And what is often talked about as the K-shaped recovery, that some sectors are gaining good growth while other companies and sectors are struggling to survive. Moving on, next slide. The continuing theme here is looking at the long-term for a moment. And here are some more performance metrics. Our return on equity investment return target, as we've stated, is 10% to 15% per annum over the cycles. The average return since IPO is 12.1%, as Paul has shown on his slides of our key performance indicators. And notwithstanding the last few months' rise in 10-year yields, the risk-free interest rates remain very low globally. the implication being that we should not expect all risk assets to return at the lower end of long-term expectations. And thus, with respect to Tetragon, this means ex ante that our return expectations are at the bottom end and possibly even below the 10% to 15% range. The last figure on this table shows that nearly 33% of the public shares are owned by principals of the investment manager and employees of TFG Asset Management. We believe this is a very important metric as it demonstrates a strong belief in what we do, as well as a strong alignment of interest between the manager, TFG asset management employees, and obviously Tetragon's shareholders. This next slide shows the composition of Tetragon's assets. So looking at the breakdown of the 2.5 billion of NAV at year end. And what the color disks show is the percentage breakdown in each asset class or strategy as of the 31st of December 2020, and that's on the right, and then compares that with year-end 2019 on the left. So a few notable changes that I would highlight for you. First is TFG asset management. Currently 34%, and that was up from 31% at the end of 2019, and bear in mind that is after over $100 million of distributions out of the asset class, and that is due to strong growth that we'll talk about. Secondly, bank loans, in this case, they're 11% of the portfolio, and that's a decline from 14% at the end of 2019. Again, we'll talk about the details, but small amount of losses, but also some distributions and limited reinvestments. Real estate, similarly down a little, currently 6% down from 9%. And again, similarly, we had some realizations, about $65 million of distributions during the year. And we only made limited new investments, about $23 million of new investments. The other two areas to highlight, one is private equity and venture capital, currently 16%, and that is up from 12%. A lot of that is due to the performance of Hawke's Point in their Fund 1, but also we put out more capital in some LP investments. And lastly, just to note on cash investments, Small change, but notable down from 2% to zero. And again, we'll talk a little bit more about that when we get on talking about the full asset. So moving on, let's now move to discuss the year's performance in more detail. The NAV bridge that Paul showed was a high-level overview of NAV per share. And what this table does is it shows a breakdown of the composition of Tetragon's NAV at year-end 2020, and compares that back to 2019 for the major asset classes. And it shows the factors contributing to the changes in NAV. Thus, this table shows investment performance plus capital flows and so ties back to that change in NAV. As you can see from the bottom row of the table, the aggregate investment performance, labeled gains and losses, generated a gross profit for the year of positive $306.4 million. By way of reminder, that compares to a loss of about $44 million at the half year. So it just demonstrates the very strong second half that Tetragon had in 2020. Specifically, as an overview, TFG Asset Management, which as a reminder is our private equity holdings and asset management companies, had gains of $179.6 million. The environment for our asset management businesses after the initial COVID shock in March was not too badly affected. And many of these businesses continue to operate well with all the staff remote working. And in most cases, the assets continue to perform well and the businesses continue to aggregate and increase their AUM. Event-driven equities, converts, and other hedge fund strategies made $43.5 million. The environment for our strategies was not surprisingly much more constructive in the second half than it was in the first half. Bank loans, which are predominantly our investment in CLOs, generated a loss of $25.2 million. And again, the environment in the second half was certainly better than the first half, but still overall losses for the year associated with not surprisingly some changes to forward-looking assumptions, including discount rates. Real estate lost $12.4 million for the year, so actually very similar to where we were at the first half stage. Private equity and venture capital made $73 million on the year. As I mentioned, a very strong performance from Hawke's Point Fund 1, and a reasonable environment for our other private equity and venture capital strategies. Other equities gained $45.8 million for the year, and again, a very positive market backdrop, particularly in the second half. So now what I'd like to do is sort of, if you will, drill down on each of those categories, and let's start with TFG Asset Management, and for that, over to Steve.

Thanks, Patty. Our private equity investments in asset management companies through TFT Asset Management represented the largest asset class in the portfolio at the end of the year. And as Patty said, this asset class produced total gains of roughly $180 million, driven primarily by Equitex. Equitex produced gains of $166.7 million for the year. Equitex raised over £1.4 billion of investment capital during 2020, and its assets under management have now more than trebled in the past four years. During the year, Equitex refinanced its 125 million pounds of existing debt with 187 million pounds of new debt. It enhanced its cost of borrowing and the maturity of the debt. While gains amongst our other asset managers were more modest, I would like to share a few of their notable developments. At Bentall Green Oak, they grew assets by $3.6 billion, and the company's EBITDA exceeded its pre-COVID 2020 business plan. LCM31 was priced in late 2020 following the slight pause in CLO issuance due to the COVID pandemic. The AAA notes in this structure were priced 120 basis points over LIBOR, which tied only two other managers for the tightest print in a post-COVID structure. Both the Polygon Convertible Opportunity Fund and the European Equity Opportunity Fund delivered strong performance for the year. Tetragon Credit Partners launched an open-ended hedge fund in May 2020 to take advantage of dislocations in CLO debt. In addition, Tetragon Credit Partners' TCI3 vehicle deployed the remaining 17% of its uninvested capital during the first half of 2020. The Hawks Point team experienced strong results in their two investments during the year, and they aim to raise third-party capital in 2021. Banyan Square Partners had a good pace of capital deployment during the year. And lastly, we're very, very excited about the launch of Contingency Capital, a global asset management business that will sponsor and manage litigation finance-related investment funds. At the end of 2020, TFG Asset Management's EBITDA was $75.2 million, which is 26% higher than 2019. Higher management fees due to continued AUM growth and higher performance and success fees due to better performance by the funds were the driving factors for this increase. Management fees increased by 13% year-on-year, and that was driven by Equitex, Tetracon Credit Partners, and LCM. Performance and success fees grew by nearly $30 million, driven primarily by increases in performance fee income earned by the Polygon funds, as well as increased performance and success fees at Equitex. Operating expenses increased by $21.5 million year-on-year, due in part to Equitex and in part due to higher performance-related bonuses, which are, of course, driven by business lines where performance fees grew significantly. Patty's now going to go over our hedge fund investments. Thanks, Steve.

So Tetragon invests in event-driven equities, convertible bonds, and some other strategies through hedge funds. And the majority of these are through Polygon-managed hedge funds. Our investment in the Polygon European event-driven strategies made $35.3 million across EOF, ELB, which is the long-biased version, and the global equity fund. And the equity funds gained from several events in the second half. So as you remember, with losses at the first half, they recouped those and more and had a very strong second half of the year. Our investment in the Polygon Convertible Bond Fund made $15 million for us during the year. And I would say that convertibles benefited all year from good positioning and increased levels of volatility in markets. So another very healthy year for the Convertible Bond Fund. Another piece of note, just during the year, we redeemed from QT, and in Q4 made a small new investment of $3 million in a third-party external hedge fund. Moving on to bank loans, Tetragon predominantly invests in bank loans through CLOs, and predominantly by taking the majority position in equity tranches of CLOs. Tetragon's investments are split, as shown here, between LCM deals, funds TCI2 and TCI3, non-LCM deals, and then small exposure to the TCP Opportunity Fund. As you can see, in aggregate, our bank loan exposure, as I've said, recorded a loss of $25.2 million for the full year. I think 2020 was a relatively tough year for the U.S. loan market. The second half showed some recovery from half one, but as I say, we still recorded a loss for the year. The losses were driven by changes to fair values. And these are primarily the result of the erosion of certain CLO test cushions and loan collateral quality, as well as, as I said, the recalibration of certain model assumptions and including the discount rates. It's worth noting that during the year, Tetragon received $55 million in cash distributions from these investments. To remind you, Tetragon's commitment to TCI2 is $70 million, which is fully funded. TETRAGON's commitment to TCI3 is $85.9 million, which is also fully funded. And the last piece there is TETRAGON credit partners launched during the year the Opportunity Fund, looking to monetize dislocations in particularly CLO meds tranches, and we have a small exposure of circa $5 million to investment in that strategy. Moving on, we have real estate. And as a reminder, Tepcon holds most of its investments in real estate through Bentle Green Oak managed funds and co-investment vehicles. And the majority of these are private equity style funds concentrating on opportunistic investments. And they tend to target middle market opportunities in the U.S., Europe, and Asia. And they are where Bentle Green Oak believes it can increase value and produce positive unlevered returns. by sourcing off-market opportunities where it sees pricing discounts and market inefficiencies. During the year, as I've said, the total of these, we had losses of $12.4 million for the year, and actually that is little change from the first half. Over the year, to reiterate, we made $23 million of new investments in real estate funds, and we received $65 million of distributions from funds during the year. So a little bit of note on the various regions. Europe, both funds and co-investments generated that first half profit. As I mentioned before, this was from realized gains following disposal of logistics assets in Europe. The US funds and co-investments generated a net loss, and that was primarily driven by downward valuation of one or two buildings, particularly in New York. And in Asia, we had small gains on some sales in Asia. And lastly, just as an addition to our commercial real estate through Bentle Green Oak, we also have investments in commercial farmland in Paraguay, managed by Simitar, who are a specialist manager in South American farmland. And during 2020, the farmlands were revalued. This was in the first half of the year, so it's not new information, reduced the market value by $3.8 million. So with that, let me hand back to Steve.

Thanks, Paddy. Tetragon's private equity and venture capital investments are split into the following subcategories. Investments managed by Hawks Point, investments managed by Banyan Square Partners, other funds and co-investments where Tetragon invests in a non-affiliated fund as a limited partner or in a special purpose vehicle as a co-investor, and direct, comprising direct private equity investments on the balance sheet, including venture capital investments. This segment generated net income of $73 million during the year. Tetragon's investment into mining finance via a vehicle managed by Hawks Point generated $53.2 million of net income during the year. That was driven by substantial project development and corporate progress in two Australian gold mines, in which Hawks Point is a cornerstone investor. One of these projects commenced production in 2020. We expect the other project to come online this year. Tetragon's investment in Banyan Square's fund generated a loss of $4.8 million due to exposure to an investment in the travel industry. At the end of the year, Tetragon had a 2% allocation to investments in private equity funds and co-investment vehicles in Europe and North America. Investments in direct private equity stakes, including venture capital, generated net income of $24.6 million during the year. This category currently holds the investment in Ripple Labs. At the point of making its investment in Ripple Labs in 2019, Tetragon bargained for the option to redeem its investment if the SEC determined that XRP is a security on a going-forward basis. Given recent actions by the SEC, Tetragon has exercised that right. which Ripple Labs is contesting in Delaware Chancery Court. Moving on to the other equities and credit category, as well as cash. Our direct balance sheet investments in the other equities and credit category produced gains of $45.8 million during the year. Our other equities bucket generated a gain of $47.8 million. These investments comprised European and U.S.-listed public equities focused on technology, biotech, and financial services sectors. The other credit bucket generated a loss of $2 million during the year. And lastly, on cash. Tetragon's net cash balance was just cash adjusted for known accruals and liabilities, short-term and long-dated. was negative $13 million as of 31 December 2020. As previously mentioned, in July 2020, Tetradon obtained a 10-year, $250 million revolving credit facility, which replaced the previous shorter-dated facility of $150 million and also lowered its annual cost as a result. As at 31 December 2020, $100 million of this facility was drawn, and this liability has been incorporated into the net cash balance calculation. The company actively manages its cash levels to cover future commitments and to enable it to capitalize on opportunistic investments and new business opportunities. During 2020, Tetragon used $194.8 million of cash to make investments. $63.5 million of cash to repurchase its shares, and $30.7 million to pay dividends. $342.4 million of cash was received as distributions and proceeds from the sale of investments. Future cash commitments are approximately $218 million, comprising hard investment commitments, Those include Bentall Green Oak funds of $62.9 million, private equity funds of $29.7 million, and a contingency capital loan of $12.5 million. Then we have soft commitments to Banyan Square Fund 1, $63.8 million, and the contingency capital fund of $50 million. The following table lays out some of our expectations for the overall portfolio resulting from these cash flows. So I'm going to go through a few of our expectations, but it's always worth pointing out that one of our advantages is our ability to be opportunistic as it relates to investing and what we see as the most compelling investment opportunities. As you're aware, we launched contingency capital with Brandon Baer at the end of 2020. So we are expecting to invest there. Beyond that, TFG asset management remains the largest unknown in terms of cash requirements, because we remain very opportunistic as it relates to deals. We expect our event-driven equity exposure and our exposure to our convertible strategy to remain relatively stable. Our pre-crisis CLOs are now fully amortized, but we expect to invest in CLOs via various TETRAGON credit partners' vehicles, while at the same time receiving cash back from some of their initial funds. While we have some commitments to Bentall Green Oak funds, we would also expect some of our existing investments to continue distributing capital. So on the whole, we would expect our real estate investments to be relatively stable over the next 12 months. In private equity, we would expect those allocations to grow over time. There's a few small additional LP commitments we've yet to fund, and we expect Hawks Point and Banyan Square allocations to continue to grow. The other equities and credit bucket is a similar one to TFG asset management. We expect to continue to invest in these opportunities, but the timing of those investments is less certain. And lastly, in the new asset classes, we are hopeful that in this current environment, there will be additional allocations we'll be making to these new asset classes. So now I'm going to turn it back to Patty, who is going to kick off the Q&A.

Great. Thanks, Steve. Thank you, Paul. And also, thank you, everyone, for your questions. We have, well, we certainly have more questions than I think I will be able to read out. So apologies if I don't get to your question specifically. But what I've tried to do is put them into themes. I will read out hopefully to cover everything on that particular theme and then answer them. But we really do appreciate all the questions. I think it's great to see so much interest. So first theme I'm going to tackle is on Ripple and our investment in Ripple Labs. So firstly, let me just go to the questions. First one is, In the monthly fact sheet as published today, I was very surprised to read that you value Tetragon's holding in Ripple Labs, the Series C at 172.5 million. I sincerely hope that this is not a misrepresentation and that this figure reflects the current fair market value. Second is why would a Ripple investor not show their support for Ripple? Why have they lost confidence with them? All they've seen is the SEC allegations. What about Ripple's point of view? Thirdly, how is Ripple positioned valued? Fourth, what is the investment thesis for investing in Ripple? Please give a bit of background as to why the investment was made in the first place, as it seems risky and speculative and a bit of style drift compared to the rest of the portfolio. A fifth question is, how is what Tetragon holds, which is the Series C, different from the security quoted on Bloomberg? And the sixth one is, please provide an update on the valuation of the investment in Ripple XRP. And hopefully that captures sort of all the themes on Ripple. So not surprisingly, I think a few questions here. And I think we can discuss this investment generally and then I'll pass over at the end to Paul who can talk about valuation. But as a first point, I think most of you know We don't go into detail on current positions in the portfolio, and that is sort of very standard practice. However, and I think I've said this before, well, I did when we made the investment, I think the Ripple investment somehow sort of exemplifies some of our key investment tenets. We like, obviously, doing interesting deals. We very much like what we would think of as idiosyncratic returns. And we like to secure the investment structures and protect our downside. And I think it's that last point, so securing investment structures. And as Steve just mentioned, and you may know already, we recently initiated this action in Delaware, which is an exercise redemption right with respect to our investment in Ripple. So when we invested in the Series C stock in December 2019, We bargained for the right to redeem our investment if the SEC determined that XRP is a security. Now, we were well aware at the time that the SEC was investigating XRP status, and we specifically bargained for that early redemption right to protect us from what we thought could be short or medium or long term uncertainties for Ripple. And we thought that any determination like that would create or potentially create those uncertainties. And what we're now seeking to do is exercise that right, given the possibility of an SEC determination and the resulting uncertainties have now become reality. Now, a couple of notes on Ripple's cash position and XRP's valuation at the time we invested versus today, just to give you sort of a benchmark. I think when we invested in the Series C, Ripple had something like approximately $230 million of cash on the balance sheet. At the end of 2020, they had $330 million of cash on the balance sheet. And they've recently stated that as of that statement recently, they had $360 million of cash on the balance sheet. So obviously, from a cash perspective, substantial improvement from when we made the investment. The other thing of relevance is XRP, the market cap of XRP when we made our Series C investment was 10 to 12 billion. And currently, although I think we can all accept that cryptocurrencies are very volatile, but currently that market cap is in the range of 25 to 35 billion. So substantial uplift again in terms of value for XRP. It's worth noting to address one of these questions that what we own It's a Series C security. It's not a publicly traded instrument. And indeed, Ripple Labs itself is not a publicly traded company. So I think the person that was referring to Bloomberg is probably looking at XRP, which is the publicly traded digital asset, the cryptocurrency that Ripple created. So with that as backdrop, let me just pass over to Paul to talk about the valuations.

Sure, yeah, fairly straightforward. Ripple is valued using a discounted cash flow approach. The future contractual cash flows are discounted at 15.5%.

Thanks. So next, as you might imagine, a lot of questions on dividends and share repurchases. And apologies, again, I'm not going to read everyone's, but there are a lot, and I will try and tackle them. So I'm writing to request that our dividends are reinstated. I bought these as dividend-paying shares. When we're paid a dividend, we still have a shareholding to receive future dividends. A tender is not a return to shareholders. It's simply a share sale. And if you sell at a lower price than you paid, you have a negative return. If directors can take fees based on NAV, we should be receiving dividends based on NAV. Next, as a longish-term Tetragon holder, I was rather disappointed with the dividend cut Or rather, the cut was perhaps understandable with the growth uncertainty of COVID, but why has the dividend not been reinstated? Secondly, with the NAV seemingly going very well, surely buybacks are in order well beyond the occasional $25 million tender. The company has apparently done well in 2020, according to the company announcement and presentation, growing NAV in 2020 by just below 10%. How can the management justify cutting the dividend to shareholders by almost 50%? What is more, while shareholders suffered both heavy capital and income decreases, why should the management have their fees increasing with NAV? Isn't this double standards? Where's the alignment of benefit for the owners of the company and the management? I support a substantial dividend increase. Cutting the dividend is the right thing to do a year ago, but now I think substantial increase would be more possible given the current circumstances. I have bought the shares constantly over the last five years. I've also recommended them to investment associates and friends who've bought shares. You've been excellent stewards of our investment. You've also done a great job in terms of investment relations and marketing. Your challenge is the share price stands at a very high discount to NAV. There's a lack of confidence among potential buyers. Perhaps the reinstatement of the dividend up to 72 cents a share. I think if shareholders' consensus A growth investment in the alternative investment arena with a healthy dividend, that represents an enticing opportunity. Next, what are the chances of some reinstatement as a $0.40 dividend on our $26 of NAV doesn't feel a great reward for the shareholder? So those were thematic on dividends, and here are some on share repurchases. What is the point of the company making another investment other than buying back its own shares in the market? For example, Tetragon shares is trading at $10, but its NAV is $26. Have you ever thought about reinstating the shared buyback program instead of tenders? Other investment trusts, such as Apex and India ICG, achieve a more limited discount to NAV through buybacks and large dividends. Tetragon does not. Rightly or wrongly, it's clear from the discount that some investors believe that this is Because whilst in the very long term, the board is concerned about the share price, over a horizon of even a few years, the board has a conflict of interest and is concerned with maximizing its management fee. To counter this perception, would the board adopt a far more aggressive dividend and buyback policy? Petrogon shares stand close to the greatest discounted NAV in the firm's history. Why are you not buying the shares aggressively and enhancing shareholder value by doing so? Do you believe you can deploy the available funds with a higher return to shareholders than by buying back your stock? If so, please take us through the math of your return assumptions. The last one, just to read out, why does the investment manager not buy back shares as these stand at a huge discount to NAV? The investment manager has other opportunities that offer bigger returns than 100% for immediate risk-free return. Okay, I mean, as I said, I haven't read them all, but I think it gives you a flavor of the theme there on both dividends and share buybacks. And it's no surprise, particularly given this year, particularly given the discount, that there are lots of questions on dividends and share buybacks. And I tackle them together because that is the way that we look at it. They are both forms of returning value to investors. And I'm actually going to take a bit more time on this just to explain the dividend and capital return policy, because that is the lens through which we look at making these decisions. So what Tetragon says is that it seeks to return value to its shareholders, including through dividends and share repurchases. And Tetragon's investment manager's recommendation with respect to capital returns may be informed by a variety of considerations, and we have five of these. They include the expected sustainability of the company's cash generation capacity, and that's both short and medium. The current and anticipated performance of the company. Thirdly, the current and anticipated operating and economic environment. Fourthly, other potential uses of cash, ranging from preservation of the company's investments and financial position to other investment opportunities. And lastly, Tetragon's share price. And dividends are obviously income, buybacks are capital, and obviously different shareholders with different positions have different preferences for both. But just to simplify, we compare new investments, dividends, and buybacks at all times. And I think the point I'd want to stress is it's the balance between those that that we think is very important. We do want to invest for the long term, especially at TFG Asset Management, where we believe we can create meaningful long-term value, but we also want to return value to investors on an ongoing basis. So where are we currently? Well, we have a dividend of 10 cents per quarter, so just looking at 2020, that gives a 4% yield based off today's price of $10 a share. But actually looking at 2020 in more detail, I think a lot of people have pointed out that 2020 did present one of the more challenging investment environments. I mean, certainly since probably the global financial crisis of 2008-9. We also, in the first half of the year, saw a very meaningful decline in Tetragon's share price. And that was along with a lot of other publicly quoted companies. And that also threw up a host of investment opportunities elsewhere that emphasized the flexibility, if you will, of being able to deploy cash at the right time. We also happen to be in the same period, launching several new businesses and products at TFG Asset Management, each of which requires capital. And these all affect the balance of the considerations that I've been talking about. And then, just to put it in perspective, in those probably unprecedented environment, Tetragon actually returned to shareholders about the same basic amount of value, so $90 million across the dividend and the share repurchases. That $90 million is about the same as the average over the previous two years. And we're pretty proud of that, that we managed to do that. The fact that we bought back $50 million of shares I think reflects the impact of the share price in balancing of the two. So I bring in that 0.5 on how we think about it. But also, if that is the short term, I would encourage everyone to see it in the broader context. At IPO, the company had approximately 1.3 billion of NAV. As of the end of 2020, that NAV has grown to 2.5 billion. And over that time, About $740 million has been distributed in dividends, and about $710 million has been spent on buybacks. So that is $1.5 billion of shareholder distributions versus an IPO NAV of $1.3 billion. So I think that just demonstrates that we believe strongly in both dividends and buybacks. But I would stress that, sadly, neither of these are a panacea for the wider issue of the discount NAV. And not surprisingly, we have some questions on that that I'll get to in a moment. But anyway, I know that's quite a long answer, but hopefully that tackles a lot of the various and important questions on dividends and buybacks. Next theme I have here is TFG asset management. So a few questions here, and maybe I'll just sort of take two or three just to give you a theme. The first one is, you outlined your long-term strategy for TFG asset management in Q3 2015, citing an intention to IPO and list the shares in the next three to five years. Given that it is now more than five years since that strategy was announced, please would you provide some clarity on the strategy for TFG asset management going forward? Is there still an intention to IPO or list? And if so, in what timeframe and what milestones, et cetera, would you expect to be met before you would consider the business ready for public markets? The second, similarly, is what is the expected timing for the IPO of TFG asset management? Are you still considering this? And a third one specifically to Equitix, are there any plans for an IPO of Equitix? Valuations are currently sky high for these types of investments, and there's also plenty of available capital in the market. So I think these are all very good questions, and I wanted to give you a bit of background to make sure everyone's on the same page, I guess. So some of you will know, but just to reiterate, Tetragon and the independent directors have determined that TFG asset management as a unified business could enhance the value of each individual investment and entity as a whole through basically through sharing strategic direction, operating infrastructure, business management functions such as risk management, investor relations, financial control, technology, compliance, legal, etc., while what we want to do is at the same time give entrepreneurial independence to the managers of the underlying businesses. And it's very much part of our investment strategy to continue to grow TFG Asset Management as a diversified alternative asset management business with a view to a possible IPO and listing of the shares or alternatives. So with that as a backdrop, to answer the question specifically, I would note that notwithstanding its continued growth, TFG asset management is currently, we believe, at a smaller scale than the large listed multi-strategy alternative asset managers. And there are probably three key elements, among others, for further growth towards a successful IPO. First, very simply, assets under management. Secondly, is what that hopes to generate, which is EBITDA and And in each case, you need to look not just the amount of EBITDA, but the sustainability, the blend of management fees, performance fees, diversification, growth expectations, et cetera. And the third is about the relative stages of development of the various businesses on the platform. And that is to say how many multiple stable income streams is one looking at. So when we look at the business currently, I would say that Bentle Green Oak and LCM are certainly the more mature of the businesses we own. I think Equitex and Polygon slightly less so, and then the four other businesses, Contingency Capital, Hawkes Point, Tetragon Credit Partners, and Banyan Square, are all in various different ways relatively early in their development. Therefore, at this point in the development, these three elements have not yet been satisfied for TFG asset management. If TFG asset management continues to grow its AUM and EBITDA, which obviously we hope it will, then obviously those circumstances could change. And they might result at the right valuation in either an IPO or one or more private transactions. And these could either be for the whole of TFG asset management or indeed for individual businesses individually. such as the merger acquisition that we did with Green Oak being partially acquired by Sun Life in 2019. So again, slightly long answer, but I want everyone to be aware that, yes, we are pursuing that strategy. We are on the path, but there are lots of things we need to do. And there are lots of different ways we could help create value and or monetize over the coming years. a much more straightforward question here. How much debt is there at Equitix? And the answer is 187 million. I think Steve gave that in the presentation, and I'm pretty sure it's in the shareholder letter, so that's easy to check. We have what is the degree of leverage for each section of the portfolio? So this obviously is rather more generic than just TFG asset management specifically. Difficult to answer. I mean, we're not going to go into detail, and we certainly don't disclose the detail of leverage at the various different parts of the portfolio. And not surprisingly, as you can imagine, it varies enormously by asset class or investment strategy. But to give you some idea, at one end of the spectrum, you've got CLOs, where if you're in the equity tranche, you're going to be somewhere between 10 to 12 times levered. And at the other end of the spectrum, most private equity positions are going to be with zero leverage. So huge disparity depending on the position. What we concentrate on is that at the position or strategy level that we don't have recourse debt back to the parent company and that the debt levels are appropriate for the asset in question depending on its liquidity, its volatility, expected return, et cetera. I'm going to go to valuation questions. So obviously, Paul is going to tackle these, but maybe if I just sort of ask a few of the questions, and then I'll pass over to Paul to answer. The first reads, your approach is the market multiple approach. applies the multiple considered to be appropriate and reasonable indicator of value to certain metrics of the business, such as earnings or assets under management, to derive the equity value. The multiple applied in each case is derived by considering the multiples of quoted comparable companies. The multiple is then adjusted to ensure that it appropriately reflects the specific business being valued, considering its business activities, geography, size, competitive position in the market, risk profile, earnings growth, and prospects of the business. Have you any details over what multiples are being applied? And yes, well, maybe, Paul, why don't I pass over to you to answer that question?

Sure. So the evaluation of the TFG asset management managers actually uses a variety of methodologies. And we set these out in a disclosure note in the audited financial statements. for each of the material businesses. Essentially, LCM utilizes a price over AUM multiple as well as a discounted cash flow, but most of the other businesses predominantly use a discounted cash flow, but you can find all the details there in Note 4.

Thanks. Okay, a couple of questions on fees. First is, it seems that the investment manager fees are now higher than dividends paid out. Is there any justification for this, given that when the company was set up, the ratio was over four to one in benefit of shareholders? Well, few people have looked at this and talked about dividends and fees. And personally, I don't see that there's any basis for comparing dividends with fees. There is no relationship between the two, and nor should there be, in my view. Simply, if no dividend is paid, the value to shareholders is increasing and accrues in the NAV per share. And if a dividend is paid, it is income to the investor, but it decreases the NAV per share. So one is a capital effect and one is income. That is the only effect of a dividend, and it does not bear any relation, in my mind, to the fee structure. The second question is, it says, I believe that TFM, and that is Tetragon's manager, paid fees of 19.3 million to TFG Asset Management in 2019 in the return for use of TFG Asset Management's personnel and other services. Does TFG Asset Management make a profit on these fees? Should investors be concerned that the profits are inflated by these fees? And should, leading from that, should investors be concerned that the valuation of TFG Asset Management is being flattered by the capitalization of these earnings? So I think that's really one for Paul. So I'm going to pass that over to Paul.

Yeah. So firstly, the questioner is correct in that TFM was allocated costs of 19.3 million in 2019. And you'll see in the 2020 annual report, this is 18.1 million in 2020. TFG Asset Management does not make a profit on these cost allocations, which are recharged at cost. Therefore, it follows that TFG Asset Management does not make or show a profit on them. In fact, when you look at the TFG Asset Management Pro Form EBITDA on page 70 of the annual report, which was £75.2 million in 2020, the recharge and the associated expenses are not included at all in any of the line items on the basis that it would simply gross up income and expenses by the same amount and not be useful for the reader.

Thanks. And the last theme I'm going to tackle here, which won't surprise many people, is probably the most common theme, is that of the discount NAV that the shares trade on. So, firstly, just to give you a flavor of some of the questions. First one, in spite of various steps taken over the last several years, several tenders, enhanced analyst broker coverage, SFM listing, and increased investor engagement, the discount is now pretty much as wide as it ever has been, having only narrowed slightly since Q1 last year. If management has committed to narrowing the discount, as I've said previously, surely it's time to try something different, more dramatic to address it. All the above, plus continued solid NAV performance, is clearly not working. Secondly, I've been a shareholder for many years. Surely I have the right to feel aggrieved that the discount is as wide as ever. You've repeatedly stated that long-term NAV performance is all that matters in the long term. I've been in the shares long term, and the long-term NAV performance hasn't benefited me in the slightest. Surely at some point the Board need to acknowledge that shareholders deserve better and that a concerted policy at addressing the discount is needed. Would you agree, and if so, what measures are you going to put in place to address this? Next one, to what would management describe the large discount to NAV on which TFG shares trade, and what is management's approach to reducing the extreme discount to NAV on which the non-voting shares trade? It seems to me that there are at least five clear ways that the discount could be reduced. More aggressive buybacks, enfranchising the non-voting shares, the reduction in the high management and incentive fees paid to TFM, Alternatively, we're moving to the internally managed structure. And lastly, you could liquidate the business to realize it's NAV, but clearly I would not advocate this, as I think it would be against shareholders' best interest, given the group's good performance track record. I've bought into the stock to benefit from TFG's investment expertise in uncorrelated asset classes, as well in the hope for a narrowing in the discount. Now, there are more questions on this, but I think that gives you, you know, I think everyone understands the basis of the question. And all of them obviously address the discount in various different ways. Having met with many investors and potential investors over the years, let me give you some of the reasons that they give to us. And I say this because a lot of people tell me, that the discount is due to one thing, and they know what it is, and they say it is complexity. You're far too complex. No one will ever understand what you do, and therefore they can't earn your shares. Or they say, you know what? The market wants a pure play. The market doesn't want a diversified business. It wants an exposure to wind farms or solar farms or hedge funds, but not this complexity of things. They say it's because you own private assets. No one knows how to value them. No one trusts them. It's because you've got all your assets are difficult to value. It's because you're not for retail and therefore can't be owned by a lot of the people that would want to buy these sorts of funds. And therefore, it's not on platforms. It's because your fees are too high. It's because you have non-voting shares. You just need to change that. Some people ironically say it will trade at a discount because it always has. Others say you've got too many US hedge funds and that's a share overhang. As alluded to in the question, someone said, well, if you didn't have an external manager, you could solve the problem. And I think some of our assets, you know, some people take again to CLOs or cryptocurrencies or legal assets or other things that, you know, there's always going to be something potentially that someone doesn't like. I think what, you know, so that's what we get told. I'm afraid what I believe is that there is no single reason. I think all of these are real, or perceived to be real, and both of those actually matter. But I don't believe there is a single reason. And therefore, more to the point, what are we doing about the discount? Well, I think the first thing to realize is that it's a long-term issue. There is no simple solution. There's no silver bullet. And therefore, the solution is a long-term one as well. At its most basic... And I don't mean to be trite, but we need to attract more buyers than sellers. We have to continue to perform. That is critical. It is our primary focus. It's a sine qua non. Without that, we shouldn't be doing what we do. We have to continue to perform. And we have to do a job of simplifying how we explain the business, but not dumbing it down. So explain why, explain how, explain what we do, get people comfortable with that. And that's not easy given the breadth of what we do, as you can tell from the questions we receive. Importantly, we believe we need to explain why we hope we are creating something that to some degree has a repeatability about it. So TFG Asset Management, we believe, has some repeatable earnings. Our focus is on idea sourcing so that we continue to increase the quality of the ideas that we see every year. And obviously that gives the ability, hopefully the ability to make money. We need to educate the market continually and we do that through our joint brokers at JPMorgan and Stifel. And obviously we've employed Edison to help outreach as well. I think we need to continue with the quality and improving the quality of our reporting. Our annual report, our monthlies, the website, We've talked a lot about dividends and buybacks. I think they are helpful, but my personal opinion is that they're not the panacea. And I think we need to continue to grow. Well, we are continuing to grow insider ownership. As I mentioned, about 33% of the company shares are owned by those of us active within the business. It demonstrates and continues to demonstrate an ongoing belief in what we do. But if I drill it down to one thing, and again, I apologize because I don't mean to be trite, but at its most simple, we have to focus on attracting more buyers than sellers. And as an interesting point, over the last two to three years, we believe that about 25% of the company has been sold by some North American investors. And those of you that track the shareholder register will be able to see that. Now, given the size of Tetragon, that is a lot of value. that has slowed out of those investors. And it's very difficult for the shares to perform with that as an overhang. So whilst there's obviously been commensurate buying, and that's mainly in the UK and obviously through buybacks as well, it's still a lot to absorb. And I think there is a chance that we get through that overhang at some time soon, and that could indeed make a difference. So a lot of things there to think about with reference to the discount. But notwithstanding, every investor absolutely entitled their opinion. But I would stress there is no silver bullet for this. It is about long-term activity and attracting people to buy the stock. And that takes multiple different things that we need to do. So that... I apologize. I haven't answered everyone's question, absolutely. But I know we are running just at the hour, just over the hour. And hopefully, even the questions I didn't get to read out, I tackled at least the themes that we had questions on. We have produced the annual report. And obviously, there's a lot of information and depth in there and welcome any feedback and anything that people would like to see either presented differently or ways of clarity in the business. But anyway, as always, many thanks. We appreciate your time listening today. And thank you very much indeed.

This now concludes our presentation. Thank you all for attending. You may now disconnect.