Tetragon Financial Group Limited

As one of the principals and founders of the investment manager of Tetragon Financial Group, I'd like to welcome you to our InvestiCall, which will focus on the company's 2021 first half results. Paul Gannon, our CFO, will review the company's financial performance for the period. Steve Prince and I will talk through some of the detail of the portfolio and performance, and Steve will spend time discussing the outlook. As usual, we will 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 a few reminders. First, Tegregon's shares are subject to restrictions on ownership by U.S. persons. and are not intended for European retail investors. These are both described 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 undertaking, and 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 like to remind everyone that the following may contain forward-looking comments, including statements regarding the intentions, beliefs, or current expectations concerning performance and financial condition on the products and markets in which TETRA can invest. our performance may change materially as a result of various possible events or facts. So with that, I'd like to pass over to Paul.

Thanks, Paddy. Techgon continues to focus on three main metrics. We look at how value is being created via NAV for share total return. We also look at investment returns measured as a return on equity. and we monitor how value is being returned to shareholders through distributions, mainly in the form of dividends. The fully diluted NAV per share was $26.38 at 30 June 2021. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the first half of the year was flat 0%, which compares to down 1.9% for the same period in 2020. For monitoring investment returns, we use an ROE calculation, which was positive 1.5% for the first half of the year, net of all fees and expenses. With reference to that target, the average ROE achieved since IPO is 11.8%, which is within our target range of 10 to 15%. Later on in the call, we'll give more color as to how the specific asset classes contributed to the return this year. Finally, moving on to the last key metric, dividends. Tetragon declared a dividend of 10 cents for the second quarter, which represents a dividend of 20 cents for the year to date. Based on the share price at 30th of June of $9.62, The last four quarters dividend represents the yield of approximately 4.2%. Finally, onto the NAV bridge. This breaks down into its component parts, the change in Tetracon's fully diluted NAV per share from $26.57 at the end of 2020 to $26.38 per share at 30th of June 21. Some of the highlights, investment income increased NAV per share by 79 cents per share. Operating expenses, management and incentive fees reduced the NAV per share by 35 cents, with a further 3 cents per share reduction due to interest expense incurred on the revolving credit facility. On the capital side, gross dividends reduced NAV per share by 20 cents, and there was a net dilution of 40 cents per share which is labeled as other share dilution in the bridge. This bucket primarily reflects the impact of dilution from stock dividends plus the additional recognition of equity-based compensation shares. With that, I will now hand back over to Paddy.

Thanks, Paul. As on previous calls, I'd like to put the company's first-half performance in the context of the long term. Tetragron began trading in 2005. and became a public company in April 2007. So the fund has roughly 16 years of trading history. This chart shows the NAV per share total return, which is the thick line at the top, and 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 also includes the TetraCon hurdle rate, of LIBOR plus 2.65%. As you can see, Tefagon has returned 332% since IPO on a NAV total return basis, so over a fourfold increase in the value since IPO. The last six months' return of 1.5% return on equity compares with about 11.1% for the FTSE All-Share and 12.5% for the MSCI World Index. So equity markets have had a strong first half of the year And Tetragon, on a comparative basis, has had a quiet first half with only a small positive performance. Moving on, but continuing the theme of looking at the long term, here are some more performance metrics. Our return on equity, or investment return target, is 10% to 15% per annum over the cycles. And the average return since IPO is 11.8%. Notwithstanding the last few months' inflation numbers, as the world tries to emerge from COVID-induced lockdowns, and also the volatility that has created in longer-dated bonds, risk-free interest rates still remain very low. The implication being that we should naturally expect all risk assets to return at lower end of long-term expectations. And now, with respect to Tetragon, this means ex ante, that our return expectations are at the bottom end and possibly even lower than the 10 to 15% range that we expect over the cycle. The last figure I'd point to on this table shows that approximately 35% of the public shares are owned by principals of the investment manager and employees of TFG Asset Management. And we believe this is a very important number as it demonstrates a strong belief in what we do, as well as also a strong alignment of interest between the manager TFG Asset Management employees, and of course, Tetragon shareholders. So moving on, this next slide shows the composition of Tetragon's assets. So it looks at the breakdown of the $2.5 billion of net asset value. The colored disks show the percentage breakdown of our asset classes and strategies as of the 30th of June 2021, and that is on the right-hand side, and that compares them with year-end 2020 on the left-hand side. There are only some small changes, but the ones I'd like to point out are TFG asset management has grown to 35 percent, and that's up from 34 percent. And as we'll discuss, a lot of that is due to continued growth in assets under management for these businesses. The second I would note is private equity and venture capital. has moved up to 17% from 16%. And that's mainly due to new third-party LP investments made. And the third point of note is net cash is now down below zero. And Steve will talk more about that later. So now let's move on to discuss the year's performance or the first half performance in more detail. The NAV bridge that Paul showed was a high-level overview of NAV per share. What this table shows is a breakdown of the composition of Tetragon's NAV at the end of the first half of 2021 and compares it to the end of 2020 and does that by asset class. And also the factors contributing to those changes in NAV. So it shows investment performance plus capital flows, and that then ties back to the 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 period of $74 million. Specifically, TFG Asset Management, our private equity holdings and asset management businesses, had gains of $65.2 million and was the strongest performing asset class, as you can see. And these asset management businesses continue to perform well. I mentioned the growth in AUM. And at the end of the half, that was 32.8 billion in client dollars. And that was up from approximately 30 billion at year end. So a strong first half. Secondly, event-driven equities, convertible bonds, and other hedge fund strategies had a positive contribution of 16.3 million. The main polygon funds had positive net returns in the first half, in part due to continued robust convertible bond issues. bond issuance, but also, as we've discussed, a strong backdrop for equity markets. Thirdly, bank loans, and these are investments in CLOs. These generated a gain of $29.7 million, primarily as credit fundamentals continued to improve from their COVID lows. Real estate lost $1 million overall. Our losses in U.S. real estate funds were nearly offset by gains both in Asia and our Paraguayan farmland. First item here, private equity and venture capital. In aggregate, this lost $4.9 million in the first half. The losses were driven by Hawkes Point investments. These are unrealized losses, i.e. a marked market basis, and partially driven by softer gold prices over the second quarter. But these losses were partially offset by gains in other funds and co-investments, including Banyan Square Partners and our investments in direct private equity. And finally, other equities and credit lost 31.5 million over the first half. The losses were all in equities with a small gain in our credit investment. And now what we'd like to do is go delve down and give you more detail on each of these categories. So we'll start with TFG Asset Management. And for that, I will pass over to Steve.