Tetragon Financial Group Limited

Thank you for joining Tetragon's 2022 Annual Report Investor Call. 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 call press release. This press release can be found on the homepage of the company's website, www.tetragoninv.com. In addition, questions can be submitted online while watching the presentation. As a reminder, this call is being recorded. I will now turn you over to Paddy Deer to commence the presentation.

As one of the principals and founders of the investment manager of Tepsegon Financial Group Limited, I'd like to welcome you all to our investor call. And we're going to focus on the company's 2022 annual 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 some time discussing the outlook. As usual, we'll conclude with questions, both those taken electronically via the 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, some reminders. First, Tetragon shares are subject to restrictions on ownership by US 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 undertakings 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 the financial condition on 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 intro, I'd like to pass over to Paul.

Thank you, Paddy. So as you will be familiar with, Tetragon continues to focus on three main metrics. Firstly, we look at how value is being created via net asset value per share total return or NAV for share total return. Secondly, we look at investment returns measured as a return on equity. And thirdly, we monitor how value is being returned to shareholders through distributions. mainly in the form of dividends. The fully diluted NAV per share was $29.69 at 31st of December 2022. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the year was 1%, which compared to 14.1% in 2021. Since IPO in 2007, Tectracon has now achieved an annualised NAV per share total return of 10.8%. Moving on to the ROE. So for monitoring investment returns, we use an ROE calculation, which was minus 0.8% for 2022. That's net of all fees and expenses, which is below our target ROE range of 10 to 15%. With reference to that target, the average ROE achieved since IPO is now 11.6%, which is within the target range I just mentioned. Later on in the call, we'll give more colour as to how the different asset classes contributed to the return this year. Finally, moving on to the last key metric, dividends. TechCon declared a dividend of 11 cents in the fourth quarter, which represents a dividend of 44 cents for the full year. Based on the year-end share price of $9.62, the last four quarters dividend represents a yield of approximately 4.6 cents. Now I'm going to move on to the NAV bridge. This breaks down into the component parts, the change in TETRACON's fully diluted NAV per share from $29.86 at the end of 2021 to $29.69 per share at 31st December 2022. So the different component parts here are as follows. Investment income increased NAV per share by 65 cents. Operating expenses, management and incentive fees reduced NAV per share by 78 cents, with a further 11 cents per share reduction due to interest expense incurred on the revolving credit facility. On the capital side, gross dividends reduced now per share by 44 cents, and there was a net dilution of 88 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. Finally, share repurchases were accretive to Napa Share. During 2022, it increased this number by $1.39. So I will now hand back over to Paddy.

Thanks, Paul. As on previous calls, before we delve into the details of our performance for 2022, I'd like to put the company's performance in the context of the longer term. I'd also like to refer you all to the new Tetragon website, which was launched earlier this year, which we think, and hope you will agree, gives a lot of clearer insight into the company. The context for the long term is that Tetragon began trading in 2005 and became a public company in April 2007. So the fund has nearly 18 years of trading history. What this chart shows is the NASPA share total return, and that's the thick green line at the top. It has the share price total return, which is the dashed green line. And the chart also includes equity indices, both the MSCI ACWI and the FTSE All-Share. And it also has the tactical hurdle rate of LIBOR plus 2.65. And as an aside on the subject of LIBOR, as many of you know, LIBOR will not exist from later this year. and Steve will discuss the changes to the hurdle rate later in the call. But back to the graph. As you can see on that graph, over the time that TETGON has been trading as a publicly listed company, our NAS per share total return is 398%. And we believe this demonstrates our ability to compound investment growth and return value to shareholders. We believe that our somewhat idiosyncratic structure of a listed fund owning a diversified alternative asset management platform has helped us create an alpha-driven ecosystem of ideas, expertise, insights, and connections. And in stress market conditions like we had in 2022, this could mean that the value that's being delivered is actually through the preservation of capital, which we believe is essential for delivering value based on long-term compounding. And as such, we are pleased with our performance across our key metrics. In 2022, diversification and asset allocation were key drivers of our performance relative to traditional markets. Indeed, five of Tetragon's seven asset classes generated gains on the year, and with these five asset classes accounting for 71% of the NAV at the beginning of the year. Specifically, the last 12 months' return of negative 0.8% on a return on equity basis and positive 1% on a NAWQA share total return basis compares with large negative returns across a broad swathe of equity and bond markets. This next slide continues the theme of looking at the long term, and here are some more performance metrics. Our return on equity or as we think of it, the investment return, the target, as Paul mentioned, is 10 to 15% over the cycles. And the average return since IPO is 11.6%, as Paul showed on his graph. I would just highlight one other figure on this chart here. And the last figure shows that 37% of the public shares are owned by principals of the investment manager and employees of TFG Asset Management. We continue to believe that 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 Tetragons shareholders. The next slide shows the composition of Tetragons assets. So what we do is look at the breakdown of the $2.8 billion of NAS. And these colored disks So the percentage breakdown of the asset classes and strategies as of the year end 2022 on the right, and compares them back to year end 2021 on the left. A couple of things to point out. Firstly, TFD asset management has grown to 46%, up from 44% of the portfolio. And the primary drivers for this are equity, LCM, and BGO, where we have valuation uplift. and where we're seeing continued growth as we raise assets under management for each business, and more of that in a moment. Second change, private equity and venture capital allocation is up to 13% from 11% the previous year, and that's been driven both by valuations and new investments over the year. All the other classes, sorry, all the other asset classes are broadly down in percentage terms on a pro rata basis with those two increases just mentioned. So with that, now let's move on to discuss the year's performance in more detail. The NAV bridge that Paul showed was a high-level overview of NAV for share. What this table shows is a breakdown of the composition of Tetragon's NAV at the end of 2022 versus the end of the previous year, 2021, and it does it by asset classes. It shows the factors contributing to the changes in NAV. Thus, this table shows investment performance plus the capital flows and thus tying it back to the change in NAS. As you can see from the bottom row of the table, the aggregate investment performance, which is labeled gains and losses, generated a gross profit for the period of $63 million. Specifically, TFD Asset Management, which is our private equity holdings in asset management businesses, had a gain of $127 million and was the strongest performing asset class. These asset management businesses continue to perform well. Aggregate AUM across them rose to $41 billion for the year, up from $37 billion at the end of the previous year. Event-driven equities, convertible bonds and other hedge fund strategies lost $6 million over the year. Thirdly, bank loans, and these are our investments in CLO, generated a gain of $49 million for the year. Real estate in aggregate had a gain of $5 million for the year. Private equity and venture capital had a gain of $45 million for the year. Legal assets had a gain of $2.5 million for the year. And lastly, our investments in other equities and credit posted a loss of $160 million for the year. So what I'd like to do now is go into more detail on each category. And to start, we'll move to TSG Asset Management. And for that, I'll hand over to Steve.

Thanks, Patty. So I'm going to go through the performance of our asset managers during 2022. Our private equity investments in asset management companies through TFG Asset Management, recorded an investment gain of $127 million during 2022, driven by investments in Bentall Green Oak, a manager of global real estate funds, and LCM, a bank loan asset management company. I'm gonna go through each manager in turn. Equitix, as many of you know, is our core infrastructure asset management and primary project platform. They have a sector focus on social infrastructure, transport, renewable power, environmental services, network utilities, and data infrastructure. Tetragon owns 75% of Equitix. During the year, Equitix continued to grow its AUM, which increased 22% from 8 billion pounds to 9.8 billion pounds. Equitix's Fund 6 closed at 1.5 billion pounds. and it raised at approximately $1.4 billion more in managed accounts. Despite this strong AUM growth, Tetragon's investment made a loss of $4.7 million in the year, driven by, among other factors, the weakness in the British pound, which declined by 11% against the U.S. dollar. Approximately half of the GBP denominated exposure to aquatics is heads, so the other half gains or loses money based on the movement of the British pound and the US dollar. In addition, there was a 27% decrease in observed market multiples for the comparable asset managers. TouchGround did receive, however, 16.6 million of dividends during the year from Equitex. Moving on to LCM, which is a bank loan asset management company. and they manage loan assets through CLOs, which are collateralized loan obligations, which are long-term, multi-year investment vehicles. Despite interest rate hikes in 2022, which created issuance headwinds for both CLOs and the underlying loans, LCM launched four new CLOs during the year, with AUM totaling $1.6 billion, which raised the total AUM managed by LCM to $12.5 billion. The growth in AUM, in turn, drove EBITDA growth, and combined with a 75 basis point decrease in the discount rate utilized in the DCF valuation approach, the carrying value of LCM increased to $291 million during the year, or by the end of the year, which was a gain of $50 million on Tetragon's investment. At Benton Green Oak, which is our real estate-focused principal investing, lending, and advisory firm, AUM, continued to grow during the year and reached nearly $83 billion by the end of the year, and that was spread across three continents. Operating income also increased significantly year on year, and distributions to Testrion during the period totaled $18 million, which was a combination of fixed quarterly contractual payments, variable payments, and carried interest. The value of Tetragon's investment increased to $283 million during the year, which combined with the distributions resulted in a gain of $85 million. The main driver of this valuation increase was the valuation of the 2026-27 put call, which was the result of the following. One, an increase in the projected EBITDA used to value the call. Two, expected contractual exit multiples and increase in those multiples. And three, a reduction in the discount applied to the calculated value as the uncertainty around the projected level of EBITDA on the business plan decreases. TFG Asset Management's other asset managers consist of Polygon, which is a manager of open-ended hedge fund and private equity vehicles focused on event-driven equity investing, Acosta Partners, a manager of open-ended hedge fund and managed account vehicles employing a multidisciplinary approach. Tetragon Credit Partners, a structured credit investing business focused on primary CLO control equity, as well as a broader series of offerings across the CLO capital structure. Hawks Point, an asset management business that provides strategic capitals to companies in the mining and resource sectors. Bain & Square Partners, private equity firm focused on non-controlled, structured, and common equity investment opportunities, and Contingency Capital, a global asset management business focused on credit-oriented legal assets investments. The collective loss on Tetragon's investments in these managers was $2.6 million during 2022. Can I now turn it back to Patty, who will go over our hedge fund investments?

Thanks, Steve. Petscon invests in event-driven equities, convertible bonds, credit, and some other strategies through hedge funds. And the majority of these investments are through funds managed by Polygon and Acasta partners, both of which are part of TFT asset management. Our investment in the Polygon European event-driven strategies gained $50 million for the European event-driven investments. So that was obviously strong alpha generation given the down markets. The investment in the Polygon Global Equity Strategy lost $12 million, and Tetragon actually reduced its holding in this fund by about $12 million as well. The negative performance there was due to decline in capital market activity. Investments in Acasta Partners lost $6.6 million for the year, And Tetragon reduced its holding by $25 million during the year. And investments in funds managed by third-party managers, i.e. not on the TFD asset management platform, lost $2 million for the year. And Tetragon added investments of about $8 million in the third-party managers. Moving on to bank loans. Tetragon predominantly invests in bank loans through CLOs. We take majority positions in the equity trances. And Tezgon's investments have split, as shown here, between deals done by LCM, deals not done by LCM, and the funds managed by Tezgon credit partners. As you can see, in aggregate, our bank loan exposure recorded a gain of $49 million for 2022. Performance was generally driven by three factors. High yielding reinvestment opportunities within underlying CLOs, so a weakness in the loan market meant that we could invest at higher yields. Secondly, the rising risk-free rates, which all things being equal flow through in terms of cash generation to CLO equity. And thirdly, generally still a relatively benign level of loan losses during the year. So with a little bit more detail, the directly owned LCM CLOs, they generated $23 million of P&L for the year and released $53.5 million in cash proceeds. And that was including the sale of one majority position in the CLO. Also during the year, TETRAGON purchased the majority stake in the equity tranche of LCM 37 for a cost of $21 million. and also made minority investments in the equity tranches of three other LCM managed CLOs for a combined cost of $11.6 million. We also made investments in the debt tranches of three CLOs to support compliance of EU risk retention rules for those transactions. Second, we have the TCP or Tetson Credit Partners investment, and these are in three funds, TCI2, TCI3, and TCI4. Collectively, these had a gain of $25 million for the year, and also they generated $25 million in cash distributions during the year. PCI-4 purchased majority stake in four CLO equity branches and made two investments in CLO debt branches. Across all three funds, there were no debt branches in any of the funds that were refinanced during 2022. and that's as the market spread levels were significantly higher than existing interest costs, and that's a function of rate rising through the year. And it's worth noting that all CLOs held by TCI 2, 3, and 4 were compliant with their junior most OT test as of the end of the year. And finally, the last segment of the non-LCM managed CLOs, they generated a gain of $1.4 million for the year and distributed cash of $3.3 million in cash income. My next slide is on real estate. Tetragon holds most of its investments in real estate through Bentsil Green Oak managed funds and co-investment vehicles. The majority of these are private equity style funds, concentrating on opportunistic investments, targeting middle market opportunities in the US, Europe, and Asia. Collectively, during 2022, These showed a gain of $6 million. In Europe, so the European funds and co-investment funds, that number was a gain of $3.4 million. And we're invested in three European funds and seven co-investments in Europe. In the US, we showed a loss of $1.3 million. and that is across three different funds and three in co-investments. And the losses, as we've discussed previously, are still driven mainly by exposure to hotels and residential. And in Asia, the gain was $4 million for the year, and we're invested in three funds there, and that's across Japan, which is predominantly Tokyo, and Pan-Asia, which is predominantly South Korea. The other real estate bucket, farmland. This is farmland invested in Paraguay and you can see there is a loss of 1.3 million for the year. So this is commercial farmland managed by a specialist manager in South America and during 2022 the farmlands were revalued as they are annually by an independent valuation specialist. Additions to BGO funds which are based on capital calls for new and existing investments. I knew money we put into the funds was about $10 million during the year, and distributions from those funds was approximately $21 million for the year. And with that, I'll hand you back to Steve.

Thanks, Patty. This next slide reviews our private equity and venture capital investments, which are split into the following subcategories. One, investments managed by Hawks Point. Two, investments managed by band and square partners. Three, other investments 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 four, direct investments which comprise direct private equity investments that we hold on the balance sheet. And those include venture capital investments. This segment generated gains of $45 million during the year, going in order from the top to the bottom, Tetragon's mining finance investments managed by Hawks Point generated a gain of $15 million during 2022, which was driven by operational progress at one of its Australian gold investments and positive drill results in its recent Canadian nickel investment. Tetragon invested $13 million of capital into Hawks Point funds during the year and received $27 million in distributions over the course of the year. In 2022, Banyan Square's portfolio companies achieved strong operating results and end market growth, particularly within cybersecurity and application software sectors. While this strong performance was partially offset by the contraction of multiples and foreign exchange headwinds, the portfolio still recorded a net gain during the period of over $14 million. Our investments in externally managed private equity funds and co-investment vehicles in Europe and North America made gains of $15 million in 2022. That was spread across 30 different positions. The direct category produced gains of $0.6 million during the year. This category contains the Ripple Labs investments, as well as three other unlisted positions. Going on to the next category, legal asset positions. So Tetragon makes investments in legal assets through vehicles managed by contingency capital. Tetragon made its first commitment of $50 million into this asset class in late 2021 and increased that investment to $60 million during 2022. $17.4 million of that commitment has been called to date. A gain of $2.5 million was generated from this investment during the year. The next slide reviews other equities, credit, and cash. Our balance sheet investments and the other equities and credit category produce losses of $160 million during the year. This segment comprises European and U.S. listed public equities in technology, biotechnology, and financial services sectors. $105 million of this loss was driven by biotechnology exposures, including an investment in a pharmaceutical company. Tetragon made this investment in 2021, pending the release of trial results in early 2022. Our analysis at the time estimated a high probability of a successful trial that could have resulted in a tenfold increase in the valuation versus our estimate of a 75% fall in the value of the investment if the trial was inconclusive or failed. During the first quarter of 2022, disappointing results from the trial were published, leading the shares to trade down. It's worth noting, however, as it relates to this position and other positions we might make in the future, that our permanent capital gives us the freedom to take advantage of opportunities that others often cannot. We believe that these opportunities often can give enhanced value to our shareholders. With careful sizing, opportunities with binary uncorrelated and asymmetric positive profiles can be powerful drivers of long-term returns. Although the trial in this example wasn't successful, these are the kinds of risks that our capital structure allows us to take, and over time, we think will enhance shareholders' returns. Four technology positions contributed an additional $46 million to our losses as growth and technology equities broadly sold off. Exposure to financial equity and credit also generated smaller losses of $6.2 million. The other credit bucket generated a loss of $2.6 million during the year, driven by corporate bond exposure. Moving on to cash. The cash held at the bank balance was $22 million at the end of the year at 31 December 2022. However, after adjusting for known accruals and liabilities, both short and long term. Our net cash balance was negative $168 million. In July, Tetrion extended the size of its credit facility to $400 million and extended the duration to July 2032. At the end of the year, $115 million of this facility was drawn and this liability has been incorporated into the net cash balance calculation I mentioned. 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 2022, we used $383 million of cash to make new investments, we used $72 million of cash to repurchase shares, and we used $24 million of cash to pay dividends. $388 million of cash was received as distributions and proceeds from the sale of investments. Our future cash commitments are approximately $116 million, and they're comprised of the following. Commitments to Bentle Green Oak Funds of $34 million, Private Equity Funds of $26 million, Tetraon Credit Partners of $11 million, and Contingency Capital of $43 million, and our Contingency Capital Loan of $2.1 million. Tetragon has announced its intention to repurchase approximately 25 million shares, which, based on Tetragon's current NAV and share price, will be accretive to NAV per share. We're pleased that the company has returned approximately $1.6 billion to investors through dividends and share repurchases since its initial public offering in 2007. Tetragon will continue to seek to return value to its shareholders, including through dividends and share repurchases. Taking us to the final slide, which is our future investment expectations. I'll go through a few of those.

Just before we do that, I just want to be clear. When Steve said 25 million shares, he meant $25 million worth of shares, just to be 100% clear.

Sorry. Sorry. Thank you, Paddy. Going to the future investment expectations now. So it's always worth noting before I go through the list that one of our advantages is our ability to be opportunistic as it relates to investing in what we see as the most compelling investment opportunities. So these are expectations, but certainly things change over the course of the year. But as we sit here today, our expectation is that our event-driven equity and convertible exposures will remain stable. We expect to continue to invest in CLOs. via various Tetragram credit partner vehicles, while at the same time receiving cash back from some of their initial funds. We have some commitments to Benton Green Oak funds, but we would expect some of our existing investments to continue distributing capital. So on the whole, we'd expect our real estate investments to remain relatively stable over the next 12 months. We do expect our private equity allocations to keep growing over time. There are a few small additional LP commitments we have yet to fund, and we expect our allocation to Banyan Square to continue to grow. In legal assets, as I mentioned, we'll continue funding our unfunded commitments to contingency capital. And in other equities and credit, we expect to continue to invest in these opportunities, but the timing of those investments is obviously less certain. Lastly, we're hopeful that there will be additional allocations we'll be making to new asset classes. And while we continue to look to build new businesses, there's nothing that we're considering imminently. I want to now conclude with a few other investor matters. The first one Patty alluded to earlier, which is an update on our hurdle rate. In order to earn a performance fee, Tetragon's investment performance in any measuring period must exceed a LIBOR-based formula. That's defined as the hurdle rate. Currently, the hurdle rate is equal to three-month LIBOR plus approximately 2.65%. U.S. LIBOR, as many of you know, will no longer be available beginning the 1st of July, 2023. The market is generally replacing LIBOR with the secured overnight funding rate, known as SOFR, which tracks the interest rate on borrowings collateralized by U.S. Treasury securities. As such, Tetragon and its investment manager have agreed to replace LIBOR with three-month SOFR plus 10 basis points in the hurdle formula. Accordingly, Beginning on the 1st of July, the hurdle rate will be equal to three-month SOFR plus approximately 2.75% per annum. The agreement also includes provisions setting forth a procedure for determining an alternate benchmark rate in the event that three-month term SOFR is unavailable in the future. Secondly, uncertain environments make shareholder understanding of a firm's structure and approach more important than ever, especially when share price performance does not yet reflect the underlying value. We recognize that shareholders, along with Tetragon's principals and employees, are focused on the share price. Tetragon's insider ownership of 37% continues to be one of the largest of any listed fund in the United Kingdom. ensuring the investment committee and leadership team of Tetragon remains invested in both portfolio and share price performance alongside our shareholders. To enable Tetragon to enhance the way it communicates, we have invested significant time this year in relaunching the Tetragon Financial Group website to better explain our structure, approach to investing, and portfolio breakdown. We've also sought to articulate our values and culture which underpin our ability to deliver on our investment strategy. Please see the annual report for more about this important aspect of our business. I'm going to now hand it back to Patty.

Thanks, Steve. So now moving on to the Q&A session. I think if you might expect, we've had several questions concerning the share price discount to NAV. We've also had several questions about both dividends and share buybacks. I think the dividends and share buybacks are also relevant to the discount discussion, so I'm actually going to tackle those ones first. And given that we think of both dividends and buybacks as returns of capital to shareholders, what I'm going to do is tackle both of them, that is to say both dividends and buybacks together. Now, I apologize if I haven't read out your specific question, but since there were several on the same theme, I thought it best to tackle them together. So, as I say, both are uses of cash. That is to say both dividends and buybacks return capital to shareholders. Obviously, dividends do so through income, and buybacks do it through capital. And we recognize that there's a different tax treatment reach, and we recognize and accept that different shareholders have different preferences. So firstly, let's tackle our thoughts on dividends. Well, as you've obviously seen, the dividend, that is to say the quarterly dividends, has been maintained at $0.11, and that gives $0.44 for the full year. And that is obviously a reasonable yield on NAV, but a much greater on the share price. So, you know, circa four, four and a half percent, depending on exactly where the share price is. Now, hopefully we'll grow the dividend over time. And I think that's dependent on the NAV growth. But given that NAV didn't grow in 2022, it's not too surprising that the dividend is unchanged. Also, given the discount, we would have a preference, as I've discussed before, for buybacks over dividends for any amount of excess stock. Well, not excess cash, but for any amount of cash that we feel we could put towards it. The last thing I would say to bear in mind is that the cash generation of the company is very variable. While some of our investments are income-producing, and I would put CLOs and some of the asset management businesses like Equitix, BGO, and LCM, for example, in that category, many of our investments do not produce income. and they're reliant on capital transactions, and I would say private equity, hedge funds, venture capital. And again, some of our more nascent and younger asset management businesses fit into that category. And thus, large commitments to dividends are probably inappropriate given the volatility of the cash flows. I'd also like to make a comment on script dividends. As I think most of you are aware, the company offers a script alternative to cash on the dividends. Obviously, that is dilutive, whilst the shares trade at a discount if it issues new shares. And some people don't like that, as they want cash and don't want to be diluted. But equally, on the other hand, we have some shareholders for whom this is very important. As we understand, for them, it is particularly tax efficient. So again, I would stress that we accept that different shareholders prefer different returns of capital, and we're trying to get a balance right to suit everyone. So moving on now to share buybacks, as I mentioned, given the current discount, it does seem appropriate to do another share buyback and hence our announcement to conduct another tender offer for up to $25 million. But I would stress, and regular listeners will know that I have said this regularly before, we don't think that share buybacks are a panacea for solving the discount. And I'll talk about the discount a bit in a moment. But we do think that we should use them on an opportunistic basis. Obviously, at a wide discount, they can be very accretive to NAS per share. But just to reiterate, we don't see it as a panacea. And as always, I'd like to put our proposals today in the context of the longer term. Roughly, since IPO, the company's paid out about $820 million in dividends and used about $780 million for share buybacks. That's a total of $1.6 billion, and that's not including the latest dividend or proposed share buyback. So I hope that answers most of the questions there on dividends and share buybacks. Moving on to the sort of the big question, if you like, and that is the discount. Let me read out a few questions so you'll get the sense. The first one reads, I strongly suspect I will not be the only investor to ask for an update on the action to address the discount. I'd be grateful if you could address this and the latest proposals to narrow it or return capital. One could argue it is trapping investor capital. Time passes and the discount remains stubbornly and bizarrely wide versus convention for listed vehicles. The second one reads, it's surprising to me that the 2022 annual report and the letter from the board makes no commentary on the very large discount of the market price to the NAV. I appreciate the importance of the buybacks and recognize that illiquidity of the portfolio in all likelihood makes the discount larger. However, it's quite strange that there's no discussion nor point of view presented. Perhaps I've missed such comments, but would appreciate hearing from you, read the discount. It is also concerning to me that the buybacks in large part are offset by the dilution of the share grants. Now over 7 million shares up from 5 million two years ago. And a shorter one, what are the board doing to narrow the gap between the NAS and the share price? So let me start with, what I see as, well, call it the headwind, or to put it another way, some of the reasons that we are given by current shareholders, potential shareholders, brokers, et al., so reasons that people have given us for the discount. I think the first is complexity, and by that I mean complexity of not just our activities and the assets we own, but also our structure. So really complexity in everything we do. And the reason that matters is it's more complicated for people to analyze. And also because a lot of investors tell us they want a pure play. That is to say they want to make the asset allocation themselves and don't want to be investing with people that do. As highlighted in one of the questions here, obviously we own a lot of private assets. Not only that, but in many cases I would say they're fairly esoteric assets. Whilst they're all valued by independent valuers, I think a lot of people, potential shareholders, find things like CLOs, crypto, legal assets, private equity, venture Catholics, et cetera, difficult to value themselves. Non-voting shares is obviously mentioned. People talk about fee structure, the fact that we're not for retail. in a market that is dominated by retail or wealth managers. We're not on many of the platforms. I think the changes to the fee calculations for wealth managers is a big issue. They have to add fund fees for their own fees. They don't have to do that for corporates, but they do have to do it for funds, so it makes it more complicated for funds, particularly for those that have a performance fee stream to them. either perceived low liquidity or low liquidity, depending on your judgment. And we have an external manager and, well, I could go on, there are many more, but probably the most ironic worth mentioning is the discount is there because it always has been. So what is the point of mentioning all these? Well, I guess it is to stress the point that I genuinely believe there is no single reason for the discount. I think all of these reasons are either real indeed perceived to be real and both of those both of those matter so what are we doing about it well I think you know sadly there's no silver bullet if you will there's no simple solution and I think it is something that has to be done over the long term it's a complex issue but the answer is we have to attract more buyers and the buyers have to At the risk of sounding trite, we need to have more buyers than sellers. Before, well, just before I tackle that, I mean, I think a sine qua non for what we do is that our performance has to continue to be good. I mean, that's a sine qua non for anyone in the investment business. But I wouldn't want to sort of move on without mentioning that. We see it as critical and it is always our primary focus. But beyond that, back to the sort of buyers and sellers issue. What we're trying to do is attract buyers. And we're also trying to either reduce or take out the number of sellers by doing the share buybacks. So on the subject of attracting buyers, what are we doing? Well, we spend a lot of time explaining why, how, what we do. We try to get people comfortable with that. And sometimes, as I mentioned earlier, that's not easy given the breadth of what we do. We want to explain why we hope it is repeatable. So to the extent that TFG asset management has repeatable earnings, to the extent that our focus on idea sourcing becomes repeatable, we get a funnel, if you will, for idea generation and that we have the power to underwrite those ideas with consistency. We want to try and help educate the market with that in mind. And that's obviously we have both JP Morgan and Jefferies as joint brokers. We have Edison writing on and getting up in front of investors as well. We take multiple meetings every quarter with existing and new potential shareholders. And we believe that the quality of our reporting, and that is the annual report, the monthly, the website, et cetera, is incredibly important. So Steve mentioned earlier, we've put a lot of time and effort in 2022 in revamping the website. And you'll see a lot of that in the new form annual report as well. And a lot of that was based on feedback we'd had from investors, much appreciate that, and trying to get clarity as to who we are, what we do, and would encourage you to spend time on the annual, sorry, on the website if you haven't, and to encourage others to. But I think all of that is, you know, it's not a, It won't be necessarily an answer that everyone wants that's going to solve the problem tomorrow, but we do believe fundamentally that is the pathway. So just to reiterate, we think the dividends and buybacks are helpful, but they're not a panacea. We think that having insider ownership high demonstrates ongoing belief in what we do, and we share the problem with other investors. So moving from discount, next question here is, what actions is the company taking to make both purchasing and selling over here in the UK easier and more equitable? As this is imperative to encourage new investors and indeed existing investors to participate is clearly what the company wants to happen. What additional work do you still need to do with your brokers so that they help with that process? Well, I think this relates to the previous question, and it's a very important one. We all know in financial markets that, I guess, liquidity begets liquidity. And certainly investors are and should be very wary of buying things that they feel they may be restricted from selling. So I think the, you know, there are probably two answers I would give. One is a technical one. which is, and we are very frustrated by this, but it's what I would call market structure. So Tetragon trades in Amsterdam, it trades in the UK, and in the UK it trades on two different lines, a sterling line and a dollar line, and these are all things that have been introduced to make life easier for shareholders. We also have, depending on any given quarter, probably five to 10 OTC over-the-counter exchanges that will trade the shares. It does mean that liquidity then gets split between that, whatever you want to think about as being sort of 10 to 12 different arenas. Many of those don't get then reported back to the market. So liquidity is certainly not what you see on Bloomberg, but that's tough to explain. And certainly anyone new to the company is not going to necessarily be doing their homework to find out all of that. We try, and this gets back to the brokers, to persuade all the brokers to get their prints onto the UK, but obviously there's nothing we can do to force them to do that. So whilst I believe liquidity is better than it is perceived to be, that doesn't solve the issue because we need liquidity to be good and we need it to be perceived to be good as well. So there's work we need to do on that and continue to do. The second relates to the issue of, I guess, insider ownership, buybacks, One of the things we're always aware of and we talk about quite a lot is that share buybacks do have, whilst they increase NAV per share, they do reduce the liquidity as those that don't sell generally aren't sellers and those that do have been removed from the register. So this gets back to my previous answer where the solution for this is actually to find new buyers because if we can find new buyers, It then gets the share price up, and then the market should take care of the liquidity issue. But I think it's a very pertinent question, and whilst those are two answers, none of them solve the problem tomorrow. The next question I have here is on remuneration, and the question actually reads, How can the board justify basing their remuneration on the NAV and not on the share price? So I think to tackle this one, I need to sort of just explain firstly that the board, and to be clear, has five members. Three of those are independent directors, and they're all paid a fixed salary, some of which is paid in shares, but none of their compensation is to do with the NAV of the companies. So it's either fixed in dollars or they have shares. And to be clear, all three of the independents do own shares in the company. Now, the other two members of the board are Reid Griffith and myself, and we're also members of Tetragon's management company. Now, neither Reid nor I get paid as board members, but we do participate in the profitability of the manager. And actually, I assume the question is more about the manager than the board, but I did want to be clear and lay that out. So, Tepcon's manager gets paid per the investment management agreement, and that was established at the time of IPO, and it's the basis under which shareholders own shares in the company. And if you'll excuse me to give you a little bit of history, but I think it's important to understand how we ended up with what looks like quite a peculiar structure. In the first two years of the fund, from 2005 to 2007, the fund was a private fund. It charged $2.20. There was no high watermark. And then came in 2007 the IPO of the business. And approximately speaking, there was about $1 billion of shareholders who had owned the company in the private market who were going to become public shareholders. So obviously they had a strong vested interest. Deutsche Bank and Morgan Stanley were the underwriters and as such, if you like, were talking on behalf of potential new investors from the market. And then obviously the manager was involved in the discussion as well. And to cut a very long story short, the fees went from 2.20 to 1.5 and 25 over the hurdle rate of 8%. And that 8% was further adjusted to LIBOR plus 2.65, which was 8% at that time. So roughly speaking, the fee reduction was about 40%. But that has been in place since 2007. And as I say, it's the basis under which all three of those parties entered into that transaction. I've got two questions here on valuation, which I'll read out, but I'll ask Paul to answer. The first is on LCM, and it asks, why was there a lower discount rate applied in the valuation of LCM? And the second pertains to our holding in legal assets and says, how do you value the legal assets? Is there any recognition of future expected profits? So with that, I'm going to hand over to Paul.

Okay, thanks, Paddy. So, yeah, taking the LCM discount rate question first, as discussed in the valuation note, or to disclose in the valuation note, even in the financial statements, the discount rate was 11.5% at the end of the year. That's down from 12.25% at the end of 2021. Now, discount rate utilised is the weighted average cost of capital, and that's determined by the third-party valuation specialist utilised to determine the valuation of the TFG asset management businesses. With regards to the legal assets, So Tetracon's investment into the legal assets as an LP is into a fund managed by Contingency Capital. To value this investment, we take the net asset value of the fund as calculated by its third-party administrator. And just for additional color here, We're talking about relatively small gains during the year, approximately two and a half million of gains on the legal assets as an LP, which you can see in figure 10 in the annual report.

Thanks, Paul. And I'm going to take one last question here. It reads, your emphasis on ESG investing suggests that the shareholders are no longer top of mind. Barring to that political wind, will not end well for investment organizations in general. So just tackling the first piece of the question, it says your emphasis on ESG investing. I don't think that Tetragon has a particular emphasis on ESG investing. So I'm not entirely sure where that question is coming from, but if I've misunderstood and you believe there is an emphasis, then please do get in touch and explain where I've missed it. But on the subject of ESG, I would point people to page 23 of the annual report, where Tetragon's ESG policies are articulated, and we think it is important to do that. But as I say, if I've misunderstood the question in any way, please get back to us further. Otherwise, I am going to leave it there. We are on the hour mark. But much appreciate, as always, all the questions. Apologies if I didn't get to your question. I'm always trying to get them all in, or as many as I can, in the hour. But thank you very much, all of you, for joining us. And have a good rest of the day. Thank you.

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