Tetragon Financial Group Limited: Performance Report For Quarter Ended 31 March 2015
LONDON, April 30, 2015 /PRNewswire/ --
Tetragon Financial Group Limited ("TFG" or the "Company") is a Guernsey closed-ended investment company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG."(1) In this report, we provide an update on TFG's results of operations for the period ending 31 March 2015.
EXECUTIVE SUMMARY
TFG had a strong Q1 2015 with an annualised Return on Equity ("RoE") of 16.8%, ahead of the company's over the cycle target of 10-15% per annum.(2)
Performance was positive for the quarter for both the balance sheet (asset returns) and TFG Asset Management or "TFG AM" (operating income) with net economic income before tax for the former of $73.7 million and EBITDA equivalent(3) for the latter of $18.8 million.
The investment portfolio returns had a strong contribution for the quarter from investments held directly on the balance sheet. This was particularly pleasing given the performance in Q4 2014 in this part of the business. In addition, the Company had some notable profits and return of cash from GreenOak Real Estate's(4) real estate investments in the quarter.
On the operating, TFG AM, side of the business, the EBITDA equivalent for TFG AM grew to $18.8 million in Q1 (against $6.3 million in Q1 last year), helped by the addition of Equitix Holdings Limited ("Equitix") (the acquisition completed on 2 February 2015), plus positive performance from the other businesses that make up TFG AM.
There were good positive asset inflows across TFG AM during Q1 2015, with total Assets Under Management ("AUM") standing at approximately $13.8 billion at 31 March 2015.(5) This is up from $11.1 billion at year end excluding Equitix.
The first quarter dividend was declared at 15.75 cents per share, giving 12 months' rolling dividend growth of 7.8%.
TFG is considering seeking admission for TFG's shares to trade on the Specialist Fund Market of the London Stock Exchange. TFG believes that the principal benefit of having this additional trading platform should be improved liquidity through (1) access to a broader investor base and (2) expanded analyst coverage. TFG would maintain its listing on Euronext in Amsterdam, a regulated market of Euronext Amsterdam N.V. ("Euronext Amsterdam"). As is the case for Euronext Amsterdam, the Specialist Fund Market is a regulated market for the purposes of the Markets in Financial Instruments Directive. There can be no assurance that TFG will decide to go ahead and seek admission or that it will be approved. Further details will be provided in due course.
TFG OVERVIEW
Tetragon Financial Group Limited ("TFG") is a Guernsey closed-ended company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG" that aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles. TFG's investment objective is to generate distributable income and capital appreciation.
To achieve this objective, TFG's current investment strategy is:
- To identify attractive asset classes and investment strategies.
- To identify asset managers it believes to be superior.
- To use the market experience of the Investment Manager(6) to negotiate favourable terms for its investments.
- To seek to own all, or a portion, of asset management companies with which it invests in order to enhance the returns achieved on its capital.
Through this investment strategy, TFG has become a diversified alternative asset management business that owns majority and minority stakes in asset managers and uses its balance sheet to invest in, build and grow those businesses.
The Investment Manager seeks to identify asset classes that offer excess returns relative to their investment risk, or "intrinsic alpha." It analyses the risk/reward, correlation, duration and liquidity characteristics of each potential capital use to gauge its attractiveness and incremental impact on the Company.
The Investment Manager then seeks to find high-quality managers who invest in these asset classes; selects or structures suitable investment vehicles that optimise risk-adjusted returns for TFG's capital; and seeks for TFG to own a share of the asset management company. TFG aims to not only produce asset level returns, but also aims to enhance these returns with profits from owning asset management businesses that derive income from external investors. Thus, TFG seeks to use its balance sheet to facilitate the growth of TFG Asset Management to help create value for TFG shareholders.
Certain considerations when evaluating the viability of a potential asset manager typically include: performance track records; reputation; regulatory requirements; infrastructure needs; and asset gathering capacity. Potential profitability and scalability of the business are also important considerations. Additionally, the core capabilities, investment focus, and strategy of any new business should offer a complementary operating income stream to TFG Asset Management's existing businesses. The Investment Manager looks to mitigate potential correlated risks across TFG Asset Management's investment managers by diversifying its exposure across asset classes, investment vehicles, durations, and investor types, among other factors.
TFG's asset management businesses can operate autonomously, or on the TFG Asset Management platform. In either case, the objective is for them to benefit from an established infrastructure, which can assist in critical business management functions such as risk management, investor relations, financial control, technology, and compliance/legal matters, while maintaining entrepreneurial independence.
TFG's permanent capital base should increase the likelihood of success for this strategy of investing in alternative asset managers and the assets they manage, as its capital is available both for supporting operations of the management businesses and for co-investing, seeding or anchoring new investment funds of the managers. In this sense, TFG is not only an investor, but also a business builder.
At 31 March 2015, TFG's global alternative asset management businesses had approximately $13.8 billion of assets under management.(7) These businesses consisted of LCM Asset Management ("LCM"), the GreenOak Real Estate ("GreenOak") joint venture, Polygon Global Partners ("Polygon"), Equitix Holdings ("Equitix") and Hawke's Point.
Figure 1(8)
[Figure 1]
Shareholder Return
The numbers below show annualised total shareholder return to 31 March 2015, defined as share price appreciation including dividends reinvested, for one year, three years, five years, and since the Company's initial public offering in April 2007.
Figure 2
Total Shareholder Return Analysis (Annualised)
1 Year 2%
3 Years 18%
5 Years 24%
From IPO (April 2007) 7%
Source: Bloomberg TRA function.
LCM
- LCM is a specialist in below-investment grade U.S. senior secured leveraged loans.
- The business was established in 2001 and has offices in New York and London.
- TFG acquired 75% of LCM in 2010 and the remainder in 2012.
- AUM was approximately $5.8 billion at 31 March 2015.
- Currently, LCM manages loan assets exclusively through CLOs, which are long-term, multi-year investment vehicles. The typical duration of a CLO, and thus LCM's management fee stream, depends on, among other things, the term of its reinvestment period (currently often four years for a new issue CLO), the prepayment rate of the underlying loan assets, as well as post-reinvestment period reinvestment flexibility and weighted average life constraints.
- CLO managers typically earn a management fee of up to 0.50% of total assets, and a performance fee of 20% over a CLO equity IRR hurdle.
- Further information on LCM is available at http://www.lcmam.com.
GREENOAK
- GreenOak is a real estate-focused principal investing, lending and advisory firm that seeks to create long-term value for its investors and provide strategic advice to its clients.
- The business was established in 2010 as a joint venture with TFG and has a presence in New York, London, Tokyo, Los Angeles, Luxembourg, Madrid, Munich, and Seoul.
- TFG owns 23% of the business and carries it at fair value.
- AUM was approximately $4.6 billion at 31 March 2015.
- GreenOak currently has funds with investments focused on the United States, Japan, Spain, and the United Kingdom.
- Funds are typically structured with management fees of 2% and carried interest over a preferred return. The funds generally have a multi-year investment period, with a fund term of seven years after the final close, with possible extensions subject to certain approvals.
- Further information can on GreenOak is available at http://www.greenoakrealestate.com.
POLYGON
- Polygon manages open-ended hedge fund and private equity vehicles across a number of strategies.
- Polygon was established in 2002 and has offices in New York and London.
- TFG acquired 100% of the business in 2012.
- AUM was approximately $1.5 billion at 31 March 2015.
- Polygon manages funds focusing on the following strategies: European event-driven equities, global convertible bonds, mining company equities, and distressed securities. Polygon also manages a private equity vehicle comprised of certain illiquid investments. Each fund manager has its own CIO and investment team. Polygon's open-ended funds have capacity levels set which seek to optimize the investment opportunity. The investor liquidity of these products is calibrated to match the duration of the underlying investments.
- Fees in these products include a management fee that is generally between 1.5% and 2.0% and the typical performance fee or carried interest is 20%.
- Further information on Polygon is available at http://www.polygoninv.com.
EQUITIX
- Equitix is an integrated core infrastructure asset management and primary project platform.
- Equitix was established in 2007 and is based in London.
- TFG acquired 85% of the business in February 2015; over time, TFG's holding is expected to decline to approximately 74.8%. Management own the balance.
- AUM was approximately $2.0 billion at 31 March 2015.
- Since inception of the business, Equitix has raised over £1.2 billion across four UK-focused funds and managed accounts, investing in sectors including healthcare, education, utility infrastructure, social housing, renewable energy, transport, waste, and accommodation.
- Fees in this product include a management fee, and a carry interest fee that is over a hurdle currently set at 7.5%. The carried interest fee is typically 20% over the hurdle, and the management fee after the investment period is typically between 1.25% and 1.65%; during the investment period it has ranged between 0.95% and 2.0% on invested capital. The core funds also have an additional fee on committed capital of approximately 0.30%.
- Further information on Equitix is available at http://www.equitix.co.uk.
HAWKE'S POINT
- Hawke's Point Resource Finance seeks to provide capital to companies in the mining and resource sectors.
- TFG established Hawke's Point in Q4 2014 and owns 100% of the business.
- Hawke's Point is currently actively evaluating a range of mine financing opportunities.
Board of Directors
TFG's Board of Directors is comprised of six members, four of whom are non-executive independent directors who have significant experience in asset management and financial markets. Biographies of the directors can be found in the appendix.
- Rupert Dorey (Independent Director)
- Frederic Hervouet (Independent Director)
- David Jeffreys (Independent Director)
- Byron Knief (Independent Director)
- Reade Griffith
- Paddy Dear
KEY METRICS
The Company focuses on four key metrics when assessing how value is being created for, and delivered to, TFG shareholders: Earnings, Net Asset Value ("NAV") per share, Dividends, and AUM. Drivers for each of the metrics are discussed in the following sections of the report.
EARNINGS - RETURN ON EQUITY ("RoE")
RoE for the Q1 2015 was an annualised 16.8%, above TFG's long-term range of 10-15%(9), reflecting a strong start to the year across many of the business areas
TFG generated Net Economic Income(10) of $76.2 million in Q1 2015, compared with $47.2 million in the equivalent quarter last year, representing an increase of 61%.
Figure 3
Annual Return on Equity
RoE
2007 11.4%
2008 -3.7%
2009 -27.6%
2010 47.7%
2011 36.1%
2012 20.8%
2013 15.3%
2014 6.6%
2015 Annualised 16.8%
Average 13.4%
TFG generated an Adjusted EPS of $0.79 in Q1 2015
The Q1 Net Economic Income(11) of $76.2 million resulted in an EPS of $0.79, the highest quarterly adjusted EPS result for the Company since Q4 2013.
Figure 4
Adjusted EPS Comparison Q1 2013 - 2015 (USD)
Q1 2013 $0.70
Q1 2014 $0.48
Q1 2015 $0.79
Further detailed information on the drivers of the Company's performance is provided later in this report.
NAV PER SHARE
Pro Forma Fully Diluted NAV per Share was $17.57 at the end of Q1 2015, up 3.0% from the end of Q4 2014 and up 4.4% from the end of Q1 2014
- Total NAV for TFG rose to $1,882.0 million at 31 March 2015, which equated to Pro Forma Fully Diluted NAV per Share(12) of $17.57, compared to $17.05 at the end of 2014.
- The 3% growth in NAV per Share recorded in the quarter is after distributing dividends of $0.1575 during that period. The NAV per Share growth adjusting for the dividend distribution was 4%.
Figure 5
TFG Consolidated Net Assets ($MM) and Pro Forma Fully Diluted NAV per
Share(i)
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015
Consolidated
Net Assets
($MM) 1,570 1,624 1,621 1,667 1,680 1,704 1,803 1,784 1,809 1,804 1,818 1,882
NAV / Share
(pro forma
fully diluted) 13.75 14.29 14.65 15.02 15.17 15.49 16.36 16.83 17.08 16.82 17.05 17.57
(i) Source: NAV per share based on TFG's financial statements as
of the relevant quarter-end date. Please note that the Pro
Forma Fully Diluted NAV per share reported as of each
quarter-end date excludes any shares held in treasury or in
a subsidiary as of that date, but includes shares held in
escrow which are expected to be released and incorporated
into the U.S. GAAP NAV per Share over a five-year period and
the number of shares corresponding to the applicable
intrinsic value of the options issued to the Investment
Manager at the time of the Company's IPO. Please see Figure
19 on page 27 for more details.
DIVIDENDS PER SHARE ("DPS")
TFG held its dividend steady quarter on quarter
- TFG declared a Q1 2015 DPS of $0.1575, the same as in Q4 2014. On a rolling 12-month basis, the dividend of $0.625 per share represents a 7.8% increase over the prior 12-month period and equated to an annualised dividend yield of 6.3% on the quarter-end share price of $9.89.
- This dividend declaration continues TFG's progressive dividend policy, which targets a payout ratio of 30-50% of normalised earnings. The Q1 2015 DPS of $0.1575 brings the cumulative DPS declared since TFG's IPO to $3.60.
Figure 6
12-month Rolling DPS
Comparison Q1 2013 -
Q1 2015 (USD)
Q1 2013 $0.500
Q1 2014 $0.580
Q1 2015 $0.625
AUM GROWTH
TFG Asset Management grew its total AUM by 25% in Q1 2015 driven in large part by the acquisition of Equitix, although the non-Equitix businesses grew AUM by 7% and most business lines added fee-paying capital
AUM for TFG Asset Management was approximately $13.8 billion at end of Q1 2015, up from $11.1 billion at year-end 2014.
Figure 7(i)
[Figure 7]
(i) GreenOak AUM includes funds and advisory assets managed by GreenOak Real Estate,
LP, a separately registered investment adviser under the U.S. Investment Advisers
Act of 1940. Polygon AUM includes Polygon Recovery Fund LP, Polygon Convertible
Opportunity Master Fund, Polygon European Equity Opportunity Master Fund and
associated managed account, Polygon Mining Opportunity Master Fund, Polygon Global
Equities Master Fund and Polygon Distressed Opportunities Master Fund, as
calculated by the applicable fund administrator. Includes, where relevant,
investments by Tetragon Financial Group Master Fund Limited. All data is at 31
March 2015.
Q1 2015 IN REVIEW
RETURNS BY ASSET TYPE AND TFG ASSET MANAGEMENT
Figure 8
Q1 2015 Net Income(iv) Q1
Asset Type Assets 2015
($MM) ($MM)
U.S. CLO 1.0(i) 425.2 25.5
U.S. CLO 2.0(i) 281.7 9.4
European CLOs 100.1 2.8
U.S. Direct Loans 18.3 0.6
Hedges(ii) 0.6 -
Polygon Equity Funds 187.3 9.4
Polygon Credit, Convertibles & Distressed Funds 144.9 2.0
Other Equities, Credit, Convertibles &
Distressed(iii) 133.7 44.4
Real Estate 106.8 15.0
Infrastructure 12.5 -
TFG Asset Management 242.0 9.3(iv)
(i)
"U.S. CLO 1.0" refers to U.S. CLOs
issued before or during 2008.
"U.S. CLO 2.0" refers to U.S. CLOs
issued after 2008. The U.S. CLO
1.0 segment includes an investment
in the BB tranche of a U.S. CLO
1.0 with fair value of $1.7
million.
(ii) "Hedges" refers to interest rate
swaption hedges put in place in
relation to certain interest rate
risks relating to the CLO
portfolio.
(iii) Assets characterised as "Other
Equities, Credit, Convertibles,
Distressed" consist of the fair
value of, or capital committed to,
investment assets held directly on
the balance sheet.
(iv) TFG Asset Management income figure
is "Net Economic Income Before
Tax."
Figure 8 above shows the returns by asset type for Q1 2015 and the returns for TFG Asset Management.
- CLOs continued to make a strong contribution to income generated by the investment portfolio. In particular, the U.S. CLO 1.0 deals enjoyed a return significantly above the discount rate of 12%.
- Real Estate enjoyed a strong quarter, buoyed by a combination of realisations and the recognition of 2014 year-end revaluations of certain properties in some of the underlying investment vehicles.
- The Polygon Equity Fund investments also performed well in the quarter. See page 20 for further details on the performance of the funds.
- Other Equities, Credit, Convertibles, & Distressed income was the single biggest sector contributing to the quarterly performance. A few investments generated positive income, although the majority came from a single position, which was put on in 2014.
- TFG Asset Management also had a good start to 2015, with the acquisition of Equitix becoming effective from the beginning of February in terms of income generation. There is further detail on TFG AM later in this section.
Figure 9
TETRAGON FINANCIAL GROUP
TFG Asset Management Statement of Operations Q1 2015 vs. Q1 2014
Q1 2015 Q1 2014
$MM $MM
Fee income(i) 34.2 12.7
Unrealised Polygon performance fees(ii) 1.4 3.4
Interest income - 0.1
Total income 35.6 16.2
Operating, employee and administrative expenses(i) (16.8) (9.9)
Net income - "EBITDA equivalent" 18.8 6.3
Performance and management fee allocation to TFM (2.0) (0.4)
Amortisation expense on management contracts (6.8) (1.7)
Interest expense (0.7) -
Net economic income before taxes 9.3 4.2
(i) Nets off cost
of recovery on
"Other fee
income"
against this
cost contained
in "Operating,
employee, and
administrative
expenses."
Operating
costs also
removes
amortisation
expense from
the U.S. GAAP
segmental
report. Fee
income
includes
amounts earned
through
third-party
fee sharing
arrangements.
It also
includes any
fees earned
through fees
paid on
investments
made by TFG in
Polygon hedge
funds or other
investment
vehicles. TFG
is able to
invest at a
preferred
level of fees.
(ii) Unrealised
Polygon
performance
fees represent
the fees
calculated by
the applicable
administrator
of the
relevant
Polygon funds,
in accordance
with the
applicable
fund
constitutional
documents,
when
determining
NAV at quarter
end, less
certain
assumed costs.
Similar
amounts, if
any, from LCM
and GreenOak
are excluded
from this line
item. Such
fees would
typically not
be realised or
recognised
under U.S.
GAAP until
calendar year
end, and are
therefore
subject to
change based
on fund
performance
during the
remainder of
the year.
There can be
no assurance
that the
company will
realise all or
any portion of
such amounts.
Through 31
March 2015,
this amount
equalled $1.4
million before
(1) an assumed
imputed tax
charge and (2)
estimated TFM
performance
fees reduced
the net
contribution
to $0.8
million as
shown in
Figure 9 and
further
represented in
Figures 21 and
22 of this
report. It
also includes
any unrealised
performance
fees to
potentially be
paid on
investments
made by TFG in
Polygon hedge
funds or other
investment
vehicles. TFG
is able to
invest at a
preferred
level of fees.
Figure 9 shows the Q1 2015 statement of operations for TFG Asset Management, compared to the same quarter in 2014. The asset managers are at different stages of evolution and therefore different stages of profitability.
Revenues:
Fee income in the quarter increased significantly compared with the comparative period in 2014, boosted primarily by the addition of Equitix at the beginning of February. The timing of the Equitix acquisition closing resulted in only two months' performance being recognised through the TFGAM statement of operations. Equitix contributed both investment management income and primary income, which is derived when Equitix is successful in delivering primary investment opportunities for inclusion in Equitix managed funds. Primary income typically arises at the end of a two to five year bidding and development phase, and consequently is likely to have a less predictable income profile than the secondary asset management fee income.
Unrealised Polygon Performance Fees reflect performance fees that have been earned year-to-date, but not accrued under U.S. GAAP (net of any accrued compensation to the investment teams).(13)
Interest income earned by TFG AM has fallen to immaterial levels following the full repayment in Q1 2015 of the remaining working capital loan by GreenOak.
Costs:
As expected, costs have increased as the Equitix business has been consolidated onto the TFG AM platform. Given the Equitix team is over 60 strong, and that TFG AM added investment, compliance and marketing headcount during 2014, employee costs have been a significant contributor to the cost increase year on year.
On an EBITDA basis, however, income growth has far outstripped the increase in expenses, leading EBITDA to almost triple to $18.8 million. "Below the line" expenses have increased as amortisation of the Equitix intangible assets is factored in, and there is also now interest expense on the external loan of £60 million which was used to partially fund the acquisition.
Finally, as with previous quarters, in the Company's segmental reporting TFG AM is allocated its share of the performance fees payable to the Investment Manager ("TFM"). Starting from this quarter, TFG AM has also been allocated a share of the base management fee which is paid to TFM, whereas previously this had been 100% allocated to the investment portfolio segment. This reflects the growing net assets attributable to the asset management segment following the acquisition of Equitix ($242.0 million as per Figure 10) and an allocation of $0.7 million is included in the "performance and management fee allocation" included in the table in Figure 9.
Figure 10
TETRAGON FINANCIAL GROUP
Analysis of Net Assets and Q1 2015 Profitability by Business Segment
Net
Economic
Net Asset Income EBITDA
Value Before Tax Equivalent
Business Segment $MM $MM $MM
Investment Portfolio 1,640.0 73.7 N/A
TFG Asset Management 242.0 9.3 18.8
Total 1,882.0 83.0 18.8
EXPOSURE TO ASSET MANAGERS
Given that external managers now only manage 31% of Company assets, the table below has been created to show TFG's exposure to each of TFG Asset Management's underlying asset managers, both in terms of the NAV of TFG monies invested in that asset manager's various funds, and the NAV of the carrying value of TFG's ownership of the asset manager itself. This illustrates a significant accounting difference between GreenOak, where TFG owns 23% and thus holds it on its balance sheet as an investment, and the other asset managers, where TFG owns a majority stake and thus consolidates the earnings and holds the asset at purchase price less amortisation. This is important, as it is the combined exposure that is relevant from a risk perspective. In some cases, the NAV of the asset manager may not completely reflect the intrinsic value of the business: for example, under U.S. GAAP, the fair value of the LCM management contracts has amortised to zero since the business was purchased in 2010, whilst its AUM has more than doubled.
Figure 11
TFG Exposure to Asset Managers
TFG Carrying Value Total NAV Percentage
Investments of Asset of
in Products Manager Total NAV
($MM) ($MM) ($MM)
LCM 248.9 - 248.9 13.2%
GreenOak 100.4 66.5 166.9 8.9%
Polygon 332.3 28.0 360.3 19.1%
Equitix 12.5 125.9 138.4 7.4%
Hawke's Point - - - 0.0%
Direct Investments(i) 127.6 - 127.6 6.8%
External Managers 588.8 - 588.8 31.3%
Cash and Other 229.4 21.7 251.1 13.3%
NAV 1,640.0 242.0 1,882.0 100.0%
(i) Adjusted net assets of such investments
consists of the fair value of, or capital
committed to, investment assets held directly
on the balance sheet.
BUSINESS OVERVIEWS
The following pages outline the progress of each business during Q1 2015 in turn.
All data is at 31 March 2015, unless otherwise stated.
LCM
Description of Business: LCM is a specialist in
below-investment grade U.S.
broadly-syndicated leveraged loans.
Amount of TFG's Investment in Products: $248.9 million.
TFG held equity investments with
total fair value of $230.6 million
(U.S. CLO 1.0: $35.1 million, U.S.
CLO 2.0: $195.5 million) in
LCM-managed CLOs.
LCM additionally manages a portfolio
of U.S. broadly-syndicated leveraged
loans held directly on TFG's balance
sheet. At the end of Q1 2015, the
fair value of these loans was $18.3
million.
Carrying Value of Asset Manager: $0.0 million.
AUM: $5.8 billion. LCM XVIII, a $600
million CLO, closed on 31 March 2015.
Figure 12
LCM AUM History ($BN)
Q2 2012 $4.1
Q3 2012 $3.9
Q4 2012 $4.3
Q1 2013 $4.5
Q2 2013 $4.3
Q3 2013 $4.3
Q4 2013 $4.2
Q1 2014 $4.8
Q2 2014 $5.1
Q3 2014 $4.9
Q4 2014 $5.3
Q1 2015 $5.8
Performance in Q1 2015: LCM performed well in the first
quarter of 2015, with all of LCM's
Cash Flow CLOs(14) that were still
within their reinvestment periods
continuing to pay senior and
subordinated management fees. There
were no loan defaults in any LCM Cash
Flow CLOs during the quarter. In
aggregate, LCM-managed U.S. CLO
equity investments generated cash
flow of $11.9 million.
GREENOAK
Description of Business: GreenOak is a real-estate focused principal
investing and advisory firm.
Amount of TFG's Investment in
Products: $100.4 million.
Carrying Value of Asset Manager: $66.5 million. The fair value of TFG's
holding in the GreenOak joint venture is
determined primarily by reference to a
private equity-style valuation framework in
which a range of multiples is applied to
GreenOak's projected earnings (EBITDA).
Please refer to the 2014 TFG Master Fund
Audited financial statements for further
details on this valuation determination.
$4.6 billion.
AUM: Figure 13
GreenOak AUM History(i)
($BN)
Q2 2012 $1.7
Q3 2012 $1.9
Q4 2012 $2.3
Q1 2013 $3.0
Q2 2013 $3.2
Q3 2013 $3.6
Q4 2013 $3.6
Q1 2014 $4.1
Q2 2014 $3.9
Q3 2014 $4.2
Q4 2014 $4.4
Q1 2015 $4.6
(i) Includes investment funds and advisory
assets managed by GreenOak at 31 March
2015. TFG owns a 23% stake in GreenOak. AUM
include all third-party interests and total
projected capital investment costs.
POLYGON
Description Polygon manages open-ended hedge fund and private equity vehicles
of Business: across a number of strategies.
Amount of
TFG's
Investment
in
Products: $332.3 million.
Carrying
Value of
Asset
Manager: $28.0 million.
AUM: $1.5 billion for all funds; $1.2 billion for open strategies.
Figure 14(i)
Polygon Hedge Funds Assets Under Management History ($MM)
(Convertibles, European Event-Driven Equity, Mining Equities, Distressed,
Other Equity)
Q2 2012 $451
Q3 2012 $448
Q4 2012 $529
Q1 2013 $605
Q2 2013 $624
Q3 2013 $686
Q4 2013 $855
Q1 2014 $930
Q2 2014 $1,094
Q3 2014 $1,149
Q4 2014 $1,113
Q1 2015 $1,161
(i) Includes AUM for Polygon Convertible Opportunity Master Fund, Polygon European
Equity Opportunity Master Fund and associated managed account, Polygon Mining
Opportunity Master Fund, Polygon Global Equities Master Fund and Polygon Distressed
Opportunities Master Fund, as calculated by the applicable fund administrator at 31
March 2015. Includes, where relevant, investments by Tetragon Financial Group Master
Fund Limited.
Performance in the Polygon hedge funds was positive in Q1 2015 for all open products.
Performance
in Q1 2015: Figure 15(15)
Polygon Funds Summary
AUM at
31 Mar 2015 YTD Annualised Net
Fund ($MM) Net Performance LTD Performance
Convertibles(15.i) $ 411.0 1.7% 18.9%
European Event-Driven
Equity(15.ii) $ 554.8 6.7% 12.1%
Mining Equities(15.iii) $ 68.6 2.8% 3.0%
Distressed
Opportunities(15.iv) $ 104.9 2.2% 9.4%
Other Equity(15.v) $ 21.9 1.9% 17.2%
Total AUM - Open Funds $ 1,161.1 Estimated approx.
LTD Multiple
Private Equity
Vehicle(15.vi) $ 293.7 N/A 1.85 x
Total AUM $ 1,454.8
Note: The AUM noted above includes investments in the relevant strategies by TFG,
other than in respect of the Private Equity Vehicle, where there is no such
investment. The Private Equity vehicle, at the time of the Polygon transaction and
currently, remains a closed investment strategy.
Past performance or experience (actual or simulated) does not necessarily give a guide
for the future and no representation is being made that the funds listed will or are
likely to achieve profits or losses similar to those shown. Past performance or
experience (actual or simulated) does not necessarily give a guide for the future and
no representation is being made that the funds listed will or are likely to achieve
profits or losses similar to those shown. Except as otherwise noted, all performance
numbers provided herein reflects the actual net performance of the funds net of
management and performance fees, as well as any commissions and direct expenses
incurred by the funds, but before withholding taxes, and other indirect expenses. All
returns include the reinvestment of dividends, if any. Differences in account size,
timing of transactions and market conditions prevailing at the time of investment may
lead to different results. Differences in the methodology used to calculate
performance may also lead to different performance results than those shown.
P&L for the Private Equity Vehicle was $9.8 million in Q1 2015 before FX movements of
-$20.1 million. P&L is +$135.3 million from closing date net asset value before FX
movements of -$40.8 million. The fund is generally precluded from hedging FX exposure.
The fund has made life to date distributions of $515 million to its partners. The
estimated approximate LTD multiple is based on the fund's quarter end net asset value
and historical distributions and other returns over an original aggregate purchase
price for the fund's initial assets of approximately $459 million and excludes the
effects of FX and certain assets purchased through recycled capital. The estimated
approximate LTD multiple including those two items (FX and recycled capital) would be
approximately 1.72 x. Each of these multiples will be different than the multiples
reflected for specific limited partners in the fund, which would be calculated with
respect to relevant class of partners in accordance with the fund's limited
partnership agreement.
EQUITIX
Equitix is an integrated core infrastructure asset
Description of Business: management and primary project platform.
Amount of TFG's $12.5 million. The majority of this amount was acquired
Investment in Products: as part of the Equitix acquisition.
Carrying Value of Asset Approximately $125.9 million (net of financing) at 31
Manager: March 2015.
$2.0 billion (GBP1.3 billion)
AUM: Figure 16
AUM at
Fund Name 31 March 2015 ($MM)(i)
Equitix Fund I 186
Equitix Fund II 545
Equitix Fund III 750
Energy Efficiency Funds 327
Managed Accounts 148
Total Equitix AUM 1,955
(i) USD-GBP exchange rate at 31 March 2015.
Given the recent closure of the acquisition, TFG will
report on updates to any investments and developments
Performance in Q1 2015: in the business over the coming quarters.
HAWKE'S POINT RESOURCE FINANCE
Description
of Hawke's Point is a mining finance company established by TFG in Q4
Business: 2014.
Amount of
TFG's
Investment
in As this is a start-up business, there are not yet any investments on
Products: which to report.
Carrying
Value of
Asset
Manager: $0.0 million.
EXTERNAL MANAGERS
Description of Business: External managers (primarily third-party CLO
managers).
Amount of TFG's Investment $588.8 million of which the major exposures
in Products: were: U.S. CLO 1.0: $388.4 million, U.S. CLO
2.0: $86.2 million, European CLO: $100.1
million. In certain cases, TFG Asset
Management receives asset management fee
income derived from one-off and long-term fee
sharing arrangements with third-party CLO
managers.
Carrying Value of Asset Manager: Not applicable.
AUM: Not applicable.
TFG's third-party-managed U.S. CLO 1.0 and 2.0
equity investments performed well during Q1
2015, with all such CLOs passing their O/C
tests as of the end of the period.(16) In
aggregate, TFG's third-party-managed U.S. CLO
equity investments generated cash flow of
$42.5 million in Q1 2015.
Performance in Q1 2015: All European CLO investments were passing
their O/C coverage tests at quarter-end.(17)
During the quarter, this portfolio segment
generated cash flow of EUR8.4 million.
DIRECT BALANCE SHEET / CO-INVESTMENT OPPORTUNITIES
- Whilst TFG's Investment Manager does not make investment decisions at the various TFG Asset Management affiliated managers, it does sit on the various investment committees, and, in addition to investing in various funds, it also gets opportunities to make co-investments or additional investments. TFG may invest in opportunities directly from its balance sheet rather than through, for example, investments in other funds or collective investment schemes, when the Investment Manager sees an opportunity that fits its investment criteria, particularly where the structuring ability and the Company's long duration capital may give it a potential investment advantage. In some cases, TFG may also have exposure to the investment indirectly through fund investments.
- The adjusted net assets of this part of the portfolio at the end of Q1 2015 were $127.6 million.(18) The majority of this is invested in publicly quoted equities.
- This segment of the portfolio experienced gains in the first quarter, primarily from European equity-related investments.
CASH
- As of the end of Q1 2015, TFG continued to have no long-term debt. Investible Cash(19) fell during the quarter from approximately $352.9 million to $275.8 million, primarily due to the Company funding the acquisition of Equitix. There is also now $87.6 million of loans and borrowings as a result of obtaining third party debt to partly fund the aforementioned acquisition.
- Cash flows from operations remained strong, with cash flows from operations reaching $106.3 million in Q1 2015.
BALANCE SHEET COMPOSITION OVERVIEW
The Investment Manager seeks to invest TFG's capital in a manner consistent with the Company's goal of providing stable returns to its investors across various credit, equity, interest rate, inflation and real estate cycles. Given the long duration of many of the Company's assets, TFG's asset allocation methodology is not a fully dynamic, continuous process of risk adjustment, but is rather an evolution and diversification of income streams. The Investment Manager seeks to balance not just the risks and rewards of various asset classes, but also the risks and rewards of each asset manager that it owns.
Q1 2015 Net Asset Composition Review
Figures 17 and 18 illustrate the composition of TFG's net assets as of the end of Q1 2015 and Q4 2014.
Figure 17
Net Asset Breakdown
YE 2014 Q1 2015
U.S. CLO 1.0 24.2% 22.6%
U.S. CLO 2.0 14.2% 15.0%
Euro CLOs 6.6% 5.3%
U.S. Direct Loans 1.2% 1.0%
Hedges 0.0% 0.0%
Polygon Equity Funds 9.8% 10.0%
Polygon Credit, Convertible & Distressed Funds 7.6% 7.7%
Other Equity, Credit, Convertibles & Distressed (ii) 4.7% 7.1%
Real Estate 4.9% 5.7%
TFG Asset Management 6.5% 12.9%
Infrastructure 0.0% 0.7%
Net Investible Cash (i) 20.3% 12.2%
Total 100.0% 100.0%
(i) Net Investible
Cash consists
of: (1) cash
held directly by
Tetragon
Financial Group
Master Fund
Limited, (2)
excess margin
held by brokers
associated with
assets held
directly by
Tetragon
Financial Group
Master Fund
Limited, and (3)
cash held in
certain
designated
accounts related
to TFG's
investments,
which may only
be used for
designated
purposes without
incurring
significant tax
and transfer
costs, net of
"Other Net
Assets."
(ii) Assets
characterised as
"Equities"
consist of the
fair value of
investments in
Polygon-managed
equity funds as
well as the fair
value of, or
capital
committed to,
equity assets
(as applicable)
held directly on
TFG's balance
sheet.
Figure 18
[Figure 18]
(i) Investible Cash consists of: (1) cash held directly by Tetragon Financial Group
Master Fund Limited, (2) excess margin held by brokers associated with assets
held directly by Tetragon Financial Group Master Fund Limited, and (3) cash held
in certain designated accounts related to TFG's investments, which may only be
used for designated purposes without incurring significant tax and transfer
costs.
(ii) Assets characterised as "Equities" consist of the fair value of investments in
Polygon-managed equity funds as well as the fair value of, or capital committed
to, equity assets (as applicable) held directly on TFG's balance sheet.
Q1 2015 Major New Investments
- U.S. 2.0 CLOs: In Q1 2015, TFG acquired a majority equity position in one LCM-managed CLOs for a total cost of $27.8 million.
- Real estate: During Q1 2015, TFG invested $21.3 million into various real estate funds and vehicles focused on investments in the United States, Europe, and Asia.
- Polygon credit, convertible and distressed funds: During Q1 2015, TFG invested $5.0 million into Polygon-managed credit, convertible and distressed funds.
- Equitix: On 2 February 2015, TFG completed the acquisition of Equitix for a total enterprise value of £159.5 million, which was partially financed by a £60 million bank facility made to Equitix. Part of the acquisition included investments in Equitix-managed infrastructure funds, which is segregated from the carrying value of the asset manager for purposes of the Balance Sheet Composition Overview.
Q1 2015 Major Asset Sales and Optional Redemptions
- U.S. CLOs: Shortly after the end of Q1 2015, TFG exercised its optional call rights on two U.S. CLO 1.0 deals.
- European CLOs: TFG exercised its optional call rights on one European CLO in the first quarter of 2015. TFG received a significant portion of the expected optional redemption proceeds shortly after the end of the quarter.
- Real estate: During Q1 2015, TFG received $12.1 million back representing both capital and income on certain investments. The majority of these receipts were from investments focused on the United States.
Q1 2015 FINANCIAL REVIEW
This section shows consolidated financial data incorporating TFG and its 100% subsidiary, Tetragon Financial Group Master Fund Limited (the "Master Fund"), and provides comparative data where applicable.(20)
FINANCIAL HIGHLIGHTS
Figure 19
TETRAGON FINANCIAL GROUP
Financial Highlights (Q1 2013 - Q1 2015)
Q1 2015 Q1 2014 Q1 2013
U.S. GAAP net income ($MM) $69.7 $39.7 $63.0
Net economic income ($MM) $76.2 $47.2 $69.3
U.S. GAAP EPS $0.73 $0.41 $0.64
Adjusted EPS $0.79 $0.48 $0.70
Return on equity 4.2% 2.6% 4.3%
Net assets ($MM) $1,882.0 $1,783.6 $1,666.9
U.S. GAAP number of shares outstanding (MM) 96.6 94.1 97.9
U.S. GAAP NAV per share $19.49 $18.94 $17.03
Pro Forma number of shares outstanding (MM) 107.1 106.0 110.9
Pro Forma fully diluted NAV per share $17.57 $16.83 $15.02
DPS $0.1575 $0.150 $0.135
TFG uses, among others, the following metrics to understand the progress and performance of the business:
- Net Economic Income ($76.2 million): adds back to the U.S. GAAP net income ($69.7 million) the imputed 2014 share based employee compensation ($5.8 million), which is generated on an ongoing basis resulting from the 2012 Polygon transaction, and also includes net unrealised Polygon performance fees ($0.8 million).(21)
- Return on Equity (4.2%): Net Economic Income ($76.2 million) divided by Net Assets at the start of the year ($1,818.5 million).
- Pro Forma Fully Diluted Shares (107.1 million): adjusts the U.S. GAAP shares outstanding (96.6 million) for the impact of escrow shares used as consideration in the Polygon transaction and associated stock dividends (10.6 million).
- Adjusted EPS ($0.79): calculated as Net Economic Income ($76.2 million) divided by weighted-average U.S. GAAP shares(i) during the period (96.0 million).
- Pro Forma Fully Diluted NAV per Share ($17.57): calculated as Net Assets ($1,882.0 million) divided by Pro Forma Fully Diluted shares (107.1 million).(22)
(i) The time-weighted average daily U.S. GAAP Shares outstanding during the
applicable year.
EPS ANALYSIS Q1 2013-Q1 2015
Figure 20
TETRAGON FINANCIAL GROUP
TFG Earnings per Share Analysis (Q1 2013 - Q1 2015)
Q1 2015 Q1 2014 Q1 2013
Investment portfolio segment
U.S. CLO 1.0 $0.26 $0.19 $0.69
U.S. CLO 2.0 $0.10 $0.05 $0.04
European CLOs $0.03 $0.05 $0.17
Hedges - ($0.06) $0.01
Other income $0.01 - $0.02
Polygon Equity Funds $0.10 $0.16 $0.03
Polygon Credit, Convertibles & Distressed Funds $0.02 $0.04 $0.00
Other Equities, Credit, Convertibles, Distressed $0.45 $0.23 NA
Real Estate $0.16 $0.06 $0.02
FX and Options ($0.08) ($0.01) ($0.02)
Expenses ($0.29) ($0.24) ($0.27)
Net EPS investment portfolio $0.76 $0.47 $0.69
Asset Management Segment - TFG AM $0.10 $0.04 $0.03
Corporate Income taxes ($0.07) ($0.03) ($0.02)
Adjusted EPS $0.79 $0.48 $0.70
Weighted Average Shares (millions) 96.0 97.8 98.4
STATEMENT OF OPERATIONS
Figure 21
TETRAGON FINANCIAL GROUP
Statement of Operations Q1 2013 - Q1 2015
Q1 2015 Q1 2014 Q1 2013
$MM $MM $MM
Interest income 30.7 45.0 56.6
Fee income 34.2 12.7 11.6
Unrealised Polygon performance fees 1.4 3.4 0.9
Other income - cost recovery 4.5 5.6 5.8
Investment income 70.8 66.7 74.9
Management and performance fees (27.6) (18.1) (25.0)
Other operating and administrative expenses (24.4) (21.8) (14.7)
Amortisation of intangible assets (6.8) (1.7) (1.7)
Total operating expenses (58.8) (41.6) (41.4)
Net investment income 12.0 25.1 33.5
Net change in unrealised appreciation in investments 72.3 16.8 35.2
Realised gain on investments 5.4 15.2 3.0
Realised and unrealised losses from hedging and fx (6.7) (7.8) (0.8)
Net realised and unrealised gains from investments and fx 71.0 24.2 37.4
Net economic income before tax 83.0 49.3 70.9
Income tax (6.8) (2.1) (1.6)
Net economic income 76.2 47.2 69.3
Performance Fee
A performance fee of $20.5 million was accrued in Q1 2015 in accordance with TFG's investment management agreement. The hurdle rate for the Q2 2015 incentive fee has been reset at 2.918608% (Q1 2015: 2.903458%) as per the process outlined in TFG's 2014 audited financial statements and in accordance with TFG's investment management agreement. Please see TFG's website, http://www.tetragoninv.com, and the 2014 TFG audited financial statements for more details on the calculation of this fee.
STATEMENT OF OPERATIONS BY BUSINESS SEGMENT
Figure 22
TETRAGON FINANCIAL GROUP
Statement of Operations by Segment Q1 2015
Investment
Portfolio TFG AM Total
$MM $MM $MM
Interest income 30.7 - 30.7
Fee income - 34.2 34.2
Unrealised Polygon performance fees - 1.4 1.4
Other income - cost recovery - 4.5 4.5
Investment and management fee income 30.7 40.1 70.8
Management and performance fees (25.6) (2.0) (27.6)
Other operating and administrative expenses (2.4) (22.0) (24.4)
Amortisation of intangible assets - (6.8) (6.8)
Total operating expenses (28.0) (30.8) (58.8)
Net change in unrealised appreciation in investments 72.3 - 72.3
Realised gain on investments 5.4 - 5.4
Realised and unrealised losses from hedging, fx and
options (6.7) - (6.7)
Net realised and unrealised gains from investments
and fx 71.0 - 71.0
Net economic income before tax 73.7 9.3 83.0
BALANCE SHEET
Figure 23
TETRAGON FINANCIAL GROUP
Balance Sheet as at 31 December 2014 and 31 March 2015
Q1 2015 2014
$MM $MM
Assets
Investments, at fair value 1,419.6 1,356.2
Intangible assets 238.1 29.7
Goodwill 24.8 -
Cash and cash equivalents 293.9 402.0
Amounts due from brokers 51.2 52.1
Derivative financial assets 33.7 19.2
Property, plant and equipment 0.5 0.1
Deferred tax asset and income tax receivable 9.2 10.0
Other receivables 57.2 33.4
Total assets 2,128.2 1,902.7
Liabilities
Other payables and accrued expenses 76.9 54.5
Loans and borrowings 87.6 -
Amounts payable on share options 13.4 12.3
Deferred tax liability and income tax payable 64.9 11.5
Derivative financial liabilities 3.4 5.9
Total liabilities 246.2 84.2
Net assets 1,882.0 1,818.5
STATEMENT OF CASH FLOWS
Figure 24
TETRAGON FINANCIAL GROUP
Statement of Cash Flows Q1 2013 - Q1 2015
Q1 2015 Q1 2014 Q1 2013
$MM $MM $MM
Operating Activities
Operating cash flows after incentive fees and before movements
in working capital 117.5 53.4 89.6
Purchase of fixed assets (0.4) - -
Change in payables / receivables (10.8) 0.1 (3.3)
Cash flows from operating activities 106.3 53.5 86.3
Investment Activities
Proceeds on sales of investments
- Net proceeds from derivative financial instruments - 13.4 -
- Proceeds sale of bank loans and maturity and prepayment of
investments 4.1 3.4 69.5
- Proceeds on realisation of real estate investments 12.1 4.2 4.5
- Proceeds from GreenOak working capital repayment 6.4 - -
Purchase of investments
- Purchase of CLOs (27.8) (30.1) (45.5)
- Purchase of bank loans - (1.4) (5.7)
- Purchase of real estate investments (21.3) (36.0) (6.3)
- Purchase of interest rate swaptions - -
- Purchase of goodwill and intangible assets (235.2) - -
- Investments in asset managers - - (0.5)
- Investments in Polygon Equity Funds - - (40.0)
- Investments in Polygon Credit, Convertibles and Distressed
Funds (5.0) (25.0) -
- Investments in Other Equities, Credit, Convertibles and
Distressed (12.2) (23.6) -
- Investments in Infrastructure Funds (12.7) - -
- Net payment or purchase of derivative financial instruments (0.3) - -
Cash flows from operating and investing activities(i) (185.6) (41.6) 62.3
Amounts due from broker 0.9 (21.5) 9.4
Net purchase of shares 3.1 (50.2) (9.0)
Dividends paid to shareholders (15.1) (14.8) (13.3)
Borrowings and loans 88.2 - -
Cash flows from financing activities 77.1 (86.5) (12.9)
Net increase in cash and cash equivalents (108.5) (128.1) 49.4
Cash and cash equivalents at beginning of period 402.0 245.9 175.9
Effect of exchange rate fluctuations on cash and cash
equivalents 0.4 - (0.3)
Cash and cash equivalents at end of period 293.9 117.8 225.0
(i) The Q1 2015 figure
reconciles to the
U.S. GAAP Statement
of Cash flows, "net
cash provided by
operating activities"
figure of $(181.5)
million, adjusted for
"dividends paid to
Feeder in lieu of
incentive fee
liability" ($4.1
million).
NET ECONOMIC INCOME TO U.S. GAAP RECONCILIATION
Figure 25
Net Economic Income to U.S. GAAP Reconciliation
Q1 2015
$MM
Net economic income 76.2
Share based employee compensation (5.8)
Unrealised Polygon performance fees (1.4)
Imputed tax charge on unrealised Polygon performance fees 0.4
Estimated TFM incentive fee on unrealised Polygon performance fees 0.2
U.S. GAAP net income 69.7
TFG is primarily reporting earnings through a non-GAAP measurement called Net Economic Income.
The reconciliation on the table above shows the adjustment required to get from this measure of earnings to U.S. GAAP net income. There are currently two adjusting items. Share based employee compensation of $5.8 million and performance fee earned but not accrued of $0.8 million. In relation to the share based compensation, under ASC 805 TFG is recognizing the value of the shares given in consideration for the Polygon transaction as employee compensation over the period in which they are vesting.
This mechanic and future vesting schedule are described in more detail in the Master Fund audited financial statements for the year ended 31 December 2014.
Unrealised Polygon performance fees represent the fees calculated by the applicable administrator of the relevant Polygon funds, in accordance with the applicable fund constitutional documents, when determining net asset value at quarter end, less certain assumed costs. Similar amounts, if any, from Equitix, LCM, GreenOak and Hawke's Point are excluded from this line item. Such fees would typically not be realised or recognised under U.S. GAAP until calendar year end, and are therefore subject to change based on fund performance during the remainder of the year. There can be no assurance that the company will realise all or any portion of such amounts.
Through 31 March 2015, this amount equalled $1.4 million before (1) an assumed imputed tax charge and (2) estimated TFM performance fees reduced the net contribution to $0.8 million as shown in Figure 9 and further represented in Figures 21 and 22 of this report.
APPENDICES
APPENDIX I
CERTAIN REGULATORY INFORMATION
This Performance Report constitutes TFG's interim management statement as required pursuant to Section 5:25e of the Dutch Financial Markets Supervision Act ("FMSA"). Pursuant to Section 5:25e and 5:25m of the FMSA, this report is made public by means of a press release and has been filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiele Markten) and also made available to the public by way of publication on the TFG website (http://www.tetragoninv.com).
An investment in TFG involves substantial risks. Please refer to the Company's website at http://www.tetragoninv.com for a description of the risks and uncertainties pertaining to an investment in TFG.
This release does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction. The securities of TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in the United States or to U.S. persons unless they are registered under applicable law or exempt from registration. TFG does not intend to register any portion of its securities in the United States or to conduct a public offer of securities in the United States. In addition, TFG has not been and will not be registered under the U.S. Investment Company Act of 1940, and investors will not be entitled to the benefits of such Act. TFG is registered in the public register of the Netherlands Authority for the Financial Markets under Section 1:107 of the FMSA as a collective investment scheme from a designated country. This release constitutes regulated information ("gereglementeerde informatie") within the meaning of Section 1:1 of the FMSA.
TFG shares (the "Shares") are subject to legal and other restrictions on resale and the Euronext Amsterdam N.V. trading market is less liquid than other major exchanges, which could affect the price of the Shares.
There are additional restrictions on the resale of Shares by Shareholders who are located in the United States or who are U.S. persons and on the resale of Shares by any Shareholder to any person who is located in the United States or is a U.S. person. These restrictions include that each Shareholder who is located in the United States or who is a U.S. person must be a "Qualified Purchaser" or a "Knowledgeable Employee" (each as defined in the Investment Company Act of 1940), and, accordingly, that Shares may be resold to a person located in the United States or who is a U.S. person only if such person is a "Qualified Purchaser" or a "Knowledgeable Employee" under the Investment Company Act of 1940. These restrictions may adversely affect overall liquidity of the Shares.
APPENDIX II
FAIR VALUE DETERMINATION OF CLO EQUITY INVESTMENTS
In accordance with the valuation policies set forth on TFG's website, the values of TFG's CLO equity investments are determined using a third-party cash flow modelling tool. The model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward- looking observable data) might potentially impact the performance of TFG's CLO equity investments. Since this involves modelling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.
Subject to the foregoing, when determining the U.S. GAAP-compliant fair value of TFG's portfolio, the Company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate.
The below modelling assumptions are unchanged from last quarter. The Company will provide analytical information on these assumptions as needed going forward, rather than each quarter.
Figure 26
U.S. CLOs Modelling Assumption
Variable Year Current Assumptions
CADR Until deal maturity 1.0x WARF-implied default rate (2.2%)
Recovery Rate Until deal maturity 73%
Prepayment Rate Until deal maturity 20.0% p.a. on loans; 0.0% on bonds
Reinvestment Price Until deal maturity 100%
Figure 27
European CLOs Modelling Assumption
Variable Year Current Assumptions
CADR Until deal maturity 1.0x WARF-implied default rate (2.1%)
Recovery Rate Until deal maturity 68%
Prepayment Rate Until deal maturity 20.0% p.a. on loans; 0.0% on bonds
Reinvestment Price Until deal maturity 100%
Figure 28
Discount Rates
CLO Type Q1 2015 Q4 2014
U.S. 1.0 12.0% 12.0%
European 1.0 13.0% 13.0%
U.S. 2.0 - seasoned 11.0% 11.0%
U.S. 2.0 - less than 12 months old Deal IRR Deal IRR
APPENDIX III
ADDITIONAL CLO PORTFOLIO STATISTICS
Each individual deal's metrics used in the calculation of the figures below will differ from the overall averages and vary across the portfolio.
Figure 29
[Figure 29]
Figure 30
[Figure 30]
(i) The calculation of TFG's lagging 12-month corporate loan default rate does not include certain underlying investment collateral that was assigned a "Selective Default" rating by one or more of the applicable rating agencies. Such Selected Defaults are included the S&P/LCD lagging 12-month U.S. institutional loan default rate discussed above. Furthermore, TFG's CLO equity and direct loan investment portfolio includes approximately 15.6% CLOs with primary exposure to European senior secured loans and such loans are included in the calculation of TFG's corporate default rate.
(ii) Source: S&P/LCD Quarterly Review as of the outlined quarter-end date.
Figure 31
CLO PORTFOLIO CREDIT QUALITY
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
ALL CLOs 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015
Caa1/CCC+ or
Below Obligors: 5.7% 6.4% 6.0% 5.1% 5.0% 4.9% 5.4% 4.6% 3.7% 4.5% 3.3% 3.2%
WARF: 2,578 2,605 2,599 2,541 2,568 2,553 2,542 2,565 2,621 2,554 2,442 2,350
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
U.S. CLOs 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015
Caa1/CCC+ or
Below Obligors: 4.2% 4.9% 4.5% 4.0% 4.1% 3.9% 3.8% 3.4% 3.0% 4.4% 2.5% 2.2%
WARF: 2,491 2,528 2,524 2,510 2,550 2,534 2,513 2,544 2,556 2,489 2,347 2,257
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
EUR CLOs 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015
Caa1/CCC+ or
Below Obligors: 11.6% 12.2% 11.7% 9.7% 8.7% 9.1% 11.8% 9.4% 6.9% 4.8% 6.5% 7.2%
WARF: 2,910 2,903 2,896 2,670 2,642 2,631 2,658 2,650 2,894 2,819 2,826 2,729
CLO EQUITY PORTFOLIO DETAILS
AS OF 31 MARCH 2015
Figure 32
Original Deal End of Wtd Avg Original
Invest. Cost Closing Year of Reinv Spread Cost of
Deal Type ($MM USD)(ii) Date Maturity Period (bps) Funds
Transaction(i) (iii) (bps)(iv)
Transaction 1 EUR CLO 37.5 2007 2024 2014 381 55
Transaction 2 EUR CLO 29.7 2006 2023 2013 398 52
Transaction 3 EUR CLO 22.2 2006 2022 2012 - 58
Transaction 4 EUR CLO 33.0 2007 2023 2013 387 48
Transaction 5 EUR CLO 36.9 2007 2022 2014 395 60
Transaction 6 EUR CLO 33.3 2006 2022 2012 399 51
Transaction 7 EUR CLO 38.5 2007 2023 2013 426 46
Transaction 8 EUR CLO 26.9 2005 2021 2011 381 53
Transaction 10 EUR CLO 27.0 2006 2022 2012 386 50
Transaction 86 EUR CLO 3.6 2006 2022 2012 386 50
EUR CLO Subtotal: 288.6 364 52
Transaction 11 US CLO 20.5 2006 2018 2012 288 45
Transaction 12 US CLO 22.8 2006 2019 2013 338 46
Transaction 13 US CLO 15.2 2006 2018 2012 296 47
Transaction 14 US CLO 26.0 2007 2021 2014 328 49
Transaction 15 US CLO 28.1 2007 2021 2014 399 52
Transaction 16 US CLO 23.5 2006 2020 2013 365 46
Transaction 17 US CLO 26.0 2007 2021 2014 305 40
Transaction 18 US CLO 16.7 2005 2017 2011 284 45
Transaction 19 US CLO 1.2 2005 2017 2011 284 45
Transaction 20 US CLO 26.6 2006 2020 2012 387 52
Transaction 21 US CLO 20.7 2006 2020 2012 371 53
Transaction 22 US CLO 37.4 2007 2021 2014 384 53
Transaction 24 US CLO 16.9 2006 2018 2012 398 46
Transaction 25 US CLO 20.9 2006 2018 2013 388 46
Transaction 26 US CLO 27.9 2007 2019 2013 403 43
Transaction 29 US CLO 19.1 2005 2018 2011 - 66
Transaction 30 US CLO 12.4 2006 2018 2012 389 67
Transaction 32 US CLO 24.0 2007 2021 2014 307 59
Transaction 33 US CLO 16.2 2006 2020 2012 359 56
Transaction 34 US CLO 22.2 2006 2020 2012 359 50
Transaction 36 US CLO 28.4 2007 2021 2013 354 46
Transaction 38 US CLO 23.7 2007 2021 2013 350 42
Transaction 40 US CLO 13.0 2006 2020 2011 367 39
Transaction 44 US CLO 22.3 2006 2018 2012 - 54
Transaction 45 US CLO 23.0 2006 2018 2012 - 46
Transaction 46 US CLO 21.3 2007 2019 2013 287 51
Transaction 47 US CLO 28.3 2006 2021 2013 331 47
Transaction 49 US CLO 12.6 2005 2017 2011 - 40
Transaction 50 US CLO 12.3 2006 2018 2012 - 40
Transaction 56 US CLO 23.0 2007 2019 2014 340 42
Transaction 57 US CLO 0.6 2007 2019 2014 340 42
Transaction 58 US CLO 21.8 2007 2019 2014 337 49
Transaction 59 US CLO 0.4 2007 2019 2014 337 49
Transaction 61 US CLO 29.1 2007 2021 2014 324 45
Transaction 63 US CLO 27.3 2007 2021 2013 358 53
Transaction 64 US CLO 15.4 2007 2021 2013 366 38
Transaction 65 US CLO 26.9 2006 2021 2013 357 47
Transaction 66 US CLO 21.3 2006 2020 2013 288 49
Transaction 68 US CLO 19.3 2006 2020 2013 330 48
Transaction 69 US CLO 28.2 2007 2019 2013 321 44
Transaction 71 US CLO 1.7 2006 2018 2012 - 40
Transaction 72 US CLO 4.8 2007 2019 2014 340 42
Transaction 73 US CLO 1.9 2007 2019 2014 340 42
Transaction 74 US CLO 5.5 2007 2019 2014 337 49
Transaction 75 US CLO 32.7 2011 2022 2014 369 168
Transaction 76 US CLO 1.9 2006 2018 2012 - 46
Transaction 77 US CLO 14.5 2011 2023 2016 392 212
Transaction 78 US CLO 22.9 2012 2023 2015 448 217
Transaction 79 US CLO 19.4 2012 2022 2015 396 215
Transaction 80 US CLO 22.7 2012 2022 2016 402 185
Transaction 81 US CLO 21.7 2012 2024 2016 426 216
Transaction 82 US CLO 25.4 2012 2022 2016 404 206
Transaction 83 US CLO 20.8 2013 2025 2017 454 193
Transaction 84 US CLO 24.6 2013 2023 2017 395 183
Transaction 85 US CLO 1.0 2013 2025 2017 400 170
Transaction 87 US CLO 23.0 2013 2026 2018 411 199
Transaction 88 US CLO 30.1 2014 2024 2018 412 199
Transaction 89 US CLO 33.6 2014 2026 2018 423 195
Transaction 90 US CLO 20.7 2014 2026 2018 432 203
Transaction 91 US CLO 1,178.8 337 92
Total CLO Portfolio: 1,467.4 342 84
Figure 32
(continued)
CLO Equity Portfolio Details
(continued)
As of 31 March 2015
Current Current
Cost of Jr- Jr-Most O/C Annualized ITD Cash
Funds Most O/C Cushion at (Loss) Gain Received as
(bps)(v) Cushion Close(vii) of Cushion IRR(ix) % of Cost(x)
Transaction(i) (vi) (viii)
Transaction 1 83 0.27% 3.86% (0.46%) - 43.5%
Transaction 2 89 2.62% 3.60% (0.12%) 9.9% 128.9%
Transaction 3 N/A 10.83% 5.14% 0.62% 11.7% 174.9%
Transaction 4 65 12.57% 5.76% 0.85% 16.1% 149.8%
Transaction 5 55 1.06% 5.74% (0.61%) 11.1% 105.6%
Transaction 6 87 14.69% 4.70% 1.13% 4.3% 56.6%
Transaction 7 70 11.52% 3.64% 0.98% 5.7% 50.8%
Transaction 8 130 27.83% 4.98% 2.37% 9.2% 113.1%
Transaction 10 104 4.82% 4.54% 0.03% 0.1% 53.6%
Transaction 86 104 4.82% 3.11% 0.20% 6.8% 35.8%
EUR CLO Subtotal: 77 9.05% 4.61% 0.48% 92.3%
Transaction 11 66 14.60% 4.55% 1.18% 20.5% 197.8%
Transaction 12 67 15.29% 4.45% 1.29% 20.2% 197.4%
Transaction 13 58 8.98% 4.82% 0.48% 21.8% 223.8%
Transaction 14 59 3.00% 5.63% (0.33%) 19.2% 208.8%
Transaction 15 49 3.86% 4.21% (0.05%) 29.9% 270.0%
Transaction 16 54 5.29% 4.44% 0.10% 21.2% 225.7%
Transaction 17 40 4.92% 4.24% 0.08% 24.6% 229.0%
Transaction 18 60 13.67% 4.77% 0.95% 20.0% 211.1%
Transaction 19 60 13.67% 4.77% 0.95% 23.9% 205.4%
Transaction 20 105 11.78% 5.28% 0.77% 22.2% 209.7%
Transaction 21 120 8.69% 4.76% 0.45% 18.2% 187.5%
Transaction 22 61 4.64% 5.00% (0.04%) 22.0% 211.3%
Transaction 24 74 16.84% 4.17% 1.47% 17.7% 193.2%
Transaction 25 80 24.41% 4.13% 2.45% 22.3% 210.4%
Transaction 26 68 16.56% 4.05% 1.56% 19.1% 192.2%
Transaction 29 N/A N/A 4.82% N/A 19.4% 210.7%
Transaction 30 240 18.70% 5.16% 1.54% 18.0% 182.4%
Transaction 32 60 4.31% 5.57% (0.17%) 22.6% 210.3%
Transaction 33 211 16.53% 6.99% 1.05% 13.8% 169.0%
Transaction 34 92 11.25% 6.66% 0.55% 18.9% 200.6%
Transaction 36 71 3.36% 5.18% (0.23%) 19.4% 188.9%
Transaction 38 75 12.98% 5.07% 0.98% 27.7% 246.5%
Transaction 40 105 N/A N/A N/A 20.9% 194.6%
Transaction 44 N/A N/A 4.16% N/A 10.1% 142.9%
Transaction 45 N/A 11.80% 4.46% 0.88% 8.2% 143.9%
Transaction 46 145 8.92% 4.33% 0.59% 6.9% 113.8%
Transaction 47 50 4.32% 4.34% (0.00%) 22.8% 225.3%
Transaction 49 N/A N/A 3.94% N/A 11.1% 170.0%
Transaction 50 N/A N/A 4.25% N/A 12.7% 184.1%
Transaction 56 64 9.87% 4.53% 0.66% 22.1% 204.7%
Transaction 57 64 9.87% 4.53% 0.66% 47.1% 1204.9%
Transaction 58 65 6.07% 4.04% 0.26% 24.7% 222.2%
Transaction 59 65 6.07% 4.04% 0.26% 51.8% 1758.7%
Transaction 61 47 2.55% 4.04% (0.19%) 18.2% 180.1%
Transaction 63 74 4.66% 4.78% (0.02%) 19.7% 200.7%
Transaction 64 48 N/A N/A N/A 23.4% 231.0%
Transaction 65 81 11.08% 4.96% 0.73% 14.8% 164.6%
Transaction 66 53 3.96% 4.05% (0.01%) 23.1% 228.1%
Transaction 68 52 7.69% 4.41% 0.39% 28.2% 275.7%
Transaction 69 49 9.16% 5.61% 0.44% 27.0% 256.2%
Transaction 71 N/A N/A 4.25% N/A 27.4% 170.8%
Transaction 72 64 9.87% 4.53% 0.66% 17.9% 106.0%
Transaction 73 64 9.87% 4.53% 0.66% 17.9% 106.0%
Transaction 74 65 6.07% 4.04% 0.26% 21.1% 118.6%
Transaction 75 170 4.55% 4.05% 0.13% 11.7% 75.1%
Transaction 76 N/A 11.80% 2.43% 1.13% 39.5% 177.3%
Transaction 77 213 5.82% 5.04% 0.24% 13.9% 58.5%
Transaction 78 175 6.69% 4.00% 0.84% 17.3% 77.2%
Transaction 79 179 3.98% 4.00% (0.01%) 8.8% 54.3%
Transaction 80 185 3.94% 4.17% (0.08%) 10.9% 55.6%
Transaction 81 194 5.36% 4.00% 0.54% 9.5% 39.5%
Transaction 82 207 4.06% 4.00% 0.02% 8.0% 41.8%
Transaction 83 193 7.10% 6.17% 0.44% 14.7% 42.4%
Transaction 84 184 4.09% 4.02% 0.04% 16.2% 52.4%
Transaction 85 171 5.08% 5.01% 0.04% 9.8% 35.8%
Transaction 87 199 4.23% 4.00% 0.17% 6.2% 22.6%
Transaction 88 200 3.99% 4.02% (0.02%) 12.2% 25.9%
Transaction 89 195 3.95% 3.96% (0.01%) 13.7% 20.9%
Transaction 90 203 3.99% 4.00% (0.02%) 12.8% 0.0%
Transaction 91 215 4.00% 4.00% - 12.0% 0.0%
US CLO Subtotal: 103 7.02% 4.46% 0.36% 156.8%
Total CLO
Portfolio: 98 7.42% 4.49% 0.39% 144.1%
Notes
(i) Transactions are investments made on a particular investment date.
Multiple transactions may be associated with the same tranche of the
same CLO deal. Note that certain transactions may have been removed
from the table above, as the remaining value of the assets of those
CLOs is immaterial. TFG may continue to hold such transactions as of
the date of this report.
(ii) The USD investment cost reflects a USD-EUR exchange rate fixed at a
single historical rate to avoid the impact of skewed weightings and FX
volatility over time. As such, the investment costs of European CLOs
as shown in this table may not be comparable to the investments costs
as shown in TFG's financial statements.
(iii) Par weighted-average spread over LIBOR or EURIBOR (as appropriate) of
the underlying loan assets in each CLO's portfolio.
(iv) Notional weighted-average spread over LIBOR or EURIBOR (as
appropriate) of the debt tranches issued by each CLO, as of the
closing date of each transaction.
(v) Notional weighted-average spread over LIBOR or EURIBOR (as
appropriate) of the debt tranches issued by each CLO, as of the most
recent trustee report date.
(vi) The current junior-most O/C cushion is the excess (or deficit) of the
junior-most O/C test ratio over the test requirement, as of the latest
trustee report available as of the report date. Calculations are
ignored and stated as "N/A" In certain cases where debt has been
substantially, but not fully, repaid, resulting in a junior-most O/C
test cushion that is not meaningful.
(vii) The junior-most O/C cushion at close is the excess (or deficit) of the
junior-most O/C test ratio over the test requirement that was expected
on each deal's closing date. Please note that two of TFG's investments
are so called "par structures" which don't include a junior O/C test.
They have been marked by an "N/A" in the relevant junior-most O/C test
columns.
(viii) Calculated by annualising the change from the expected closing date
junior-most O/C cushion to the current junior-most O/C cushion.
(ix) Calculated from TFG's investment date. Includes both historical cash
flows received to-date and prospective cash flows expected to be
received, based on TFG's base case modeling assumptions.
(x) Inception to report date cash flow received on each transaction as a
percentage of its original cost.
CLO EQUITY PORTFOLIO DETAILS (CONTINUED)
AS OF 31 MARCH 2015
Figure 33
[Figure 33]
(i) The current junior-most O/C cushion
is the excess (or deficit) of the
junior-most O/C test ratio over the
test requirement, as of the latest
trustee report available as of the
report date. Calculations are stated
as "N/A" In certain cases where debt
has been substantially, but not
fully, repaid, resulting in a
junior-most O/C test cushion that is
not meaningful.
APPENDIX IV
SHARE RECONCILIATION AND SHAREHOLDINGS
Figure 34(23)
U.S. GAAP to Fully Diluted Shares Reconciliation
Q1 2015 Shares
(MM)
Legal Shares Issued and Outstanding 136.5
Less: Shares Held In Subsidiary (16.6)
Less: Shares Held In Treasury (12.8)
Less: Escrow Shares(22.i) (10.6)
U.S. GAAP Shares Outstanding 96.6
Add: Manager (IPO) Share Options(22.ii) 0.0
Add: Escrow Shares(22.i) 10.6
Pro Forma Fully Diluted Shares 107.1
SHAREHOLDINGS
Persons affiliated with TFG maintain significant
interests in TFG shares. For example, as of 31 March
2015, the following persons own (directly or
indirectly) interests in shares in TFG in the
amounts set forth below:
Mr. Reade Griffith* 7,739,452
Mr. Paddy Dear* 2,709,937
Mr. David Wishnow + 346,262
Mr. Jeff Herlyn + 273,652
Mr. Michael Rosenberg + 125,899
Mr. Rupert Dorey 97,972
Mr. Frederic Hervouet 2,480
*The amounts set forth above in regards to Messrs.
Griffith and Dear include their interests with
respect to the Escrow Shares(23.i). In addition to
the foregoing, as of 31 March 2015, certain
employees of subsidiaries of TFG and other
affiliated persons own in the aggregate
approximately 3.3 million shares, including
interests with respect to the Escrow Shares(23.i),
in each case, however, excluding any TFG shares held
by the GreenOak principals or employees.
As previously disclosed, non-voting shares of TFG
(together with accrued dividends and previously
vested shares, (the "Vested Shares")) that were
issued pursuant to TFG's acquisition in October 2012
of TFG Asset Management L.P. (f/k/a Polygon
Management L.P.) and certain of its affiliates (the
"Polygon Transaction") have vested with certain
persons (other than Messrs. Griffith and Dear) (such
persons, the "Sellers"), all of whom are employees
or partners ("Employees") of TFG-owned or affiliated
entities, pursuant to the Polygon Transaction.
Certain of these Employees may from time to time
enter into sales trading plans (each a, "Fixed
Trading Plan") providing for the sale of Vested
Shares in the market or may otherwise sell their
Vested Shares subject to applicable compliance
policies. Applicable brokerage firms may be
authorised to sell such TFG shares under the
relevant Fixed Trading Plan pursuant to certain
irrevocable instructions. Each Fixed Trading Plan is
intended to comply with Rule 10b5-1 under the United
States Securities Exchange Act of 1934, as amended.
Each Fixed Trading Plan has been or will be approved
by TFG in accordance with its applicable compliance
policies.
+ Each of Messrs. Wishnow, Herlyn and Rosenberg
expect to sell, subject to applicable compliance
policies, an aggregate of 262,963 shares of their
holdings set forth above.
For additional information regarding the Polygon
Transaction and the future vesting schedule for
shares issued thereunder, see Note 22 to the 2014
Tetragon Financial Group Master Fund Limited audited
financial statements, included in the TFG 2014
Annual Report.
Rule 10b5-1 provides a "safe harbor" that is
designed to permit individuals to establish a
pre-arranged plan to buy or sell company stock if,
at the time such plan is adopted, the individuals
are not in possession of material, nonpublic
information.
APPENDIX V
BOARD OF DIRECTORS
Rupert Dorey has over 30 years of experience in financial markets. Mr Dorey was at CSFB for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He held a number of positions at CSFB, including establishing CSFB's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales. Since 2005, he has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles. He is former President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.
Frederic Hervouet has over 17 years of experience in financial markets and hedge funds, including in multi-asset class investment and risk management, structured products and structured finance. Until September 2013, Mr. Hervouet was a Managing Director and Head of Commodity Derivatives Asia for BNP Paribas, where he was focused on trading, structuring and sales. Previously, Mr. Hervouet was a Director and Global Head of Sales at Diapason Commodities Management SA, a partner at Systeia Capital Management, which is now part of Amundi Asset Management, and a Director and Head of European Market Distribution at BAREP Asset Management, the hedge fund management subsidiary of Société Générale. Mr. Hervouet has a MSc in Applied Mathematics and International Finance and a Masters Degree (DESS) in Financial Markets, Commodities Markets and Risk Management from the Université Paris Dauphine. He is a member of the Institute of Directors (IoD) and of the Guernsey Chamber of Commerce. Mr. Hervouet who is based in Guernsey, is a Non-Executive, Independent Director.
David Jeffreys provides directorship services to a small number of fund groups. From 1993 until June 2004, Mr. Jeffreys was managing director of Abacus Fund Managers (Guernsey) Limited, where he was involved with private client trust arrangements, corporate administration, pension schemes and fund administration. He was a board member of Abacus' principal administration operating companies and served on the boards of various administrated client companies. Previously, Mr. Jeffreys worked as an auditor and accountant for 12 years with Coopers & Lybrand (and its predecessor firms). He has an undergraduate degree in Economics and Accounting from the University of Bristol and is a fellow of the Institute of Chartered Accountants in England and Wales. Mr. Jeffreys who is based in Guernsey, is a Non-Executive, Independent Director.
Byron Knief is Managing Director of Court Square Capital Advisor, LLC. Since 1989, he has raised and invested over $3 billion of capital through a series of mezzanine and leveraged debt funds. Prior to 1989, he ran a variety of businesses for Citigroup in the United States, Europe, Canada and Latin America. Mr. Knief received an undergraduate degree from Northwestern University and an MBA from Columbia University. He has served as a director on the boards of several public and private companies. Current corporate board memberships include DavCo Restaurants, Inc., JAC Products, Inc. and Olameter, Inc. He was also formerly a director of Polygon Global Opportunities Fund and certain of its affiliates. Mr. Knief's charitable board memberships include The Milbank Memorial Fund and The Mountain Top Arboretum. Mr. Knief who is based in the United States of America, is a Non-Executive, Independent Director.
Reade Griffith co-founded Polygon in 2002 and Tetragon Financial Management LP in 2005. He was previously the founder and chief executive officer of the European office of Citadel Investment Group, a multi-strategy hedge fund that he joined in 1998. He was a partner and senior managing director responsible for running the Global Event Driven arbitrage team of 25 people in Tokyo, London and Chicago for the firm. He was previously with Baker, Nye, where he was an analyst working on an arbitrage and special situations portfolio. Mr. Griffith holds a JD from Harvard Law School and an undergraduate degree in Economics from Harvard College. He also served as an officer in the United States Marine Corps and left as a Captain following the 1991 Gulf War. He is a Principal of Tetragon Financial Group Management LP. Mr. Griffith, who is based in the United Kingdom, is an Internal Director.
Paddy Dear co-founded Polygon in 2002 and Tetragon Financial Management LP in 2005. He was previously managing director and the global head of Hedge Fund Coverage for UBS Warburg Equities. As global head of Hedge Fund Coverage and Chairman of the Global Hedge Fund Committee, he was responsible for the delivery of all of the bank's products and services to hedge fund clients globally. He was on the board of UBS Netherlands, and was a member of both the European Equity Business Committee and the Extended Global Equity Business Committee. Prior to this, Mr. Dear was co-head of European sales trading, execution, arbitrage sales and flow derivatives. He had been with UBS since 1988, including six years in New York. Mr. Dear was in equity sales at Prudential Bache before UBS. Prior to moving into investment banking, Mr. Dear was a petroleum engineer with Marathon Oil Co. He received a Bachelor of Science in Petroleum Engineering from Imperial College in London. He is a Principal of Tetragon Financial Group Management LP. Mr. Dear, who is based in the United Kingdom, is an Internal Director.
FURTHER INFORMATION
Registered Office of TFG and the Issuing Agent, Dutch Paying and
Master Fund Transfer Agent
Tetragon Financial Group Limited Kas Bank N.V.
Tetragon Financial Group Master Fund Limited Spuistraat 172
1st Floor Dorey Court 1012 VT Amsterdam
Admiral Park The Netherlands
St. Peter Port, Guernsey
Channel Islands GY1 6HJ Legal Advisor (as to U.S. law)
Cravath, Swaine & Moore LLP
Investment Manager Worldwide Plaza
Tetragon Financial Management LP 825 Eighth Avenue
399 Park Avenue, 22nd Floor New York, NY 10019
New York, NY 10022 United States of America
United States of America
Legal Advisor (as to Guernsey law)
General Partner of Investment Manager Ogier
Tetragon Financial Management GP LLC Redwood House
399 Park Avenue, 22nd Floor St. Julian's Avenue
New York, NY 10022 St. Peter Port, Guernsey
United States of America Channel Islands GY1 1WA
Investor Relations Legal Advisor (as to Dutch law)
David Wishnow / Greg Wadsworth De Brauw Blackstone Westbroek N.V.
ir@tetragoninv.com Claude Debussylaan 80
1082 MD Amsterdam
Press Inquiries The Netherlands
Sard Verbinnen & Co
tetragon-svc@sardverb.com Stock Listing
Euronext Amsterdam N.V.
Auditors
KPMG Channel Islands Ltd. Administrator and Registrar
Glategny Court, State Street (Guernsey) Limited
Glategny Esplanade 1st Floor Dorey Court
St. Peter Port, Guernsey Admiral Park
Channel Islands GY1 1WR St. Peter Port, Guernsey
Channel Islands GY1 6HJ
Sub-Registrar and Transfer Agent
Computershare
One Wall Street
New York, NY 10286
United States of America
ENDNOTES
_______________
TFG is not responsible for the contents of any third-party website noted in this
report.
Shareholder Letter
(1) TFG invests substantially all its capital through a master
fund, Tetragon Financial Group Master Fund Limited ("TFGMF"),
in which it holds 100% of the issued non-voting shares. In
this report, unless otherwise stated, we report on the
consolidated business incorporating TFG and TFGMF. References
to "we" are to Tetragon Financial Management LP, TFG's
investment manager (the "Investment Manager").
(2) LIBOR directly flows through some of TFG's investments and, as
it can be seen as the risk-free short-term rate, it should
affect all of TFG's investments. In high-LIBOR environments,
TFG should achieve higher sustainable returns; in low-LIBOR
environments, TFG should achieve lower sustainable returns.
(3) Please see Figure 9 on page 15 for details of EBITDA
equivalent.
(4) GreenOak Real Estate, LP; hereinafter referred to in this
report as "GreenOak." GreenOak is separately registered as an
investment adviser under the U.S. Investment Advisers Act of
1940. TFG owns a 23% interest in GreenOak.
(5) Includes GreenOak funds and advisory assets, LCM Asset
Management LLC, Polygon Recovery Fund LP, Polygon Convertible
Opportunity Master Fund, Polygon European Equity Opportunity
Master Fund and associated managed account, Polygon Mining
Opportunity Master Fund, Polygon Global Equities Master Fund,
Polygon Distressed Opportunities Master Fund, and Equitix
Holdings as calculated by the applicable administrator for
value date 31 March 2015. Includes, where relevant,
investments by Tetragon Financial Group Master Fund Limited.
TFG Asset Management AUM as used in this report includes the
assets under management of several investment advisers,
including Tetragon Asset Management L.P., and GreenOak Real
Estate, LP, each of which is an investment manager registered
under the U.S. Investment Advisers Act of 1940.
(6) Please see note 1.
(7) Please see note 5.
(8) Assets Under Management ("AUM") and "Employees Globally"
include Equitix, which was acquired in February 2015, and the
GreenOak joint venture.
Key Metrics
(9) Please see note 2.
(10) Please refer to Financial Highlights on page 27 of this report
for the definition of Net Economic Income.
(11) Please see note 10.
(12) Please refer to Financial Highlights on page 27 of this report
for the definition of Pro Forma Fully Diluted Shares and Pro
Forma Fully Diluted NAV per Share.
Q1 2015 in Review
(13) Unrealised Polygon performance fees represent the fees
calculated by the applicable administrator of the relevant
Polygon funds, in accordance with the applicable fund
constitutional documents, when determining NAV at quarter end,
less certain assumed costs. Similar amounts, if any, from LCM
and GreenOak are excluded from this line item. Such fees would
typically not be realised or recognised under U.S. GAAP until
calendar year end, and are therefore subject to change based
on fund performance during the remainder of the year. There
can be no assurance that the company will realise all or any
portion of such amounts. Through 31 March 2015, this amount
equalled $1.4 million before (1) an assumed imputed tax charge
and (2) estimated TFM performance fees reduced the net
contribution to $0.8 million as shown in Figure 9 and further
represented in Figures 21 and 22 of this report. It also
includes any unrealised performance fees to potentially be
paid on investments made by TFG in Polygon hedge funds or
other investment vehicles. TFG is able to invest at a
preferred level of fees.
(14) The LCM III, LCM IV, LCM V, LCM VI, LCM IX, LCM X, LCM XI, LCM
XII, LCM XIII, LCM XIV, LCM XV, LCM XVI, LCM XVII, and LCM
XVIII CLOs are referred to as the "LCM Cash Flow CLOs."
LCM-managed CLOs that are no longer outstanding are not
included in the LCM Cash Flow CLO statistics. In addition,
these statistics do not include the performance of certain
transactions that were developed and previously managed by a
third-party prior to being assigned to LCM, some of which
continue to be managed by LCM.
(15) (i) The fund began trading with Class B shares, which carry no
incentive fees, on 20 May 2009. Class A shares of the fund
were first issued on 1 April 2010 and returns from inception
through March 2010 have been pro forma adjusted to match the
fund's Class A share terms as set forth in the Offering
Memorandum (1.5% management fee, 20% incentive fee over a
hurdle and other items, in each case, as set forth in the
Offering Memorandum). AUM figure and net performance is for
the Polygon Convertible Opportunity Master Fund as calculated
by the applicable fund administrator.
(ii) The fund began trading 8 July 2009 with Class B shares
which carry no incentive fee. Class A shares commenced trading
on 1 December 2009. Returns from inception through November
2009 for Class A shares have been pro forma adjusted to match
the fund's Class A share terms as set forth in the Offering
Memorandum (1.5% management fee, 20% incentive fee and other
items, in each case, as set forth in the offering Memorandum).
From December 2009 to February 2011, the table reflects actual
Class A share performance on the terms set forth in the
Offering Memorandum. From March 2011, forward, the table
reflects actual Class A1 share performance on the terms set
forth in the Offering Memorandum. Class A1 share performance
is equivalent to Class A share performance for prior periods.
AUM figure and net performance is for the Polygon European
Equity Opportunity Master Fund and associated managed account
as calculated by the applicable fund administrators.
(iii) The fund began trading with Class B1 shares, which carry
no incentive fees, on 1 June 2012. Returns through October
2013 have been pro forma adjusted to account for a 2.0%
management fee, a 20% incentive fee, and non trading expenses
capped at 1%, in each case, as set forth in the Offering
Memorandum. Class A1 shares of the Fund were first issued on 1
November 2013. From November 2013, forward, performance
reflects actual Class A1 share performance on the terms set
forth in the Offering Memorandum. AUM figure and net
performance is for the Polygon Mining Opportunity Master Fund
as calculated by the applicable fund administrator.
(iv) The fund began trading on 2 September 2013. Class A
shares of the fund were first issued in September 2013 and
returns from inception through September 2014 have been
adjusted to match the fund's class A share terms as set forth
in the Offering Memorandum (1.5% management fee, 20% incentive
fee and other items, in each case, as set forth in the
Offering Memorandum). AUM figure and net performance is for
the Polygon Distressed Opportunities Master Fund as calculated
by the applicable fund administrator.
(v) The fund began trading with Class B/B1 shares, which carry
no incentive fees, on 12 September 2011. Returns shown from
inception through August 2013 have been pro forma adjusted to
account for a 2.0% management fee and a 20% incentive fee, in
each case, as to be set forth in further definitive documents.
The fund began trading Class A shares, which are not new issue
eligible, on 23 September 2011. Class A1 shares of the Fund,
which are new issue eligible, were first issued on 1 November
2013, and returns from inception through October 2013 have
been pro forma adjusted to match the Fund's Class A1
performance. AUM figure and net performance is for the Polygon
Global Equities Master Fund as calculated by the applicable
fund administrator.
(vi) The Private Equity Vehicle noted is the Polygon Recovery
Fund L.P. ("PRF"). The manager of the PRF is a subsidiary of
TFG. The management fees earned in respect of PRF are included
in the TFG Asset Management business segment described herein.
PRF is a limited-life vehicle seeking to dispose of its
portfolio securities prior to the expiration of its term,
recently extended to March 2016, and subject to a further
one-year extension based on investor approval. Individual
investor performance will vary based on their high water mark.
Currently, the majority of Class C share class investors have
not reached their high water mark, so their performance is the
same as their gross performance. The AUM figure for PRF is as
calculated by the applicable fund administrator.
(16) Based on the most recent trustee reports available as of 31
March 2015.
(17) Based on the most recent trustee reports available as of 31
March 2015.
(18) Adjusted net assets of such investments consists of the fair
value of, or capital committed to, investment assets held
directly on the balance sheet.
(19) Investible Cash consists of: (1) cash held directly by
Tetragon Financial Group Master Fund Limited, (2) excess
margin held by brokers associated with assets held directly by
Tetragon Financial Group Master Fund Limited, and (3) cash
held in certain designated accounts related to TFG's
investments, which may only be used for designated purposes
without incurring significant tax and transfer costs.
Q1 2015 Financial Review
(20) On occasion, figures may not total due to rounding.
(21) Please see Note 13.
(22) Pro Forma Fully Diluted NAV per Share seeks to reflect certain
potential changes to the total non-voting shares over the next
few years, which may be utilised in the calculation of NAV per
Share. Specifically, the number of shares used to calculate
U.S. GAAP NAV per Share has been adjusted to incorporate:
(i) The Escrow Shares, which have been
used as consideration for the
acquisition of Polygon and applicable
stock dividends relating thereto, and
which are held in escrow and are
expected to be released and
incorporated into the U.S. GAAP NAV
per Share over the next three years.
(ii) The number of shares corresponding to
the applicable intrinsic value of the
options issued to the Investment
Manager at the time of the company's
IPO with a strike price of $10.00, to
the extent such options are in the
money at period end. The intrinsic
value of the manager (IPO) share
options is calculated as the excess
of (x) the closing price of the
shares as of the final trading day in
the relevant period over (y) $10.00
(being the exercise price per share)
times (z) 12,545,330 (being a number
of shares subject to the options
before the application of potential
anti-dilution). The terms of exercise
under the options allow for exercise
using cash, as well as, with the
consent of the board of the company,
certain forms of cashless exercise.
Each of these prescribed methods of
exercise may give rise to the
issuance of a different number of
shares than the approach described
herein. If the options were to be
surrendered for their intrinsic value
with the board's consent, rather than
exercised, the number of shares
issued would equal the intrinsic
value divided by the closing price of
the shares as of the final trading
day in the relevant period. This
approach has been selected because we
currently believe it is more
reasonably illustrative of a likely
outcome if the options are exercised.
The options are exercisable until 26
April 2017.
Appendix IV
(23) Please see Note 22.
An investment in TFG involves substantial risks. Please refer to the company's
website at http://www.tetragoninv.com for a description of the risks and
uncertainties pertaining to an investment in TFG.
This release does not contain or constitute an offer to sell or a solicitation of an
offer to purchase securities in the United States or any other jurisdiction. The
securities of TFG have not been and will not be registered under the U.S. Securities
Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in
the United States or to U.S. persons unless they are registered under applicable law
or exempt from registration. TFG does not intend to register any portion of its
securities in the United States or to conduct a public offer of securities in the
United States. In addition, TFG has not been and will not be registered under the
U.S. Investment Company Act of 1940, and investors will not be entitled to the
benefits of such Act. TFG is registered in the public register of the Netherlands
Authority for the Financial Markets under Section 1:107 of the FMSA as a collective
investment scheme from a designated country. This release constitutes regulated
information ("gereglementeerde informatie") within the meaning of Section 1:1 of the
FMSA.
Contact information:
TFG: Press Inquiries:
David Wishnow/Greg Wadsworth Sard Verbinnen & Co
Investor Relations +1-212-687-8080
ir@tetragoninv.com tetragon-svc@sardverb.com
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