2020
ANNUAL
REPORT
TETRAGON FINANCIAL GROUP
2020 Annual Repor t 1
Contents
1 Strategic Review
Letter to Our Shareholders
Investment Objective & Strategy
Key Performance Metrics
Investment Review
Risk Management
Risk Factors
2 Governance
Board of Directors
Audit Committee
The Investment Manager
Directors’ Report
Directors’ Statements
The AIC Code of Corporate Governance
Additional Information
3 2020 Financial Review
Financial Highlights
Pro Forma Statement of Comprehensive Income
Pro Forma Statement of Financial Position
4 Other Information
TFG Asset Management Overview
Environmental, Social and Governance Policy
Share Repurchases & Distributions
Share Reconciliation and Shareholdings
Additional CLO Portfolio Statistics
Certain Regulatory Information
Equity-Based Compensation Plans
Shareholder Information
5 Audited Financial Statements
Independent Auditor's Report
Audited Financial Statements
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18
29
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37
41
42
47
50
51
62
64
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68
78
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94
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TETRAGON(1) is a closed-ended investment company that invests in a broad range of
assets, including public and private equities and credit (including distressed securities
and structured credit), convertible bonds, real estate, venture capital, infrastructure, bank
loans and TFG Asset Management, a diversified alternative asset management business.
Where appropriate, through TFG Asset Management, Tetragon seeks to own all, or a
portion, of asset management companies with which it invests in order to enhance the
returns achieved on its capital. Tetragon’s investment objective is to generate distributable
income and capital appreciation. It aims to provide stable returns to investors across
various credit, equity, interest rate, inflation and real estate cycles. The company is traded
on Euronext in Amsterdam N.V. and on the Specialist Fund Segment of the main market
of the London Stock Exchange.
To view company updates visit: www.tetragoninv.com
Tetragon’s shares are subject to restrictions on ownership by U.S. persons and are not intended for
European retail investors. These are 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.
(1) Tetragon Financial Group Limited is referred to in this report as Tetragon. References to “we” are to Tetragon Financial Management LP,
Tetragon’s investment manager.
Delivering Results Since 2005(1)
NAV per Share Total Return(2)
9.5%
10.2%
14.6% 11.3%
332%
2020 Full Year
5 Years Annualised
10 Years Annualised
Since IPO Annualised
Since IPO
Investment Returns / Return on Equity(3)
7.6%
10-15% 12.1%
2020 Return on Equity
RoE Target
Annual Average
Since IPO
Dividends(4)
$0.10 $0.40 4.2% (9.2)%
Q4 2020 Dividend
2020 Dividends
Dividend Yield (5) Dividend 5 -Year CAGR (6)
Net Asset Value
Ownership(7)
$2.5 billion
32.7%
31 December 2020
Principal & Employee Ownership
at 31 December 2020
(1) (2) (3) (4) (5) (6) (7) Please see important notes on page 8.
6
2020 Snapshot
Tetragon aims to provide stable returns to investors across various credit, equity,
interest rate, inflation and real estate cycles.
Figure 1
Tetragon Financial Group - Performance Summary
Net Assets
Fully Diluted NAV Per Share
Share Price(1)
Dividend
Dividend Yield
Ongoing Charges(2)
Principal & Employee Ownership
Investment Returns/Return on Equity(3)
NAV Per Share Total Return(4)
Share Price Total Return(5)
Tetragon Hurdle: LIBOR +2.65%(6)
MSCI ACWI Index Total Return(7)
FTSE All-Share Index Total Return(7)
31 December 2020
31 December 2019
$2,474.4m
$26.57
$9.50
$0.40
4.2%
1.70%
32.7%
2020
7.6%
9.5%
(18.5%)
3.7%
16.8%
(9.7%)
$2,386.1m
$24.76
$12.25
$0.74
6.0%
1.73%
30.8%
2019
13.4%
13.6%
11.5%
5.2%
27.3%
19.1%
Figure 2
Tetragon's NAV Per Share Total Return and Share Price Since IPO to 31 December 2020
350%
300%
250%
200%
150%
100%
50%
0%
(50%)
(100%)
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Change
$88.3m
$1.81
$(2.75)
$(0.34)
332%
137%
127%
80%
71%
TFG NAV per share (TR)
TFG Share Price (TR)
MSCI ACWI (TR)
TFG LIBOR-based performance hurdle
FTSE All-Share Index (TR)
(1) (2) (3) (4) (5) (6) (7) Please see important notes on page 8.
2020 Annual Repor t 7
Page 7:
(1) Based on TFG.NA.
(2) Annual calculation as at 31 December 2020. The ongoing
charges figure is calculated as defined by the AIC, and
comprises all direct recurring expenses to Tetragon
expressed as a percentage of average Net Assets, and
includes the annual management fee of 1.5%.
(3) Please see Note 3 for Page 6.
(4) Please see Note 2 for Page 6.
(5) 2020 total shareholder return, defined as share price
appreciation including dividends reinvested, as sourced
from Bloomberg.
(6) Cumulative return determined on a quarterly
compounding basis using the actual Tetragon quarterly
incentive fee LIBOR-based hurdle rate.
(7) Any indices and other financial benchmarks are provided
for illustrative purposes only. Comparisons to indices
have limitations because, for example, indices have
volatility and other material characteristics that may
differ from the fund. Any index information contained
herein is included to show general trends in the markets
in the periods indicated, is not meant to imply that these
indices are the only relevant indices, and is not intended
to imply that the portfolio or investment was similar to
any particular index either in composition or element
of risk. The indices shown here have not been selected
to represent an appropriate benchmark to compare an
investor's performance, but rather is disclosed to allow
for comparison of the investor's performance to that of
certain well-known and widely-recognised indices. The
volatility of the indices may be materially different from
the individual performance attained by a specific investor.
In addition, the fund's holdings may differ significantly
from the securities that comprise the indices. The
MSCI ACWI captures large and mid-cap representation
across 23 developed markets and 27 emerging markets
countries. With over 3,000 constituents, the index
covers approximately 85% of the global investable equity
opportunity set. Further information relating to the
index constituents and calculation methodology can be
found at www.msci.com/acwi. The FTSE All-Share Index
represents 98-99% of U.K. market capitalisation and is
the aggregate of the FTSE 100, FTSE 250 and FTSE Small
Cap indices. Further information relating to the index
constituents and calculation methodology can be found
at www.ftserussell.com/products/indices/uk.
Notes
Page 6:
(1) Tetragon commenced investing as an open-ended
investment company in 2005, before its initial public
offering in April 2007.
(2) NAV per share total return (NAV Total Return) to 31
December 2020, for the last year, the last five years,
the last ten years, and since Tetragon’s initial public
offering in April 2007. NAV Total Return is determined
in accordance with the “NAV total return performance”
calculation as set forth on the Association of Investment
Companies (AIC) website. Tetragon’s NAV Total Return is
determined for any period by calculating, as a percentage
return on the Fully Diluted NAV per Share (NAV per share)
at the start of such period, (i) the change in NAV per share
over such period, plus (ii) the aggregate amount of any
dividends per share paid during such period, with any
dividend deemed reinvested at the NAV per share at the
month end date closest to the applicable ex-dividend date
(i.e. so that the amount of any dividend is increased or
decreased by the same percentage increase or decrease
in NAV per share from such ex-dividend date through
to the end of the applicable period). NAV per share is
calculated as Net Assets divided by Fully Diluted Shares
Outstanding. Please refer to page 64 for further details.
(3) Tetragon seeks to deliver 10-15% Return on Equity (RoE)
per annum to shareholders. Please refer to page 64 for
the calculation of RoE. Tetragon’s returns will most likely
fluctuate with LIBOR. LIBOR directly flows through some
of Tetragon’s investments and, as it can be seen as the
risk-free short-term rate, it should affect all of Tetragon’s
investments. In high-LIBOR environments, Tetragon
should achieve higher sustainable returns; in low-LIBOR
environments, Tetragon should achieve lower sustainable
returns.
(4) Following the modification to Tetragon's Dividend and
Capital Return Policy in 2020 to remove of any specific
dividend target payout ratio referenced to normalised
earnings, Tetragon will no longer report a dividend cover
as a relevant means of analysing the sustainability of the
dividend.
(5) The dividend yield represents the last four quarterly
dividends divided by the TFG NA share price at 31
December 2020. The latest declared dividend is included
in the calculation.
(6) The five-year Compound Annual Growth Rate (CAGR)
figure is at 31 December 2020.
(7) Shareholdings at 31 December 2020 of the principals of
Tetragon’s investment manager and employees of TFG
Asset Management, including all deferred compensation
arrangements (other than with respect to shares that
are subject to performance criteria). Please refer to the
Tetragon Financial Group Limited 2020 Audited Financial
Statements for more details of these arrangements.
8
SSttrraatteeggiicc
RReevviieeww
Letter to Our Shareholders
Tetragon delivered an investment
return on equity (RoE) of 7.6%,
a NAV per share total return of
9.5% and a share price total return
of -18.5% in 2020. Tetragon also
declared 40.0 cents of dividends
per share for the year – a yield of
4.2%.
Tetragon’s NAV per share total return has averaged
10.2% over the past five years which compares
to annualised performance of 12.9% for the MSCI
ACWI Index.(1)
2020 presented one of the most challenging
investment environments since the global financial
crisis in 2008. During the year, market participants
witnessed both the fastest bear market in the
history of the S&P 500 followed by one of the
quickest recoveries. Many asset classes ultimately
had positive performance for the year, with the
notable exceptions of some commodities and
real estate. Initially, businesses that benefitted
from the quarantine performed well; eventually,
more economically-sensitive businesses rallied as
investors focused on companies and industries
that would benefit in an economic recovery.
2020 performance gains and losses
Four of the portfolio’s asset classes produced
performance gains for the year with two producing
losses. Nearly 60% of the portfolio’s gains
were generated within TFG Asset Management
(which holds private equity investments in asset
management companies). The company’s
allocation to private equity and venture capital
also delivered strong returns, generating over 20%
of the company’s gains. Remaining gains were
within the portfolio’s investments in event-driven
equities, convertible bonds, and other equities and
credit. The company’s allocations to bank loans
(via CLOs) and real estate generated small losses
during the year.
10
Four of the portfolio's asset classes
produced performance gains for
the year with two producing losses.
Nearly 60% of the portfolio's gains
were generated within TFG Asset
Management.
All eight of the TFG Asset Management
businesses were able to perform well in spite of
the challenges of 2020. The largest gain within
TFG Asset Management was from Equitix.(2)
Equitix raised over £1.4 billion of investment capital
during 2020 and its assets under management
have now more than trebled in the last four
years. During the year, Equitix refinanced its
£125 million of existing debt with £187 million of
new debt, enhancing its cost of borrowing and
maturity. Despite the challenges of COVID-19,
BentallGreenOak(3) grew assets by $3.6 billion and
the company’s EBITDA exceeded its initial 2020
business plan. The BentallGreenOak management
team remains focused on prudently deploying
its “dry powder,” sourcing accretive acquisitions
for the business, and further optimizing its global
footprint. Despite the slight pause in CLO issuance,
LCM(4) priced LCM 31 in late 2020. The AAA
notes in this structure were priced at 120 basis
points over LIBOR, which matched only two other
managers for the tightest print on a three-year
structure post-COVID.
Tetragon’s investments in hedge funds managed
by Polygon(5) generated strong performance in
2020. Its investment in the Polygon Convertible
Opportunity Fund gained $15 million and its
allocations to the European Equity Opportunity
Fund generated $32.5 million in gains. During
the year, the Polygon Convertible Opportunity
Fund was nominated for the tenth time since its
inception in 2009 for the 2020 EuroHedge Award in
the Convertibles and Volatility category; it has won
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the award five times. Tetragon Credit Partners(6)
launched an open-ended hedge fund in May 2020
to take advantage of dislocations in CLO debt. In
addition, Tetragon Credit Partners’ TCI III vehicle
deployed the remaining 17% of its uninvested
capital during the first half of 2020. Although
the value of Hawke’s Point(7) remains small, the
Hawke’s Point team experienced strong results in
their two investments during the year, which are
discussed below. Hawke’s Point aims to raise third
party capital during 2021. Banyan Square Partners,
an investment management business focused on
providing non-control structured and common
equity solutions to financial sponsors, deployed
more than $24 million during the year.
Tetragon's investments in hedge
funds managed by Polygon
generated strong performance in
2020.
Private equity and venture capital investments
generated $73.0 million in gains in 2020. Within
this category, there were a few developments
of note during the year. Hawke’s Point produced
the largest gains within the private equity
and venture capital category with Tetragon’s
investment in Hawke’s Point Fund 1 generating
over $53 million of net income, driven by project
development and corporate progress in its two
Australian gold projects; favourable gold prices
also served as a tail-wind. Directly, and through
Banyan Square Partners, Tetragon has sought to
partner with leading private equity managers in
the United States and in Europe and intends for
these allocations to be a source of differentiated
returns. During the year, Tetragon and Banyan
Square created five new investment relationships.
As of 31 December 2020, Tetragon’s investment
in Ripple Labs Series C Preferred stock was
valued at $174.6 million. At the point of making
its investment in Ripple Labs in 2019, Tetragon
bargained for the option to redeem its investment
earlier if the SEC determined that XRP is a security
on a going-forward basis. Given recent actions by
the SEC, Tetragon has exercised that right, which
Ripple Labs is contesting in Delaware Chancery
Court.
The other equities and credit category is diversified
across sectors, geographies and managers. Within
this category, there were nine positions at year-
end, with a focus on biotechnology and growth
equity. These positions generated gains of more
than $45 million during the year.
As noted above, two categories of Tetragon’s
portfolio recorded losses for the year –
investments in bank loans (via CLOs) and real
estate investments. Tetragon’s CLO portfolio
recorded a loss during 2020 as corporate credit
fundamentals deteriorated during the year
because of the pandemic. Tetragon’s real estate
investments lost $12.4 million during the year.
Other
Tetragon’s net cash balance, which is cash
adjusted for known accruals and liabilities (short
and long-dated), was -$13.0 million as at 31
December 2020. In July 2020, Tetragon obtained
a 10-year $250 million revolving credit facility,
which replaced the previous shorter-dated facility
of $150 million and also lowered its annual cost as
a result. As at 31 December 2020, $100 million of
this facility was drawn and this liability has been
incorporated into the net cash balance calculation.
Historically, Tetragon hedged back to dollars the
entirety of its Equitix position. Going forward,
Tetragon expects that it will leave some of this
exposure unhedged.
The fourth quarter 2020 dividend was announced
at 10.00 cents per share, bringing the full-year
2020 dividend to 40.00 cents per share, which is a
46% decrease on 2019. During the first half of the
year, Tetragon modified its Dividend and Capital
Return Policy to remove any specific dividend
target payout ratio referenced to normalised
earnings. During year, the manager took advantage
of the fund’s widened discount to NAV to
2020 Annual Repor t 11
repurchase $50.3 million of shares which was
accretive to NAV per share by 92 cents. Tetragon
also returned $36.4 million to shareholders in
the form of dividends. We are pleased that the
company has returned approximately $1.45
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.
Principal and employee ownership
increased during 2020 to 32.7% of
the company's shares.
Principal and employee ownership increased
during 2020 to 32.7% of the company’s shares. We
believe that this ownership creates an alignment
of interest between the investment manager, TFG
Asset Management, and Tetragon shareholders.
We look forward to continuing our engagement
with both long-term and new shareholders during
2021. Tetragon’s next annual investor day is
currently in the process of being planned, and due
to the COVID-19 pandemic we will be holding this
event virtually.
During the year, we have also made a number of
key hires. Since the onset of COVID-19, employees
have been able to work effectively in remote
locations, as well as in our New York and London
offices as necessary.
Finally, despite the challenges of consummating
deals and launching businesses in a remote-
work environment, TFG Asset Management and
Brandon Baer launched Contingency Capital, a
multi-product global asset management business
that will sponsor and manage litigation finance
related investment funds, on 1 November 2020.
Mr. Baer formerly worked at Fortress Investment
Group where he was the Co-Founder and Co-Head
of its Legal Assets group.
12
Outlook
There are several macro-economic and pandemic-
related externalities which will likely be important
drivers of returns across many asset classes in
2021. As has been the case in the last several
years, global monetary policies remain highly
accommodative. Furthermore, as exemplified
by some of the Biden administration’s fiscal
proposals which include large COVID-19 relief bills,
we believe that we remain in a period of relatively
“cheap” money. In addition to macro-inputs, we
believe that the path of the COVID-19 pandemic
could also influence economic health. If, as seems
to be the case as of this writing, the pandemic
is shorter-lived (i.e., a return to more normalcy
in the second half of 2021), then it is likely that
global economies will experience an economic
expansion due – in part – to inventory restocking
and a return of consumer demand. If that is the
case, we believe that the three-year forward return
for risk assets could be substantial. Offsetting this,
however, are questions of how much of a “return to
normal” is priced into risk assets and how global
monetary authorities will respond to inflation
(should it emerge).
Although Tetragon’s investment manager takes
note of the current interest rate environment and
these potentially offsetting positive and negative
economic indicators, it has generally not sought
to forecast the path of financial markets in
implementing its investment strategy. Instead,
it has built a portfolio diversified across asset
classes, geographies and duration. The purpose
of this diversification is twofold. First, it may
increase the likelihood that the portfolio will exhibit
a muted correlation to macro factors. Second,
with multiple “return drivers”, it may increase the
possibility that in any given year the company
will generate attractive risk adjusted returns. In
addition to its approach to diversification, the
investment manager also incorporates focused
risk management into its capital allocation
decisions. Incremental investments are considered
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not just for their return potential, but also for their
risk reducing (or increasing) attributes. Tetragon’s
investment manager is focused on not only
Tetragon’s balance sheet’s asset and liability mix,
but also the asset and liability mix of the managers
with whom it invests. The investment manager
also believes that Tetragon’s permanent capital
structure helps it to better manage its risks across
extended market cycles.
The manager remains focused on continuing to
capitalize on opportunities, regardless of the path
of the broader markets.
With Regards,
The Board of Directors
24 February 2021
Notes:
(1) Please see Note 7 for page 7 on page 8.
(2) Equitix Holdings Limited, referred to in this report as “Equitix”. TFG Asset Management owns 75% of the business.
(3) BentallGreenOak, a manager of global real estate funds, was formed in July 2019 upon the merger of the GreenOak Real Estate joint
venture with Bentall Kennedy, an affiliate of SLC Management, a global institutional asset management arm of Sun Life Financial Inc.
Tetragon owns approximately 13% of the combined entity.
(4) LCM Asset Management LLC, a specialist in below-investment grade U.S. broadly-syndicated leveraged loans, is referred to in this report
as “LCM”. TFG Asset Management owns 100% of the business.
(5) Polygon Global Partners LP and Polygon Global Partners LLP (and certain of their affiliates), managers of open-ended hedge fund and
private equity vehicles across a number of strategies that are part of TFG Asset Management, referred to in this report as “Polygon”.
Polygon Global Partners LLP is authorised and regulated by the United Kingdom Financial Conduct Authority. Tetragon owns 100% of
the business.
(6) Tetragon Credit Partners is the holding company of the general partner entities for the TCI II, TCI III and Tetragon Credit Partners
Opportunity Fund investment vehicles. Tetragon owns 100% of the business.
(7) Hawke’s Point Manager LP, an asset management company focused on mining finance, referred to in this report as “Hawke’s Point”.
Tetragon owns 100% of the business.
2020 Annual Repor t 13
Tetragon was nominated for the 2018 and 2017 Investment
Company of the Year Award in the “Flexible” category.
There were four other nominees for these awards in 2018,
and five other nominees in 2017. The Investment Company
of the Year Award is organised by Investment Week
magazine, a publication of Incisive Media, in association
with the AIC (Association of Investment Companies).
Investment companies are nominated by the award
organisers using performance data provided by the AIC,
using Morningstar Data, and FE Limited. Shortlists are
constructed using a mixture of AIC data/research as well
as from the submissions made by managers in the sector
categories. As with the sector categories, winners are
decided during the qualitative judging process. Submission
for consideration for this category is by invitation only. Full
details of the award methodology are available at www.
investmentcompanyawards.com/static/methodology.
INVESTMENT COMPANY
OF THE YEAR AWARDS 2018
14
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Investment Objective & Strategy
Tetragon is a closed-ended investment company that invests in a broad range
of assets, including public and private equities and credit (including distressed
securities and structured credit), convertible bonds, real estate, venture capital,
infrastructure, bank loans and TFG Asset Management, a diversified alternative
asset management business. Where appropriate, through TFG Asset Management,
Tetragon seeks to own all, or a portion, of asset management companies with
which it invests in order to enhance the returns achieved on its capital. Tetragon’s
investment objective is to generate distributable income and capital appreciation.
It aims to provide stable returns to investors across various credit, equity, interest
rate, inflation and real estate cycles. The company is traded on Euronext in
Amsterdam N.V.(1) and on the Specialist Fund Segment(2) of the main market of the
London Stock Exchange. For more information please visit the company’s website
at www.tetragoninv.com.
Identify
Asset Class
Structure
Investment
Identify
Asset
Managers
Own
Asset
Manager
(1) Euronext in Amsterdam is a regulated market of Euronext Amsterdam N.V. (Euronext Amsterdam).
(2) Tetragon’s ‘Home Member State’ for the purposes of the EU Transparency Directive (Directive 2004/109/EC) is the Netherlands.
2020 Annual Repor t 15
Investment Objective & Strategy (continued)
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 asset management 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. Tetragon
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.
Following Tetragon’s acquisition of Polygon
Management L.P. in 2012, Tetragon’s Board of
Directors and its investment manager determined
that it was in the best interests of Tetragon and
its shareholders to have TFG Asset Management
manage, oversee and supervise Tetragon’s
private equity investments in asset management
companies. TFG Asset Management, as a unified
business, could enhance the value of each
individual investment and the entity as a whole
through a shared strategic direction and operating
infrastructure – encompassing critical business
management functions such as risk management,
investor relations, financial control, technology,
and compliance/legal matters – while at the
same time giving entrepreneurial independence
to the managers of the underlying businesses.
In light of the strategy to continue to grow TFG
Asset Management with a view to a possible
initial public offering and listing of its shares, the
combination of a number of relatively uncorrelated
businesses across different asset classes and
at different stages of development under TFG
Asset Management is also intended to create a
collectively more robust and diversified business
and income stream.
To achieve Tetragon’s investment objective of
generating distributable income and capital
appreciation, the company’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 Tetragon’s
investment manager to negotiate
favourable terms for its investments.
To own, where appropriate, all, or a portion
of, asset management companies with
which it invests in order to enhance the
returns achieved on its capital.
In addition, the current investment strategy is
to continue to grow TFG Asset Management
– as Tetragon’s diversified alternative asset
management business – with a view to a possible
initial public offering and listing of its shares.
As part of its investment strategy, Tetragon’s
investment manager may employ hedging
strategies and leverage in seeking to provide
attractive returns while managing risk.
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
Tetragon’s capital; and/or seeks for Tetragon (via
TFG Asset Management) to own a share of the
asset management company. Tetragon aims to
not only produce asset level returns, but also aims
to enhance these returns with capital appreciation
and investment income from its investments in
asset management businesses that derive income
from external investors.
16
Key Performance Metrics
Tetragon focuses on the following key metrics when assessing how value is being
created for, and delivered to, Tetragon shareholders:
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NAV Per Share
Investment Returns/Return on Equity
Dividends
Fully Diluted NAV Per Share
Fully Diluted NAV per share (NAV per share)
was $26.57 at 31 December 2020. NAV per
share total return was 9.5% for 2020.
Investment Returns/Return on Equity(1)
RoE for 2020 was 7.6%. Earnings Per Share
(EPS) for 2020 was $1.99.
Figure 3
NAV Per Share Total Return 2016-2020
13.6%
13.6%
8.5%
8.5%
9.0%
9.0%
10.3%
10.3%
9.5%
2016
2017
2018
2019
2020
Figure 4
Return on Equity 2016-2020
Target RoE: 10-15%
Average RoE: 12.1%
13.4%
12.1%
8.9%
6.3%
7.6%
Dividends Per Share (DPS)
Tetragon declared a Q4 2020 dividend of
$0.10 per share, for a full year dividend payout
of $0.40 per share. The cumulative DPS
declared since Tetragon’s IPO is $7.3175.
2016
2017
2018
2019
2020
Figure 5
Dividend Per Share Comparison 2016-2020 (USD)
$0.6725
$0.70
$0.72
$0.74
$0.40
(1) Average RoE is calculated from Tetragon’s IPO in 2007. Tetragon seeks to deliver 10-
15% RoE per annum to shareholders. Tetragon’s returns will most likely fluctuate with
LIBOR. LIBOR directly flows through some of Tetragon’s investments and, as it can
be seen as the risk-free short-term rate, it should affect all of Tetragon’s investments.
In high-LIBOR environments, Tetragon should achieve higher sustainable returns; in
low-LIBOR environments, Tetragon should achieve lower sustainable returns. In the
current environment characterised by continued and sustained low risk-free interest
rates, reduced sustainable returns across Tetragon’s investments, including outside
of Tetragon’s target return rate, are to be expected.
2016
2017
2018
2019
2020
2020 Annual Repor t 17
Investment Review
NAV Per Share
Tetragon’s Fully Diluted NAV Per Share increased from $24.76 per share as at 31
December 2019 to $26.57 per share as at 31 December 2020. Figure 6 below shows
the contributions to that performance.
Figure 6
Year-on-Year NAV Per Share Progression (USD)(i)
(1.22)
3.20
(0.07)
(0.49)
(0.53)
0.92
26.57
28.00
27.50
27.00
26.50
26.00
25.50
25.00
24.50
24.00
23.50
23.00
24.76
NAV at 31
December 2019
Investment
income and losses
Operating
expenses,
management and
incentive fees
Interest expense
Dividends
Other share
dilution
Share repurchase
NAV at 31
December 2020
(i) Progression from 31 December 2019 to 31 December 2020 is an aggregate of each of the 12 months’ NAV progressions. With the exception
of share repurchases, all of the aggregate monthly Fully Diluted NAV Per Share movements in the table are determined by reference to the
fully diluted share count at the start of each month.
18
Net Asset Breakdown Summary
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The table shows a breakdown of the composition of Tetragon’s NAV at
31 December 2019 and 31 December 2020, and the factors contributing to the
changes in NAV over the period.
Figure 7
All figures below are in millions of U.S. dollars.
Asset Classes
NAV at
31 Dec 2019
Additions(i) Disposals/
Receipts(i)
Gains/
Losses
NAV at
31 Dec 2020
Private equity in asset management
companies
Event-driven equities, convertible
bonds and other hedge funds
747.5
12.6
(106.2)
179.6
833.5
532.0
54.0
(61.3)
43.5
568.2
Bank loans
Real estate
339.9
19.1
(55.0)
(25.2)
278.8
206.9
22.9
(65.0)
(12.4)
152.4
Private equity and venture capital
289.8
48.4
(15.1)
73.0
396.1
Other equities and credit(ii)
214.6
37.8
(39.8)
45.8
258.4
Net cash(iii)
Total
55.4
-
(70.5)
2.1
(13.0)
2,386.1
194.8
(412.9)
306.4
2,474.4
(i) Any gains or losses on foreign exchange hedging instruments attributable to a particular strategy or sub-asset class have been
included in “additions” or “disposals/receipts” respectively. For example, where a hedging gain or loss is made, this will result in
either cash being received or paid, or cash being receivable or payable, which is equivalent to a receipt or disposal.
(ii) Assets characterised as “other equities & credit” consist of investment assets held directly on the balance sheet. For certain
contracts for difference (CFD), gross value or required margin is used. Under IFRS, these CFDs are held at fair value which is the
unrealised gain or loss at the reporting date. Payments and receipts on the same investments have been netted off against each
other.
(iii) Net cash consists of: (1) cash held directly by Tetragon, (2) excess margin held by brokers associated with assets held directly by
Tetragon, and (3) cash held in certain designated accounts related to Tetragon’s investments, some of which may only be used
for designated purposes without incurring significant tax and transfer costs, and (4) adjusted for all other assets and liabilities at
the reporting date including any drawn amounts on the revolving credit facility.
2020 Annual Repor t 19
Net Asset Composition Summary
Net Asset Breakdown at 31 December 2019 and 31 December 2020
Figure 8
31 December 2019
31 December 2020
Other equities
and credit
Net Cash
2%
9%
Private equity in
asset management
companies
Private equity
and venture
capital
Real estate
Bank loans
31%
12%
9%
14%
23%
Event-driven equities,
convertible bonds,
other hedge funds
Private equity in
asset management
companies
Other equities
and credit
Private equity
and venture
capital
Real estate
Bank loans
10%
34%
Net cash
23%
16%
6%
11%
Event-driven equities,
convertible bonds,
other hedge funds
Top 10 Holdings by Value as of 31 December 2020
Figure 9
Holding
1
Equitix
Asset Class
Value
($millions)
% of NAV
Private equity in asset management company
386.1
15.6%
2 Polygon European Equity Opportunity Fund
Event-driven equities
299.9
12.1%
Absolute Return
3 BentallGreenOak
4 LCM
Private equity in asset management company
195.7
Private equity in asset management company
176.9
5 Ripple Labs Inc. - Series C Preferred Stock
Private equity and venture capital
174.6
7.9%
7.1%
7.1%
6 Polygon European Equity Opportunity Fund
Event-driven equities
140.9
5.7%
Long Bias
7 Hawke's Point Fund 1
Private equity and venture capital
8 Polygon Convertible Opportunity Fund
Convertible bonds
9 TCI III
10 Polygon
Total
20
Bank loans
Private equity in asset management company
131.0
116.7
76.0
57.4
5.3%
4.7%
3.1%
2.3%
70.9%
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Figure 10
Asset Class
Figure 10 breaks out more detail showing the effect of capital flows and performance gains and losses on the
NAV of each asset class during 2020; more detailed commentary for each asset class follows.
NAV at
31 Dec 2019
($m)
Additions(i) Disposals/
Receipts(i)
Gains/
Losses
% of NAV
NAV at
31 Dec 2020
($m)
Private equity in asset management companies
Equitix
BentallGreenOak
LCM
Polygon
Tetragon Credit Partners
Hawke's Point
Banyan Square Partners
Contingency Capital (ii)
Event-driven equities
Polygon European Equity Opportunity Fund Absolute Return
Polygon European Equity Opportunity Fund Long Bias
Polygon Global Equities Fund
Convertible bonds
301.1
190.8
186.0
48.1
19.7
1.8
-
-
258.7
119.0
20.9
9.0
3.1
0.3
0.1
0.1
-
-
-
(90.7)
(15.5)
-
-
-
-
-
-
18.4
12.6
(0.4)
-
-
(16.0)
166.7
17.3
(9.4)
9.2
(6.1)
1.1
0.8
-
23.2
9.3
2.8
386.1
195.7
176.9
57.4
13.7
2.9
0.8
-
299.9
140.9
7.7
15.6%
7.9%
7.1%
2.3%
0.6%
0.1%
0.0%
0.0%
12.1%
5.7%
0.3%
Polygon Convertible Opportunity Fund
81.7
20.0
-
15.0
116.7
4.7%
Other hedge funds
Other hedge funds
Bank Loans
U.S. CLOs (LCM)
TCI III
TCI II
U.S. CLOs (non-LCM)
Tetragon Credit Partners Opportunity Fund
Real estate
BentallGreenOak Europe funds & co-investments
BentallGreenOak U.S. funds & co-investments
BentallGreenOak Asia funds & co-investments
BentallGreenOak debt funds
Other real estate
Private equity and venture capital
Hawke's Point Fund 1
Banyan Square Fund 1
Other funds and co-investments
Direct
Other equities and credit(iii)
Other equities
Other credit
Cash
Net cash(iv)
Total
51.7
3.0
(44.9)
(6.8)
3.0
0.1%
190.5
70.4
59.0
20.0
-
69.0
64.0
29.9
5.2
38.8
81.1
15.0
43.1
150.6
185.5
29.1
-
14.1
-
-
5.0
5.7
8.0
5.4
3.1
0.7
7.7
24.1
16.6
-
36.6
1.2
(31.5)
(12.4)
(7.4)
(3.7)
-
(46.1)
(1.5)
(15.2)
(2.2)
-
(11.0)
(2.9)
(0.6)
(0.6)
(29.4)
(10.4)
(24.2)
134.8
3.9
(3.2)
(2.0)
0.3
9.8
(24.8)
6.1
0.3
(3.8)
53.2
(4.8)
-
76.0
48.4
14.3
5.3
38.4
45.7
26.2
6.4
35.7
131.0
31.4
59.1
24.6
174.6
47.8
(2.0)
240.5
17.9
5.4%
3.1%
2.0%
0.6%
0.2%
1.6%
1.8%
1.1%
0.3%
1.4%
5.3%
1.3%
2.4%
7.1%
9.7%
0.7%
55.4
-
(70.5)
2.1
(13.0)
(0.5)%
2,386.1
194.8
(412.9)
306.4
2,474.4
100.0%
(i) Any gains or losses on foreign exchange hedging instruments attributable to a particular strategy or sub-asset class have been included in “additions” or “disposals/receipts”
respectively. For example, where a hedging gain or loss is made, this will result in either cash being received or paid, or cash being receivable or payable, which is equivalent to a receipt
or disposal.
(ii) Contingency Capital has not yet been valued by a third-party valuation specialist.
(iii) Assets characterised as “other equities & credit” consist of investment assets held directly on the balance sheet. For certain contracts for difference (CFD), gross value or required
margin is used. Under IFRS, these CFDs are held at fair value which is the unrealised gain or loss at the reporting date. Payments and receipts on the same investment have been netted
off against each other.
(iv) Net cash consists of: (1) cash held directly by Tetragon, (2) excess margin held by brokers associated with assets held directly by Tetragon, and (3) cash held in certain designated
accounts related to Tetragon’s investments, some of which may only be used for designated purposes without incurring significant tax and transfer costs, and (4) adjusted for all other
assets and liabilities at the reporting date including any drawn amounts on the revolving credit facility.
2020 Annual Repor t
21
Detailed Investment Review (continued)
Detailed Net Asset Breakdown at 31 December 2019 and 31 December 2020
31 December 2019
31 December 2020
LCM
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Private equity investments in asset
management companies
One of Tetragon’s significant investments is TFG
Asset Management, a diversified alternative asset
manager that owns majority and minority private
equity stakes in asset management companies. TFG
Asset Management, as a unified business, is intended
to enhance the value of each individual investment
and the entity as a whole through a shared strategic
direction and operating infrastructure – encompassing
critical business management functions such as risk
management, investor relations, financial control,
technology, and compliance/legal matters – while at
the same time giving entrepreneurial independence
to the managers of the underlying businesses. In
light of the strategy to continue to grow TFG Asset
Management with a view to a possible initial public
offering and listing of its shares, the combination of a
number of relatively uncorrelated businesses across
different asset classes and at different stages of
development under TFG Asset Management is also
intended to create a collectively more robust and
diversified business and income stream. As at 31
December 2020, TFG Asset Management comprised
LCM, BentallGreenOak, Polygon, Equitix, Hawke’s Point,
Tetragon Credit Partners, Banyan Square Partners and
Contingency Capital. TFG Asset Management recorded
an investment gain of $179.6 million during 2020.
22
Equitix: Equitix is an integrated core infrastructure
asset management and primary project platform.
Tetragon’s investment generated gains of $166.7
million, making it the most significant contributor
during 2020. This gain was primarily driven by the
rate at which Equitix has continued to increase
capital raised and deployed which in turn flows into
the business model. Assets under management
increased by £1.4 billion during 2020 and has now
more than trebled in the last four years. More
specifically, during 2020, Euro Fund I reached a
final close at €580 million; Fund VI was launched
along with associated managed accounts raising
approximately £660 million of capital and anticipated
to raise further capital by Q2 2021; and the Rakiza
joint venture with Oman Infrastructure Investment
Management had its first close at approximately
$400 million. During 2020, Equitix paid a dividend
of £30.4 million and repaid the remaining £39.3
million of loan notes (including accrued interest) to
Tetragon.
BentallGreenOak: BentallGreenOak is a manager of
real estate investment strategies. During 2020, this
investment made a gain of $17.3 million. Despite the
challenges of COVID-19, the business performed
well, with assets growing by $3.6 billion (7%) and net
income exceeding its original merger business plan.
There were net distributions to Tetragon totalling
$15.5 million reflecting a combination of fixed
quarterly contractual payments, variable payments
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Detailed Investment Review (continued)
and carried interest. This investment is valued using
the present value of the various cash flow elements
of the GreenOak/Bentall Kennedy merger deal,
which comprises those three elements plus a put/
call option in 2026/27, as well as Tetragon’s share
of co-investments made. Each of those elements
contributed to the gain posted this year.
Banyan Square Partners: Banyan Square Partners
is an investment management business focused
on providing non-control structured and common
equity solutions to financial sponsors, founded
by TFG Asset Management in 2019. Tetragon’s
investment was valued for the first time as of 31
December 2020, at $0.8 million.
LCM: LCM is a specialist in below-investment grade
U.S. broadly-syndicated leveraged loans; currently, it
manages loan assets exclusively through CLOs. TFG
Asset Management’s investment in LCM lost $9.4
million in 2020. The factors contributing to the loss
were (a) delay in launching new CLO deals during
the year due to disruption caused by COVID-19,
(b) 0.5% increase in the discount rate applied to
the discounted cash flow model, and (c) 5% lower
market multiple utilised in the P/AUM valuation
approach. LCM’s AUM decreased slightly during the
year to $8.9 billion, although this does not include
LCM 31 which priced in 2020 but closed in February
2021.
Polygon: Polygon manages open-ended hedge
fund and private equity vehicles across a number
of strategies. The investment in Polygon recorded a
gain of $9.2 million, and an overall valuation of $57.4
million, which reflects the positive performance
generated by the two main hedge funds.
Tetragon Credit Partners: Tetragon Credit Partners
is TFG Asset Management’s structured credit
investing business. The value of Tetragon Credit
Partners decreased by $6.1 million in 2020, mainly
due to a decrease in the projected carry payable by
TCI II and III. This was largely the result of a change
during the year in the modelled assumptions for
the underlying deals during the year assuming a
higher default rate in the near term because of the
COVID-19 induced uncertainty. The Tetragon Credit
Partners Opportunity Fund, an open-ended fund
investing primarily in CLO debt securities, launched
on 1 May 2020. In addition, Tetragon Credit Partners’
TCI III vehicle deployed the remaining 17% of its
uninvested capital during H1 2020.
Hawke’s Point: Hawke’s Point is an asset
management company focused on mining finance
that provides capital to companies in the mining and
resource sectors. Tetragon’s investment recorded
a gain of $1.1 million during 2020. The AUM of
Hawke’s Point was approximately $144 million at the
end of 2020.
Contingency Capital: Contingency Capital is a global
asset management business that will sponsor and
manage litigation finance related investment funds
that launched on 1 November 2020. Tetragon’s
investment in Contingency Capital has not yet been
valued by a third-party valuation specialist.
Please see Note 4 in the 2020 Tetragon Financial Group
Audited Financial Statements for further details on
the basis for determining the fair value of TFG Asset
Management. Additionally, for further colour on the
underlying performance of the asset managers, please
see Figure 18 for TFG Asset Management’s pro forma
operating results and associated commentary.
Event-driven equities, convertible bonds and
other hedge funds
Tetragon invests in event-driven equities and
convertible bonds through hedge funds. At 31
December 2020, these investments are primarily
through hedge funds managed by Polygon. Investments
in these funds generated a gain of $43.5 million during
2020. An investment in quantitative strategies through
a third-party managed fund was redeemed during 2020
and a small new investment was made in an externally-
managed hedge fund.
Event-driven Equities
Polygon European Equity Opportunity Fund: This
fund focuses on event-driven European equity
strategies with catalysts, particularly in mergers
and acquisitions, deep-value dislocation trades,
and capital markets special situations. Tetragon’s
investments in these funds in 2020 recorded a gain
of $32.5 million. During the fourth quarter, the fund
recovered from mark-to-market losses related to
pandemic-related volatility early in the year, and both
share classes in which Tetragon is invested finished
2020 in positive territory; the Absolute Return class
had net performance of 7.25% and the Long-Bias
share class returned 3.7%. Tetragon invested a
further $30.0 million in 2020.
2020 Annual Repor t 2 3
Detailed Investment Review (continued)
Polygon Global Equities Fund: Tetragon’s
investment gained $2.8 million during 2020;
Tetragon reduced its holding in this fund by $16.0
million in 2020; the position remains relatively small.
Tetragon is the only investor in this fund.
Convertible Bonds
Polygon Convertible Opportunity Fund: This fund
invests in securities across the capital structure
of issuers primarily in Europe and North America
and seeks to identify relative value opportunities
leveraging Polygon’s event-driven and convertible
expertise in a concentrated and heavily-researched
portfolio. Tetragon’s investment generated a gain
of $15.0 million for the year. Net performance in the
fund was +15.1% for its flagship share class, amid a
backdrop of strong performance across convertible
hedge funds helped by record global convertible
bond issuance (the HFR RV Fixed Income-
Convertible Arbitrage Index returned +15.7%).(1) The
fund was nominated for the tenth time since its
inception in 2009 for the 2020 EuroHedge Award
in the Convertibles and Volatility category; it has
won the award five times.(2) Tetragon subscribed for
$20.0 million of capital during the year.
Other hedge funds
The position in QT Fund Limited, a quantitative
strategy, was redeemed during 2020; Tetragon
received $44.9 million in proceeds as a result.
Tetragon made an initial investment of $3.0 million
into a third-party managed hedge fund.
(1) The indices shown here have not been selected to represent appropriate
benchmarks to compare an investor's performance, but rather are disclosed
to allow for comparison of the investor's performance to that of certain
well-known and widely-recognised indices. The volatility of the indices
may be materially different from the individual performance attained by a
specific investor. In addition, the Fund’s holdings may differ significantly
from the securities that comprise the indices. You cannot invest directly
in an index. The HFRX Convertible Arbitrage Index (Bloomberg Code:
HFRXCA) is compiled by HFR Hedge Fund Research Inc. Further information
relating to index constituents and calculation methodology can be found at
www.hedgefundresearch.com.
(2) The Polygon Convertible Opportunity Fund was nominated for the 2020
EuroHedge Award in the Convertibles & Volatility category; there were
five other nominees for this award. The EuroHedge Award is organised
by EuroHedge magazine, a publication of Hedge Fund Intelligence. To be
considered for an award, funds must submit performance data to the Hedge
Fund Intelligence Database and have at least a 12-month track record
history. Winners are decided using an established methodology based upon
a combination of Sharpe ratios and returns over the relevant time period.
Nominations are decided by those funds in each peer group that achieve the
strongest Sharpe ratios over 12 months, so long as they also beat the median
returns in their relevant peer groups and are within 10% of their high-water
marks. The eventual winners will be the funds that have the best returns, as
long as they also have Sharpe ratios within 25% of the best Sharpe of the
nominees in their relevant peer groups. For the Management Firm of the Year
award, nominees and winners are judged on additional comparative criteria
as well as absolute returns and Sharpe ratios. Further information about
the award, including nomination and winning criteria, is available at https://
eurohedgeawards.awardstage.com/#Criteria.
24
Bank Loans
Tetragon continues to invest in bank loans through
CLOs by taking majority positions in the equity
tranches. Tetragon’s CLO portfolio recorded a loss
during 2020 as corporate credit fundamentals
deteriorated during the year as a result of the
pandemic. Tetragon made new U.S. CLO investments
indirectly via the Tetragon Credit Partners platform
as well as committed to the purchase of one new
investment directly. We continue to view CLOs as
attractive vehicles for obtaining long-term exposure to
the leveraged loan asset class.
U.S. CLOs (LCM): Directly-owned LCM CLOs lost
$24.2 million during 2020, driven by changes in
fair value which were primarily a result of the
erosion of certain CLO test cushions and loan
collateral quality as well as a recalibration of certain
model assumptions and discount rates used to
value the positions. During the year, investments
in this segment generated $31.5 million in cash
distributions, with the total fair value ending 2020 at
$134.8 million. As of the end of 2020, all LCM CLO
transactions were compliant with their junior-most
overcollateralization (O/C) tests.(3)
In December 2020, Tetragon committed to the
purchase of a majority stake in the equity tranche of
LCM 31 Ltd, for a cost of $15.6 million. We believe
this transaction offered the potential for attractive
returns over a three to five-year duration. The CLO
closed on 3 February 2021. Tetragon currently
expects to make most of its new issue LCM CLO
equity investments via the Tetragon Credit Partners
platform but may choose to make opportunistic
investments directly when appropriate.
TCI II(4) and TCI III(5): TCI II is a CLO investment
vehicle established by Tetragon Credit Partners, a
100% owned subsidiary of TFG Asset Management.
As of the end of 2020, Tetragon’s commitment to
TCI II was $70.0 million, which was fully funded.
During the year, Tetragon’s investment in TCI II
generated $7.4 million in cash distributions but
incurred a $3.2 million loss reflecting changes in fair
value which were primarily a result of the erosion of
(3) Based on the most recent trustee reports available as of 31 December 2020.
Throughout this report, we refer to overcollateralisation or “O/C” tests, which
are CLO-specific tests that measure the par amount of underlying CLO
collateral (adjusted in certain cases for defaults or other “stressed” asset
types) against the par value of the rated CLO debt tranches. The failure of an
overcollateralisation test generally results in the temporary cessation of cash
flows to the CLO’s equity tranche.
(4) Tetragon Credit Income II L.P.
(5) Tetragon Credit Income III L.P.
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certain CLO test cushions and loan collateral quality
in the CLOs held, as well as a result of a recalibration
of certain model assumptions and discount rates
used to value these positions. During the year, TCI II
recycled capital into three existing transactions and
closed a debt refinancing early in 2020 for one CLO.
As of the end of December 2020, Tetragon’s
commitment to TCI III was $85.9 million, which
was fully funded by the end of Q1 2020. As of the
end of the year, TCI III was fully invested and all
investments had reached their first payment dates
and were making full distributions. A total of $12.4
million was distributed from the vehicle to Tetragon
and a gain of $3.9 million was made during the year
on this investment. There were no debt refinancings
in the portfolio during 2020, although the manager
expects that there may be opportunities to pursue
refinancings in 2021.
All CLOs held by TCI II and TCI III were compliant
with their junior-most O/C tests as of the end of
December 2020.(6)
U.S. CLOs (non-LCM): The non-LCM-managed CLO
segment posted a loss of $2.0 million during 2020,
reflecting changes in fair value which were primarily
a result of the erosion of certain CLO test cushions
and loan collateral quality as well as a recalibration
of certain model assumptions and discount rates
used to value the positions. Investments in this
segment generated $3.7 million in cash distributions
during 2020. Tetragon did not add any direct non-
LCM-managed CLO investments, and as of the end
of 2020, the fair value of this segment stood at
$14.3 million. As of the end of 2020, all non-LCM
CLOs were compliant with their junior-most O/C
tests.(7)
Tetragon currently expects to make most of its new
issue non-LCM equity investments indirectly via the
Tetragon Credit Partners platform.
Tetragon Credit Partners Opportunity Fund:
The Tetragon Credit Partners Opportunity Fund
was launched in May 2020 and seeks to invest
in U.S. CLO mezzanine tranches. During the year,
Tetragon’s investment in the fund generated a return
of $0.3 million, bringing its total fair value as of the
end of the year to $5.3 million.
(6) Based on the most recent trustee reports available as of 31 December 2020.
(7) Based on the most recent trustee reports available as of 31 December 2020.
Real Estate
Tetragon holds most of its investments in real estate
through BentallGreenOak-managed funds and co-
investment vehicles. The majority of these vehicles
are private equity-style funds concentrating on
opportunistic investments targeting middle-market
opportunities in the United States, Europe and Asia,
where BentallGreenOak believes it can increase value
and produce positive unlevered returns by sourcing off-
market opportunities where it sees pricing discounts
and market inefficiencies. This segment lost $12.4
million during 2020, mainly from the BentallGreenOak
U.S. fund investments. Aggregate additions related
to capital calls on new and existing investments were
$22.9 million and $65.0 million of distributions from
these vehicles were received during the year.
BentallGreenOak Europe funds and
co-investments: BentallGreenOak’s Europe-focused
products primarily target distressed opportunities
and deep value acquisitions in markets with solid
underlying fundamentals. The majority of assets
acquired by the firm’s European team since
inception are concentrated in London, Madrid,
Barcelona and Milan, with the remaining assets
located in other established cities throughout Spain
and the United Kingdom. Many of the investments
focus on office space and logistics. Tetragon is
invested in three funds and seven co-investments in
Europe. In 2020, these investments generated gains
of $9.8 million, primarily driven by realised gains
following the disposal of assets in Spain and Italy.
BentallGreenOak U.S. funds and co-investments:
In the United States, BentallGreenOak seeks to
identify market dislocation and inefficiencies in
major coastal gateway cities where it can acquire
underperforming assets in dynamic submarkets.
Property types have included office, multifamily,
retail and hotel properties in New York, Los Angeles,
Boston, San Francisco, Washington, D.C. and Miami.
Tetragon is invested in three funds and three co-
investments in the United States. In 2020, these
investments generated a net loss of $24.8 million
for Tetragon, primarily driven by revaluation in a
property held in US Fund II and a co-investment
vehicle.
BentallGreenOak Asia funds and co-investments:
The Asia-focused investments primarily target
investment opportunities in Tokyo and other major
urban markets in Japan, focusing on balance sheet
2020 Annual Repor t 25
Detailed Investment Review (continued)
Banyan Square Partners: The investment in Banyan
Square Partners Fund 1 had an unrealised loss of
$4.8 million in 2020 against a challenging macro
backdrop and exposure to an investment in the
travel industry. At 31 December 2020, the fund held
four positions. Capital called by the fund was $24.1
million.
Other funds and co-investments: At 31 December
2020, Tetragon had a 2% allocation to investments
in private equity funds and co-investment vehicles
in Europe and North America. Net capital called
by these investments during 2020 totalled $16.0
million.
Direct: This category currently holds the investment
in the Ripple Labs Series C preferred stock. During
2020, it generated gains of $24.6 million, reflecting
the accretion during the year of the Series C
preferred stock dividend.
Other equities and credit
Tetragon also makes investments directly on its
balance sheet reflecting single strategy ideas: either
co-investing with some of its underlying managers or
simply idiosyncratic investments which it believes are
attractive but may be unsuitable for an investment via
TFG Asset Management vehicles. These investments
tend to be opportunistic and with a catalyst. We
believe that the sourcing of these investments has
been facilitated by the managers on the TFG Asset
Management platform as well as third-party managers
with whom Tetragon invests. We also believe this ability
to invest flexibly is a benefit of Tetragon’s structure.
Other equities: This segment generated gains of
$47.8 million during the year; these investments
comprised European and U.S.-listed public equities
in technology, biotechnology, and financial services
sectors.
Other credit: This segment generated a loss of $2.0
million during 2020, driven by corporate bonds.
restructurings and other distress-related factors that
motivate sellers. Tetragon is invested in three funds
in Asia. During 2020, these investments contributed
a gain of $6.1 million.
BentallGreenOak debt funds: BentallGreenOak
provides loans secured by commercial real estate
throughout the United Kingdom and Europe
and focuses on transitional assets or locations;
repositioning or redeveloping plays; rapid reaction
debt; higher leverage loans and subordinated loans.
Tetragon’s investments in this segment are currently
small relative to its other real estate investments;
$0.3 million of gains were generated in 2020.
Other real estate: In addition to the commercial
real estate investments through BentallGreenOak-
managed real estate funds, Tetragon also has
investments in commercial farmland in Paraguay
managed by Scimitar, a specialist manager in South
American farmland. During 2020, the farmlands
were revalued by an independent valuation
specialist, with a reduction in the current market
value of $3.8 million reflecting assumptions around
current market conditions in Paraguay.
Private equity and venture capital
Tetragon’s private equity and venture capital
investments comprise several types of investments:
(1) Tetragon’s investment in Hawke’s Point Fund 1;
(2) investment in Banyan Square Partners Fund 1; (3)
private equity investments with third-party managers;
and (4) direct private equity investments, including
venture capital investments. This segment generated
gains of $73.0 million during 2020.
Hawke's Point: Tetragon’s investment into mining
finance via Hawke’s Point Fund 1 generated $53.2
million of net income in 2020, driven by substantial
project development and corporate progress in two
Australian gold projects in which Hawke’s Point
is a cornerstone investor. One of these projects
commenced production subsequent to year end,
and the other is anticipated to come online later
in 2021. Hawke’s Point continues to actively seek
and progress new opportunities in what it believes
to be a favourable market environment. Tetragon’s
investment in this fund decreased on a net basis
during 2020 due to a partial realisation of one of the
investments.
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Detailed Investment Review (continued)
Cash
Tetragon’s net cash balance, which is cash adjusted
for known accruals and liabilities (short and long-
dated), was -$13.0 million as at 31 December 2020. In
July 2020, Tetragon obtained a 10-year $250 million
revolving credit facility, which replaced the previous
shorter dated facility of $150 million and also lowered
its annual cost as a result. As at 31 December 2020,
$100 million of this facility was drawn and this liability
has been incorporated into the net cash balance
calculation.
The company actively manages its cash levels
to cover future commitments and to enable it to
capitalise on opportunistic investments and new
business opportunities. During 2020, Tetragon
used $194.8 million of cash to make investments,
$63.5(8) million to repurchase its shares and $30.7
million to pay dividends. $342.4 million of cash
was received as distributions and proceeds from
the sale of investments. Future cash commitments
are approximately $218.9 million, comprising hard
investment commitments (BentallGreenOak funds
$62.9 million, private equity funds $29.7 million and
Contingency Capital loan $12.5 million) and soft
investment commitments (Banyan Square Fund 1
$63.8 million and the Contingency Capital fund $50.0
million).
(8) $63.5 million includes $50.3 million of shares purchased through the tender
offer in June and December 2020 and $13.2 million of shares purchased from
subsidiaries or affiliates to facilitate the payment of withholding taxes on
equity-based share payments.
2020 Annual Repor t 27
Further Portfolio Metrics
Exposures at 31 December 2020
Figure 11
By Geography(1)
North
America
42%
Europe
48%
Latin America
2%
8%
Asia
Pacific
By Investment
Direct
4%
17%
LP external
45%
LP internal
Currency Exposure:
By Exposure(2)
Banyan
Square(i)
Hawke's
Point(i)
1%
5%
6%
25%
Polygon(i)
Tetragon
Credit
Partners(i)
Equitix(iii)
16%
17%
Direct
balance
sheet(ii)
LCM(i)
12%
13%
5%
BentallGreenOak(i)
External(ii)
GP
34%
Tetragon's investments comprise:
GP - private equity in asset management companies
LP internal - investments in funds/accounts on the
TFG Asset Management platform
LP external - investments in external funds/accounts
Direct - direct balance sheet investments
Tetragon is a U.S. dollar-based fund and reports all of its metrics in U.S. dollars. During 2020, all investments
denominated in other currencies were hedged to U.S. dollars. Going forward, it is anticipated that some of the
GBP exposure generated by the investment in Equitix will be left unhedged.
(1) Assumptions for "By Geography":
- Event-driven equities, convertible bonds, other hedge funds, ‘private equity and venture capital’ and ‘other equities and credit’
investments are based on the geographies of the underlying portfolio assets.
- U.S. CLOs, TCI II, TCI III and Tetragon Credit Partners Opportunity Fund; and LCM, Tetragon Credit Partners, and Banyan Square
Partners (TFG Asset Management) are treated as 100% North America.
- BentallGreenOak (TFG Asset Management) is treated as 20% Europe, 67% North America, 13% Asia.
- Polygon (TFG Asset Management) is treated as 80% Europe, 20% North America.
- Equitix (TFG Asset Management) is treated as 100% Europe.
(2) Assumptions for "By Exposure":
(i) Exposure represents the net asset value of (1) the private equity position in the relevant asset management company and (2)
investments in funds/accounts managed by that asset management company.
(ii) Exposure represents the net asset value of investments.
(iii) Exposure represents the net asset value of the private equity position in the asset management company. Source: Tetragon
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Risk Management
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Below are certain factors that Tetragon monitors with respect to portfolio risk
management.(i)
Performance
Review
Market
Risk
Liquidity
Risk
Key financial highlights
Concentration Limits
Portfolio forecast
NAV bridge
Equity Exposure
Duration Profile
Investment P&L by
asset class
Valuation
Risk Limits
TFG Cash vs. Debt
CLO Credit Metrics
Leverage Facilities
FX exposure
Scenario analysis
Interest Rate Sensitivity
Tail Hedge Monitor
Review Borrowing
covenants
Short term cash
management
Operational
Risk
Trades done in the
month
Settlement
Counterparty
Legal
Regulatory /
Compliance
Finance / Tax
(i)
These are some of the key risk management functions. However, they may not be the only risk management factors or functions that are considered.
2020 Annual Repor t 2 9
Risk Factors
Principal Risks
The principal risks facing Tetragon as a listed
investment company are both financial and operational
in nature, and ultimately relate to both Tetragon’s
issued and outstanding non-voting shares as well as its
investment portfolio. The financial risks inherent in its
portfolio are primarily market-related or are otherwise
relevant to particular asset classes. Operational risks
include those related to Tetragon’s organisational
structure, investment manager, legal and regulatory
environment, taxation, financing and other areas where
internal or external factors could result in financial or
reputational loss.
The risks and uncertainties highlighted below are
supplemented and described in further detail on
Tetragon’s website at www.tetragoninv.com/investors/
risk-factors.
Financial Risks
Risks Relating to Investing in Tetragon’s Shares
The market price of Tetragon’s non-voting shares
fluctuates significantly and may bear no correlation to
Tetragon’s NAV, and holders may not be able to resell
their Tetragon shares at or above the price at which
these were purchased. In addition to portfolio-level and
operational risks highlighted below, factors that may
cause the price of Tetragon’s shares to vary include:
Changes in Tetragon’s financial performance and
prospects or in the financial performance and
prospects of companies engaged in businesses that
are similar to Tetragon’s business.
A further issuance of shares or repurchase of shares
by Tetragon.
Dividends declared by Tetragon.
Broad market fluctuations in securities markets
that in general have experienced extreme volatility
often unrelated to the operating performance or
underlying asset value of particular companies or
partnerships.
General economic trends and other external factors.
Sales of Tetragon shares by other shareholders.
The ability to invest in Tetragon shares or to transfer
any shares may be limited by restrictions imposed
by ERISA regulations and Tetragon’s articles of
incorporation.
Risks Relating to Tetragon’s Investment Portfolio
Tetragon’s investment portfolio comprises a broad
range of assets, including public and private equities
and credit (including distressed securities and
structured credit), convertible bonds, real estate,
venture capital, infrastructure, bank loans and TFG
Asset Management, a diversified alternative asset
management business. As a general matter, the
portfolio is exposed to the risk that the fair value of
these investments will fluctuate.
Risks Relating to TFG Asset Management
TFG Asset Management, as one of Tetragon’s
investments, has risks particular to private equity
investments in asset management businesses. These
include:
Changes in the underlying values of Tetragon’s
investments.
The asset management business is intensely
competitive.
Illiquidity in the market for Tetragon shares,
including due to the liquidity of the Euronext
Amsterdam N.V. exchange and the Specialist Fund
Segment of the Main Market of the London Stock
Exchange.
Speculation in the press or investment community
regarding Tetragon’s business or investments, or
factors or events that may directly or indirectly
affect its business or investments.
A loss of a major funding source. If Tetragon
breaches the covenants under its financing
agreements it could be forced to sell assets at price
less than fair value.
The performance of TFG Asset Management
may be negatively influenced by various factors,
including the performance of managed funds and
vehicles and its ability to raise capital from third-
party clients.
TFG Asset Management is highly dependent on
its investment professionals for the management
of its investment funds and vehicles and on
other employees for management, oversight and
supervision of its asset management businesses.
If and when such persons cease to participate in
the management of TFG Asset Management or its
investment funds and vehicles, the consequence
could be material and adverse.
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Risk Factors (continued)
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Certain of TFG Asset Management’s businesses
These securities are susceptible to losses of up to
have a limited or no operating history.
100% of the initial investments.
The asset management business is subject to
The performance of these investments may
extensive regulation.
Misconduct of TFG Asset Management employees
or at the companies in which TFG Asset
Management has invested could harm TFG Asset
Management by impairing its ability to attract and
retain clients and subjecting it to significant legal
liability and reputational harm.
Failure by TFG Asset Management to deal
appropriately with conflicts of interest in its
investment business could damage its reputation
and adversely affect its businesses.
Tetragon’s investment in TFG Asset Management is
illiquid.
Risks Relating to Other Tetragon Portfolio Investments
Tetragon otherwise currently invests or expects to
invest its capital, directly and indirectly, in:
1. bank loans, generally through subordinated, residual
tranches of CLOs;
2. real estate, generally through private equity-style
funds managed by BentallGreenOak;
3. public and private equity securities, particularly
in event-driven strategies, generally through the
Polygon European Equity Opportunity Fund;
4. convertible securities, mainly in the form of
debt securities that can be exchanged for equity
interests, including through the Polygon Convertible
Opportunity Fund;
5. credit securities (including distressed securities and
structured credit), including through Tetragon Credit
Partners;
6. private equity and venture capital through direct
investments and fund investments, including
through Banyan Square Partners;
7. infrastructure projects through Equitix Holdings
Limited;
8. quantitative strategies; and
9. mining-industry related equity securities and
instruments, including through Hawke’s Point.
significantly depend upon the performance of
the asset manager of funds or products in which
Tetragon invests.
Tetragon may be exposed to counterparty risk.
The fair value of investments, including illiquid
investments, may prove to be inaccurate and require
adjustment.
Adverse changes in international, national or local
economic and other conditions could negatively
affect investments.
Tetragon is subject to concentration and geographic
risk in its investment portfolio.
Tetragon’s investments are subject to interest rate
risk, which could cause its cash flow, the fair value
of its investments and its operating results to
decrease.
Tetragon’s investments are subject to currency risks,
which could cause the value of its investments in
U.S. dollars to decrease regardless of the inherent
value of the underlying investments.
The utilisation of hedging and risk management
transactions may not be successful, which could
subject Tetragon’s investment portfolio to increased
risk or lower returns on its investments and in turn
cause a decrease in the fair value of its assets.
Tetragon engages in over-the-counter trading, which
has inherent risks of illiquid markets, wide bid/ask
spreads and market disruption.
Leverage and financing risk and the use of options,
futures, short sales, swaps, forwards and other
derivative instruments potentially magnify losses in
equity investments.
Market illiquidity could negatively affect these
investments.
These investments may be subject to medium
and long-term commitments with restrictions on
redemptions or returns of capital.
These portfolio investments are subject to various
risks, many of which are beyond Tetragon’s control,
including:
(continued)
2020 Annual Repor t 31
Risk Factors (continued)
Operational Risks
Risks Relating to Organisational Structure
Tetragon has approved a very broad investment
objective and the investment manager has substantial
discretion when making investment decisions. In
addition, the investment manager’s strategies may not
achieve Tetragon’s investment objective.
Tetragon’s listed shares do not carry any voting rights
other than limited voting rights in respect of variation of
their class rights. Tetragon’s voting shares are owned
by Polygon Credit Holdings II Limited which is a non-
U.S. affiliate of Tetragon’s investment manager and is
ultimately owned by Reade Griffith and Paddy Dear, who
also majority own the investment manager. Pursuant
to an agreement between Reade Griffith and Paddy
Dear, Reade Griffith is the controller of Tetragon’s
voting shares and the investment manager. Tetragon’s
voting shares control the composition of the Board
of Directors and exercise extensive influence over
Tetragon’s business and affairs.
Under Tetragon’s articles of incorporation, a majority
of its directors are required to be independent
(Independent Directors), satisfying in all material
respects the UK Corporate Governance Code definition
of that term. However, because the Board of Directors
may generally take action only with the approval of five
of its directors, the Board of Directors generally are
not able to act without the approval of both directors
who are affiliated with the holder of Tetragon’s voting
shares. The holder of the voting shares has the right to
amend Tetragon’s articles of incorporation to change
these provisions regarding Independent Directors and
to remove a Director from office for any reason. As a
result of these provisions, the Independent Directors
are limited in their ability to exercise influence over
Tetragon’s business and affairs.
Tetragon’s organisational, ownership and investment
structure creates significant conflicts of interest that
may be resolved in a manner which is not always in the
best interests of Tetragon or its shareholders.
Tetragon’s directors and its administrator may have
conflicts of interest in the course of their duties.
Tetragon's ability to pay its expenses and dividends will
depend on its earnings, financial condition, fair value of
its assets and such other factors that may be relevant
from time to time, including limitations under the
Companies (Guernsey) Law, 2008, as amended.
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Risks Relating to Tetragon’s Investment Manager
Tetragon’s success depends on its continued
relationship with its investment manager and its
principals. If this relationship were to end or the
principals or other key professionals were to depart,
it could have a material adverse effect on Tetragon’s
business, investments and results of operations.
Tetragon is reliant on the skill and judgment of its
investment manager in valuing and determining an
appropriate purchase price for its investments. Any
determinations of value that differ materially from
the values Tetragon realises at the maturity of the
investments or upon their disposal will likely have a
negative impact on Tetragon and its share price.
Tetragon’s arrangements with its investment manager
were negotiated in the context of an affiliated
relationship and may contain terms that are less
favourable than those which otherwise might have
been obtained from unrelated parties in an arm’s-length
negotiation.
The holders of Tetragon’s listed shares will not be able
to terminate its Investment Management Agreement
with the investment manager, and the Investment
Management Agreement may only be terminated by
Tetragon in limited circumstances.
The liability of Tetragon’s investment manager is limited
under Tetragon’s arrangements with it, and Tetragon
has agreed to indemnify the investment manager
against claims that it may face in connection with such
arrangements, which may lead the investment manager
to assume greater risks when making investment
related decisions than it otherwise would if investments
were being made solely for its own account.
The investment manager does not owe fiduciary duties
to Tetragon shareholders. However, these contractual
limitations do not constitute a waiver of any obligations
that the investment manager has under applicable law,
including the U.S. Investment Advisers Act of 1940 and
related rules.
The investment manager may devote time and
commitment to other activities.
The fees payable to the investment manager are
based on changes in Tetragon’s NAV, which will not
necessarily correlate to changes in the market value of
its listed shares.
Tetragon’s compensation structure with its investment
manager may encourage the investment manager to
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invest in high risk investments. The management fee
payable to the investment manager also creates an
incentive for it to make investments and take other
actions that increase or maintain Tetragon’s NAV over
the near term even though other investments or actions
may be more favourable.
The compensation of the investment manager’s
personnel contains significant performance-related
elements, and poor performance by Tetragon or any
other entity for which the investment manager provides
services may make it difficult for Tetragon’s investment
manager to retain staff.
Tetragon’s investment manager relies on two
entities that are part of TFG Asset Management for
a broad range of services to support its activities.
The services include (i) infrastructure services such
as operations, financial control, trading, marketing
and investor relations, legal, compliance, office
administration, payroll and employee benefits and (ii)
services relating to the dealing in and management
of investments, arrangement of deals and advising
on investments. TFG Asset Management has
implemented a cost-allocation methodology with the
objective of allocating service-related costs, including
to Tetragon’s investment manager, in a consistent, fair,
transparent and commercially based manner. TFG
Asset Management then charges fees to Tetragon’s
investment manager for the services allocated to it on
a cost-recovery basis that is designed to achieve full
recovery of the allocated costs. Tetragon’s Independent
Directors, who are specifically mandated to approve,
among other things, related-party transactions, are
required to approve the methodology for allocating
costs and in their sole discretion the application of that
methodology as part of their oversight processes. As
such, the annual cost allocation methodology update
and the actual annual cost allocations that result based
on these cost methodology policies and procedures are
separately approved by the Independent Directors.
There are conflicts of interest created by
contemporaneous trading by Tetragon’s investment
manager and investment managers that are part of
TFG Asset Management.
Risks Relating to Tetragon’s Legal Environment and
Regulation
Changes in laws or regulations or accounting
standards, or a failure to comply with any laws and
regulations or accounting standards, may adversely
affect Tetragon’s business, investments and results of
operations.
Tetragon has and may become involved in litigation that
may adversely affect Tetragon’s business, investments
and results of operations.
No formal corporate governance code applies to
Tetragon under Dutch law and Tetragon reports against
the AIC Corporate Governance Guide for Investment
Companies (which incorporates the UK Corporate
Governance Code) on a voluntary basis only.
The rights of the non-voting shareholders and the
fiduciary duties owed by the Board of Directors to
Tetragon will be governed by Guernsey law and its
articles of incorporation and may differ from the rights
and duties owed to companies under the laws of other
countries.
Tetragon’s shares are subject to restrictions on
transfers to certain shareholders located in the United
States or who are U.S. persons, which may impact the
price and liquidity of the shares.
Tetragon’s shares are not intended for European retail
investors. Tetragon anticipates that its typical investors
will be institutional and professional investors who wish
to invest for the long term in a predominantly income-
producing investment and who have experience in
investing in financial markets and collective investment
undertakings and are capable themselves of evaluating
the merits and risks of Tetragon shares and who 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.
Tetragon is not, and does not intend to become,
regulated as an investment company under the U.S.
Investment Company Act of 1940 and related rules.
Risks Relating to Taxation
United States investors may suffer adverse tax
consequences because Tetragon is treated as a
passive foreign investment company (PFIC) for U.S.
federal income tax purposes.
Changes to tax treatment of derivative instruments may
adversely affect Tetragon and certain tax positions it
may take may be successfully challenged.
Investors may suffer adverse tax consequences if
Tetragon is treated as resident in the United Kingdom
or the United States for tax purposes.
(continued)
2020 Annual Repor t 3 3
Risk Factors (continued)
Coronavirus Outbreak Risks
The global outbreak of the 2019 novel coronavirus, or
COVID-19, together with resulting voluntary and U.S.
federal and state and non-U.S. governmental actions,
including, without limitation, mandatory business
closures, public gathering limitations, restrictions on
travel and quarantines, has meaningfully disrupted
the global economy and markets. COVID-19 has and
is expected to continue to have ongoing material
adverse effects across many, if not all, aspects of the
regional, national and global economy. In particular,
the COVID-19 outbreak has already, and will continue
to, adversely affect a number of Tetragon’s investments
and the industries in which they operate. Furthermore,
the investment manager’s ability to operate
effectively, including the ability of its personnel or its
service providers and other contractors to function,
communicate and travel to the extent necessary to
carry out Tetragon’s investment strategy and the
investment manager’s business and to satisfy its
obligations to Tetragon, and pursuant to applicable
law, has been, and will continue to be, impaired. The
spread of COVID-19 among the investment manager’s
personnel and its service providers would also
significantly affect the investment manager’s ability to
properly oversee the affairs of Tetragon (particularly
to the extent such impacted personnel include key
investment professionals or other members of senior
management), which could result in a temporary
or permanent suspension of Tetragon’s investment
activities or operations. The full effects, duration
and costs of the COVID-19 pandemic are impossible
to predict, and the circumstances surrounding the
COVID-19 pandemic will continue to evolve.
Risks Resulting from the United Kingdom’s Exit from
the European Union
The United Kingdom left the European Union on
January 31, 2020 – commonly referred to as Brexit.
During an 11 month transition period, the United
Kingdom and the European Union agreed to a Trade
and Cooperation Agreement which sets out the
agreement for certain parts of the future relationship
between the European Union and the United Kingdom
from January 1, 2021. The Trade and Cooperation
Agreement does not provide the United Kingdom with
the same level of rights or access to all goods and
services in the European Union as the United Kingdom
previously maintained as a member of the European
Union and during the transition period. In particular the
Trade and Cooperation Agreement does not include
an agreement on financial services, which is yet to be
agreed. Accordingly, uncertainty remains in certain
areas as to the future relationship between the United
Kingdom and the European Union.
From January 1, 2021, European Union laws ceased to
apply in the United Kingdom. However, many European
Union laws have been transposed into English law and
these transposed laws will continue to apply until such
time that they are repealed, replaced or amended.
Depending on the terms of any future agreement
between the European Union and the United Kingdom
on financial services, substantial amendments to
English law may occur, and it is impossible to predict
the consequences on Tetragon and its investments.
Such changes could be materially detrimental to
Tetragon.
Although one cannot predict the full effect of Brexit,
it could have a significant adverse impact on the
United Kingdom, European and global macroeconomic
conditions and could lead to prolonged political,
legal, regulatory, tax and economic uncertainty. This
uncertainty is likely to continue to impact the global
economic climate and may impact opportunities,
pricing, availability and cost of bank financing,
regulation, values or exit opportunities of companies
or assets based, doing business, or having service or
other significant relationships in, the United Kingdom
or the European Union, including companies or assets
held or considered for prospective investment by
Tetragon.
The future application of European Union-based
legislation to the private fund industry in the United
Kingdom and the European Union will ultimately
depend on how the United Kingdom renegotiates the
regulation of the provision of financial services within
and to persons in the European Union. There can be no
assurance that any renegotiated terms or regulations
will not have an adverse impact on Tetragon and its
investments, including the ability of Tetragon to achieve
its investment objective. Brexit may result in significant
market dislocation, heightened counterparty risk, an
adverse effect on the management of market risk and,
in particular, asset and liability management due in part
to redenomination of financial assets and liabilities, an
adverse effect on the ability of investment manager to
manage and operate and increased legal, regulatory or
compliance burden for the investment manager and/or
Tetragon, each of which may have a negative impact on
the operations, financial condition, returns or prospects
of Tetragon.
(continued)
2020 Annual Repor t 3 4
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Risk Factors (continued)
Areas where the uncertainty created by the United
Kingdom’s withdrawal from the European Union is
relevant include, but are not limited to, trade within
Europe, foreign direct investment in Europe, the scope
and functioning of European regulatory frameworks
(including with respect to the regulation of alternative
investment fund managers and the distribution and
marketing of alternative investment funds), industrial
policy pursued within European countries, immigration
policy pursued within European Union countries, the
regulation of the provision of financial services within
and to persons in Europe and trade policy within
European countries and internationally. The volatility
and uncertainty caused by the withdrawal may
adversely affect the value of Tetragon’s investments.
2020 Annual Repor t 35
GGoovveerrnnaannccee
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Tetragon's Board of Directors
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The Board of Directors currently comprises five directors, of which three are Independent Directors.
Deron Haley, also known as D.J., is a founding Partner and Chief Operating Officer at
Durational Capital Management, LP, a New York-based private equity firm that specialises
in consumer buy-outs. Prior to Durational Capital Management, Mr. Haley was the Chief
Operating Officer of Hound Partners, LLC, a New York-based global equity fund. Prior thereto,
he was a senior executive of Ziff Brothers Investments, LLC, a global, single-family office that
invested directly in private and public equities, fixed income, global-macro, and commodities,
and led firm-wide operational and management initiatives. Mr. Haley began his finance career
as an equity research analyst, and later a registered trader before taking on senior managerial
roles. Prior to finance, Mr. Haley served five years active duty in the United States Navy. He
is a founding Director of the Navy SEAL Foundation and is a member of the Governance and
Investment Committees. Mr. Haley is a Director of Ibis Tek, Inc, a small-business defense
contractor, and also sits on the Investment Committee of The Heinz Endowments. Mr. Haley
recently served as an independent director on the Boards of Directors of several funds
managed by TFG Asset Management. He holds a B.S. degree in Mechanical Engineering from
Carnegie Mellon University in Pittsburgh and a M.B.A. degree from Harvard Business School.
Steven Hart serves as president of Hart Capital LLC, which he founded in 1998 as a family
office to invest in a diversified portfolio of assets with a strong education industry focus.
He also co-founded Florian Education Investors LLC in May 2013, which now includes an
ACCSC accredited postsecondary vocational education company offering on ground and
online diploma and degree programs to the allied health community. Mr. Hart was the co-
owner (1999-2010) and member of the Board of Directors (1999-2007) of Lincoln Educational
Services Corporation. From 1983 to 1997, he was co-founder of a family-owned conglomerate
where he acquired and managed manufacturing and distribution companies involved in
automotive, printing, apparel and industrial textiles, electronics, synthetic foam, and home
furnishing industries. Mr. Hart served as chairman of the State of Connecticut Investment
Advisory Council from 1995 to 2003, which oversees the State of Connecticut Retirement
Plans and Trust Funds, and, as a trustee (1996-2003), and chairman (2003) of the Stanford
University Graduate School of Business Endowment Trust. Since 2011, Mr. Hart has been a
member of the Boards of Directors of several funds connected with Blue Harbour Group, L.P.,
a hedge fund based in Greenwich, Connecticut. He earned an M.B.A. degree from Stanford
University Graduate School of Business and a B.A. degree in mathematics and economics
from Wesleyan University.
David O'Leary retired from State Street Corporation in Boston, Massachusetts in 2012, where
he was Executive Vice President - Chief Administrative Officer (2010-2012) and Executive Vice
President - Global Head of Human Resources (2005-2010). At State Street, he managed a
global team of 325 staff across 15 countries, and was a member of its 10-person Operating
Group and Management Committee, reporting directly to its Chief Executive Officer. From
1985 to 2004, Mr. O’Leary was at Credit Suisse First Boston, serving as Managing Director,
Global Head of Human Resources from 1988 to 2003, where he managed a global team of 250
staff in 13 countries responsible for all aspects of Human Resources in the Americas, Europe,
and Asia. Mr. O’Leary began his career in financial services at Merrill Lynch & Company in New
York, where he was Vice President - Executive Compensation from 1981 to 1985. He earned a
M.B.A. degree from the University of Massachusetts, where he graduated first in his class, a
M.S. degree from the State University of New York and a B.S. degree from Union College.
2020 Annual Repor t 37
DERON J. HALEY
Independent Director
STEVEN W. HART
Independent Director
DAVID C. O'LEARY
Independent Director
The Board of Directors (continued)
Reade Griffith co-founded the investment manager of Tetragon in 2005 and Polygon in
2002. He is a member of Tetragon’s Board of Directors, the head of the investment manager’s
Investment Committee and Risk Committee, the Chief Investment Officer of TFG Asset
Management and the Chief Investment Officer of Polygon’s European Event-Driven Equities
strategy, in addition to other roles. Mr. Griffith 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 in Tokyo, London and Chicago for the firm. Prior to that, he
was with Baker, Nye, where he was an analyst working on an arbitrage and special situations
portfolio. Mr. Griffith holds an A.B. degree in Economics from Harvard College and a J.D.
degree from Harvard Law School. Mr. Griffith is currently a member of the Dean’s Advisory
Board at Harvard Law School and was a member of the Financial Sector Forum at the Bank of
England from 2017 - 2020. Mr. Griffith also served as an officer in the U.S. Marine Corps and
left as a Captain following the 1991 Gulf War. He is based in London.
Paddy Dear co-founded the investment manager of Tetragon in 2005 and Polygon in 2002.
He is a member of Tetragon’s Board of Directors and a member of the investment manager’s
Investment Committee and Risk Committee, in addition to other roles. Mr. Dear was previously
a Managing Director and the Global Head of Hedge Fund Coverage for UBS Warburg Equities.
Prior to that, he 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 joining UBS and started his career as a petroleum
engineer with Marathon Oil Co. Mr. Dear holds a BSc degree in Petroleum Engineering from
Imperial College in London. He is based in London.
READE GRIFFITH
PADDY DEAR
38
The Board of Directors (continued)
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Size, Independence and Composition of the
Board of Directors of Tetragon
The structure, practices and committees of the
Board of Directors of Tetragon, including matters
relating to the size, independence and composition
of the Board of Directors, the election and removal
of Directors, requirements relating to board action
and the powers delegated to board committees,
are governed by Tetragon’s Memorandum and
Articles of Incorporation.
Tetragon has five directors (referred to herein
as the Directors). Subject as set out below and
as elsewhere described in the risk factors found
on Tetragon’s website at www.tetragoninv.com/
investors/risk-factors.aspx, not less than a majority
of the Directors are independent. A Director will be
an “Independent Director” if the Board of Directors
determines that the person satisfies the standards
for independence contained in the U.K. Combined
Code in all material respects. If the death,
resignation or removal of an Independent Director
results in the Board of Directors having less than
a majority of Independent Directors, the vacancy
must be filled promptly. Pending the filling of such
vacancy, the Board of Directors may temporarily
consist of less than a majority of Independent
Directors and those Directors who do not meet
the standards for independence may continue to
hold office. A Director who is not an Independent
Director will not be required to resign as a Director
as a result of an Independent Director’s death,
resignation or removal. In addition, Tetragon’s
Memorandum and Articles of Incorporation
prohibit the Board of Directors from consisting of a
majority of Directors who are resident in the United
Kingdom.
Election and Removal of Directors of Tetragon
Each member of Tetragon’s Board of Directors is
elected annually by the holder of Tetragon’s voting
shares. All vacancies on the Board of Directors
including by reason of death or resignation may be
filled, and additional Directors may be appointed,
by a resolution of the holder of Tetragon’s voting
shares.
A Director may be removed from office for any
reason by notice requesting resignation signed
by all other Directors then holding office, if the
Director is absent from four successive meetings
without leave expressed by a resolution of the
Directors or for any reason by a resolution of the
holder of Tetragon’s voting shares. A Director will
also be removed from the Board of Directors if
he becomes bankrupt, if he becomes of unsound
mind, if he becomes a resident of the United
Kingdom and such residency results in a majority
of the Board of Directors being residents of the
United Kingdom or if he becomes prohibited by
law from acting as a Director. A Director is not
required to retire upon reaching a certain age.
Action by the Board of Directors of Tetragon
The Board of Directors of Tetragon may take
action in a duly convened meeting, for which a
quorum is five Directors, or by a written resolution
signed by at least five Directors. When action is to
be taken by the Board of Directors, the affirmative
vote of five of the Directors then holding office is
required for any action to be taken. As a result,
the Board of Directors will not be able to act
without the affirmative vote of both of the Directors
affiliated with the holder of Tetragon’s voting
shares.
The Directors are responsible for the management
of Tetragon. They have delegated to the
investment manager certain functions, including
broad discretion to adopt an investment strategy
to implement Tetragon’s investment objective.
However, certain matters are specifically reserved
for the Board of Directors under the Memorandum
and Articles of Incorporation.
Transactions in which a Director has an
Interest
Provided that a Director has disclosed to the
other Directors the nature and extent of any of
such Director’s interests in accordance with the
Companies (Guernsey) Law, 2008, as amended, a
Director, notwithstanding his office: (a) may be a
party to, or otherwise interested in, any transaction
or arrangement with Tetragon or in which Tetragon
is otherwise interested; (b) may be a director or
other officer of, or employed by, or a party to any
transaction or arrangement with, or otherwise
interested in, any body corporate promoted
by Tetragon or in which Tetragon is otherwise
interested; and (c) shall not be accountable to
2020 Annual Repor t 39
The Board of Directors (continued)
On 1 January 2020, the Independent Directors
were awarded shares in Tetragon which vest on
31 December 2022 and are subject to forfeiture
provisions. The fair value of the award, as
determined by the share price on grant date of
US$ 12.25 per share, is US$ 300,000 for each
Independent Director.
Certain Corporate Governance Rules
Tetragon is required to comply with all provisions
of the Companies (Guernsey) Law, 2008, as
amended, relating to corporate governance to the
extent the same are applicable and relevant to
Tetragon’s activities. In particular, each Director
must seek to act in accordance with the “Code
of Practice - Company Directors”. Tetragon
reports against the AIC Code of Corporate
Governance (AIC Code). The 2019 AIC Code has
been endorsed by, amongst others, the Financial
Reporting Council and the Guernsey Financial
Services Commission (GFSC). This means that
Tetragon may make a statement that by reporting
against the AIC Code it is meeting its applicable
obligations under the UK Corporate Governance
Code 2018, the 2011 GFSC Finance Sector Code
of Corporate Governance and any associated
disclosure requirements under paragraph 9.8.6
of the London Stock Exchange’s Listing Rules.
No formal corporate governance code applies to
Tetragon under Dutch law.
Indemnity
Each present and former Director or officer of
Tetragon is indemnified against any loss or liability
incurred by the Director or officer by reason of
being or having been a Director or officer of
Tetragon. In addition, the Directors may authorise
the purchase or maintenance by Tetragon for any
Director or officer or former Director or officer
of Tetragon of any insurance, in respect of any
liability which would otherwise attach to the
Director or officer or former Director or officer.
Tetragon for any benefit derived from any such
transaction or arrangement or from any interest in
any such body corporate, and no such transaction
or arrangement shall be void or voidable on the
ground of any such interest or benefit or because
such Director is present at or participates in the
meeting of the Directors that approves such
transaction or arrangement, provided that (i) the
material facts as to the interest of such Director
in such transaction or arrangement have been
disclosed or are known to the Directors and the
Directors in good faith authorise the transaction
or arrangement and (ii) the approval of such
transaction or arrangement includes the votes of a
majority of the Directors that are not interested in
such transaction or such transaction is otherwise
found by the Directors (before or after the fact) to
be fair to Tetragon as of the time it is authorised.
Under the Investment Management Agreement,
the Directors have authorised the investment
manager to enter into transactions on behalf of
Tetragon with persons who are affiliates of the
investment manager, provided that in connection
with any such transaction that exceeds $5 million
of aggregate investment the investment manager
informs the Directors of such transaction and
obtains either (i) the approval of a majority of
the Directors that do not have a material interest
in such transaction or (ii) an opinion from a
recognised investment bank, auditing firm or other
appropriate professional firm substantively to the
effect that the financial terms of the transaction
are fair to Tetragon from a financial point of view.
Compensation
The remuneration for Directors is determined
by resolution of the holder of Tetragon’s voting
shares. Currently, the Directors’ annual fee is
$125,000, in compensation for service on the
Board of Directors of Tetragon. The Directors
affiliated with the holder of Tetragon’s voting
shares have waived their entitlement to a fee. The
Directors are entitled to be repaid by Tetragon for
all travel, hotel and other expenses reasonably
incurred by them in the discharge of their duties.
None of the Directors has a contract with Tetragon
providing for benefits upon termination of
employment.
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The Audit Committee
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The Audit Committee of Tetragon
currently comprises the three
Independent Directors and is
responsible for, among other items,
assisting and advising Tetragon's Board
of Directors with matters relating to
Tetragon's accounting and financial
reporting processes and the integrity
and audits of Tetragon's financial
statements. The Audit Committee
is also responsible for reviewing
and making recommendations with
respect to the plans and results of
each audit engagement with Tetragon's
independent auditor, the audit and non-
audit fees charged by the independent
auditor and the adequacy of Tetragon's
internal accounting controls.
2020 Annual Repor t 41
The Investment Manager
Tetragon Financial Management LP has been
appointed the investment manager of Tetragon
pursuant to an investment management agreement
dated 26 April 2007. The investment manager’s
general partner, Tetragon Financial Management GP
LLC, is responsible for all actions of the investment
manager. The general partner is ultimately controlled
by Reade Griffith and Paddy Dear, who also control the
holder of Tetragon’s voting shares and are the voting
members of the investment manager’s Investment
and Risk Committees. Reade Griffith acts as the
authorised representative of the general partner and
the investment manager.
Its Investment Committee is responsible for the
investment management of Tetragon and its portfolio
and currently consists of Reade Griffith, Paddy Dear
and Stephen Prince. The Investment Committee
determines the investment strategy of Tetragon and
approves each significant investment by it.
The investment manager’s Risk Committee is
responsible for the risk management of Tetragon and
its portfolio and performs active and regular oversight
and risk monitoring. The Risk Committee has the same
composition as the Investment Committee.
The investment manager’s Executive Committee
oversees all key non-investment and risk activities
of the investment manager and currently consists
of Reade Griffith, Paddy Dear, Stephen Prince, Paul
Gannon, Sean Côté and Greg Wadsworth.
Summary of Key Terms of Tetragon’s Investment
Management Agreement
Under the terms of the Investment Management
Agreement, the investment manager has full discretion
to invest the assets of Tetragon in a manner consistent
with the investment objective of Tetragon. The
investment manager has the authority to determine
the investment strategy to be pursued in furtherance
of the investment objective, which strategy may be
changed from time to time by the investment manager
in its discretion. The investment manager is authorised
to delegate its functions under the Investment
Management Agreement.
investment manager or the investment manager giving
notice to Tetragon in relation to such entity in the event
of (a) the party in respect of which notice has been
given becoming insolvent or going into liquidation
(other than a voluntary liquidation for the purpose of
reconstruction or amalgamation upon terms previously
approved in writing by the other party) or a receiver
being appointed over all or a substantial part or of its
assets or it becoming the subject of any petition for
the appointment of an administrator, trustee or similar
officer, (b) a party committing a material breach of the
Investment Management Agreement which causes
a material adverse effect to the non-breaching party
and (if such breach shall be capable of remedy) not
making good such breach within 30 days of service
upon the party in breach of notice requiring the remedy
of such breach or (c) fraud or wilful misconduct in the
performance of a party’s duties under the Investment
Management Agreement.
The Investment Management Agreement provides
that none of the investment manager, its affiliates
or their respective members, managers, partners,
shareholders, directors, officers and employees
(including their respective executors, heirs, assigns,
successors or other legal representatives) (each, as
an indemnified party) will be liable to Tetragon or any
investor in Tetragon for any liabilities, obligations,
losses (including, without limitation, losses arising out
of delay, mis-delivery or error in the transmission of
any letter, cable, telephonic communication, telephone,
facsimile transmission or other electronic transmission
in a readable form), damages, actions, proceedings,
suits, costs, expenses (including, without limitation,
legal expenses), claims and demands suffered in
connection with the performance by the investment
manager of its obligations under the Investment
Management Agreement or otherwise in connection
with the business and operations of Tetragon, in the
absence of fraud or wilful misconduct on the part
of an indemnified party, and Tetragon has agreed to
indemnify each indemnified party against any such
liabilities, obligations, losses, damages, actions,
proceedings, suits, costs, expenses, claims and
demands, except as may be due to the fraud or wilful
misconduct of the indemnified party.
The Investment Management Agreement continues
in full force and effect unless terminated (i) by the
investment manager at any time upon 60 days’ notice
or (ii) immediately upon Tetragon giving notice to the
The investment manager may act as investment
manager or advisor to any other person, so long as
its services to Tetragon are not materially impaired
thereby, and need not disclose to Tetragon anything
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The investment manager (continued)
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that comes to its attention in the course of its business
in any other capacity than as investment manager.
The investment manager is not liable to account for
any profit earned or benefit derived from advice given
by the investment manager to other persons. The
investment manager will not be liable to Tetragon for
any loss suffered in connection with the investment
manager’s decision to offer investments to any other
person, or failure to offer investments to Tetragon.
The investment manager is authorised to enter into
transactions on behalf of Tetragon with persons who
are affiliates of the investment manager, provided that
in connection with any such transaction that exceeds
$5 million of aggregate investment, the investment
manager obtains either (i) the approval of a majority
of the Directors that do not have a material interest
in such transaction (whether as part of a Board of
Directors resolution or otherwise) or (ii) an opinion from
a recognised investment bank, auditing firm or other
appropriate professional firm substantively to the effect
that the financial terms of the transaction are fair to
Tetragon from a financial point of view.
Management and Incentive Fees; Expenses
All fees and expenses of Tetragon, except for the
incentive fees for the investment manager (as
described below), will be paid by Tetragon, including
management fees relating to the administration of
Tetragon.
The investment manager is entitled to receive
management fees equal to one and one-half percent
(1.5%) per annum of the NAV of Tetragon payable
monthly in advance prior to the deduction of any
accrued incentive fees. No separate management fees
are payable with respect to the NAV of Tetragon.
Tetragon will also pay to the investment manager an
incentive fee for each Calculation Period (as defined
below) equal to 25% of the increase in the NAV
of Tetragon during the Calculation Period (before
deduction of any dividend paid or the amount of any
redemptions or repurchases of shares (or other relevant
capital adjustments) during such Calculation Period)
above (i) the Reference NAV (as defined below) plus (ii)
the Hurdle (as defined below) for the Calculation Period.
If the Hurdle is not met in any Calculation Period (and
no incentive fee is paid), the shortfall will not carry
forward to any subsequent Calculation Period.
A “Calculation Period” is a period of three months
ending on March 31, June 30, September 30 and
December 31 of each year, or as otherwise determined
by the Board of Directors of Tetragon.
The “Reference NAV” is the greater of (i) NAV at the end
of the Calculation Period immediately preceding the
current Calculation Period and (ii) the NAV as of the end
of the Calculation Period ending three months earlier
than the Calculation Period referred to in clause (i).
For the purposes of determining Reference NAV at the
end of a Calculation Period, NAV shall be adjusted by
the amount of accrued dividends and amounts of any
redemptions or repurchases of shares (or other relevant
capital adjustments) and incentive fees to be paid with
respect to that Calculation Period.
The “Hurdle” for any Calculation Period will equal (i)
the Reference NAV multiplied by (ii) the Hurdle Rate
(defined below).
The “Hurdle Rate” for any Calculation Period equals
3-month U.S. Dollar LIBOR determined as of 11:00 a.m.
London time on the first London business day of the
then-current Calculation Period plus the hurdle spread
of 2.647858%, in each case multiplied by (x) the actual
number of days in the Calculation Period divided by
(y) 365. (In Tetragon’s initial public offering in April
2007, the Hurdle Rate was fixed at 8% per annum for
the 12-month period following IPO with it then being
adjusted as specified above. The referenced hurdle
spread of 2.647858% is the difference between 8% and
the average three-month U.S. Dollar LIBOR at 11:00
a.m. London time on the 20 London business days
preceding the IPO pricing date.)
The incentive fee in respect of each Calculation Period
is calculated by reference to the increase in NAV of the
shares before deduction of any accrued incentive fee.
The incentive fee is normally payable in arrears within
14 calendar days of the end of the Calculation Period. If
the Investment Management Agreement is terminated
other than at the end of a Calculation Period, the date
of termination will be deemed to be the end of the
Calculation Period. The investment manager does not
charge separate fees based on the NAV of Tetragon.
An incentive fee of $66.0 million was accrued in the
fourth quarter of 2020 in accordance with Tetragon’s
investment management agreement. The hurdle rate
for the first quarter of 2021 incentive fee has been reset
at 2.885108% (Q4 2020: 2.881858%) as per the process
2020 Annual Repor t 4 3
The investment manager (continued)
outlined above and in accordance with Tetragon’s
investment management agreement.
entering into any other contracts or agreements in
connection with any of the foregoing activities.
Tetragon generally bears all costs and expenses
directly related to its investments or prospective
investments, such as brokerage commissions, interest
on debit balances or borrowings, custodial fees and
legal and consultant fees. Tetragon also generally bears
all out-of-pocket costs of administration including
accounting, audit, administrator and legal expenses,
costs of any litigation or investigation involving their
activities, costs associated with reporting and providing
information to existing and prospective investors and
the costs of liability insurance.
The Investment Manager’s Role with Respect to TFG
Asset Management
The investment manager’s responsibilities with respect
to Tetragon include, inter alia:
investing and reinvesting the assets of Tetragon
in securities, derivatives and other financial
instruments and other investments of whatever
nature and committing the assets of Tetragon in
relation to agreements with entities, issuers and
counterparties;
holding cash balances or investing them directly
in any short-term investments, and reinvesting any
income earned thereon in accordance Tetragon’s
investment strategy;
purchasing, holding, selling, transferring,
exchanging, mortgaging, pledging, hypothecating
and otherwise acting to acquire and dispose of
and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect
to investments held or owned by Tetragon, with
the objective of the preservation, protection and
increase in value thereof;
exercising any voting or similar rights attaching to
investments purchased on behalf of Tetragon;
borrowing or raising monies from time to time
without limit as to amount or manner and time of
repayment;
engaging consultants, attorneys, independent
accountants or such other persons as the
investment manager may deem necessary or
advisable; and
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TFG Asset Management is an investment of Tetragon,
and, as such, the investment manager is responsible
for exercising any of Tetragon’s voting or similar
rights with respect to TFG Asset Management as an
investment and is responsible for the management,
oversight and/or supervision of such investment. As
with any other category of investments, the investment
manager is also responsible for decisions with respect
to acquisitions of asset management businesses to
be added to TFG Asset Management using Tetragon’s
cash (which may include minority interests in asset
management businesses, joint ventures or other
similar arrangements) – as investment decisions
with respect to Tetragon’s cash or other assets.
Following the acquisition of an asset management
business, that business then becomes a part of TFG
Asset Management and TFG Asset Management is
responsible for the management, oversight and/or
supervision of such business, including amendments
to or modifications of the terms or arrangements of its
ownership of such business (except, where relevant, to
the extent of decisions with respect to Tetragon’s cash),
and any decision to sell or otherwise dispose of all or
any portion of such business.
TFG Asset Management seeks to generate income
and value from its asset management businesses by
having these businesses manage third-party investor
capital. TFG Asset Management has an internal
management team that is responsible for the TFG
Asset Management business as a whole, including
the management, oversight and/or supervision of its
various asset management businesses as they form
and grow the funds and vehicles that they manage, and
is responsible for its own costs.
Tetragon may invest in the various funds and other
vehicles managed by a TFG Asset Management
business. It may also provide financial support to
any fund managed by a TFG Asset Management
business (such as a “seeding” arrangement), or provide
equity, loans or other financial support to TFG Asset
Management or its asset management businesses.
The investment manager is responsible for any
decision to invest cash into any fund or other vehicle
managed by a TFG Asset Management business and
is also responsible for decisions regarding financial
support for TFG Asset Management.
The investment manager (continued)
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In connection with the management, oversight and/or
supervision of asset management businesses within
TFG Asset Management, TFG Asset Management
(rather than the investment manager) is responsible
for, inter alia, business development, marketing, legal
and compliance, risk management and governance,
as well as guidance on business issues faced by a
new fund or vehicle and the strategic direction of
such businesses. As such, TFG Asset Management is
responsible for any restructuring or reorganisation of
these asset management businesses from time to time
(to the extent that such arrangements do not involve
the acquisition of asset management businesses using
Tetragon’s cash), any disputes or litigation with respect
to the ownership arrangements of such businesses and
any decision to sell or otherwise dispose of all or any
portion of such businesses.
Services Agreement between the Investment Manager
and Certain Subsidiaries of TFG Asset Management
The investment manager has, since its inception, relied
on two Polygon entities(1) for a broad range of services
to support its activities.(2)
Following Tetragon’s 28 October 2012 acquisition of
Polygon Management L.P., these entities have been
part of TFG Asset Management. The services provided
to the investment manager under a Services Agreement
by TFG Asset Management, through these entities,
include infrastructure services such as operations,
financial control, trading, marketing and investor
relations, legal, compliance, office administration,
payroll and employee benefits. One of those entities,
Polygon Global Partners LLP, which is authorised and
regulated by the United Kingdom Financial Conduct
Authority, also provides services relating to the dealing
in and management of investments, arrangement of
deals and advising on investments.
(1) These Polygon entities, now TFG Asset Management subsidiaries, also
provide infrastructure services to LCM and Contingency Capital,
infrastructure and investment management services to Hawke’s Point, the
TCI General Partner and Banyan Square Partners, and oversight services with
respect to Equitix.
(2) Polygon Private Investment Partners LP, an investment management entity in
which Reade Griffith and Paddy Dear had an interest and that was not
included in Tetragon’s 28 October 2012 acquisition of Polygon Management
L.P., also relied on TFG Asset Management for certain services to support its
activities until its liquidation in December 2020. TFG Asset Management
employed a cost allocation and recovery methodology from Polygon Private
Investment Partners LP that was the same as the cost allocation and
recovery methodology applied to the investment manager.
Cost Recovery by TFG Asset Management for
Services Provided to Tetragon’s Investment Manager
TFG Asset Management, through its Polygon
subsidiaries, has implemented a cost-allocation
methodology with the objective of allocating service-
related costs, including to the investment manager, in
a consistent, fair, transparent and commercially based
manner.(3)
TFG Asset Management then charges fees to the
investment manager for the services allocated to the
investment manager on a cost-recovery basis designed
to achieve full recovery of the allocated costs. In 2020
the total amount recharged to the investment manager,
excluding direct expenses, was $18.1 million.
Most of the costs related to these services are directly
or indirectly attributable to personnel or “human
capital”, with compensation typically being the largest
single cost.(4)
Consequently, one of the most critical cost allocations
relates to professionals’ time, which is commonly
expressed as Full Time Equivalents or “FTEs”. On
a monthly basis, each TFG Asset Management
employee(5), directly or via their team head, provides
a breakdown of the approximate percentage of time
spent supporting the various businesses for the
previous month (this excludes certain functions such
as office management and technology that are charged
to business users on a standard basis (e.g., space used
or global headcount) which removes any need on the
part of those teams to allocate their FTEs to business
lines). TFG Asset Management employees should not
be incentivised to either over- or under-allocate to any
business, as their time allocation is not a consideration
in the determination of their overall compensation.
Once allocated percentages are determined and
agreed, an FTE is derived, subject to adjustments
for items determined by contractual arrangements.
Personnel costs (excluding bonuses) of each function
are calculated using a standard costing methodology,
which includes a standard add-on for employment
taxes and standard employee benefits. Bonuses are
(3) This cost allocation methodology also applies to the other TFG Asset
Management businesses to which the Polygon entities provide services.
(4) Employee compensation will also include TFG Asset Management’s long-
term incentive plan and its other equity-based awards.
(5) Amounts paid by TFG Asset Management to Mr. Griffith in connection with
services provided by him to TFG Asset Management are not allocated to the
investment manager.
2020 Annual Repor t
4 5
The investment manager (continued)
charged to each business line (including the investment
manager) based on the FTE allocation described above.
In addition to FTE costs, there are a number of other
costs that reflect the use of resources by TFG Asset
Management personnel on behalf of the investment
manager (in addition to the other TFG Asset
Management businesses), including real property
costs, technology, travel and entertainment and market
data. A standard cost methodology is used to allocate
these costs across the various business lines that are
supported, including the investment manager. The
setting of standard costs is designed to reflect what
those costs would be on an arm’s-length basis. The
methodology is designed to create consistency in
order to provide a fair allocation of resource costs to all
businesses.
Employee FTE data is collated and used to process
monthly cost allocations. Such allocations are
invoiced monthly to users of the TFG Asset
Management platform that are not owned by TFG
Asset Management, including the investment manager,
or allocated within the TFG Asset Management
general ledger for businesses owned by TFG Asset
Management.
TFG Asset Management’s cost allocation methodology
is documented and updated annually by TFG Asset
Management’s finance team in consultation with its
legal and compliance teams and is approved each year
by TFG Asset Management’s executive committee.
KPMG LLP, reporting directly to Tetragon’s Audit
Committee, are currently engaged to periodically
test that the costs allocated to (and therefore
recovered from) the investment manager have been
properly calculated in accordance with the approved
cost-allocation methodology. Tetragon’s Board of
Directors has adopted procedures for related-party
transactions that require approval of a majority
of disinterested Directors. Accordingly, Tetragon’s
Independent Directors are required to approve the
methodology for allocating costs and in their sole
discretion the application of that methodology as
part of their oversight processes. The annual cost
allocation methodology update and the actual annual
cost allocations that result based on these cost
methodology policies and procedures are separately
approved by the Independent Directors.
46
Tetragon Financial Group Limited
Directors' Report for the Year Ended 31 December 2020
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The Directors present to the shareholders their report together with the audited financial
statements for the year ended 31 December 2020.
The Fund and its Investment Objective
Tetragon Financial Group Limited (“Tetragon” or the “Fund”) was registered in Guernsey on 23 June 2005 as a
company limited by shares, with registered number 43321. All voting shares of Tetragon are held by Polygon Credit
Holdings II Limited (the “Voting Shareholder”). Tetragon continues to be registered and domiciled in Guernsey,
Tetragon's non-voting shares are listed on Euronext in Amsterdam, a regulated market of Euronext Amsterdam N.V.
(ticker symbol: TFG.NA) and on the Specialist Fund Segment of the London Stock Exchange plc (ticker symbols:
TFG.LN and TFGS.LN).
Tetragon’s investment objective is to generate distributable income and capital appreciation. It aims to provide
returns to investors across various credit, equity, interest rate, inflation and real estate cycles. Tetragon invests in
a broad range of assets, including public and private equities, credit, convertible bonds, real estate, venture capital,
infrastructure, bank loans, and TFG Asset Management, a diversified alternative asset management business.
As at 31 December 2020, TFG Asset Management’s investments consisted of LCM, BentallGreenOak, Polygon,
Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners and Contingency Capital.
TFG Asset Management LP and Tetragon Financial Management LP (the “Investment Manager”), are both
registered as investment advisers under the U.S. Investment Advisers Act of 1940, and two of TFG Asset
Management LP’s investment management entities, Polygon Global Partners LLP and Equitix Investment
Management Limited, are authorised and regulated by the United Kingdom Financial Conduct Authority.
Results, Activities and Future Developments
The results of operations are set out on page 3 of the Audited Financial Statements. A detailed review of activities
and future developments is contained in the Annual Report issued with these consolidated financial statements to
the shareholders of Tetragon.
Directors
The Directors who held office during the year were:
Paddy Dear
Reade Griffith
Deron Haley*
Steven Hart*
David O’Leary*
* Independent Directors
The remuneration for Directors is determined by resolution of Polygon Credit Holdings II Limited (the “Voting
Shareholder”). Each Director’s annual fee is US$ 125,000 (2019: US$ 125,000) as compensation for service on the
Board of Directors of the Fund and is paid in quarterly instalments by the Fund. Paddy Dear and Reade Griffith have
waived their entitlement to a Director’s fee.
The Directors have the option to elect to receive shares in the Fund instead of their quarterly Director’s fee. During
the year, David O’Leary received 6,626 shares (2019: 3,752).
On 1 January 2020, the Independent Directors were awarded shares in Tetragon which vest on 31 December 2022
and are subject to forfeiture provisions. The fair value of the award, as determined by the share price on grant date
of US$ 12.25 per share, is US$ 300,000 for each Independent Director.
2020 Annual Repor t
47
Directors' Report (continued)
The Directors are entitled to be repaid by the Fund for all travel, hotel and other expenses reasonably incurred by
them in the discharge of their duties. None of the Directors has a contract with the Fund providing for benefits
upon termination of employment.
Dividends
The Directors have the authority to declare dividend payments, based upon the recommendation of the Investment
Manager, subject to the approval of the Voting Shareholder of the Fund and adherence to applicable law including
the satisfaction of a solvency test as stated under the Companies (Guernsey) Law, 2008. The Investment
Manager’s recommendation with respect to the declaration of dividends (and other capital distributions) may be
informed by a variety of considerations, including (i) the expected sustainability of the Fund’s cash generation
capacity in the short and medium term, (ii) the current and anticipated performance of the Fund, (iii) the current and
anticipated operating and economic environment and (iv) other potential uses of cash ranging from preservation of
the Fund’s investments and financial position to other investment opportunities.
The Directors declared the following dividends during the year:
Dividend period
Quarter ended 31 December 2019
Quarter ended 31 March 2020
Quarter ended 30 June 2020
Quarter ended 30 September 2020
Dividend per share
$0.1825
$0.1000
$0.1000
$0.1000
On 24 February 2021, the Directors declared a dividend amounting to US$ 0.1000 per share for the quarter ended
31 December 2020. The total dividend declared for the year ended 31 December 2020 amounted to US$ 0.4000 per
share (2019: US$ 0.7400 per share).
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with
applicable law and regulations.
The Companies (Guernsey) Law, 2008, requires the Directors to prepare financial statements for each financial
year. Accordingly, the Directors have elected to prepare the financial statements in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Fund and of the
profit or loss of the Fund for the relevant financial period.
In preparing those financial statements, the Directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgments and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed
and explained in the financial statements;
• assess the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Fund or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for the keeping of proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Fund and to enable them to ensure that the financial statements
comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine
48
Directors' Report (continued)
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is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Fund and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included
on the Fund’s website, and for the preparation and dissemination of the financial statements. Legislation in
Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
The Fund is required to comply with all provisions of Guernsey Company Law relating to corporate governance
to the extent the same are applicable and relevant to its activities. In particular, each Director must seek to act
in accordance with the “Code of Practice – Company Directors”. The Fund reports against the Association of
Investment Companies (“AIC”) Corporate Governance Guide for Investment Companies and, as such, is deemed to
meet the provisions of the Code of Corporate Governance issued by the Guernsey Financial Services Commission.
The financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities,
financial position, results and cash flows of the Fund as required by the Disclosure Guidance and Transparency
Rules (“DTR”) 4.1.12R and by the Section 5.25c of the Financial Supervision Act of the Netherlands and are in
compliance with the requirements set out in the Companies (Guernsey) Law, 2008 as amended.
The annual report gives a fair review of the information required by DTR 4.1.8R and DTR 4.1.11R of the Disclosure
Guidance and Transparency Rules and the Financial Supervision Act of the Netherlands, which respectively require,
inter alia, (i) an indication of important events that have occurred since the end of the financial year and the likely
future development of the Fund and (ii) a description of principal risks and uncertainties during the year.
The Directors confirm that they have complied with the above requirements.
Disclosure of information to the auditor
So far as each of the Directors is aware, there is no relevant audit information of which the Fund’s auditor is
unaware, and each has taken all the steps he ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Fund’s auditor is aware of that information.
Auditor
KPMG Channel Islands Limited is the appointed independent auditor of the Fund and it has expressed their
willingness to continue in office. A resolution for the re-appointment of KPMG Channel Islands Limited as auditor of
the Fund is to be proposed at the forthcoming Annual General Meeting.
Signed on behalf of the Board of Directors by:
David O'Leary
Director
Date: 24 February 2021
Steven Hart
Director
2020 Annual Repor t 49
Directors' Statements
The Directors of Tetragon confirm that (i) this Annual Report constitutes the
Tetragon management review for the year ended 31 December 2020 and
contains a fair review of that period and (ii) the 2020 audited financial statements
accompanying this Annual Report for Tetragon have been prepared in accordance
with applicable laws and in accordance with IFRS as adopted by the European
Union.
50
The AIC Code of Corporate Governance
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In September 2016, Tetragon became a member of The Association of Investment Companies (AIC), the trade body
for closed-ended investment companies. Founded in 1932, the AIC represents approximately 400 members across
a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended
investment companies. Tetragon is classified by the AIC in its Flexible Investment sector as a company whose
policy allows it to invest in a range of asset types. The AIC has indicated that the sector may assist investors and
advisers to more easily find and compare those investment companies which have the ability to invest in a range of
assets and allow investors to compare investment companies with similar open-ended funds.
The AIC has a Code of Corporate Governance (AIC Code) which sets out a framework of best practice in respect of
the governance of investment companies. The 2019 AIC Code applies to accounting periods beginning on or after
1 January 2019. The 2019 AIC Code has been endorsed by, amongst others, the Financial Reporting Council and
the Guernsey Financial Services Commission (GFSC). This means that Tetragon, as an AIC member company, may
make a statement that by reporting against the AIC Code, it is meeting its applicable obligations under the United
Kingdom Corporate Governance Code 2018 (UK Code), the GFSC Finance Sector Code of Corporate Governance
2016 and any associated disclosure requirements under paragraph 9.8.6 of the Listing Rules. The Board of
Directors of Tetragon considers that reporting against the principles and provisions of the 2019 AIC Code will
provide better information to shareholders. Tetragon’s reporting against the principles and provisions of the 2019
AIC Code is also set out on Tetragon’s website at www.tetragoninv.com/site-services/aic/aic-code.
The 2019 AIC Code Principles and Provisions
Board leadership and purpose
Principles
A. A successful company is led by an effective board, whose role is to promote the long-term sustainable success of the
company, generating value for shareholders and contributing to wider society. (Incorporates relevant content from UK
Code Principle A)
B. The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are
aligned. All directors must act with integrity, lead by example and promote the desired culture. (UK Code Principle B)
C. The board should ensure that the necessary resources are in place for the company to meet its objectives and measure
performance against them. The board should also establish a framework of prudent and effective controls, which enable
risk to be assessed and managed. (UK Code Principle C)
D. In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective
engagement with, and encourage participation from, these parties. (UK Code Principle D)
Provisions
1. The board should assess the basis on which the company generates and preserves value over the long-term. It should
describe in the annual report how opportunities and risks to the future success of the business have been considered
and addressed, the sustainability of the company’s business model and how its governance contributes to the delivery of
its strategy. For an investment company, the annual report should also include the company’s investment objective and
investment policy. (Incorporates relevant content from UK Code Provision 1)
Tetragon Compliance Statement
Tetragon’s investment objective is to generate distributable income and capital appreciation. Tetragon’s investment
strategy to achieve that investment objective is stated in this Annual Report (page 16) and on its website (under the
heading Investment Strategy).
The Board of Directors does not hold separate strategy meetings, but overall strategy is discussed in detail at quarterly
meetings of the Board of Directors and at ad hoc board meetings when required. Directors also have the opportunity
to discuss these and any other matters with the investment manager outside of meetings of the Board of Directors as
appropriate.
2020 Annual Repor t 51
The AIC Code of Corporate Governance (continued)
The investment manager provides a detailed investment report to the Board of Directors at quarterly board meetings
across all key investment matrices including performance and allocation. The investment manager also provides a risk
management update to the Board of Directors at quarterly meetings. Industry issues are raised and discussed.
2. The board should assess and monitor its own culture, including its policies, practices and behaviour to ensure it is aligned
with the company’s purpose, values and strategy. (Incorporates relevant content from UK Code Provision 2)
Tetragon Compliance Statement
The Board of Directors is made up of a broad range of professionally qualified or industry experienced personnel with
relevant and suitable academic and professional backgrounds including a majority being Independent Directors. The
Board of Directors believes this is an appropriate balance of skills, experience and knowledge that is relevant to Tetragon’s
activities.
3. In addition to formal general meetings, the chair should seek regular engagement with major shareholders in order to
understand their views on governance and performance against the company’s investment objective and investment
policy. Committee chairs should seek engagement with shareholders on significant matters related to their areas of
responsibility. The chair should ensure that the board as a whole has a clear understanding of the views of shareholders.
(Incorporates relevant content from UK Code Provision 3)
Tetragon Compliance Statement
The investment manager has been delegated responsibility for monitoring the shareholder profile of Tetragon and has in
place a system for canvassing shareholder views and communicating views to the shareholders. The investment manager
holds regular investor calls and an annual investor day. The investment manager provides the Board of Directors with
comprehensive shareholder reports and corporate broker updates and analysis at meetings of the Board of Directors.
All major corporate communications are reviewed and approved by the Board of Directors.
4. When 20 per cent or more of votes have been cast against the board recommendation for a resolution, the company
should explain, when announcing voting results, what actions it intends to take to consult shareholders in order to
understand the reasons behind the result. An update on the views received from shareholders and actions taken should be
published no later than six months after the shareholder meeting. The board should then provide a final summary in the
annual report and, if applicable, in the explanatory notes to resolutions at the next shareholder meeting, on what impact
the feedback has had on the decisions the board has taken and any actions or resolutions now proposed. (UK Code
Provision 4)
Tetragon Compliance Statement
Tetragon has 10 voting shares in issue, which were issued at par and are owned by Polygon Credit Holdings II Limited (the
Voting Shareholder). The Voting Shareholder is a non-U.S. affiliate of Tetragon’s investment manager.
Tetragon’s voting shares are the only shares of Tetragon entitled to vote for the election of Tetragon’s board of directors
and on all other matters, subject to the limited rights of the ordinary shares as described in Tetragon’s Memorandum and
Articles of Incorporation.
Should the Voting Shareholder vote against a resolution proposed by the Board of Directors, the Board of Directors would
engage with the Voting Shareholder to understand any concerns it may have.
5. The board should understand the views of the company’s other key stakeholders and describe in the annual report how
their interests and the matters set out in section 172 of the United Kingdom’s Companies Act 2006 have been considered
in board discussions and decision-making. The board should keep engagement mechanisms under review so that they
remain effective. (Incorporates relevant content from UK Code Provision 5)
Tetragon Compliance Statement
The Board of Directors have considered the matters set out in section 172 of the United Kingdom’s Companies Act 2006
insofar as Guernsey law requires consideration of the same. Tetragon has delegated the monitoring of and engagement
with Tetragon’s key stakeholders to the investment manager. The investment manager engages regularly with key
stakeholders by means of investor calls and on annual investor day. The investment manager provides comprehensive
reports and updates on these matters at meetings of the Board of Directors.
52
The AIC Code of Corporate Governance (continued)
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6. The board should take action to identify and manage conflicts of interest, including those resulting from significant
shareholdings, and ensure that the influence of third parties does not compromise or override independent judgement.
(UK Code Provision 7)
Tetragon Compliance Statement
Tetragon’s Articles of Incorporation require the members of the Board of Directors to disclose any conflicts of interest that
they may have in relation to the company or a transaction upon becoming aware of such a conflict of interest. A member
of the Board of Directors is not entitled to vote on a matter relating to a transaction, attend the relevant Board of Directors
meeting, count in the quorum for any such meeting, sign any transactional document on behalf of Tetragon and do any
other thing in his capacity as a director in relation to a transaction that they may be interested unless they have disclosed
the nature and extent of their interest.
7. Where directors have concerns about the operation of the board or the company that cannot be resolved, their concerns
should be recorded in the board minutes. On resignation, a non-executive director should provide a written statement
to the chair, for circulation to the board, if they have any such concerns. (Incorporates relevant content from UK Code
Provision 8)
Tetragon’s Compliance Statement
The minutes of meetings of the Board of Directors of Tetragon record a summary of any concerns raised by members of
the Board of Directors about the operation of the Board of Directors that cannot be resolved. To date, no written statement
of concern has been provided by any retiring member of the Board of Directors.
Divisions of responsibilities
Principles
F.
The chair leads the board and is responsible for its overall effectiveness in directing the company. They should
demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the
chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that
directors receive accurate, timely and clear information. (UK Code Principle F)
G. The board should consist of an appropriate combination of directors (and, in particular, independent non-executive
directors) such that no one individual or small group of individuals dominates the board’s decision making. (Incorporates
relevant content from UK Code Principle G)
H. Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive
challenge, strategic guidance, offer specialist advice and hold third party service providers to account. (Incorporates
relevant content from UK Code Principle H)
I.
The board, supported by the company secretary, should ensure that it has the policies, processes, information, time and
resources it needs in order to function effectively and efficiently. (UK Code Principle I)
Provisions
8. The responsibilities of the chair, senior independent director, board and committees should be clear, set out in writing,
agreed by the board and made publicly available. The annual report should set out the number of meetings of the board
and its committees, and the individual attendance by directors. (Incorporates relevant content from UK Code Provision 14)
Tetragon’s Compliance Statement
The responsibilities of the members of the Board of Directors and Audit Committee are set out in the Corporate
Governance section of the Tetragon website. Details of the number of meetings of the Board of Directors and Audit
Committee is set out in Tetragon’s Compliance Statement for Provision 1. Tetragon has not appointed a senior
independent director (see Provision 14 for additional information).
9. When making new appointments, the board should take into account other demands on directors’ time. Prior to
appointment, significant commitments should be disclosed with an indication of the time involved. Additional external
appointments should not be undertaken without prior approval of the board, with the reasons for permitting significant
appointments explained in the annual report. (Incorporates relevant content from UK Code Provision 15)
2020 Annual Repor t 5 3
The AIC Code of Corporate Governance (continued)
Tetragon’s Compliance Statement
Each Director is appointed annually by the Voting Shareholder in accordance with the process disclosed on Tetragon’s
website and on page 39 of this Annual Report.
10. At least half the board, excluding the chair, should be non-executive directors whom the board considers to be
independent. The majority of the board should be independent of the manager. There should be a clear division of
responsibilities between the board and the manager. (Incorporates relevant content from UK Code Provision 11)
Tetragon’s Compliance Statement
Tetragon’s Articles of Incorporation require not less than a majority of the Directors to be Independent Directors. Currently
more than a majority of the Board of Directors (three out of five) are Independent Directors. A member of the Board of
Directors will be an “Independent Director” if the Board of Directors determines that the person satisfies the standards for
independence contained in the UK Code in all material respects. The Board of Directors has undertaken an evaluation of
the independence of each of the three Independent Directors.
The Board of Directors has delegated to the investment manager certain functions, including broad discretion to adopt
an investment strategy and key operational issues. However, certain matters are specifically reserved for the Board of
Directors under Tetragon’s Articles of Incorporation.
11. The chair should be independent on appointment when assessed against the circumstances set out in Provision 13.
(Incorporates relevant content from UK Code Provision 9)
Tetragon’s Compliance Statement
Tetragon has not appointed a permanent Chairman, but a chairman is elected for each meeting of the Board of Directors.
An experienced Independent Director typically performs the role of chairman. All Directors have the opportunity to declare
conflicts of interest at each meeting of the Board of Directors; such conflicts or potential conflicts are recorded in the
relevant board minutes.
12. On appointment, and throughout the chair’s tenure, the chair should have no relationships that may create a conflict of
interest between the chair’s interest and those of shareholders, including:
•
•
being an employee of the manager or an ex-employee who has left the employment of the manager within
the last five years;
being a professional adviser who has provided services to the manager or the board within the last three
years; or
•
serving on any other boards of an investment company managed by the same manager.
Tetragon’s Compliance Statement
As noted above, Tetragon has not appointed a permanent Chairman. Instead a chairman is elected for each meeting of the
Board of Directors. All members of the Board of Directors have the opportunity to declare any conflicts of interest that they
may have at each meeting of the Board of Directors and the chairman is elected accordingly taking into account Provision
12.
13. The board should identify in the annual report each non-executive director it considers to be independent. Circumstances
which are likely to impair, or could appear to impair, a non-executive director’s independence include, but are not limited to,
whether a director:
•
has, or has had within the last three years, a material business relationship with the company or the
manager, either directly or as a partner, shareholder, director or senior employee of a body that has such a
relationship with the company or the manager;
•
has received or receives additional remuneration from the company apart from a directors’ fee;
•
has close family ties with any of the company’s advisers, directors or the manager;
•
holds cross-directorships or has significant links with other directors through involvement in other companies or
bodies. Directors who sit on the boards of more than one company managed by the same manager are entitled to
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The AIC Code of Corporate Governance (continued)
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serve as directors; however, they will not be regarded as independent for the purposes of fulfilling the requirement that
there must be an independent majority;
•
represents a significant shareholder; or
•
has served on the board for more than nine years from the date of their first appointment.
Where any of these or other relevant circumstances apply, and the board nonetheless considers that the non-executive
director is independent, a clear explanation should be provided. (Incorporates relevant content from UK Code Provision 10)
Tetragon’s Compliance Statement
The Independent Directors have been identified on page 37 of this Annual Report (see Provision 10 for additional
information).
14. The board should appoint one of the independent non-executive directors to be the senior independent director to provide
a sounding board for the chair and serve as an intermediary for the other directors and shareholders. Led by the senior
independent director, the non-executive directors should meet without the chair present at least annually to appraise the
chair’s performance, and on other occasions as necessary. (UK Code Provision 12)
Tetragon’s Compliance Statement
Tetragon has not appointed a senior independent director. The Board of Directors evaluates Tetragon’s and its own
performance by means of open discussion at meetings of the Board of Directors or as otherwise required. The absence
of a permanent chairman means that there is no need for the Independent Directors to meet separately to evaluate the
chairman’s performance.
15. The primary focus at regular board meetings should be a review of investment performance and associated matters such
as gearing, asset allocation, attribution analysis, marketing/investor relations, peer group information and industry issues.
Tetragon’s Compliance Statement
The Board of Directors meets regularly to review and discuss the reports of the investment manager and to deal with any
other corporate governance matters that may arise from time to time. The Board of Directors discussions include, as
appropriate and necessary, those matters referenced by Provision 15.
16. The board should explain in the annual report the areas of decision making reserved for the board and those over which
the manager has discretion. Disclosure should include:
•
•
a discussion of the manager’s overall performance, for example, investment performance, portfolio risk, operational
issues such as compliance etc.;
the manager’s remit regarding stewardship, for example voting and shareholder engagement, and environmental,
social and corporate governance issues in respect of holdings in the company’s portfolio.
The board should also agree policies with the manager covering key operational issues.
Tetragon’s Compliance Statement
Tetragon has delegated management of Tetragon’s investment portfolio, determination of Tetragon’s investment strategy,
approval of all significant investments by Tetragon, oversight of Tetragon’s risk monitoring, responsibility for portfolio risk
management and oversight of key non-investment and risk activities to the investment manager.
Those roles and responsibilities not delegated to the investment manager are retained by the Board of Directors, along
with general oversight of the activities of the investment manager. The Board of Directors oversees the performance by
the investment manager of its duties through regular consideration of reports and presentations from the investment
manager at quarterly meetings.
Tetragon’s administrator, TMF Group Fund Administration (Guernsey) Limited, circulates ad hoc updates from Tetragon’s
regulator, the GFSC, and TMF’s compliance function monitors performance within the relevant Guernsey laws and GFSC
rules and advises the Board of Directors of any issues or likely issues (generally on a quarterly basis).
Full details of the role and responsibilities of the Board, the investment manager, the administrator and other relevant
service providers are detailed on Tetragon’s website.
2020 Annual Repor t 5 5
The AIC Code of Corporate Governance (continued)
17. Non-executive directors should review at least annually the contractual relationships with, and scrutinise and hold to
account the performance of, the manager.
Either the whole board or a management engagement committee consisting solely of directors independent of the
manager (or executives) should perform this review at least annually with its decisions and rationale described in the
annual report. If the whole board carries out this review, it should explain in the annual report why it has done so rather
than establish a separate management engagement committee.
The company chair may be a member of, and may chair, the management engagement committee, provided that they are
independent of the manager. (Incorporates relevant content from UK Code Provision 13)
Tetragon’s Compliance Statement
The Board of Directors has not deemed it necessary to appoint a separate management engagement committee. The
Independent Directors undertake such functions as necessary on an ongoing basis.
18. The board should monitor and evaluate other service providers (such as the company secretary, custodian, depositary,
registrar and broker).
The board should establish procedures by which other service providers, should report back and the methods by which
these providers are monitored and evaluated.
Tetragon’s Compliance Statement
Tetragon has delegated the monitoring and evaluation of its service providers to the investment manager. The investment
manager raises relevant issues with the Board of Directors as appropriate.
19. All directors should have access to the advice of the company secretary, who is responsible for advising the board on all
governance matters. Both the appointment and removal of the company secretary should be a matter for the whole board.
(UK Code Provision 16)
Tetragon’s Compliance Statement
The investment manager makes recommendations to the Board of Directors in relation to relevant governance matters.
These recommendations are considered by the Board of Directors during the course of regular meetings.
20. The directors should have access to independent professional advice at the company’s expense where they judge it
necessary to discharge their responsibilities properly.
Tetragon’s Compliance Statement
All Directors have access to independent professional advice to enable them to properly discharge their responsibilities.
21. Where a new company has been created by the manager, sponsor or other third party, the chair and the board should be
selected and bought into the process of structuring a new launch at an early stage.
Tetragon’s Compliance Statement
Tetragon was established in 2005. Accordingly, this Provision is not applicable to Tetragon.
Composition, succession and evaluation
Principles
J. Appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession
plan should be maintained. Both appointments and succession plans should be based on merit and objective criteria and,
within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.
(Incorporates relevant content from UK Code Principle J)
K. The board and its committees should have a combination of skills, experience and knowledge. Consideration should be
given to the length of service of the board as a whole and membership regularly refreshed. (UK Code Principle K)
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The AIC Code of Corporate Governance (continued)
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L. Annual evaluation of the board should consider its composition, diversity and how effectively members work together to
achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively. (UK
Code Principle L)
Provisions
22. The board should establish a nomination committee to lead the process for appointments, ensure plans are in place for
orderly succession to the board and oversee the development of a diverse pipeline for succession. A majority of members
of the committee should be independent non-executive directors. If the board has decided that the entire board should
fulfil the role of the nomination committee, it will need to explain why it has done so in the annual report. The chair of the
board should not chair the committee when it is dealing with the appointment of their successor. (Incorporates relevant
content from UK Code Provision 17)
Tetragon’s Compliance Statement
The Board of Directors has not deemed it necessary to appoint a nomination committee and undertakes any such
functions collectively or it is undertaken by the Voting Shareholder.
23. All directors should be subject to annual re-election. The board should set out in the papers accompanying the resolutions
to elect each director the specific reasons why their contribution is, and continues to be, important to the company’s long-
term sustainable success. (UK Code Provision 18)
Tetragon’s Compliance Statement
Directors are submitted for re-election by the Voting Shareholder at the Annual General Meeting and the procedures for
re-election are disclosed in Tetragon’s Annual Report and on the Tetragon website.
24. Each board should determine and disclose a policy on the tenure of the chair. A clear rationale for the expected tenure
should be provided, and the policy should explain how this is consistent with the need for regular refreshment and
diversity. (Incorporates relevant content from UK Code Provision 19)
Tetragon’s Compliance Statement
Tetragon does not operate a maximum threshold for tenure, nor any guaranteed tenure. As such, the Board of Directors
has not deemed it necessary to prepare such a policy.
25. Open advertising and/or an external search consultancy should generally be used for the appointment of the chair and
non-executive directors. If an external search consultancy is engaged it should be identified in the annual report alongside
a statement about any other connection it has with the company or individual directors. (UK Code Provision 20)
Tetragon’s Compliance Statement
All vacancies on the Board of Directors may be filled, and additional members may be appointed, by resolution of the
Voting Shareholder.
26. There should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair
and individual directors. The chair should consider having a regular externally facilitated board evaluation. In FTSE 350
companies this should happen at least every three years. The external evaluator should be identified in the annual report
and a statement made about any other connection it has with the company or individual directors. (UK Code Provision 21)
Tetragon’s Compliance Statement
The Board of Directors evaluates its own performance and effectiveness, including of individual members of the Board of
Directors and committees, by open discussion in Board of Directors meetings.
27. The chair should act on the results of the evaluation by recognising the strengths and addressing any weaknesses of the
board. Each director should engage with the process and take appropriate action when development needs have been
identified. (UK Code Provision 22)
Tetragon’s Compliance Statement
All members of the Board of Directors engage in the evaluation process and take appropriate action when developmental
needs have been identified.
2020 Annual Repor t 5 7
The AIC Code of Corporate Governance (continued)
28. The annual report should describe the work of the nomination committee, (including where the whole board is acting as
the nomination committee) including:
•
•
•
the process used in relation to appointments, its approach to succession planning and how both support developing a
diverse pipeline;
how the board evaluation has been conducted, the nature and extent of an external evaluator’s contact with the board
and individual directors, the outcomes and actions taken, and how it has or will influence board composition; and
the policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and
progress on achieving the objectives. (Incorporates relevant content from UK Code Provision 23)
Tetragon’s Compliance Statement
As noted in relation to Provision 22, the Board of Directors has not deemed it necessary to appoint a nomination
committee. The Board of Directors are collectively responsible for ensuring that the provisions of Tetragon’s Articles
of Incorporation and of the relevant legislation, regulations and policies are followed in relation to the appointment and
evaluation of the Directors.
Audit, risk and internal control
Principles
M. The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness
of external audit functions and satisfy itself on the integrity of financial and narrative statements. (Incorporates relevant
content from UK Code Principle M)
N. The board should present a fair, balanced and understandable assessment of the company’s position and prospects. (UK
Code Principle N)
O. The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature
and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives. (UK
Code Principle O)
Provisions
29. The board should establish an audit committee of independent non-executive directors, with a minimum membership
of three, or in the case of smaller companies two. The chair of the board should not chair the committee but can be a
member if they were independent on appointment. If the chair of the board is a member of the audit committee, the board
should explain in the annual report why it believes this is appropriate. The board should satisfy itself that at least one
member has recent and relevant financial experience. The committee as a whole shall have competence relevant to the
sector in which the company operates. (Incorporates relevant content from UK Code Provision 24)
Tetragon’s Compliance Statement
The Board of Directors has established an Audit Committee comprised of the three Independent Directors. The Audit
Committee has recent and relevant financial experience. As noted in Provision 11, there is no permanent chairman for
Tetragon. Similarly, there is no permanent chairman of the Audit Committee.
30. The main roles and responsibilities of the audit committee should include:
• monitoring the integrity of the financial statements of the company and any formal announcements relating to the
company’s financial performance, and reviewing significant financial reporting judgements contained in them;
providing advice (where requested by the board) on whether the annual report and accounts, taken as a whole, is fair,
balanced and understandable, and provides the information necessary for shareholders to assess the company’s
position and performance, business model and strategy;
reviewing the company’s internal financial controls and internal control and risk management systems, unless
expressly addressed by a separate board risk committee composed of independent non-executive directors, or by the
board itself;
•
•
58
The AIC Code of Corporate Governance (continued)
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•
conducting the tender process and making recommendations to the board, about the appointment, reappointment
and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor;
•
reviewing and monitoring the external auditor’s independence and objectivity;
•
•
reviewing the effectiveness of the external audit process, taking into consideration relevant UK professional and
regulatory requirements;
developing and implementing policy on the engagement of the external auditor to supply non-audit services, ensuring
there is prior approval of non-audit services, considering the impact this may have on independence, taking into
account the relevant regulations and ethical guidance in this regard, and reporting to the board on any improvement or
action required; and
•
reporting to the board on how it has discharged its responsibilities. (Incorporates relevant content from UK Code
Provision 25)
Tetragon’s Compliance Statement
The Audit Committee’s remit covers those matters identified by Provision 30. More specifically, the Audit Committee is
responsible for, among other items, assisting and advising the Board of Directors with matters relating to Tetragon’s
accounting and financial reporting processes and the integrity and audits of Tetragon’s financial statements. The Audit
Committee is also responsible for reviewing and making recommendations with respect to the plans and results
of each audit engagement with Tetragon’s independent auditor, the audit and non-audit fees charged by the
independent auditor and the adequacy of internal accounting controls.
31. The annual report should describe the work of the audit committee including:
•
•
•
the significant issues that the audit committee considered relating to the financial statements, and how these issues
were addressed;
an explanation of how it has assessed the independence and effectiveness of the external audit process and the
approach taken to the appointment or reappointment of the external auditor, information on the length of tenure of the
current audit firm, when a tender was last conducted and advance notice of any retendering plans;
in the case of a board not accepting the audit committee’s recommendation on the external auditor appointment,
reappointment or removal, a statement from the audit committee explaining its recommendation and the reasons why
the board has taken a different position (this should also be supplied in any papers recommending appointment or
reappointment); and
•
an explanation of how auditor independence and objectivity are safeguarded, if the external auditor provides non-audit
services. (Incorporates relevant content from UK Code Provision 26)
Tetragon’s Compliance Statement
The Audit Committee’s Statement can be found on page 41 of this Annual Report.
32. The directors should explain in the annual report their responsibility for preparing the annual report and accounts, and
state that they consider the annual report and accounts, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the company’s position, performance, business model and
strategy. (UK Code Provision 27)
Tetragon’s Compliance Statement
Please refer to the Directors’ Report at page 47 of this Annual Report.
33. The board should carry out a robust assessment of the company’s emerging and principal risks. The board should confirm
in the annual report that it has completed this assessment, including a description of its principal risks, what procedures
are in place to identify emerging risks, and an explanation of how these are being managed or mitigated. (UK Code
Provision 28)
2020 Annual Repor t 59
The AIC Code of Corporate Governance (continued)
Tetragon’s Compliance Statement
Tetragon has delegated the key responsibilities in relation to the assessment of Tetragon’s emerging and principal risks to
the investment manager. Details of these risks are set out at page 30 of this Annual Report and on its website (under the
heading Risk Factors).
34. The board should monitor the company’s risk management and internal control systems and, at least annually, carry out
a review of their effectiveness and report on that review in the annual report. The monitoring and review should cover all
material controls, including financial, operational and compliance controls. (UK Code Provision 29)
Tetragon’s Compliance Statement
Tetragon has delegated the key responsibilities in relation to the management of Tetragon’s risk management and internal
control systems to the investment manager. Details of the investment manager’s review is included at page 42 of this
Annual Report.
35.
In annual and half-yearly financial statements, the board should state whether it considers it appropriate to adopt the going
concern basis of accounting in preparing them, and identify any material uncertainties to the company’s ability to continue
to do so over a period of at least twelve months from the date of approval of the financial statements. (UK Code Provision
30)
Tetragon’s Compliance Statement
The Board of Directors complies with this provision as detailed in the Directors’ Report and Financial Statements at pages
47 and 94 respectively of this Annual Report.
36. Taking account of the company’s current position and principal risks, the board should explain in the annual report
how it has assessed the prospects of the company, over what period it has done so and why it considers that period
to be appropriate. The board should state whether it has a reasonable expectation that the company will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any
qualifications or assumptions as necessary. (UK Code Provision 31)
Tetragon’s Compliance Statement
The Board of Directors complies with this provision as detailed in the Directors’ Report and Key Performance Metrics at
pages 47 and 17 respectively of this Annual Report.
Remuneration
Principles
P.
Q.
Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success.
(Incorporates relevant content from UK Code Principle P)
A formal and transparent procedure for developing policy remuneration should be established. No director should be
involved in deciding their own remuneration outcome. (Incorporates relevant content from UK Code Principle Q)
R. Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking
account of company and individual performance, and wider circumstances. (UK Code Principle R)
Provisions
37. The board should establish a remuneration committee of independent non-executive directors with a minimum
membership of three, or in the case of smaller companies, two. In addition, the chair of the board can only be a member if
they were independent on appointment and cannot chair the committee. Before appointment as chair of the remuneration
committee, the board should satisfy itself that the appointee has relevant experience and understanding of the company.
If the board has decided that the entire board should fulfil the role of the remuneration committee, it will need to explain
why it has done so in the annual report. (Incorporates relevant content from UK Code Provision 32)
Tetragon’s Compliance Statement
The Board of Directors has not deemed it necessary to establish a remuneration committee. To the extent necessary the
members of the Board of Directors collectively fulfil the role of a remuneration committee.
60
The AIC Code of Corporate Governance (continued)
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38. The remuneration committee should have delegated responsibility for determining the policy and setting the remuneration
for the chair. (Incorporates relevant content from UK Code Provision 33)
Tetragon’s Compliance Statement
See above in relation to Provision 37.
39. The remuneration of non-executive directors should be determined in accordance with the Articles of Association or,
alternatively, by the board. Levels of remuneration for the chair and all non-executive directors should reflect the time
commitment and responsibilities of the role. Remuneration for all non-executive directors should not include share
options or other performance-related elements. Provision should be made for additional directors’ fees where directors
are involved in duties beyond those normally expected as part of the director’s appointment. In such instances the board
should provide details of the events, duties and responsibilities that gave rise to any additional directors’ fees in the annual
report. (Incorporates relevant content from UK Code Provision 34)
Tetragon’s Compliance Statement
The remuneration of Tetragon’s Independent Directors has been determined by the Board of Directors. The remuneration
of the Independent Directors reflects a number of factors, including the time commitment and responsibilities of the role.
The remuneration currently includes restricted Tetragon share grants.
40. Where a remuneration consultant is appointed, this should be the responsibility of the remuneration committee. The
consultant should be identified in the annual report alongside a statement about any other connection it has with the
company or individual directors. Independent judgement should be exercised when evaluating the advice of external third
parties. (Incorporates relevant content from UK Code Provision 35)
Tetragon’s Compliance Statement
Tetragon has not appointed a remuneration consultant.
41. The main role and responsibilities of the remuneration committee should include:
•
in conjunction with the chair, setting the directors’ remuneration levels; and
•
considering the need to appoint external remuneration consultants.
Tetragon’s Compliance Statement
See above in relation to Provision 37.
42. There should be a description of the work of the remuneration committee in the annual report. (Incorporates relevant
content from UK Code Provision 41)
Tetragon’s Compliance Statement
See above in relation to Provision 37.
2020 Annual Repor t 61
Additional Information
Statement Regarding Non-Mainstream
Pooled Investments (NMPI)
Tetragon notes the U.K. Financial Conduct Authority
(FCA) rules relating to the restrictions on the retail
distribution of unregulated collective investment
schemes and close substitutes (referred to as "non-
mainstream pooled investments"), which came into
effect on 1 January 2014.
Tetragon has received appropriate legal advice that
confirms that Tetragon's shares do not constitute NMPI
under the FCA’s rules and are, therefore, excluded from
the FCA's restrictions that apply to non-mainstream
pooled investment products.
Tetragon expects that it will continue to conduct its
affairs in such a manner that Tetragon’s shares will
continue to be excluded from the FCA’s rules relating
to NMPI.
Dividend and Capital Return Policy
Tetragon seeks to return value to its shareholders,
including through dividends and share repurchases.
Tetragon’s Board of Directors has the authority
to declare dividend payments, based upon the
recommendation of Tetragon’s investment manager,
subject to the approval of Tetragon’s voting shareholder
and adherence to applicable law, including the
satisfaction of a solvency test as required pursuant to
the Companies (Guernsey) Law, 2008, as amended. In
addition to making dividend recommendations to the
Board of Directors, Tetragon’s investment manager
may authorise share repurchases.
Decisions with respect to declaration of dividends and
share repurchases may be informed by a variety of
considerations, including (i) the expected sustainability
of the company’s cash generation capacity in the
short and medium term, (ii) the current and anticipated
performance of the company, (iii) the current and
anticipated operating and economic environment, (iv)
other potential uses of cash ranging from preservation
of the company’s investments and financial position to
other investment opportunities and (v) Tetragon’s share
price.
Tetragon may also pay scrip dividends, which
payments are currently conducted through an optional
dividend reinvestment program.
Reporting
In accordance with applicable regulations under Dutch
law, Tetragon publishes monthly statements on its
website for the benefit of its investors containing the
following information: the total value of Tetragon’s
investments; a general statement of the composition
of Tetragon’s investments; and the number of its legal
issued and outstanding shares.
In addition, in accordance with the requirements
of Euronext Amsterdam and applicable regulations
under Dutch law, Tetragon provides annual and semi-
annual reports to its shareholders, including year-
end financial statements, which in the case of the
financial statements provided in its annual reports,
will be reported in accordance with IFRS and audited
in accordance with international auditing standards
as well as U.S. GAAS for regulatory purposes, if
applicable. The NAV of Tetragon is available to
investors on a monthly basis on the company’s website
at www.tetragoninv.com.
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2020 Financial Review
Financial Highlights
Figure 12
Tetragon Financial Group
Financial Highlights Through 2018 - 2020
Reported GAAP Net Income ($MM)
Fair Value Net Income ($MM)
Reported GAAP EPS
Fair Value EPS
Return on equity
Net Assets ($MM)
GAAP number of shares outstanding (MM)
NAV per share
Fully diluted shares outstanding (MM)
Fully diluted NAV per share
NAV per share total return
DPS
2020
2019
2018
$171.1
$182.5
$1.87
$1.99
7.6%
$288.0
$293.5
$3.22
$3.28
13.4%
$241.5
$241.5
$2.65
$2.65
12.1%
$2,474.4
$2,386.1
$2,189.4
88.8
$27.87
93.1
$26.57
9.5%
$0.40
92.2
$25.88
96.4
$24.76
13.6%
$0.74
92.4
$23.70
97.4
$22.48
10.3%
$0.72
Tetragon uses the following metrics, among others, to understand the progress and performance of the
business:
Fair Value Net Income ($182.5 million): Please see Figure 13 for more details and a breakdown of the Fair
Value Net Income.
Return on Equity (7.6%): Fair Value Net Income ($182.5 million) divided by Net Assets at the start of the
year ($2,386.1 million).
Fully Diluted Shares Outstanding (93.1 million): Adjusts the IFRS shares outstanding (88.8 million) for
various dilutive factors (4.3 million shares). Please see Figure 26 for more details.
Fair Value EPS ($1.99): Calculated as Fair Value Net Income ($182.5 million) divided by the time-weighted
average IFRS or GAAP shares during the period (91.7 million).
Fully Diluted NAV Per Share ($26.57): Calculated as Net Assets ($2,474.4 million) divided by Fully Diluted
Shares Outstanding (93.1 million).
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Pro Forma Statement of Comprehensive Income
Figure 13
Tetragon Financial Group
Pro Forma Statement of Comprehensive Income 2019 - 2020
Net gain on financial assets at fair value through profit or
loss
Net loss on derivative financial assets and liabilities
Other income
Investment income
Management and incentive fees
Other operating and administrative expenses
Interest expense
Total operating expenses
Fair Value Net Income
2020
($millions)
2019
($millions)
304.4
(0.2)
2.2
306.4
(107.1)
(10.6)
(6.2)
(123.9)
182.5
402.6
(6.9)
6.8
402.5
(96.9)
(8.6)
(3.5)
(109.0)
293.5
For 2020, the difference between Fair Value Net Income as shown here and IFRS profit and total
comprehensive income is an adjustment to remove share-based compensation expense of $11.4 million
(2019: $5.7 million). This adjustment is consistent with how Fair Value Net Income has been determined in
prior periods.
During the year, $72.7 million incentive fee was expensed and $66.0 million remains outstanding at 31
December 2020.
2020 Annual Repor t 65
Pro Forma Statement of Financial Position
Figure 14
Tetragon Financial Group
Pro Forma Statement of Financial Position as at 31 December 2019 and 31 December 2020
ASSETS
Investments
Derivative financial assets
Other receivables
Amounts due from brokers
Cash and cash equivalents
Total assets
LIABILITIES
Loans and borrowings
Derivative financial liabilities
Other payables and accrued expenses
Total liabilities
NE T ASSE TS
31 December 2020
($millions)
31 December 2019
($millions)
2,417.6
2,416.3
8.6
3.3
44.4
194.6
2,668.5
(100.0)
(25.2)
(68.9)
(194.1)
2,474.4
11.4
1.0
47.1
134.3
2,610.1
(150.0)
(37.2)
(36.8)
(224.0)
2,386.1
Although the consolidated net assets are identical to the IFRS net assets reported by Tetragon, the split
between investments and cash is different. Under IFRS, certain investments and cash contained within
non-investment fund-controlled subsidiaries are aggregated as an investment and reported at fair value.
Instead, this table looks through to the underlying investments and cash, and accounts for each separately,
at fair value. This approach has the impact of increasing cash by $2.9 million (2019: $0.8 million) and
decreasing investments by $2.9 million (2019: $0.8 million). This treatment is consistent with how Tetragon
has reported these investments in prior periods.
66
Other
Information
TFG Asset Management
One of Tetragon’s significant investments is TFG Asset Management, a diversified alternative asset manager that owns majority
and minority private equity stakes in asset management companies. TFG Asset Management, as a unified business, is intended
to enhance the value of each individual investment and the entity as a whole through a shared strategic direction and operating
infrastructure – encompassing critical business management functions such as risk management, investor relations, financial
control, technology, and compliance/legal matters – while at the same time giving entrepreneurial independence to the managers
of the underlying businesses. In light of the strategy to continue to grow TFG Asset Management with a view to a possible
initial public offering and listing of its shares, the combination of a number of relatively uncorrelated businesses across different
asset classes and at different stages of development under TFG Asset Management is also intended to create a collectively
more robust and diversified business and income stream. As at 31 December 2020, TFG Asset Management comprised LCM,
BentallGreenOak, Polygon, Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners and Contingency Capital.
TFG Asset Management has approximately $30.1 billion of AUM(1) and approximately 380 employees globally (excluding
BentallGreenOak). Each of the asset managers on the platform is privately held.
Figure 15
TFG Asset Management at a glance
Established
Joined Tetragon
Asset class
LCM
2001
2009
2010
2010
2002
2012
2007
2015
A bank loan asset
management company.
A real-estate focused
principal investing, lending
and advisory firm.
A manager of open-ended
hedge fund and private
equity vehicles across a
number of strategies.
An integrated core
infrastructure asset
management and primary
project platform.
AUM at 31 Dec 2020 ($Bn)
$8.9
Percentage Tetragon
Ownership
Valuation at
31 Dec 2020 ($m)
100%
$176.9
$6.8
13%
$195.7
$1.6
100%(2)
$57.4
Products
U.S. CLOs
Real estate investment
strategies
Hedge funds and
managed accounts
$9.3
75%
$386.1
Infrastructure and
renewable funds and
managed accounts
Average fund duration
10-12 years(3)
7-10 years
Quarterly liquidity
25 years
Valuation Methodology(4)
DCF and market multiples
DCF (sum-of-parts)
DCF
DCF
Significant
unobservable inputs(5)
Discount rate 12%,
P/AUM multiple 2.5%,
DLOL 15%
Discount rate 11%,
DLOL 15%
Discount rate 12.75%,
DLOL 20%
Discount rate 9.5%,
DLOL 15%
(1) Includes AUM of LCM, BentallGreenOak, Polygon, Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners and TCICM, as calculated by the applicable
fund administrators at 31 December 2020 (AUM of Tetragon Credit Partners represents committed capital). TCICM (which comprises TCI Capital Management II LLC and
TCI Capital Management LLC) acts as a CLO collateral manager for certain CLO investments. It had AUM of $2.6 billion at 31 December 2020. Includes, where relevant,
investments by Tetragon Financial Group Limited. The AUM for BentallGreenOak represents Tetragon’s pro rata share (12.86%) of BentallGreenOak AUM at 31 December 2020
($52.7 billion).
(2) During 2020, an agreement was made with Mike Humphries, the CIO of the Polygon Convertible Opportunity Fund, whereby, in order to further align interests, he would take
a controlling stake in the Manager, Polygon CB LP. This fund continues to operate on the TFG Asset Management platform.
(3) 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 typically four to five 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.
(4) "DCF" stands for "Discounted Cash Flow". Please see Note 4 of the 2020 Audited Financial Statements for more information.
(5) "DLOL" stands for "Discount for Lack Of Liquidity". Please see Note 4 of the 2020 Audited Financial Statements for more details on significant unobservable inputs.
68
Primary Offices
London – New York
380
Headcount
Excluding BentallGreenOak
Global
Operating Platform
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$30.1B
Total AUM(8)
31 December 2020
$833.5m
Total Valuation
31 December 2020
Figure 15 (continued)
TFG Asset Management at a glance
Established
Joined Tetragon
Asset class
2014
2014
2015
2015
2019
2019
2020
2020
An asset management
company focused on
mining finance.
A structured credit
investing business.
A private equity firm
focused on non-control
structured and common
equity investment
opportunities.
A global asset management
business that will sponsor
and manage litigation
finance related investment
funds.
AUM at 31 Dec 2020 ($Bn)
Percentage Tetragon
Ownership
Valuation at
31 Dec 2020 ($m)
$0.14
100%
$2.9
$0.8
100%
$13.7
$0.03
100%
$0.8
$0.0
Non-controlling interest(6)
Not applicable(7)
Products
Private equity-style fund
Two private equity
vehicles and one hedge
fund
Private equity fund
Average fund duration
Not applicable
10 years
Not applicable
Not applicable
Valuation Methodology
Intrinsic value
DCF
Replacement cost
Not applicable(7)
Significant
unobservable inputs
Discount rate 11.25%;
DLOL 15%
Not applicable(7)
(6) TFG Asset Management owns a non-controlling interest in this manager as well as providing all infrastructure services to this manager. Brandon Baer owns a controlling
stake.
(7) Contingency Capital has not yet been valued by a third-party valuation specialist.
(8) Please see Note 1 on page 68.
2020 Annual Repor t 69
TFG Asset Management Overview
Figure 16 shows the breakdown of the AUM by business and Figure 17 depicts the growth of that
AUM over the last five years. AUM for TFG Asset Management as of 31 December 2020 totalled $30.1
billion.(i)
Figure 16 (i)
TFG Asset Management AUM by Business
at 31 December 2020 ($billions)
Figure 17(i)
TFG Asset Management AUM
at 31 December 2016-2020 ($billions)
$0.8
Tetragon
Credit
Partners
$2.6
TCICM
$9.3
Equitix
$8.9
LCM
$6.8
BentallGreenOak
$1.6
Polygon
$28.1
$27.4
$30.1
$23.0
$19.5
2016
2017
2018
2019
2020
LCM GreenOak
BentallGreenOak
Polygon
Equitix
Tetragon Credit Partners
TCICM
Figure 18
Tetragon Financial Group
TFG Asset Management Pro Forma Statement of Operations(ii)
Management fee income
Performance and success fees(iii)
Other fee income
Distributions from BentallGreenOak
Interest income
Total income
Operating, employee and administrative
expenses
Non-TFG Asset Management owned interest
Net income - "EBITDA equivalent"
2020
($millions)
2019
($millions)
2018
($millions)
125.8
81.6
18.9
18.1
4.1
248.5
(145.8)
(27.5)
75.2
111.2
51.8
15.5
10.8
3.8
193.1
(124.3)
(9.3)
59.5
85.7
24.0
13.0
13.2
3.6
139.5
(93.9)
(6.3)
39.3
(i) Please see Note 1 on page 68. The 2019 and 2020 AUM for BentallGreenOak represents Tetragon's pro rata share (12.86%) of BentallGreenOak AUM at 31
December 2020 ($52.7 billion) and 100% of the AUM of the GreenOak joint venture for prior years.
(ii) This table includes the income and expenses attributable to TFG Asset Management’s businesses, (with the exception of BentallGreenOak) during that period.
During 2020, Equitix repaid all of its shareholder loans and, as a result, TFG Asset Management’s rights to distributable income reduced from 85% to 75%. In
the table above, 100% of Equitix’s income and expenses are reflected and 25% of Equitix’s income and expenses are reversed out through the Non-TFG Asset
Management-owned interest line, being the proportion not attributable to Tetragon (2019: 15% of Equitix’s income and expenses were reversed out through the
Non-TFG Asset Management owned interest line). Similarly, 100% of the income and expenses from the Polygon Convertible Opportunities Fund’s manager, in
which TFG Asset Management has a non-controlling interest, are reflected above with the percentage not owned by TFG Asset Management reversed out through
the Non-TFG Asset Management owned interest line. BentallGreenOak EBITDA is not included, but distributions relating to ordinary income and carried interest are
included. The EBITDA equivalent is a non-GAAP measure and is designed to reflect the operating performance of the TFG Asset Management businesses rather
than is or what was reflected in Tetragon’s financial statements.
(iii) The performance and success fees include some realised and unrealised Polygon performance fees. These 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 the reporting date. Similar
amounts, if any, from LCM are recognised when received. Tetragon pays a mix of full and preferred fees on its investments in TFG Asset Management-managed
investment vehicles. Tetragon pays full management and performance fees on its investments in the open Polygon funds. Success fees also include fees earned
by Equitix on successfully completing certain primary projects and delivering de-risked investments into their secondary funds; these are recognised once Equitix
is entitled to recover them.
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TFG Asset Management Overview (continued)
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Overview: Figure 18 shows a pro forma statement of operations that reflects the operating performance
of the majority-owned asset management companies within TFG Asset Management. The reported fee
income includes some amounts which were earned on capital invested in certain funds by Tetragon.
During 2020, this included $9.4 million of management fees and $12.7 million of performance and
success fees. BentallGreenOak’s contribution has been captured by including the distributions that it has
made to Tetragon.
EBITDA: In 2020, TFG Asset Management’s EBITDA was $75.2 million, 26% higher from 2019. Higher
management fees due to continued AUM growth and higher performance and success fees due to
better performance by the funds were the driving factors for the increase.
Management fee income: Management fee income continued to grow, increasing by $14.6 million or
13% year-on-year. Of note, Equitix management fee income increased by $12.6 million, or 23%, as AUM
continued to grow. Tetragon Credit Partners added $1.2 million in management fees as TCI III deployed
more capital. LCM also added $1.1 million as average AUM was higher than last year. Polygon was
broadly unchanged, as was Hawke’s Point.
Performance and success fees: Unlike management fee income, performance and success fees can
be quite volatile in nature and subject to timing differences. Overall, this category was up $29.8 million
on the prior year, driven primarily by increases in performance fee income earned by the Polygon funds
as well as increased performance and success fees at Equitix.
Other fee income: This category includes two different buckets of fees: (i) income generated by
Equitix on management services contracts, which is known as the EMS business and (ii) certain cost
recoveries from Tetragon relating to seeded Polygon hedge funds. An increase in EMS fee income was
behind the growth in this category of income and accounts for 89% of this bucket.
Distributions from BentallGreenOak: Distributions from BentallGreenOak reflect (i) distributions from
ongoing operations and (ii) distributions from carried interest. Up to 2018, carried interest made up
nearly 80% of these distributions. Following the BentallGreenOak merger, carried interest distributions
are supplemented by the fixed and variable payments agreed as part of that deal. For 2020, fixed
payments contributed $14.1 million with variable payments of $1.9 million and carried interest
accounting for the remainder.
Operating expenses: Operating expenses increased by $21.5 million year-on-year, with $12.6 million
coming from Equitix as this business added headcount and continued to scale up. As expected, bonus
expenses also increased in those business lines where performance fees increased significantly. We
continue to view the increase in expenses as an investment to support greater AUM in the future.
2020 Annual Repor t 71
TFG Asset Management Company Overviews
The following pages provide a summary of each of TFG Asset Management’s asset management
companies and a review of AUM growth and underlying strategies and investment vehicles.
All data is at 31 December 2020, unless otherwise stated. Products/mandates listed are not necessarily open for new investment and are not
an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction, but to illustrate the TFG Asset
Management platform strategy.
Description of Business
TM
LCM is a specialist in below-investment grade U.S. broadly-syndicated leveraged
loans.
The business was established in 2001 and has offices in New York and London.
TFG Asset Management owns 100% of LCM.
Currently, LCM manages loan assets exclusively through CLOs, which are long-
term, multi-year investment vehicles. The typical duration of a CLO, and thus
LCM’s management fee stream, depends on, among other things, the term of its
reinvestment period (currently typically four to five years for a new issue CLO), the
prepayment rate of the underlying loan assets, as well as post-reinvestment period
reinvestment flexibility and weighted average life constraints.
Further information on LCM is available at www.lcmam.com.
Figure 19
LCM AUM History ($billions)
LCM's AUM was $8.9 billion at 31 December 2020.(i)
$9.1
$8.9
$8.3
$6.6
$6.5
YE 2016
YE 2017
YE 2018
YE 2019
YE 2020
(i) Includes, where relevant, investments from Tetragon, TCI II and TCI III.
Products
LCM currently manages 19 CLOs.
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TFG Asset Management Company Overviews (continued)
Description of Business
TM
BentallGreenOak is a real-estate focused principal investing, lending and advisory
firm.
BentallGreenOak was formed in July 2019 upon the merger of the GreenOak Real
Estate joint venture with Bentall Kennedy, an affiliate of SLC Management, a global
institutional asset management arm of Sun Life Financial Inc. Tetragon owns
approximately 13% of the combined entity. GreenOak Real Estate was founded in
2010.
The BentallGreenOak investment platform serves over 750 institutional clients
with approximately $52.7 billion in assets under management.
With investment professionals based in 24 global offices, BentallGreenOak has
deep local knowledge and strong, long-standing investment track records across
the United States, Canada, Europe and Asia.
Further information on BentallGreenOak is available at www.bentallgreenoak.com.
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BentallGreenOak AUM History(i) ($billions)
Tetragon’s pro rata share (12.86%) of BentallGreenOak’s AUM at 31 December 2020 ($52.7 billion) was $6.8
billion. The AUM data for 2016-2018 shows the historical AUM progression for the GreenOak joint venture.
$10.6
$7.1
$7.6
$6.3
$6.8
YE 2016
YE 2017
YE 2018
Europe
North America
Asia
YE 2019
YE 2020
Europe
North America
Asia
(i) Includes investment funds and advisory assets managed by BentallGreenOak at 31 December 2020.
Products
BentallGreenOak offers a broad range of complementary real estate investment strategies that include Core,
Core Plus and Value Added equity investment strategies as well as senior and mezzanine real estate debt
strategies.
2020 Annual Repor t 73
TFG Asset Management Company Overviews (continued)
Description of Business
TM
Polygon manages open-ended hedge fund and private equity vehicles across a
Polygon manages open-ended hedge fund and private equity vehicles across a
number of strategies.
number of strategies.
Polygon was established in 2002 and has offices in New York and London.
Polygon was established in 2002 and has offices in New York and London.
TFG Asset Management owns 100% of the business.
TFG Asset Management owns 100% of the business.(i)(i)
Further information on Polygon is available at www.polygoninv.com.
Further information on Polygon is available at www.polygoninv.com.
(i) During 2020, an agreement was made with Mike Humphries, the CIO of the Polygon Convertible Opportunity Fund, whereby, in order to further align
interests, he would take a controlling stake in the Manager, Polygon CB LP. This fund continues to operate on the TFG Asset Management platform.
Figure 21
Polygon Products and AUM History ($billions)
Polygon's AUM was $1.6 billion for all funds and $1.5 billion for open strategies at 31 December 2020.
$1.4
$1.5
$1.3
$1.4
$1.5
YE 2016
YE 2017
YE 2018
YE 2019
YE 2020
Convertible Opportunity Fund
Mining Opportunity Fund
Global Equities Fund
European Equity Opportunity Fund
Distressed Opportunities Fund
(ii) 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 December 2016, 2017, 2018, 2019 and 2020. Includes, where relevant, investments by Tetragon. The Polygon Mining
Opportunity Fund was closed in the fourth quarter of 2017 and the Polygon Distressed Opportunities Fund was closed in the third quarter of 2018.
Products
Polygon manages open-ended hedge fund and private equity vehicles across a number of strategies,
Polygon manages open-ended hedge fund and private equity vehicles across a number of strategies,
including the Polygon Convertible Opportunity Fund, the Polygon European Equity Opportunity Fund and
including the Polygon Convertible Opportunity Fund, the Polygon European Equity Opportunity Fund and
associated managed account, and the Polygon Global Equities Fund.
associated managed account, and the Polygon Global Equities Fund.
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TFG Asset Management Company Overviews (continued)
Description of Business
TM
Equitix is an integrated core infrastructure asset management and primary project
platform.
Equitix was established in 2007 and is headquartered in London.
TFG Asset Management owns 75% of the business.
Equitix typically invests in infrastructure projects in the United Kingdom and
Europe with long-term revenue streams across the healthcare, education, social
housing, highways and street lighting, offshore transmission and renewable and
waste sectors.
Further information on Equitix is available at www.equitix.co.uk.
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Figure 22
Equitix Products and AUM History (£billions)
Equitix’s AUM was £6.8 billion ($9.3 billion) at 31 December 2020.(i)
£6.8
£5.4
£3.9
£2.1
£2.7
YE 2016
YE 2017
YE 2018
YE 2019
YE 2020
Equitix Fund I
Equitix Fund II
Equitix Fund III
Equitix Fund IV
Equitix Fund V
Energy Efficiency Funds Euro Fund
Managed Account
Equitix Fund VI
Rakiza
(i) USD-GBP exchange rate at 31 December 2020.
Products
Equitix manages a number of infrastructure and renewable funds and managed accounts.
2020 Annual Repor t 75
TFG Asset Management Company Overviews (continued)
Description of Business(i)
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Tetragon Credit Partners is TFG Asset Management’s structured credit investing
business. The business has evolved from a historic focus on primary CLO control
equity to a broader series of offerings across the CLO capital structure.
The business was originally established at the end of 2015 and is managed out of
New York and London.
TFG Asset Management owns 100% of the business.
Further information on Tetragon Credit Partners is available at
www.tetragoninv.com.
(i) For additional information on Tetragon’s CLO equity investments, including its buy and hold strategy,
please refer to www.tetragoninv.com/portfolio/bank-loans-via-clos.
Figure 23
Tetragon Credit Partners Products and Committed Capital / AUM History ($millions)
The sum of total committed capital for TCI II and TCI III and the AUM for Tetragon Credit Partners Opportunity
Fund was $796.3 million at 31 December 2020.
$750
$779
$796
$604
YE 2017
YE 2018
YE 2019
YE 2020
TCI II
TCI III
TCP Opportunity Fund
Products
Tetragon Credit Partners’ income-focused products are currently Tetragon Credit Income II, or TCI II, and
Tetragon Credit Income III, or TCI III, which are predominantly control-stake CLO equity vehicles. It also
manages the Tetragon Credit Partners Opportunity Fund, which seeks to monetise dislocation opportunities
in U.S. CLO mezzanine tranches.
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Description of Business
TM
Hawke’s Point is an asset management company focused on mining finance that
provides capital to companies in the mining and resource sectors.
Hawke’s Point was established in 2014 and is based in London and New York.
TFG Asset Management owns 100% of the business.
Hawke’s Point manages Hawke’s Point Fund 1, which currently has two
investments in early-stage gold miners.
Hawke's Point's AUM was $143.9 million at 31 December 2020.
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Description of Business
TM
Banyan Square Partners is a private equity firm focused on non-control structured
and common equity investment opportunities. The firm seeks to support private
equity acquisition financing, growth initiatives and liquidity events.
Banyan Square Partners was founded in 2019 and is based in New York.
TFG Asset Management owns 100% of the business.
Banyan Square Partners manages Banyan Square Fund 1, which currently has four
investments.
Banyan Square Partners' AUM was $31.4 million at 31 December 2020.
Description of Business
TM
Contingency Capital is a multi-product global asset management business that
will sponsor and manage litigation finance related investment funds.
The business was founded in November 2020 and is based in New York.
TFG Asset Management owns a non-controlling interest in this business as well as
providing infrastructure services.
2020 Annual Repor t 7 7
Tetragon Financial Management LP
Environmental, Social and Governance (ESG) Policy
TFM, as the investment manager of Tetragon, is responsible for Tetragon’s ESG policy.
Purpose and Scope of the Policy
This ESG policy aims to provide transparency around TFM’s ESG beliefs and outlines its commitment to integrate
material environmental, social, and governance issues into its investment process. The policy is applicable to
Tetragon and its investments.
ESG Investment Criteria
ESG refers to a broad range of issues that may be considered in the investment process. Below are some examples
of ESG issues under each category:
E - Environmental
S - Social
G - Governance
• G reenhouse gas (GHG)
• Human rights
• Minority shareholder rights
emissions
• Energy management
• Water and wastewater
management
• Data security
• Board independence
• Workplace health and safety
• Board diversity
• Workforce diversity
• Legal, regulatory and judicial
environment
ESG-related risks and opportunities vary depending on multiple factors such as the industry, geography
and individual firm characteristics. Potential risks from poor ESG performance include governance failures,
inefficiencies, operational disruption, reputational damage, liabilities and low employee engagement. Potential
opportunities include access to new and high-growth markets, better relationships with key external stakeholders
and competitive advantage.
ESG Beliefs
TFM believes that ESG considerations could influence the risk-return profile of Tetragon’s investments. TFM
employs an ESG integration strategy, which is defined as the inclusion of material ESG information into the
investment process. It is TFM’s view that ESG integration is fully consistent with Tetragon’s overall investment
strategy. Additionally, given the evidence (both from academic and practitioner studies) demonstrating the
link between ESG performance and financial performance, TFM believes that Tetragon’s shareholders should
understand how stronger ESG integration may help deliver sustainable value over the long-term.
ESG Integration
TFM integrates ESG information into its investment process to help identify drivers of risk and return. It is worth
noting that ESG information is not the only consideration in TFM’s investment decision making but rather expands
the total information available to it when evaluating an investment. As part of its investment evaluation, TFM
assesses ESG information alongside a wide variety of economic metrics and financial data, making investment
decisions on a case-by-case basis.
Responsibility for Implementation
TFM’s Investment Committee and Risk Committee are responsible for overseeing ESG integration. The ESG policy
will be reviewed annually.
Relevant Commitments and Policies
TFM and Tetragon have adopted a number of policies and commitments that are complementary to the ESG
integration approach, including the following:
the Code of Ethics Policy and Proxy Voting Policy as found in the Compliance Manual; and
a Statement on the UK Modern Slavery Act.
Tetragon also reports against the Code of Corporate Governance of the Association of Investment Companies
(AIC).
78
Share Repurchases & Distributions(1)
Figure 24
Tetragon Financial Group
Share Repurchase and Dividend History ($millions)
Year
Amount repurchased
Cumulative amount
Dividends paid
Cumulative dividends
paid
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2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
TOTAL
$2.2
$12.4
$6.6
$25.5
$35.2
$175.6
$16.1
$50.9
$60.9
$157.8
$66.4
-
$50.3
$50.3
$710.2
$2.2
$14.5
$21.2
$46.7
$81.9
$257.5
$273.6
$324.5
$385.4
$543.2
$609.6
$609.6
$659.9
$710.2
$56.5
$60.4
$18.8
$37.5
$46.4
$51.5
$55.5
$58.7
$63.3
$61.0
$64.0
$65.1
$66.5
$36.4
$741.5
$56.5
$117.0
$135.7
$173.3
$219.6
$271.1
$326.6
$385.3
$448.6
$509.6
$573.6
$638.7
$705.2
$741.5
The below graph shows cumulative historical share repurchases and dividends distributed by Tetragon from inception
to 31 December 2020 in millions of U.S. dollars.
Figure 25
$1,183.2
$573.6
$1,248.3
$638.7
$1,365.0
$705.2
$1,451.7
$741.5
$609.6
$609.6
$659.9
$710.2
Inception - 2017
2018
2019
2020
Cumulative Share Repurchases ($MM)
Cumulative Dividends Paid ($MM)
(1) Tetragon seeks to return value to its shareholders, including through dividends and share repurchases. Decisions with respect to declaration of dividends and share
repurchases may be informed by a variety of considerations, including (i) the expected sustainability of the company’s cash generation capacity in the short and
medium term, (ii) the current and anticipated performance of the company, (iii) the current and anticipated operating and economic environment, (iv) other potential
uses of cash ranging from preservation of the company’s investments and financial position to other investment opportunities and (v) Tetragon’s share price.
Cumulative dividends paid includes the cash and stock dividends paid to shareholders, but excludes dividends declared on shares held in escrow.
2020 Annual Repor t 79
Share Reconciliation and Shareholdings
Figure 26
IFRS to Fully Diluted Shares Reconciliation
Legal Shares Issued and Outstanding
Less: Shares Held in Treasury
Less: Total Escrow Shares(1.i)
IFRS Shares Outstanding
Add: Dilution for equity-based awards(1.ii)
Fully Diluted Shares Outstanding
Shares at
31 December 2020
(millions)
139.7
40.0
10.9
88.8
4.3
93.1
Shareholdings
Persons affiliated with Tetragon maintain significant interests in Tetragon shares. For example, as of 31 December
2020, the following persons own (directly or indirectly) interests in shares in Tetragon in the amounts set forth below:
Figure 27
Individual
Mr. Reade Griffith(2.i)
Mr. Paddy Dear
Mr. David O'Leary
Other Tetragon/Polygon Employees
Equity-based awards(2.ii)
Shareholding at
31 December 2020
17,103,868
4,976,960
10,378
5,928,409
3,509,016
(1) (i) The Total Escrow Shares of 10.9 million consists of shares held in separate escrow accounts in relation to equity-based compensation.
(ii) Dilution in relation to equity-based awards by TFG Asset Management for certain senior employees. At the reporting date, this was 4.3 million. The basis and
pace of recognition is expected to match the rate at which service is being provided to TFG Asset Management in relation to these shares. Please see Equity-
Based Compensation Plans on page 84 for more details. Certain of these persons may from time to time enter into purchases or sales trading plans (each
a, “Fixed Trading Plan”) providing for the sale of Vested Shares or the purchase of Tetragon shares in the market, or may otherwise sell their Vested Shares
or purchase Tetragon shares, subject to applicable compliance policies. Applicable brokerage firms may be authorised to purchase or sell Tetragon 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 Tetragon in accordance with its
applicable compliance policies.
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, non-public information.
(2)(i) Includes approximately 2.6 million incentive shares held in escrow with respect to Mr. Griffith’s employment agreement vesting between July 2021 and June
2024 that are not subject to performance criteria per se. The remaining incentive shares covered by Mr. Griffith’s employment agreement are subject to
agreed-upon investment performance criteria and are excluded from this figure. Please see page 84 for further details.
(ii) Equity-based awards are intended to give certain senior employees of TFG Asset Management long-term exposure to Tetragon stock (with vesting subject to
forfeiture and certain restrictions). Where shares have vested but not yet been released, they have been removed from this line and included in shares owned
by “Other Tetragon/Polygon employees”. Please see page 84 for further details.
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Additional CLO Portfolio Statistics
Figure 28
Tetragon's CLO Portfolio Details at 31 December 2020
Transaction(i)
Status(ii)
Primary or
Secondary
Investment(iii)
Original
Invest.
Cost ($m
USD)
Deal
Closing
Date
Year of
Maturity
End of
Reinv.
Period
Wtd Avg
Spread
(bps)(iv)
Original
Cost of
Funds
(bps)(v)
Current
Cost of
Funds
(bps)(vi)
Current
Jr-most O/C
Cushion(vii)
Jr-Most O/C
Cushion at
Close(viii)
Annualised
(Loss)
Gain of
Cushion(ix)
IRR(x)
ITD Cash
Received
as % of
Cost(xi)
Transaction 83
Outstanding
Primary
20.8
2013
2029
2021
378
193
Transaction 84
Outstanding
Primary
24.6
2013
2027
2021
348
183
Transaction 85
Outstanding
Primary
1.0
2013
2031
2023
356
170
Transaction 88
Outstanding
Primary
30.1
2014
2030
2022
343
199
Transaction 89
Outstanding
Primary
33.6
2014
2031
2023
347
195
Transaction 90
Outstanding
Primary
20.7
2014
2031
2023
355
203
183
179
163
179
167
159
1.3%
6.2%
(0.6%)
11.3%
115.6%
0.5%
4.0%
(0.4%)
17.0%
138.6%
1.7%
5.0%
(0.4%)
8.7%
107.0%
0.6%
4.0%
(0.5%)
11.3%
104.2%
1.8%
4.0%
(0.3%)
12.9%
105.0%
1.3%
4.0%
(0.4%)
11.2%
94.6%
Transaction 91
Outstanding
Primary
27.8
2015
2031
2023
350
215
148
1.4%
4.0%
(0.5%)
11.1%
90.6%
Transaction 92
Outstanding
Primary
34.6
2015
2027
2020
343
199
183
0.0%
4.0%
(0.7%)
7.8%
86.8%
2016
2031
2023
350
215
148
1.4%
3.6%
(0.4%)
15.0%
86.2%
Transaction 93
Outstanding
Secondary
Transaction 94
Outstanding
Secondary
Transaction 95
Outstanding
Primary
Transaction 96
Outstanding
Secondary
Transaction 97
Outstanding
Primary
6.1
6.6
2.6
2.7
9.9
2016
2031
2023
347
195
2016
2029
2022
359
194
2017
2030
2022
343
199
2017
2030
2022
343
178
Transaction 98
Outstanding
Primary
33.2
2017
2030
2022
347
178
167
162
179
179
178
1.8%
3.3%
(0.2%)
14.6%
78.4%
0.7%
4.4%
(0.9%)
5.1%
49.9%
0.6%
3.0%
(0.3%)
2.7%
40.4%
0.6%
3.9%
(0.5%)
5.6%
45.5%
0.9%
4.5%
(1.0%)
6.3%
55.2%
Transaction 99
Outstanding
Primary
Transaction 100
Outstanding
Primary
Transaction 101
Outstanding
Primary
Transaction 102
Outstanding
Primary
Transaction 103
Outstanding
Primary
Transaction 104
Outstanding
Primary
8.3
2.6
0.2
5.0
5.6
9.8
2017
2030
2022
361
164
164
4.2%
4.5%
(0.1%)
10.4%
44.3%
2018
2031
2023
366
111
111
4.1%
7.8%
(1.3%)
24.1%
68.0%
2018
2031
2023
356
163
163
1.7%
4.9%
(0.4%)
7.6%
40.7%
2018
2031
2023
350
148
148
1.4%
4.5%
(0.5%)
16.5%
54.2%
2018
2031
2023
355
159
2018
2031
2023
347
166
159
167
1.3%
4.5%
(0.5%)
13.5%
38.3%
1.8%
4.5%
(0.4%)
12.2%
29.1%
Total CLO
Portfolio:
Notes
285.7
350
191
170
1.1%
4.3%
(0.5%)
11.0%
87.3%
(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. The
transactions continue to be held as of the date of this report.
(ii) "Outstanding" refers to investments in CLOs which have not yet been optionally redeemed, sold, or wound down to less-than-material remaining expected
value. "Called" refers to investments in CLOs where Tetragon initiated or approved an optional redemption, and "wound down" refers to CLOs which have
amortised or repaid without an optional redemption, in both cases with less-than-material remaining expected value.
(iii) "Primary" refers to investments made in the new issuance CLO market, whereas "Secondary" refers to investments made after the original issue date of
the CLO.
(iv) Par weighted average spread over LIBOR or EURIBOR (as appropriate) of the underlying loan assets in each CLO's portfolio.
(v) 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.
(vi) 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.
(vii) 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.
(viii) 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 (or date of purchase, if later).
(ix) Calculated by annualizing the change from the expected closing date junior-most O/C cushion to the current junior-most O/C cushion.
(x) Calculated from Tetragon's investment date. For outstanding investments, includes both historical cash flows received to-date and prospective cash
flows expected to be received, based on Tetragon's base case modelling assumptions. Refer to www.tetragoninv.com for more information on Tetragon's
modelling assumptions and methodology. For all other investments, includes only historical realised cash flows received to-date.
(xi) Inception to report date cash flow received on each transaction as a percentage of its original cost.
2020 Annual Repor t 81
Additional CLO Portfolio Statistics (continued)
Figure 29
Reinvestment End Date of Outstanding Investments
Based on Original Investment Size ($ Millions)
$34.6
2020
$119.0
$86.7
$45.5
2021
2022
2023
CLO Deal Maturities of Outstanding Investments
Based on Original Investment Cost ($ Millions)
$119.0
$84.1
$59.2
$23.4
$0.0
2020
$0.0
2021
$0.0
2022
$0.0
2023
$0.0
2024
$0.0
2025
$0.0
2026
$0.0
2028
2027
2029
2030
2031
Current Junior-Most O/C Test Cushion Distribution of Outstanding Investments
(by Number of Transactions)
18
0
<= 0%
0% to 2%
0
2% to 4%
2
4% to 6%
0
Over 6%
$140
$120
$100
$80
$60
$40
$20
$0
$140
$120
$100
$80
$60
$40
$20
$0
20
18
16
14
12
10
8
6
4
2
0
82
Certain Regulatory Information
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This annual report is made public by means of a
press release, which contains inside information
within the meaning of Article 7(1) of the EU Market
Abuse Regulation, and has been filed with the
Netherlands Authority for the Financial Markets
(Autoriteit Financiële Markten). In addition, this
report is also made available to the public by
way of publication on the Tetragon website
(www.tetragoninv.com).
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.
An investment in Tetragon involves substantial
risks. Please refer to the company’s website at
www.tetragoninv.com for a description of the risks
and uncertainties pertaining to an investment in
Tetragon.
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 Tetragon
have not been and will not be registered under
the U.S. Securities Act of 1933, 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.
Tetragon 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, Tetragon 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. Tetragon 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.
Tetragon shares are subject to legal and other
restrictions on resale and the Euronext Amsterdam
and SFS trading markets are less liquid than other
major exchanges, which could affect the price of
the shares.
There are additional restrictions on the resale of
Tetragon 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
Tetragon’s shares are not intended for European
retail investors. Tetragon anticipates that its typical
investors will be institutional and professional
investors who wish to invest for the long term in
a predominantly income-producing investment
and who have experience in investing in financial
markets and collective investment undertakings
and are capable themselves of evaluating the
merits and risks of Tetragon shares and who 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.
2020 Annual Repor t 8 3
Equity-Based Compensation Plans
0.3 million Tetragon non-voting shares in July
2021;
2.1 million Tetragon non-voting shares in June
2024; and
between zero and an additional 3.15 million
Tetragon non-voting shares – with the number
of shares based on agreed-upon investment
performance criteria – vesting in years 5, 6
and 7.
All of the Tetragon non-voting shares covered by
Mr. Griffith’s employment agreement are subject
to forfeiture conditions. The shares are held in
escrow for release upon vesting and are eligible
to participate in the optional stock dividend
program, and as a result of subsequent dividends,
further shares will be added to the escrow. Of the
shares held in escrow with respect to Mr. Griffith’s
employment agreement, the 2.4 million shares
(plus dividend shares) vesting between July 2021
and June 2024 are not subject to performance
criteria per se and are included in Figure 27. The
remaining shares are subject to agreed-upon
investment performance criteria and are excluded
from Figure 27.
For the purposes of determining the fully diluted
NAV per Share, the dilutive effect of the equity-
based compensation plans will be reflected in the
fully diluted share count over the life of the plans.
Such dilution will include, among other things and
in addition to the award shares, any DRIP Shares
and shares that will be required to cover employer
taxes. At 31 December 2020, approximately 4.3
million shares were included in the fully diluted
share count.
On 1 January 2020, the Independent Directors
were awarded shares in Tetragon which vest on
31 December 2022 and are subject to forfeiture
provisions. The fair value of the award, as
determined by the share price on grant date of
$12.25 per share, is $300,000 per Independent
Director.
In the fourth quarter of 2015, Tetragon bought
back approximately 5.65 million of its non-voting
shares in a tender offer to hedge against (or
otherwise offset the future impact of) grants
of shares under an equity-based long-term
incentive plan and other equity awards by TFG
Asset Management for certain senior employees
(excluding the principals of the investment
manager).
These awards under the long-term incentive plan,
along with other equity-based awards, are typically
spread over multiple vesting dates up to 2024
which may vary for each employee and are subject
to forfeiture provisions. The arrangements may
also include additional periods, beyond the vesting
dates, during which employees gain exposure to
the performance of the Tetragon shares, but the
shares are not issued to the employees. Such
periods may range from one to five years beyond
the vesting dates.
In February 2021, further awards to certain senior
TFG Asset Management employees (excluding the
principals of the investment manager) were made
covering vesting and release periods out to 2032.
3.05 million shares acquired during the buybacks
made in 2020 will be used to hedge against (or
otherwise offset the future impact of) these
awards.
The shares underlying these equity-based
incentive programs typically will be held in escrow
until they vest and will be eligible to receive shares
under the Tetragon Optional Stock Dividend Plan
(DRIP Shares).
In July 2019, TFG Asset Management entered into
an employment agreement with Mr. Reade Griffith,
Director of Tetragon, that covers his services to
TFG Asset Management for the period through
to 30 June 2024. Mr. Griffith is currently the Chief
Investment Officer of TFG Asset Management
as well as the Chief Investment Officer of its
Polygon event-driven European equity strategies
(in addition to other roles). Under the terms of
this agreement, Mr. Griffith received $9.5 million
in cash in July 2019, $3.75 million in cash in July
2020 and will receive the following:
84
Shareholder Information
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Registered Office of Tetragon
Tetragon Financial Group Limited
Mill Court, La Charroterie
St. Peter Port
Guernsey GY1 1EJ
Channel Islands
Investment Manager
Tetragon Financial Management LP
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America
General Partner of Investment Manager
Tetragon Financial Management GP LLC
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America
Investor Relations
Yuko Thomas
ir@tetragoninv.com
Press Inquiries
Prosek Partners
Andy Merrill / Ryan Fitzgibbon
pro-tetragon@prosek.com
Auditors
KPMG Channel Islands Limited
Glategny Court,
Glategny Esplanade
St. Peter Port, Guernsey
Channel Islands GY1 1WR
Sub-Registrar and CREST Transfer Agent
Computershare Investor Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port, Guernsey
Channel Islands GY1 1DB
Legal Advisor (as to U.S. law)
Covington & Burling LLP
The New York times Building
620 Eighth Avenue
New York, NY 10018-1405
United States of America
Legal Advisor (as to Guernsey law)
Ogier (Guernsey) LLP
Redwood House
St. Julian’s Avenue
St. Peter Port, Guernsey
Channel Islands GY1 1WA
Legal Advisor (as to Dutch law)
De Brauw Blackstone Westbroek N.V.
Claude Debussylaan 80
1082 MD Amsterdam
The Netherlands
Stock Listing
- Euronext in Amsterdam, a regulated market of
Euronext Amsterdam N.V.
- London Stock Exchange (Specialist Fund Segment)
Administrator and Registrar
TMF Group Fund Administration (Guernsey) Limited(1)
Mill Court, La Charroterie
St. Peter Port
Guernsey GY1 1EJ
Channel Islands
(1) TMF Group acquired State Street (Guernsey) Limited in October 2019.
2020 Annual Repor t 85
An investment in Tetragon involves substantial risks. Please refer to the company’s website at www.tetragoninv.com for a
description of the risks and uncertainties pertaining to an investment in Tetragon.
This release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.
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 Tetragon have not been and will not be registered under
the U.S. Securities Act of 1933, 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. Tetragon 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,
Tetragon 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. Tetragon is registered in the public register of the Netherlands Authority
for the Financial Markets under Section 1:107 of the Financial Markets Supervision Act as a collective investment
scheme from a designated country.
Tetragon is not responsible for the contents of any third-party website noted in this report.
86
AAuuddiitteedd
FFiinnaanncciiaall
SSttaatteemmeennttss
2020 Annual Repor t 87
Independent auditor’s report to the members of Tetragon Financial Group Limited
Our opinion is unmodified
We have audited the consolidated financial statements of Tetragon Financial Group Limited (the
“Company”) and its subsidiary (together, the "Group"), which comprise the consolidated statement of
financial position as at 31 December 2020, the consolidated statements of comprehensive income,
changes in equity and cash flows for the year then ended, and notes, comprising significant accounting
policies and other explanatory information.
In our opinion, the accompanying financial statements:
• give a true and fair view of the financial position of the Company as at 31 December 2020, and of the
Company’s financial performance and cash flows for the year then ended;
• are prepared in accordance with International Financial Reporting Standards as adopted by the EU; and
• comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under,
and are independent of the Company and Group in accordance with, UK ethical requirements including
FRC Ethical Standards, as applied to listed entities. We believe that the audit evidence we have obtained is
a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the
audit of the consolidated financial statements and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged
from 2019):
(continued on next page)
88
(continued)
The risk
Our response
Valuation of non-derivative level 3 financial assets at fair value through profit or loss
$1,530.9 Million; (2019 $1,625.9 Million) Refer to note 2 accounting policy and note 3 and 4 disclosures
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Basis:
As at 31 December 2020, the Group held non-derivative
level 3 financial assets at fair value through profit or loss
representing 61.8% of the Group’s net asset value. These
financial assets include CLO Equity Tranches, Unlisted Stock,
TFG Asset Management and other Investment Funds &
Vehicles.
The fair value of these investments is based on the following
valuation methodologies:
for CLO Equity Tranches, a marked to model approach;
for Unlisted Stock, a discounted cash flow approach;
for TFG Asset Management, a sum of parts valuation,
using a combination of marked to model and market
multiple approaches; and
for the remaining level 3 investments, partner capital
or net asset value statements provided by independent
administrators.
In addition, independent third party valuation providers
(the “Valuation Agents”) have been engaged to assist in the
valuation process for level 3 investments comprising Unlisted
Stock and TFG Asset Management.
Risk:
The valuation of the Group’s level 3 investments is considered
a significant area of our audit in view of the significance of
the estimates and judgements that may be involved in the
determination of their fair value and given that it represents
the majority of the net assets of the Group.
The effect of these matters is that, as part of our risk
assessment, we determined that the fair value of non-
derivative level 3 financial assets at fair value through profit
or loss has a high degree of estimation uncertainty, with
a potential range of reasonable outcomes greater than
our materiality for the financial statements as a whole.
The financial statements (note 4) disclose the sensitivity
estimated by the Group.
Our audit procedures included:
Internal Control:
We have obtained an understanding of the valuation process
and tested the design and implementation of the valuation
process control.
Challenging managements’ assumptions and inputs
including use of KPMG Specialists:
For 100% of CLO Equity Tranches, with the support of a
KPMG valuation specialist, we independently tested reference
prices through the use of fundamental cash flow modelling,
sourcing key inputs and assumptions used, such as default
rates, prepayment rates, discount rates and recovery rates, to
observable market data.
For investments valued using the assistance of the Valuation
Agents, with the support of a KPMG valuation specialist we:
assessed the objectivity, capabilities and competence
of the Valuation Agents engaged to provide valuation
services to the Group;
assessed the reasonableness of the methodology applied
by the Valuation Agents in developing the fair value of the
Unlisted Stock and TFG Asset Management; and
critically assessed the valuations provided by the
Valuation Agents and challenged and corroborated
material valuation inputs and assumptions to supporting
documentation or market available information.
For Investment Funds & Vehicles valued using net asset
values ("NAVs") we obtained independent confirmations from
the third party administrators of these investment values
as at 31 December 2020 (or latest available date). Where
coterminous statements were not available we reconciled
these confirmations and subsequent capital movements
to the valuations recorded by the Group. For a statistical
sample, we inspected the latest audited financial statements
of Investment Funds & Vehicles in order to consider the
nature of the investments held by those funds, the financial
reporting standards applied in the preparation of the financial
statements, any modification to the auditors’ reports and
other disclosures which may have been relevant to the
valuation.
Assessing disclosures:
We considered the adequacy of the disclosures made in the
financial statements (see notes 2, 3 and 4) in relation to the
use of estimates and judgements regarding the fair value of
investments, the valuation estimation techniques inherent
therein and fair value disclosures for compliance with IFRS as
adopted by the EU.
2020 Annual Repor t 8 9
(
(continued)
Our application of materiality and an overview of the scope of our audit
Materiality for the consolidated financial statements as a whole was set at $49.4 million, determined with
reference to a benchmark of Group net assets of $2,474.4 million, of which it represents approximately
2.0% (2019: 2.0%).
In line with our audit methodology, our procedures on individual account balances and disclosures were
performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk
that individually immaterial misstatements in individual account balances add up to a material amount
across the financial statements as a whole. Performance materiality for the group was set at 75% (2019:
75%) of materiality for the financial statements as a whole, which equates to $37 million (2019 : $33.6
million). We applied this percentage in our determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding
$2.4 million, in addition to other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Group was undertaken to the materiality level specified above, which has informed our
identification of significant risks of material misstatement and the associated audit procedures performed
in those areas as detailed above.
The group team performed the audit of the Group as if it was a single aggregated set of financial
information. The audit was performed using the materiality level set out above and covered 100% of total
group revenue, total group profit before tax, and total group assets and liabilities.
Going concern
The directors have prepared the consolidated financial statements on the going concern basis as they do
not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded
that the Group and the Company's financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval of the consolidated financial
statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered the inherent risks to the Group and the
Company's business model and analysed how those risks might affect the Group and the Company's
financial resources or ability to continue operations over the going concern period. The risks that we
considered most likely to affect the Group and the Company's financial resources or ability to continue
operations over this period were:
•
Availability of capital to meet operating costs and other financial commitments; and
• The ability to successfully refinance or repay debt which is due to mature
We considered whether these risks could plausibly affect the liquidity in the going concern period by
comparing severe, but plausible downside scenarios that could arise from these risks individually and
collectively against the level of available financial resources indicated by the Group and the Company’s
financial forecasts.
We considered whether the going concern disclosure in note 2 to the consolidated financial statements
gives a full and accurate description of the directors' assessment of going concern.
(continued on next page)
90
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(continued)
Our conclusions based on this work:
• we consider that the directors' use of the going concern basis of accounting in the preparation of the
consolidated financial statements is appropriate;
• we have not identified, and concur with the directors' assessment that there is not, a material
uncertainty related to events or conditions that, individually or collectively, may cast significant doubt
on the Group and the Company's ability to continue as a going concern for the going concern period;
and
• we found the going concern disclosure in the notes to the consolidated financial statements to be
acceptable.
However, as we cannot predict all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the time they were made, the
above conclusions are not a guarantee that the Group and the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions
that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
• enquiring of management as to the Group’s policies and procedures to prevent and detect fraud as well
as enquiring whether management have knowledge of any actual, suspected or alleged fraud;
• reading minutes of meetings of those charged with governance; and
• using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, we perform procedures to address the risk of management override
of controls, in particular the risk that management may be in a position to make inappropriate accounting
entries. On this audit we do not believe there is a fraud risk related to revenue recognition because the
Group’s revenue streams are simple in nature with respect to accounting policy choice, and are easily
verifiable to external data sources or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including:
•
•
Identifying journal entries and other adjustments to test based on risk criteria and comparing the
identified entries to supporting documentation; and
incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to non-compliance with laws and
regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on
the consolidated financial statements from our general commercial and sector experience and through
discussion with management (as required by auditing standards), and from inspection of the Company’s
regulatory and legal correspondence, and discussed with management the policies and procedures
regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks
involved gaining an understanding of the control environment including the entity’s procedures for
complying with regulatory requirements.
The Group and the Company are subject to laws and regulations that directly affect the consolidated
financial statements including financial reporting legislation and taxation legislation and we assessed the
extent of compliance with these laws and regulations as part of our procedures on the related financial
statement items.
(continued on next page)
2020 Annual Repor t 91
(continued)
The Group and the Company are subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the consolidated financial
statements, for instance through the imposition of fines or litigation or impacts on the Group's and of the
Company’s ability to operate. We identified financial services regulation as being the area most likely to
have such an effect, recognising the regulated nature of the Group and the Company’s activities and its
legal form. Auditing standards limit the required audit procedures to identify non-compliance with these
laws and regulations to enquiry of management and inspection of regulatory and legal correspondence,
if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected
some material misstatements in the consolidated financial statements, even though we have properly
planned and performed our audit in accordance with auditing standards. For example, the further
removed non-compliance with laws and regulations is from the events and transactions reflected in the
consolidated financial statements, the less likely the inherently limited procedures required by auditing
standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit
procedures are designed to detect material misstatement. We are not responsible for preventing non-
compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the financial report but does not include the consolidated financial statements and our
auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other
information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent with
the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact. We have nothing to report in
this regard.
We have nothing to report on other matters on which we are required to report by
exception
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008
requires us to report to you if, in our opinion:
the Company has not kept proper accounting records; or
the consolidated financial statements are not in agreement with the accounting records; or
•
•
• we have not received all the information and explanations, which to the best of our knowledge and
belief are necessary for the purpose of our audit.
(continued on next page)
92
I
n
d
e
p
e
n
d
e
n
t
a
u
d
i
t
o
r
'
s
r
e
p
o
r
t
(continued)
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on pages 48 and 49, the directors are responsible for:
the preparation of the consolidated financial statements including being satisfied that they give a true
and fair view; such internal control as they determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or
error; assessing the Group and Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in
an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of
the consolidated financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than the
Company’s members, as a body
This report is made solely to the Company’s members, as a body, in accordance with section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
DEBORAH SMITH
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors,
Guernsey
24 February 2021
2020 Annual Repor t
9 3
FINANCIAL STATEMENTS
TETRAGON FINANCIAL GROUP LIMITED
FOR THE YEAR ENDED 31 DECEMBER 2020
TETRAGON FINANCIAL GROUP LIMITED
FINANCIAL STATEMENTS
For the year ended 31 December 2020
CONTENTS
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
PAGE
2
3
4
5
6
1
TETRAGON FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2020
Assets
Non-derivative financial assets at fair value through profit or loss
Derivative financial assets
Other receivables and prepayments
Amounts due from brokers
Cash and cash equivalents
Total assets
Liabilities
Loans and borrowings
Derivative financial liabilities
Other payables and accrued expenses
Total liabilities
Net assets
Equity
Share capital
Other equity
Share-based compensation reserve
Retained earnings
Shares outstanding
Number of shares
Net Asset Value per share
Note
31 Dec 2020
US$ MM
31 Dec 2019
US$ MM
4
4
7
6
8
10
4
9
12
12
12
2,420.6
8.6
3.3
44.4
191.6
2,668.5
100.0
25.2
68.9
194.1
2,417.1
11.4
1.0
47.1
133.5
2,610.1
150.0
37.2
36.8
224.0
2,474.4
2,386.1
0.1
799.6
54.6
1,620.1
2,474.4
Million
88.8
0.1
830.9
57.1
1,498.0
2,386.1
Million
92.2
US$ 27.87
US$ 25.88
The accompanying notes are an integral part of the consolidated financial statements.
Signed on behalf of the Board of Directors by:
David O’Leary
Director
Date: 24 February 2021
Steven Hart
Director
2
TETRAGON FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Net gain on non-derivative financial assets at fair value through profit or loss
Net loss on derivative financial assets and liabilities
Interest income
Total income
Management fees
Incentive fee
Legal and professional fees
Share based employee compensation
Audit fees
Other operating expenses and administrative expenses
Operating expenses
Note
Year ended
31 Dec 2020
US$ MM
Year ended
31 Dec 2019
US$ MM
2
2
15
11
12
304.4
(0.2)
2.2
306.4
(34.4)
(72.7)
(7.7)
(11.4)
(0.5)
(2.4)
(129.1)
402.6
(6.9)
6.8
402.5
(33.5)
(63.4)
(5.3)
(5.5)
(0.5)
(2.8)
(111.0)
Operating profit before finance costs
177.3
291.5
Finance costs
10
(6.2)
(3.5)
Profit and total comprehensive income for the year
171.1
288.0
Earnings per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
16
16
16
16
US$ 1.87
US$ 1.67
US$ 3.22
US$ 2.86
Million
91.7
102.6
Million
89.5
100.8
The accompanying notes are an integral part of the consolidated financial statements.
3
TETRAGON FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
As at 1 January 2019
Profit and total comprehensive income
for the year
Transactions with owners recognised
directly in equity
Shares released from escrow
Dividends on shares released from
escrow
Share-based compensation
Cash dividends
Stock dividends
Purchase of treasury shares
As at 31 December 2019
Profit and total comprehensive income
for the year
Transactions with owners recognised
directly in equity
Shares released from escrow
Dividends on shares released from
escrow
Share-based compensation
Cash dividends
Stock dividends
Purchase of treasury shares
Share
capital
US$ MM
Other
equity
US$ MM
Retained
earnings
US$ MM
Share-based
compensation
reserve
US$ MM
Total
US$ MM
0.1
-
-
-
-
-
-
-
0.1
-
-
-
-
-
-
-
829.7
1,280.6
79.0
2,189.4
-
288.0
-
288.0
27.4
5.4
-
-
20.4
(52.0)
-
(27.4)
(5.4)
-
(44.8)
(20.4)
-
-
5.5
-
-
-
-
-
5.5
(44.8)
-
(52.0)
830.9
1,498.0
57.1
2,386.1
-
171.1
-
171.1
13.9
4.2
-
-
14.1
(63.5)
-
(13.9)
(4.2)
-
(30.7)
(14.1)
-
-
11.4
-
-
-
-
-
11.4
(30.7)
-
(63.5)
As at 31 December 2020
0.1
799.6
1,620.1
54.6
2,474.4
The accompanying notes are an integral part of the consolidated financial statements.
4
TETRAGON FINANCIAL GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Operating activities
Profit for the year
Adjustments for:
Gains on investments and derivatives
Share based compensation
Interest income
Finance costs
Operating cash flows before movements in working capital
(Increase)/decrease in receivables
Increase in payables
Decrease/(increase) in amounts due from brokers
Cash flows from operations
Proceeds from sale/prepayment/maturity of investments
Net proceeds from derivative financial instruments
Purchase of investments
Cash interest received
Net cash generated from / (used in) operating activities
Financing activities
Repayment of loans and borrowings
Proceeds from loans and borrowings
Finance costs paid
Purchase of treasury shares
Dividends paid to shareholders*
Net cash (used in) / generated from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended
31 Dec 2020
US$ MM
Year ended
31 Dec 2019
US$ MM
171.1
288.0
(304.2)
11.4
(2.2)
6.2
(117.7)
(2.6)
31.7
2.7
(85.9)
540.5
(9.5)
(238.8)
2.2
208.5
(150.0)
100.0
(6.2)
(63.5)
(30.7)
(150.4)
58.1
133.5
191.6
(395.7)
5.5
(6.8)
3.5
(105.5)
6.7
17.3
(11.8)
(93.3)
397.7
15.6
(474.8)
6.8
(148.0)
-
112.0
(3.5)
(52.0)
(44.8)
11.7
(136.3)
269.8
133.5
* The gross dividend payable to shareholders was US$ 44.8 million (2019: US$ 65.2 million) with a value equivalent to US$
14.1 million (2019: US$ 20.4 million) elected to be taken by the dividend recipient in shares rather than cash.
The accompanying notes are an integral part of the consolidated financial statements.
5
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
As at 31 December 2020
Note 1
Corporate Information
Tetragon Financial Group Limited (“Tetragon” or the “Fund”) was registered in Guernsey on 23 June 2005 as a company
limited by shares, with registered number 43321. All voting shares of the Fund are held by Polygon Credit Holdings II
Limited (the “Voting Shareholder”). The Fund continues to be registered and domiciled in Guernsey, and the Fund's non-
voting shares (the “Shares”) are listed on Euronext in Amsterdam, a regulated market of Euronext Amsterdam N.V. (ticker
symbol: TFG.NA) and on the Specialist Fund Segment of the London Stock Exchange plc (ticker symbols: TFG.LN and
TFGS.LN). The registered office of the Fund is Mill Court, La Charroterie, St. Peter Port, Guernsey, GY1 1EJ, Channel Islands.
Note 2
Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of the Fund (the "Financial Statements") have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and comply with the
Companies (Guernsey) Law, 2008 and give a true and fair view.
The financial statements have been prepared on a historical cost basis, except for derivative financial instruments and
certain non-derivative financial assets and financial liabilities held at fair value through profit or loss (“FVTPL”) that have
been measured at fair value. The accounting policies have been consistently applied to all periods presented in these
financial statements.
The financial statements are presented in United States Dollars (“USD” or “US$”), which is the functional currency of the
Fund, expressed in USD millions (“US$ MM”) (unless otherwise noted). The share capital of the Fund and the majority of
its investments are denominated in USD. Most of the expenses and fees paid by the Fund are in USD. Hence, the Directors
have determined that USD as functional and presentational currency reflects the Fund's primary economic environment.
In accordance with IFRS 10 Consolidated Financial Statements (“IFRS 10”), the Fund is an investment entity and, as such,
does not consolidate the entities it controls where they are deemed to be subsidiaries except for Tetragon Financial Group
(Delaware) LLC. Tetragon Financial Group (Delaware) LLC was formed in July 2020 to hold the collateral for the revolving
credit facility. This subsidiary’s main purpose and activity is to provide a service to the Fund, as such, it is consolidated on
a line-by-line basis with balances between the Fund and this subsidiary eliminated. The financial statements for this
subsidiary are prepared at the same reporting date using the same accounting policies. All other interests in subsidiaries
are classified as FVTPL. Investments in associates are also classified as FVTPL. Subsidiaries are consolidated from the date
control is established by Tetragon and cease to be consolidated on the date control is transferred from Tetragon.
The Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing these financial
statements and that the Fund will be able to continue to meet its liabilities for at least twelve months from the date of
approval of the financial statements. In making this determination, the Directors have considered the cash flow and
liquidity projections for the next 12 months, the nature of the Fund’s capital (including readily available resources such
as cash, undrawn credit facility and liquid equities) and the applicable covenants on the revolving credit facility.
The Directors have also considered the impact of the COVID-19 global pandemic, which resulted in unprecedented risks
and significant levels of volatility and significant changes to asset prices in global equity, bond and property markets.
Due to the nature of the Fund and the resources available to it, COVID-19 has not significantly impacted the going
concern assessment.
6
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 2
Significant Accounting Policies (continued)
New standards and amendments to existing standards
The Fund has considered all the standards and interpretations that are issued, but not yet effective, up to the date of
issuance of the Fund’s financial statements. These standards and interpretations are not relevant to the Fund's activities
or their effects are not expected to be material.
Foreign Currency Translation
Transactions in foreign currencies are translated to the Fund’s functional currency at the foreign currency exchange rate
ruling at the date of the transaction. All assets and liabilities denominated in foreign currencies are translated to USD at
the foreign currency closing exchange rate ruling at the reporting date.
Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of
monetary assets and liabilities are recognised as net foreign exchange gain/(loss) in the Consolidated Statement of
Comprehensive Income except for those arising on financial instruments at FVTPL which are recognised as components
of net gain on non-derivative financial assets at FVTPL and derivative instruments which are recognised as components of
net gain/(loss) on derivative financial assets and financial liabilities.
Financial Instruments
(i) Classification
The Fund classifies its financial assets and financial liabilities at initial recognition into the following categories, in
accordance with IFRS 9 Financial Instruments (“IFRS 9”).
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at
FVTPL:
- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest
outstanding.
The Fund includes in this category cash and cash equivalents, amounts due from brokers, receivable for securities sold
and other sundry receivables. These assets are held with an intention to collect the principal and interest payments.
Financial assets and liabilities at FVTPL
All financial assets not classified as measured at amortised cost are measured at FVTPL. Financial liabilities attached to
derivatives are also measured at FVTPL.
Investments in derivatives, collateralised loan obligations (“CLOs”), loans and corporate bonds, listed and unlisted stock,
investment funds and vehicles and private equity in asset management companies are included in this category.
Other financial liabilities at amortised cost
This category includes all financial liabilities, other than those classified as at FVTPL. The Fund includes in this category
loans and borrowings and other payables and accrued expenses.
7
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 2
Significant Accounting Policies (continued)
Financial Instruments (continued)
(ii) Recognition
The Fund recognises a financial asset or a financial liability when it becomes a party to the contractual provisions of the
instrument. Purchases or sales of financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date (i.e. the
date that the Fund commits to purchase or sell the asset).
(iii) Initial measurement
Financial assets and financial liabilities at FVTPL are initially recognised in the Consolidated Statement of Financial
Position at fair value. All transaction costs for such instruments are recognised immediately through profit or loss.
Financial assets and liabilities (other than those classified as at FVTPL) are measured initially at their fair value adjusted
for any directly attributable incremental costs of acquisition or issue.
(iv) Subsequent measurement
After initial measurement, the Fund re-measures financial instruments which are classified as at FVTPL at fair value.
Subsequent changes in the fair value of those financial instruments are recorded in net gain/(loss) on non-derivative
financial assets at FVTPL in the Consolidated Statement of Comprehensive Income. Subsequent changes in fair value of
derivative instruments are recorded in net gain/(loss) on derivative financial assets and liabilities in the Consolidated
Statement of Comprehensive Income.
Receivables are carried at amortised cost less any allowance for impairment with any impairment losses arising being
included in profit or loss.
Financial liabilities, other than those classified as at FVTPL, are measured at amortised cost using the effective interest
method.
(v) Derecognition
A financial asset (or, where applicable, a part of a financial asset or a part of a group of similar financial assets) is
derecognised where (i) the rights to receive cash flows from the asset have expired, or (ii) the Fund has either transferred
its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without
material delay to a third party under a pass-through arrangement and in either cases in (ii):
(a) the Fund has transferred substantially all of the risks and rewards of the asset; or
(b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
When the Fund has transferred its right to receive cash flows from an asset (or has entered into a pass-through
arrangement) and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred
control of the asset, the asset is recognised to the extent of the Fund’s continuing involvement in the asset. In that case,
the Fund also recognises an associated liability. The transferred asset and the associated liability are measured on a basis
that reflects the rights and obligations that the Fund has retained.
The Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired.
8
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 2
Significant Accounting Policies (continued)
Financial Instruments (continued)
(vi) Impairment
The Fund recognises loss allowances for expected credit losses ("ECL") on financial assets at amortised cost.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECLs, the Fund considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Fund’s historical
experience and informed credit assessment and including forward-looking information.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Statement of Financial
Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention
to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Fair value measurement
The Fund measures all its investments and derivatives, at fair value at each reporting date.
IFRS 13 Fair Value Measurements defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal
market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or
liability. The principal or the most advantageous market must be accessible to the Fund. The fair value of an asset or a
liability is measured using the assumptions that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price without
any deduction for transaction costs. A market is regarded as “active” if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing basis.
For all other financial instruments not traded in an active market, the fair value is determined by using observable inputs
where available and valuation techniques deemed to be appropriate in the circumstances. Refer to Note 4 for the
valuation techniques used.
For assets and liabilities that are measured at fair value on a recurring basis, the Fund identifies transfers between levels
in the hierarchy by re-assessing the categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) and deems transfers to have occurred at the end of each reporting period.
Amounts due from/to brokers
Amounts due from/to brokers include margin accounts which represent cash pledged as collateral on the forward foreign
exchange contracts, credit default swaps and contracts for difference. Refer to the accounting policy for financial
instruments for recognition and measurement.
9
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 2
Significant Accounting Policies (continued)
Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents comprise of short-term highly liquid investments that are
readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value and are held for
the purpose of meeting short-term cash commitments rather than for investment or other purposes.
Net gain or loss on non-derivative financial assets and liabilities at FVTPL
Net gains or losses on non-derivative financial assets at FVTPL are changes in the fair value of financial assets and financial
liabilities at FVTPL and include related interest, dividends and foreign exchange gains or losses.
Interest income
Interest income arising on cash balances and tri-party repurchase agreements are recognised in the Consolidated
Statement of Comprehensive Income using the effective interest method.
Finance costs
Interest and fees charged on borrowings are recognised through profit or loss in the Consolidated Statement of
Comprehensive Income using the effective interest method.
Expenses
Expenses and fees, including Directors’ fees, are recognised through profit or loss in the Consolidated Statement of
Comprehensive Income on an accruals basis.
Taxation
The Fund is exempt from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is
charged GBP 1,200 per annum (2019: GBP 1,200).
Dividend distribution
Dividend distributions are recognised in the Consolidated Statement of Changes in Equity, when the shareholders’ right
to receive the payment is established.
Share-based payment transactions
Share-based compensation expense for all equity settled share-based payment awards granted is determined based on
the grant-date fair value. The Fund recognises these compensation costs net of an estimated forfeiture rate, and
recognises compensation cost only for those shares expected to meet the service and non-market performance vesting
conditions, on a graded vesting basis over the requisite service period of the award. These compensation costs are
determined at the individual vesting tranche level for serviced-based awards.
When the shares are issued, the fair value of the shares, as determined at the time of the award, is debited against the
share-based compensation reserve and credited to other equity. Any associated stock dividends accrued on the original
award are debited against retained earnings and credited to other equity using the value determined by the stock
reference price at the date of each applicable dividend.
10
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 2
Significant Accounting Policies (continued)
Other equity
Other equity contains the share premium and treasury shares balances.
Operating segments
An operating segment is a component of the Fund that engages in business activities from which it may earn revenues and
incurs expenses, whose operating results are regularly reviewed by the Fund's chief operating decision maker and for
which discrete financial information is available. The chief operating decision maker for the Fund is the Board of Directors.
The Fund has considered the information reviewed by the Fund's chief operating decision maker and determined that
there is only one operating segment in existence.
Note 3
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the Fund’s financial statements requires management to make judgments, estimates and assumptions
that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However,
uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to
the carrying amount of the asset or liability affected in future periods.
Judgments
In the process of applying the Fund’s accounting policies, management has made the following judgments, which have
the most significant effect on the amounts recognised in the financial statements:
Investment entity status
The Board of Directors have determined that the Fund meets the definition of an investment entity as per IFRS 10. Entities
that meet the definition of an investment entity within IFRS 10 are generally required to measure their subsidiaries at FVTPL
rather than consolidate them. The Fund consolidates Tetragon Financial Group (Delaware) LLC as this subsidiary’s main
purpose and activity is to provide a service to the Fund, as such it is consolidated on a line-by-line basis with balances
between the Fund and this subsidiary eliminated.
The Fund's investment objective is to generate distributable income and capital appreciation. The Fund reports to its
investors via monthly, semi-annual and annual investor information, and to its management, via internal management
reports, on a fair value basis. The Fund has a documented exit strategy for all of its investments.
Estimates and assumptions
Measurement of fair values
The Fund based its assumptions and estimates on parameters available when the financial statements were prepared;
however, existing circumstances and assumptions about future developments may change due to market changes and
circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur.
For detailed information on the estimates and assumptions used to determine the fair value of financial instruments,
please refer to Note 4.
11
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Financial Liabilities at Fair Value through Profit or Loss
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows:
Level 1 -
Level 2 -
Level 3 -
Quoted in active markets for identical instruments.
Prices determined using other significant observable inputs. These may include quoted prices for similar
securities, interest rates, prepayments spreads, credit risk and others.
Unobservable inputs. Unobservable inputs reflect assumptions market participants would be expected to use
in pricing the asset or liability.
Recurring fair value measurement of assets and liabilities
The following table shows financial instruments measured at fair value by the level in fair value hierarchy as of 31
December 2020:
Non-derivative financial assets at FVTPL
Investment funds and vehicles
TFG Asset Management
CLO equity tranches
Unlisted stock
Listed stock
Corporate bonds
Total non-derivative financial assets at FVTPL
Derivative financial assets
Contracts for difference (asset)
Forward foreign exchange contracts (asset)
Total derivative financial assets
Derivative financial liabilities
Contracts for difference (liability)
Forward foreign exchange contracts (liability)
Total derivative financial liabilities
Level 2
US$ MM
701.2
-
-
-
-
17.9
719.1
7.0
1.6
8.6
(0.2)
(18.0)
(18.2)
Level 3
US$ MM
371.5
833.5
151.3
174.6
-
-
1530.9
-
-
-
(7.0)
-
(7.0)
Total
Fair Value
US$ MM
1,072.7
833.5
151.3
174.6
170.6
17.9
2,420.6
7.0
1.6
8.6
(7.2)
(18.0)
(25.2)
Level 1
US$ MM
-
-
-
-
170.6
-
170.6
-
-
-
-
-
-
12
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Recurring fair value measurement of assets and liabilities (continued)
The following table shows financial instruments measured at fair value by the level in fair value hierarchy as of 31
December 2019:
Non-derivative financial assets at FVTPL
Investment funds and vehicles
TFG Asset Management
CLO equity tranches
Unlisted stock
Listed stock
Corporate bonds
Total non-derivative financial assets at FVTPL
Derivative financial assets
Contracts for difference (asset)
Forward foreign exchange contracts (asset)
Total derivative financial assets
Derivative financial liabilities
Contracts for difference (liability)
Forward foreign exchange contracts (liability)
Total derivative financial liabilities
Transfers between levels
Level 1
US$ MM
-
-
-
-
149.3
-
149.3
-
-
-
-
-
-
Level 2
US$ MM
612.8
-
-
5.4
-
23.7
641.9
11.2
0.2
11.4
(1.3)
(21.6)
(22.9)
Level 3
US$ MM
394.5
747.5
210.9
273.0
-
-
1,625.9
-
-
-
(14.3)
-
(14.3)
Total
Fair Value
US$ MM
1,007.3
747.5
210.9
278.4
149.3
23.7
2,417.1
11.2
0.2
11.4
(15.6)
(21.6)
(37.2)
There were no transfers between levels during the year ended 31 December 2020. During the year ended 31 December
2019, an unlisted stock held at Level 3 of US$ 25.8 million at 31 December 2019 was transferred to Level 1 following its
listing, and then remained quoted on an active market. An investment included in 'Investment funds and vehicles', held
at Level 3 of US$ 81.1 million at 31 December 2019, was transferred to Level 2 as the underlying Level 3 assets in the fund
moved from Level 3 to Level 1.
Other financial assets and liabilities
For all other financial assets and liabilities, the carrying value is an approximation of fair value, including other receivables,
amounts due from brokers, cash and cash equivalents, loans and borrowings, and other payables.
13
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Level 3 reconciliation
The following is a reconciliation of the Fund’s assets in which significant unobservable inputs (Level 3) were used in
determining fair value at 31 December 2020.
Balance at start of year
Additions
Proceeds
Net gains/(losses) through profit or loss
Balance at end of year
Change in unrealised gains/(losses) through
profit or loss for assets held at year end
CLO Equity
Tranches
US$ MM
210.9
-
(33.4)
(26.2)
151.3
Unlisted
Stock
US$ MM
273.0
-
(123.0)
24.6
174.6
Investment
Funds and
Vehicles
US$ MM
394.5
78.1
(88.3)
(12.8)
371.5
TFG Asset
Management
US$ MM
747.5
4.1
(106.2)
188.1
833.5
Total
US$ MM
1,625.9
82.2
(350.9)
173.7
1,530.9
(33.6)
24.6
(33.9)
123.8
80.9
The following is a reconciliation of the Fund’s assets in which significant unobservable inputs (Level 3) were used in
determining fair value at 31 December 2019.
CLO Equity
Tranches
US$ MM
257.1
-
(71.9)
25.7
-
210.9
Unlisted
Stock
US$ MM
96.1
157.7
(35.7)
80.7
(25.8)
273.0
Investment
Funds and
Vehicles
US$ MM
361.9
159.2
(120.2)
74.7
(81.1)
394.5
TFG Asset
Management
US$ MM
662.1
9.5
(89.1)
165.0
-
747.5
Total
US$ MM
1,377.2
326.4
(316.9)
346.1
(106.9)
1,625.9
5.7
88.0
8.4
116.3
218.4
Balance at start of year
Additions
Proceeds
Net gains/(losses) through profit or loss
Transfer between levels
Balance at end of year
Change in unrealised gains through profit or
loss for assets held at year end
Valuation process (framework)
TMF Group Fund Administration (Guernsey) Limited (the “Administrator”) serves as the Fund’s independent administrator
and values the investments of the Fund on an ongoing basis in accordance with the valuation principles and
methodologies approved by the Audit Committee, which comprises of independent directors, from time to time.
For certain investments, such as TFG Asset Management, a third-party valuation agent is also used. However, the Directors
are responsible for the valuations and may, at its discretion, permit any other method of valuation to be used if it considers
that such method of valuation better reflects value and is in accordance with IFRS.
14
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques
CLO equity tranches
A mark to model approach using discounted cash flow analysis (“DCF Approach”) has been adopted to determine the value of
the equity tranche CLO investments. 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 these 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, the Fund 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.
Although seeking to utilise, where possible, observable market data, for certain assumptions the Investment Manager may be
required to make subjective judgments and forward-looking determinations, and its experience and knowledge is instrumental
in the valuation process.
As at 31 December 2020, key modelling assumptions used are disclosed below. The modelling assumptions disclosed below
are a weighted average (by USD amount) of the individual deal assumptions. Each individual deal’s assumptions may differ
from this average and vary across the portfolio.
Constant Annual Default
Rate (“CADR”)
5% up to 30 June 2021, 2.39% thereafter (2019: 2.38%), which is 1.0x of the original Weighted
Average Rating Factor (“WARF”) derived base-case default rate for the life of the transaction.
Recovery Rate
60% up to 30 June 2021, 70% thereafter (2019: 74%)
Prepayment Rate
Reinvestment Price and
Spread
7.5% p.a. up to 30 June 2021, 20% p.a. thereafter (2019: 20%), the original base-case
prepayment rate with a 0% prepayment rate on bonds throughout the life of the transaction.
Assumed reinvestment price is par for the life of the transaction, with an effective spread over
LIBOR of 400 basis points (“bps”) up to 30 June 2021, 349 bps thereafter (2019: 345 bps) on
broadly U.S. syndicated loan deals which are still in their reinvestment periods.
When determining the fair value of the equity tranches, a discount rate is applied to the expected future cash flows derived
from the third-party valuation model. The discount rate applied to those future cash flows reflects the perceived level of risk
that would be used by another market participant in determining fair value. In determining the discount rates to use an
analysis of the observable risk premium data as well as the individual deal’s structural strength and credit quality is
undertaken. At 31 December 2020, a discount rate of 12% is utilised for all deals. At 31 December 2019, for U.S. 2.0 deals the
discount rate applied was 11% unless the deal was within its non-refinancing period, in which case the deal internal rates of
return (“IRR”) was utilised as the discount rate. For deals in this category the weighted average IRR or discount rate was 9.9%.
Sensitivity Analysis:
The discount rate used has a significant impact on the fair value of CLO equity tranches. A reasonable possible alternative
assumption is to change the discount rate by 1%. Changing the discount rate and keeping all other variables constant would
have the following effects on net assets and profits:
-1% discount rate
+1% discount rate
15
31 Dec 2020
US$ MM
31 Dec 2019
US$ MM
4.5
(4.3)
5.5
(5.0)
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques (continued)
Private equity in asset management companies
The Fund owns a 100% interest in TFG Asset Management which holds majority and minority private equity stakes in asset
management companies. The valuation calculation for TFG Asset Management was prepared by a third-party valuation
specialist engaged by the Fund's Audit Committee. Although TFG Asset Management is valued as a single investment, a sum
of the parts approach, valuing each business separately has been utilised. This approach aggregates the fair value of all asset
managers held by TFG Asset Management overlaying the central costs and net assets at TFG Asset Management level.
Currently, no premium has been attributed to the valuation of TFG Asset Management in respect of diversification or synergies
between different income streams. Any benefit from operating on the TFG Asset Management platform has been captured in
the valuation of the individual asset managers by incorporating it in the business plans used in the DCF and Market Multiple
Approaches.
LCM is valued using a combination of DCF Approach and quoted market multiples (“Market Multiple Approach”) based on
comparable companies to determine an appropriate valuation range. Equitix, Polygon and Tetragon Credit Partners are
valued using DCF Approach.
During 2019, GreenOak merged with Bentall Kennedy, Sun Life Financial Inc.'s real estate and property management firm to
form BentallGreenOak. TFG Asset Management continues to hold approximately 13% interest in the combined entity and will
receive a series of fixed and variable profit distributions. Sun Life will have an option to acquire the remaining interest in the
merged entity in 2026. TFG Asset Management and other minority owners are entitled to sell their interest to Sun Life in 2027.
The Fund's investment in BentallGreenOak, as at 31 December 2020, is valued using the DCF Approach on expected cash
flows from the merged entity.
The DCF Approach estimates the value of each business based on the value of the cash flows the business is expected to
generate in the future. The DCF Approach estimates the enterprise value of the investments by discounting estimates of
expected future free cash flows to the Fund (to both equity and debt holders), and the terminal value, at a weighted average
cost of capital (“WACC”) that captures the risk inherent in the projections. From the enterprise value derived by the DCF
Approach, market value of net debt is deducted to arrive at the equity value. An adjustment is made to account for a discount
for lack of liquidity (“DLOL”), generally in range of 15% to 20%.
The Market Multiple Approach applies a multiple, considered to be an appropriate and reasonable indicator of value to
certain metrics of the business, such as earnings or asset under management (“AUM”), to derive the equity value. The multiple
applied in each case is derived by considering the multiples of quoted comparable companies. The multiple is then adjusted
to ensure that it appropriately reflects the specific business being valued, considering its business activities, geography, size,
competitive position in the market, risk profile, and earnings growth prospects of the business. The valuation specialist
considered a multiple of price-to-assets under management, and/or a multiple of earnings such as a company's earnings
before interest, Taxes, Depreciation, and Amortization (“EBITDA”), to perform this analysis.
16
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques (continued)
Private equity in asset management companies (continued)
The following table shows the unobservable inputs used by third party valuation specialist in valuing TFG Asset Management.
Fair Value
US$ MM
386.1
Valuation
methodology
DCF
Significant unobservable inputs
Discount rate 9.75%, DLOL 15%
31 December 2020
Investment
Equitix
BentallGreenOak
LCM
Polygon
195.7
176.9
57.4
Tetragon Credit Partners
13.7
Other
3.7
31 December 2019
Investment
Equitix
BentallGreenOak
LCM
Polygon
Fair Value
US$ MM
301.1
190.8
186.0
48.1
Tetragon Credit Partners
19.7
Other
1.8
DCF (sum-of-the-
parts)
DCF and Market
Multiples
DCF
DCF
Valuation
methodology
DCF, Debt at par +
accrued interest
DCF (sum-of-the-
parts)
DCF and Market
Multiples
Discount rate of 11.0%, DLOL 15%
Discount rate 12.0%, P/AUM multiple 2.5%, DLOL
15%
Discount rate 12.75%, DLOL 20%
Discount rate 11.25%, DLOL 15%
Significant unobservable inputs
Discount rate 9.50%, DLOL 15%
Discount rate of 11.25%, DLOL 15%
Discount rate 11.50%, P/AUM multiple 2.7%, DLOL
15%
DCF
DCF
Discount rate 12.25%, DLOL 20%
Discount rate 11.50%, DLOL 15%
17
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques (continued)
Private equity in asset management companies (continued)
Sensitivity Analysis:
For TFG Asset Management, changing assumptions of discount rate and market multiples to a reasonably possible alternative
would have the following effects on the net assets and profits:
Favourable
US$ 66.0 MM
Discount rate 8.75%
US$ 4.3 MM
Discount rate 10.0%
Unfavourable
(US$ 51.2 MM)
Discount rate 10.75%
(US$ 4.0 MM)
Discount rate 12.0%
US$ 22.2 MM
Discount rate 11.0%, P/AUM 2.87%
(US$ 22.2 MM)
Discount rate 13.0%, P/AUM 2.12%
31 December 2020
Investment
Equitix
BentallGreenOak
LCM
Polygon
US$ 5.6 MM
Discount rate 11.75%
Tetragon Credit
Partners
US$ 0.5 MM
Discount rate 10.25%
31 December 2019
Investment
Equitix
Favourable
US$ 43.2 MM
Discount rate 8.50%
LCM
Polygon
US$ 5.1 MM
Discount rate 11.25%
Tetragon Credit
Partners
US$ 0.9 MM
Discount rate 10.5%
(US$ 5.6 MM)
Discount rate 13.75%
(US$ 0.5 MM)
Discount rate 12.25%
Unfavourable
(US$ 33.4 MM)
Discount rate 10.50%
(US$ 5.1 MM)
Discount rate 13.25%
(US$ 0.8 MM)
Discount rate 12.5%
18
BentallGreenOak
US$ 4.8 MM
Base discount rate 10.25%
(US$ 4.5 MM)
Base discount rate 12.25%
US$ 23.7 MM
Discount rate 10.5%, P/AUM multiple 3.0%
(US$ 23.7 MM)
Discount rate 12.5%, P/AUM multiple 2.3%
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques (continued)
Private equity in asset management companies (continued)
The table below presents the effects of -5% change in the discount for lack of liquidity on profits and NAV of the Fund. A +5%
change will have an equal and opposite effect.
Equitix
BentallGreenOak
LCM
Polygon
Tetragon Credit Partners
31 Dec 2020
US$ MM
31 Dec 2019
US$ MM
22.7
11.7
10.6
3.4
0.8
15.1
11.4
11.1
2.9
1.2
Investment funds and vehicles
Investments in unlisted investment funds, classified as level 2 and level 3 in the fair value hierarchy, are valued utilising the
net asset valuations provided by the managers of the underlying funds and/or their administrators. Management’s
assessment is that these valuations are the fair value of these investments. In determining any adjustments necessary to
the net asset valuations, management has considered the date of the valuation provided. No adjustment was deemed
material following this review.
The Fund has an investment in an externally managed investment vehicle that holds farmlands in Paraguay. These
farmlands are valued utilising inputs from an independent third-party valuation agent.
Sensitivity analysis:
A 1% increase in net asset value (“NAV”) of the unlisted investment funds included in Level 3 will increase net assets and
profits of the Fund by US$ 3.7 million (2019: US$ 3.9 million). A decrease in the NAV of the unlisted investment funds will have
an equal and opposite effect.
Unlisted stock
At 31 December 2020, the level 3 unlisted stock is an investment in a private company. The investment is valued using DCF
approach. The discount rate applied to the expected future cash flows is 15.5%. At 31 December 2019, this investment was
valued using the transaction price from the last financing round in the fourth quarter of 2019.
Sensitivity analysis:
A 3% increase in the discount rate will decrease the net assets and profits of the Fund by US$ 14.3 million. A 3% decrease in
the discount rate will increase it by US$ 16.1 million.
Listed stock
For listed stock in an active market, the closing exchange price is utilised as the fair value price.
Corporate bonds
The corporate bonds held by the Fund are valued using the broker quotes obtained at the valuation date.
19
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 4
Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Valuation techniques (continued)
Forward foreign exchange contracts and currency options
Forward foreign exchange contracts and currency options are recognised at fair value on the date on which a derivative
contract is entered into and are subsequently re-measured at their fair value. Fair values are based on observable foreign
currency forward rates, recent market transactions, and valuation techniques, including discounted cash flow models, as
appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
The best evidence of fair value of a forward foreign exchange contract at initial recognition is the transaction price. The
currency options are recognised initially at the amount of premium paid or received.
Contracts for difference
The Fund enters into contracts for difference (“CFD”) arrangements with financial institutions. CFDs are typically traded
on the over the counter (“OTC”) market. The arrangement generally involves an agreement by the Fund and a counterparty
to exchange the difference between the opening and closing price of the position underlying the contract, which are
generally on equity positions.
Fair values are based on quoted market prices of the underlying security, contract price, and valuation techniques including
expected value models, as appropriate.
Note 5
Interest in Other Entities
Investment in unconsolidated structured entities
IFRS 12 defines a structured entity as an entity that has been designed so that voting or similar rights are not the dominant
factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the
relevant activities are directed by means of contractual agreements.
The Fund holds various investments in CLOs and investment funds. The fair value of the CLOs and investment funds is
recorded in the “Non-derivative financial assets at fair value through profit or loss” line in the Consolidated Statement of
Financial Position. The Fund’s maximum exposure to loss from these investments is equal to their total fair value and, if
applicable, unfunded commitments. Once the Fund has disposed of its holding in any of these investments, the Fund ceases
to be exposed to any risk from that investment. The Fund has not provided, and would not be required to provide any
financial support to these investees. The investments are non-recourse.
20
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 5
Interest in Other Entities (continued)
Investment in unconsolidated structured entities (continued)
Below is a summary of the Fund’s holdings in subsidiary unconsolidated structured entities.
As at 31 December 2020:
CLO Equity
U.S. CLOs1
Investment Funds
As at 31 December 2019:
CLO Equity
U.S. CLOs1
Investment Funds
No. of
invest-
ments
Range of
nominal
US$ MM
Average
nominal
US$ MM
Carrying
value
US$ MM
Percentage
of NAV
10
245.6 - 743.7
531.9
134.8
5.4%
Polygon European Equity Opportunity Fund2
Polygon Global Equities Fund2
Polygon Convertible Opportunity Fund2 (“PCOF”)
Tetragon Credit Income II3
Tetragon Credit Income III3
Hawke's Point Holdings LP3
Banyan Square Capital Partners LP
Other Real Estate4
1
1
1
1
1
1
1
4
Total NAV
US$ MM
492.3
7.7
725.8
236.3
377.6
131.2
31.4
35.7
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
440.4
7.7
116.7
48.4
76.0
131.0
31.4
35.7
17.8%
0.3%
4.7%
2.0%
3.1%
5.3%
1.3%
1.4%
No. of
invest-
ments
Range of
nominal
US$ MM
Average
nominal
US$ MM
Carrying
value
US$ MM
Percentage
of NAV
10
245.6 - 748.9
534.8
190.8
8.0%
Polygon European Equity Opportunity Fund2
Polygon Global Equities Fund2
Polygon Convertible Opportunity Fund2
Tetragon Credit Income II3
Tetragon Credit Income III3
Hawke's Point Holdings LP3
Banyan Square Capital Partners LP
Other Real Estate4
1
1
1
1
1
1
1
4
Total NAV
US$ MM
448.8
24.7
632.7
290.5
351.9
81.3
15.0
38.8
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
377.5
20.9
81.7
59.0
70.4
81.1
15.0
38.8
15.8%
0.9%
3.4%
2.5%
3.0%
3.4%
0.6%
1.6%
1 This includes all U.S. CLOs deemed to be controlled by the Fund. U.S. CLOs are domiciled in the Cayman Islands.
2 Polygon hedge funds are domiciled in the Cayman Islands. Given the applicable notice, liquidity up to 25% of the
investment in Polygon hedge funds is available on a quarterly basis (subject to certain conditions), and the entire
investment could be liquidated over four consecutive quarters.
3 Hawke's Point Holdings LP, Banyan Square Capital Partners LP, Tetragon Credit Income II LP (“TCI II”) and Tetragon
Credit Income III LP ("TCI III") are domiciled in the Cayman Islands. These are private-equity style investment funds. Please
refer to Note 14 for details of unfunded commitments.
4 The Fund has investments in commercial farmland in Paraguay, via individual managed accounts managed by Scimitar,
a specialist manager in South American farmland. The Fund's investment can only be redeemed when the underlying real
estate assets are sold.
21
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 5
Interest in Other Entities (continued)
Investment in unconsolidated structured entities (continued)
Below is a summary of the Fund’s holding in non-subsidiary unconsolidated structured entities:
As at 31 December 2020:
CLO Equity
U.S. CLOs1
Real Estate
BentallGreenOak – U.S.2
BentallGreenOak – Europe2
BentallGreenOak – Asia2
Other Funds
Private Equity Funds3
As at 31 December 2019:
CLO Equity
U.S. CLOs1
European CLOs1
Real Estate
BentallGreenOak – U.S.2
BentallGreenOak – Europe2
BentallGreenOak – Asia2
Other Funds
QT Fund3
Private Equity Funds3
No. of
invest-
ments
Range of
nominal
US$ MM
Average
nominal
US$ MM
Carrying
value
US$ MM
Percentage
of NAV
2
417.2 - 510.9
464.0
14.3
0.6%
Total AUM
US$ MM
25,597
5,807
1,445
Total NAV
US$ MM
5,616.7
7
13
3
18
n/a
n/a
n/a
45.7
44.6
26.2
1.8%
1.8%
1.1%
n/a
59.1
2.4%
No. of
invest-
ments
Range of
nominal
US$ MM
Average
nominal
US$ MM
Carrying
value
US$ MM
Percentage
of NAV
6
1
6
12
2
1
14
31.5 - 1,685.4
17.5
453.2
17.5
Total AUM
US$ MM
24,000
4,800
500
Total NAV
US$ MM
660.0
2,067.4
n/a
n/a
n/a
n/a
n/a
20.0
-
64.5
73.9
29.9
51.7
43.0
0.8%
-
2.7%
3.1%
1.3%
2.2%
1.8%
1 Includes all externally managed CLOs that are outside the Fund’s control. U.S. CLOs are domiciled in the Cayman Islands.
European CLOs are domiciled in the Republic of Ireland.
2 BentallGreenOak funds hold real estate investments in the United States, Japan and various countries in Europe. Total
assets under management (“AUM”) reflects 100% of BentallGreenOak AUM in structured entities. The number of
investments indicates the Fund’s investments in each region. The Fund's investment in these funds can only be redeemed
in the form of capital distributions when the underlying real estate assets are sold.
3 Private equity funds are domiciled in the Cayman Islands, Luxembourg and the United States. QT Fund is domiciled in
the Cayman Islands.
22
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 5
Interest in Other Entities (continued)
TFG Asset Management
The Fund owns 100% holdings and voting rights in TFG Asset Management LP. In addition, the Fund has a direct interest
of 20% in TFG Asset Management UK Limited, which is one of the UK service providers to the TFG Asset Management LP
managers. The other 80% is owned by TFG Asset Management LP. As at 31 December 2020 and 31 December 2019, TFG
Asset Management LP's investments were comprised of the following:
Investment
Equitix
BentallGreenOak
LCM
Polygon
Tetragon Credit Partners
Hawke's Point
Banyan Square Partners
Contingency Capital
Principal place of
business
Ownership
interest
Carrying value
US$ MM
Percentage
of NAV
Europe
Global1
U.S. and UK
U.S. and UK
U.S. and UK
U.S. and UK
U.S. and UK
U.S. and UK
2020
75%
13%
100%
100%2
100%
100%
100%
NCI3
2019
75%
13%
100%
100%
100%
100%
100%
-
2020
386.1
195.7
176.9
57.4
13.7
2.9
0.8
-
2019
301.1
190.8
186.0
48.1
19.7
1.8
-
-
2020
15.6%
7.9%
7.1%
2.3%
0.6%
0.1%
0.0%
-
2019
12.6%
8.0%
7.8%
2.0%
0.8%
0.1%
-
-
1 BentallGreenOak has a presence in North America, Europe and Asia.
2 During 2020, an agreement was made with Mike Humphries, the CIO of PCOF, whereby in order to further align interests,
he would take a controlling stake in PCOF’s manager, Polygon CB LP. PCOF continues to operate on the TFG Asset
Management platform.
3 TFG Asset Management owns a non-controlling interest (“NCI”) as well as providing infrastructure services to this
manager. The CIO of Contingency Capital owns a controlling stake.
Please refer to Note 14 for details of unfunded commitments.
Tetragon Financial Group Holdings LLC and Tetragon Financial Group (Delaware) LLC
Since July 2020, the Fund has held a 100% ownership interest in Tetragon Financial Group Holdings LLC which is a holding
company for a 100% ownership interest in Tetragon Financial Group (Delaware) LLC. Both companies are domiciled in
Delaware. The purpose of Tetragon Financial Group (Delaware) LLC is to hold the collateral and liabilities related to the
revolving credit facility (see Note 10).
The fair value of the assets held by Tetragon Financial Group (Delaware) LLC as at 31 December 2020 is US$ 866.1million.
The outstanding balance on the credit facility as at 31 December 2020 is US$ 100 million. In case of non-payment of
principal or interest, the provider of the credit facility has a lien over the assets held by Tetragon Financial Group (Delaware)
LLC. There is no recourse to the Fund.
Note 6
Financial Risks Review
Financial Risk Review:
This note presents information about the Fund’s objectives, policies and processes for measuring and managing risk.
The Fund has exposure to the following risks from financial instruments:
- Credit risk;
-
- Market risks
Liquidity risk; and
23
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
Risk Management Framework:
The Fund’s portfolio comprises a broad range of assets, including a diversified alternative asset management business,
TFG Asset Management, and covers bank loans, real estate, equities, credit, convertible bonds, private equity and
infrastructure. The Fund’s investment strategy is to seek to identify asset classes that offer excess returns relative to their
investment risk, or ‘intrinsic alpha’.
The Investment Manager analyses the risk/reward, correlation, duration and liquidity characteristics of each potential
capital use to gauge its attractiveness and incremental impact on the Fund. As part of the Fund’s investment strategy, the
Investment Manager may employ hedging strategies and leverage in seeking to provide attractive returns while managing
risk.
The Investment Manager’s risk committee is responsible for the risk management of the Fund and performs active and
regular oversight and risk monitoring.
a) Credit risk
‘Credit risk’ is the risk that a counterparty/issuer to a financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Fund, resulting in a financial loss to the Fund. It arises principally from the
CLO portfolio held, and also from derivative financial assets, cash and cash equivalents, corporate bonds, other
receivables and balances due from brokers. Credit risk is monitored on an ongoing basis by the Investment Manager in
accordance with the policies and procedures in place.
The Fund’s activities may give rise to settlement risk. ‘Settlement risk’ is the risk of loss due to the failure of an entity to
honour its obligations to deliver cash, securities or other assets as contractually agreed.
For the majority of transactions, the Fund mitigates this risk by conducting settlements through a broker to ensure that a
trade is settled only when both parties have fulfilled their contractual settlement obligations. The Fund conducts diligence
on its brokers and financing counterparties before entering into trading or financing relationships. The Fund also actively
monitors and manages settlement risk by diversifying across counterparties and by monitoring developments in the
perceived creditworthiness of financing counterparties.
The carrying value and unfunded commitments of financial assets at fair value through profit or loss, derivatives, other
receivables, amounts due from brokers and cash and cash equivalents, as disclosed in the Consolidated Statement of
Financial Position and Note 14, represents the Fund’s maximum credit exposure, hence, no separate disclosure is
provided.
i. Analysis of Credit Quality
Cash and cash equivalents
The cash and cash equivalents, including reverse sale and repurchase agreements, are held with three (2019: three)
financial institutions with credit ratings between AA- and A+ (S&P) (2019: A- and A). The Investment Manager monitors
these credit ratings and spreads of credit default swaps on a daily basis and actively moves balances between
counterparties when deemed appropriate.
24
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
a) Credit risk (continued)
i. Analysis of Credit Quality (continued)
Amounts due from brokers
Balances due from brokers represent margin accounts, cash collateral for borrowed securities and sales transactions
awaiting settlement.
Credit risk relating to unsettled transactions is considered small due to the short settlement period involved and the credit
quality of the brokers used. As at the reporting date, the balance was concentrated among four brokers (2019: four) with
S&P’s credit ratings between A- and A+ (2019: between A- and A+). Due to the high credit rating of the brokers, the expected
credit losses on these balances are immaterial. The following table details the amounts held by brokers.
BNP Paribas
ING
UBS AG
Bank of America Merrill Lynch
31 Dec 2020
US$ MM
21.1
12.7
10.5
0.1
44.4
31 Dec 2019
US$ MM
18.4
16.9
11.7
0.1
47.1
Corporate bonds
The Fund has investments in debt securities of US$ 17.9 million (2019: US$ 23.7 million) with Moody’s credit rating of Caa2
(2019: Caa2).
CLOs
The Fund's portfolio is partly invested in CLO equity tranches which are subject to potential non-payment risk. The Fund
will be in a first loss position with respect to realised losses on the collateral in each CLO investment.
The Investment Manager assesses the credit risk of the CLOs on a look-through basis to the underlying loans in each CLO
investment. The Investment Manager seeks to provide diversification in terms of underlying assets, geography and CLO
managers. The maximum loss that the Fund can incur on CLOs is limited to the fair value of these CLOs as disclosed below.
The underlying loans are made up of a variety of credit ratings including investment grade and non-investment grade.
The following tables show the concentration of CLOs by region and by manager.
Region
United States (including TCI II & III)
Manager
LCM
Other managers
31 Dec 2020
US$ MM
275.7
275.7
31 Dec 2020
61%
39%
100%
31 Dec 2019
US$ MM
339.9
339.9
31 Dec 2019
68%
32%
100%
25
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
a) Credit risk (continued)
i. Analysis of Credit Quality (continued)
Derivatives
The table below shows an analysis of derivative financial assets and liabilities outstanding at 31 December 2020 and 31
December 2019.
31 December 2020
31 December 2019
ii. Concentration of credit risk
Derivative assets
Fair Value
US$ MM
8.6
11.4
Notional
254.5
176.7
Derivative liabilities
Fair Value
US$ MM
(25.2)
(37.2)
Notional
745.0
663.0
The Fund’s credit risk is concentrated in CLOs, and cash and cash equivalents. The table below shows a breakdown of
credit risk per investment type:
Investment Type
CLOs
Cash and cash equivalents
Equitix loan
Corporate bonds
Amount due from brokers
Other loans and derivatives
Total
31 Dec 2020
37%
46%
-
4%
11%
2%
100%
31 Dec 2019
44%
29%
10%
5%
10%
2%
100%
None of the Fund’s financial assets were considered to be past due or impaired on 31 December 2020 or 31 December
2019.
iii. Collateral and other credit enhancements, and their financial effects
The Fund mitigates the credit risk of derivatives and reverse sale and repurchase agreements through collateral
management including master netting agreements.
Derivative transactions are either transacted on an exchange, or entered into under International Derivative Swaps and
Dealers Association (“ISDA”) master netting agreements. Under ISDA master netting agreements in certain circumstances,
for example, when a credit event such as a default occurs, all outstanding transactions under the agreement are
terminated, the termination value is assessed and only a single net amount is due or payable in settlement of all
transactions. The amount of collateral accepted in respect of derivative assets is shown in Note 6(iv).
The Fund’s reverse sale and repurchase transactions are covered by master agreements with netting terms similar to those
of ISDA master netting agreements.
26
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
a) Credit risk (continued)
iii. Collateral and other credit enhancements, and their financial effects (continued)
The table below shows the amount of reverse sale and repurchase agreements.
Receivables from reverse sale and repurchase agreements
31 Dec 2020
US$ MM
65.0
31 Dec 2019
US$ MM
-
No individual trades are under-collaterised. The fair value of collateral as at 31 December 2020 was $66.4 million (2019:
nil).
Collateral accepted includes investment-grade securities that the Fund is permitted to sell or repledge. The Fund has not
recognised these securities in the Consolidated Statement of Financial Position.
iv. Offsetting financial assets and liabilities
The Fund has not offset any financial assets and financial liabilities in the Consolidated Statement of Financial Position.
The disclosures set out in the tables below include financial assets and financial liabilities that are subject to an
enforceable master netting or similar agreement that covers financial instruments.
31 December 2020
Description
Assets
ING
UBS AG
BNP Paribas
Total
Liabilities
ING
UBS AG
BNP Paribas
Total
Gross
Amount of
Recognised
Assets/
Liabilities
US$ MM
Gross Amounts
Offset in the
Consolidated
Statement of
Financial
Position
US$ MM
Net Amounts
Presented in the
Consolidated
Statement of
Financial Position
US$ MM
Financial
instruments
eligible for
netting
US$ MM
Cash
collateral
held by
brokers
US$ MM
Net
Amount
US$ MM
1.6
0.5
6.5
8.6
18.0
0.1
7.1
25.2
(1.6)
(0.1)
(6.5)
(8.2)
(1.6)
(0.1)
(6.5)
(8.2)
-
-
-
-
(12.7)
-
(0.5)
(13.2)
-
0.4
-
0.4
3.7
-
0.1
3.8
1.6
0.5
6.5
8.6
18.0
0.1
7.1
25.2
-
-
-
-
-
-
-
-
27
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
a) Credit risk (continued)
iv. Offsetting financial assets and liabilities (continued)
31 December 2019
Gross
Amount of
Recognised
Assets/
Liabilities
US$ MM
Gross Amounts
Offset in the
Consolidated
Statement of
Financial
Position
US$ MM
Net Amounts
Presented in the
Consolidated
Statement of
Financial Position
US$ MM
Financial
instruments
eligible for
netting
US$ MM
Cash
collateral
Net
held by
brokers
Amount
US$ MM US$ MM
0.2
0.3
10.9
11.4
21.6
1.3
14.3
37.2
-
-
-
-
-
-
-
-
0.2
0.3
10.9
11.4
21.6
1.3
14.3
37.2
(0.2)
(0.3)
(10.9)
(11.4)
(0.2)
(0.3)
(10.9)
(11.4)
-
-
-
-
(16.9)
(1.0)
(3.4)
(21.3)
-
-
-
-
4.5
-
-
4.5
Description
Assets
ING
UBS AG
BNP Paribas
Total
Liabilities
ING
UBS AG
BNP Paribas
Total
b) Liquidity risk
‘Liquidity risk’ is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or other financial assets.
The Fund’s policy and the Investment Manager’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due.
The Fund’s financial assets include some investments which are considered illiquid. These investments include TFG Asset
Management, CLO equity tranches, real estate funds and vehicles and unlisted equities. The Fund also holds investments
in hedge funds and private equity funds, which are subject to redemption restrictions such as notice periods and, in certain
circumstances, redemption gates. As a result, the Fund may not be able to liquidate these investments readily.
The Fund’s liquidity risk is managed on a daily basis by the Investment Manager in accordance with the policies and
procedures in place. The Fund also has access to a revolving credit facility of US$ 250.0 million (2019: US$ 150.0 million).
Details of the facility are disclosed in Note 10.
The Fund is not exposed to the liquidity risk of meeting shareholder redemptions as the Fund’s capital is in the form of
non-redeemable shares.
28
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
b) Liquidity risk (continued)
The following were the contractual maturities of non-derivative financial liabilities at the reporting date. The amounts are
gross and undiscounted.
31 December 2020
Finance costs on borrowings
Loans and borrowings
Expenses payable
31 December 2019
Finance costs on borrowings
Loans and borrowings
Expenses payable
Within 1
month
US$ MM
0.4
-
2.9
3.3
0.7
-
2.8
3.5
1 – 3
months
US$ MM
0.7
-
66.0
66.7
1.4
-
34.0
35.4
3 months
– 1 year
US$ MM
3.3
-
-
3.3
1 – 5
years
US$ MM
17.6
-
-
17.6
Greater than
5 years
US$ MM
20.0
100.0
-
120.0
5.8
-
-
5.8
34.6
150.0
-
184.6
-
-
-
-
Total
US$ MM
42.0
100.0
68.9
210.9
42.5
150.0
36.8
229.3
The tables below analyse the Fund’s financial derivative instruments that will be settled on a gross basis into relevant
maturity groupings based on the remaining period at the financial year end date to the contractual maturity date.
Within 1
month
US$ MM
46.3
-
Inflows
1 – 3
months
US$ MM
22.7
488.0
1 – 5
3 months
years
– 1 year
US$ MM US$ MM
-
-
543.3
3.3
Within 1
month
US$ MM
(47.3)
-
Outflows
1 – 3
months
US$ MM
(22.9)
(509.3)
3 months
– 1 year
US$ MM
(558.5)
(3.4)
1 – 5
years
US$ MM
-
-
31 Dec 2020
31 Dec 2019
The Fund manages its liquidity risk by holding sufficient cash and cash equivalents and available balance to withdraw on
the revolving credit facility to meet its financial liabilities. Cash and cash equivalents balance as at reporting date and as
percentage of NAV is disclosed in the table below:
Cash and cash equivalents (US$ MM)
Percentage of NAV
c) Market Risk
31 Dec 2020
191.6
7.7%
31 Dec 2019
133.5
5.6%
‘Market risk’ is the risk that changes in market prices, such as interest rates, foreign exchange rates, equity prices and credit
spreads, will affect the Fund’s income or the fair value of its holdings of financial instruments.
The Fund’s strategy for the management of market risk is driven by the Fund’s investment objective of generating
distributable income and capital appreciation.
The Fund employs hedging strategies, from time to time as deemed necessary, to manage its exposure to foreign currency,
interest rate and other price risks. The Fund does not apply hedge accounting.
29
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
c) Market Risk (continued)
i. Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of
financial instruments.
The fair value of certain of the Fund’s investments may be significantly affected by changes in interest rates. The Fund’s
investments in leveraged loans through CLOs generate LIBOR plus returns and are sensitive to interest rate levels and
volatility. Although CLOs are structured to hedge interest rate risk to some degree through the use of matched funding,
there may be some difference between the timing of LIBOR resets on the liabilities and assets of a CLO, which could have
a negative effect on the amount of funds distributed to residual tranche holders. In addition, many obligors have the
ability to choose their loan base from among various terms of LIBOR and the Prime Rate thereby generating an additional
source of potential mismatch. Furthermore, in the event of a significant rising interest rate environment and/or economic
downturn, loan defaults may increase and result in credit losses that may be expected to affect Fund’s cash flow, fair value
of its assets and operating results adversely.
Change in interest rates may also affect the value of the Fund’s investment in PCOF. Generally, the value of convertible
bonds and other fixed rate instruments will change inversely with changes in interest rates. The investment managers of
Polygon manage interest rate risk by, among other things, entering into interest rate swaps and other derivatives as and
when required.
The table below shows the sensitivity analysis for interest rates movement on the investment portfolio held by the Fund.
31 December 2020
U.S. CLOs
TCI II
TCI III
PCOF
31 December 2019
U.S. CLOs
TCI II
TCI III
PCOF
Effects of +100bps
change in interest rate
on net assets
US$ MM
(20.0)
(4.5)
(5.6)
(3.5)
(33.6)
Effects of -100bps
change in interest rate
on net assets
US$ MM
6.1
(3.8)
1.3
3.6
7.2
10.5
3.2
4.6
(1.5)
16.8
14.7
2.8
3.0
1.6
22.1
Fair Value
US$ MM
151.3
48.4
76.0
116.7
392.4
210.5
59.0
70.4
81.7
421.6
30
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
c) Market Risk (continued)
ii. Currency Risk
The Fund invests in financial instruments and enters into transactions that are denominated in currencies other than its
functional currency, primarily in Euro (“EUR”), Sterling (“GBP”) and Norwegian Krone (“NOK”).
Consequently, the Fund is exposed to risk that the exchange rate of its currency relative to other foreign currencies may
change in a manner that has an adverse effect on the fair value or future cash flows of the Fund’s financial assets or
financial liabilities denominated in currencies other than USD.
The Fund typically hedges against its currency risk, mainly by employing forward foreign exchange contracts. The currency
exposure is monitored and managed on a daily basis.
Exposure:
At the reporting date, the carrying amount of the Fund’s net financial assets and financial liabilities held in individual
foreign currencies, expressed in USD and as a percentage of its net assets, were as follows.
The sensitivity analysis sets out the effect on the net assets and profit for the year of reasonably possible weakening of
USD against EUR, GBP, NOK and JPY by 5%. The analysis assumes that all other variables, in particular interest rates,
remain constant.
31 December 2020
EUR
GBP
NOK
31 December 2019
EUR
GBP
NOK
Net Monetary and
Non-Monetary
Assets and
Liabilities
US$ MM
53.6
548.9
18.1
620.6
Forward foreign
exchange hedging
US$ MM
(54.9)
(422.5)
(16.8)
(494.2)
Net exposure
US$ MM
(1.3)
126.4*
1.3
126.4
83.0
419.6
21.4
524.0
(84.3)
(369.2)
(21.3)
(474.8)
(1.3)
50.4*
0.1
49.2
Effect of 5% on
exchange rate
US$ MM
(0.1)
6.3
0.1
6.3
(0.1)
2.5
-
2.4
*These exposures have arisen primarily due to a delay in timing between determining the year end value of Level 3
investments and executing the relevant currency hedge.
A strengthening of the USD against the above currencies would have resulted in an equal but opposite effect to the
amounts shown above.
31
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 6
Financial Risks Review (continued)
c) Market Risk (continued)
iii. Other Price Risk
‘Other price risk’ is the risk that the fair value of the financial instrument will fluctuate as a result of changes in market
prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual
investment or its issuer or by factors affecting all instruments traded in the market.
The Investment Manager manages the Fund’s price risk and monitors its overall market positions on a regular basis in
accordance with Fund’s investment objectives and policies.
The following table sets out the concentration of the investment assets and liabilities, including derivatives held by the
Fund as at the reporting date.
Asset Class
Investment funds and vehicles
TFG Asset Management
CLO equity tranches
Unlisted stock
Listed stock
Corporate bonds
Contracts for difference
Forward foreign exchange contracts and options
% of net assets
as at
31 Dec 2020
43.3%
33.7%
6.1%
7.1%
6.9%
0.7%
0.0%
(0.7)%
% of net assets
as at
31 Dec 2019
42.2%
31.3%
8.8%
11.7%
6.3%
1.0%
(0.2)%
(0.9)%
The Investment Manager reviews the above percentages on a monthly basis against the limits which are set and reviewed
periodically. The table below shows the impact of a positive 1% movement in the price of these investments on the NAV
and profits of the Fund. A negative 1% movement will have an equal and opposite effect.
Asset Class
Investment funds and vehicles
TFG Asset Management
CLO equity tranches
Unlisted stock
Listed stock
Corporate bonds
Contracts for difference
Forward foreign exchange contracts and options
31 Dec 2020
US$ MM
10.7
8.3
1.5
1.8
1.7
0.2
-
(0.2)
31 Dec 2019
US$ MM
10.1
7.5
2.1
2.8
1.5
0.2
-
(0.2)
32
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 7
Other Receivables and Prepayments
Other receivables
Prepayments
Interest receivables
Other receivables and interest receivables are expected to be settled within 12 months.
Note 8
Cash and Cash Equivalents
Cash and cash equivalents
Note 9
Other Payables and Accrued Expenses
Accrued expenses
All other payables and accrued expenses are due within one year.
Note 10
Credit Facility
31 Dec 2020
US$ MM
0.3
2.9
0.1
3.3
31 Dec 2019
US$ MM
0.6
0.2
0.2
1.0
31 Dec 2020
US$ MM
191.6
191.6
31 Dec 2019
US$ MM
133.5
133.5
31 Dec 2020
US$ MM
68.9
68.9
31 Dec 2019
US$ MM
36.8
36.8
In July 2020, the Fund obtained a 10-year US$ 250.0 million revolving credit facility, replacing its existing US$ 150.0 million
facility.
The facility is subject to a non-usage fee of 0.5% (2019: 1%) which is applied to the undrawn notional amount and a
servicing fee of 0.015% (2019: nil) of the total size of the facility. Any drawn portion will incur interest at a rate of 3M U.S.
LIBOR plus a spread of 3.25% (2019: 1M U.S. LIBOR plus a spread of 4%). For the year ended 31 December 2020, the total
finance cost expensed and paid for the facility was US$ 6.2 million (2019: US$ 3.5 million). The Fund paid US$ 2.5 million
in fee directly associated with the facility. This fee is included in Prepayments balance and is amortised over the life of the
facility. This expense, US$ 0.1 million (2019: nil), is included in the finance costs.
During 2020, US$ 150.0 million was paid in connection with terminating the Fund’s previous credit facility and US$ 100.0
million was drawn from the new revolving credit facility. As at 31 December 2020, the drawn balance of the revolving credit
facility was US$ 100.0 million (2019: US$ 150.0 million).
Note 11
Incentive Fee
The Fund pays the Investment Manager an incentive fee for each calculation period (a period of three months ending on
31 March, 30 June, 30 September and 31 December in each year or as otherwise determined by the Directors) (the
“Calculation Period”) equal to 25% of the increase in the NAV of the Fund during the Calculation Period (before deduction
of any dividend paid or the amount of any redemptions or repurchases of the shares (or other relevant capital adjustments)
during such Calculation Period) above the Reference NAV (as defined below) plus the Hurdle (as defined below) for the
Calculation Period.
If the Hurdle is not met in any Calculation Period (and no incentive fee is paid), the shortfall will not carry forward to any
subsequent Calculation Period.
33
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 11
Incentive Fee (continued)
The Hurdle for any Calculation Period will equal the Reference NAV (as defined below) multiplied by the Hurdle Rate (as
defined below). The Hurdle Rate for any Calculation Period equals 3-month USD LIBOR determined as of 11:00 a.m.
London time on the first London business day of the then current Calculation Period, plus the Hurdle Spread of 2.647858%
in each case multiplied by the actual number of days in the Calculation Period divided by 365. The Hurdle Rate for Q1 2021
is 2.885108%.
The ‘‘Reference NAV’’ is the greater of (i) the NAV at the end of the Calculation Period immediately preceding the current
Calculation Period and (ii) the NAV as of the end of the Calculation Period immediately preceding the Calculation Period
referred to in clause (i).
For the purpose of determining the Reference NAV at the end of a Calculation Period, the NAV shall be adjusted by the
amount of accrued dividends and the amounts of any redemptions or repurchase of the shares (or other relevant capital
adjustments) and incentive fees to be paid with respect to that Calculation Period.
The incentive fee in respect of each Calculation Period is calculated by reference to the NAV before deduction of any
accrued incentive fee. If the Investment Management Agreement is terminated other than at the end of a Calculation
Period, the date of termination will be deemed to be the end of the Calculation Period. The incentive fee is normally
payable in arrears after the end of the Calculation Period.
The incentive fee for the year ended 31 December 2020 was US$ 72.7 million (2019: US$ 63.4 million). As at 31 December
2020, US$ 66.0 million was outstanding (2019: US$ 34.0 million).
Note 12
Share Capital
Authorised
The Fund has an authorised share capital of US$ 1.0 million divided into 10 voting shares, having a par value of US$ 0.001
each and 999,999,990 non-voting shares (which are the “shares” referred to herein), having a par value of US$ 0.001 each.
Voting Shares
All of the Fund’s voting shares are issued at par and are beneficially owned by the Voting Shareholder, a non-U.S. affiliate of
the Investment Manager.
The voting shares will be the only shares entitled to vote for the election of Directors and on all other matters put to a vote of
shareholders, subject to the limited rights of the shares described below. The voting shares are not entitled to receive
dividends.
Non-Voting Shares
The shares carry a right to any dividends or other distributions declared by the Fund. The shares are not entitled to vote on
any matter other than limited voting rights in respect of variation of their own class rights.
Dividend Rights
Dividends may be paid to the holders of shares at the sole and absolute discretion of the Directors. The voting shares carry
no rights to dividends.
34
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 12
Share Capital (continued)
Share Transactions
Shares in issue at 1 January 2019
Stock dividends
Issued through release of tranche of escrow shares
Shares transferred to escrow
Shares purchased during the year
Shares in issue at 31 December 2019
Stock dividends
Issued through release of tranche of escrow shares
Shares purchased during the year
Shares in issue at 31 December 2020
Voting
Shares
No.
10.0
-
-
-
-
10.0
-
-
-
10.0
Non-Voting
Shares*
No. MM
92.4
1.6
2.7
-
(4.5)
92.2
1.5
1.7
(6.6)
88.8
Treasury
Shares
No. MM
38.7
(2.2)
-
(5.6)
4.5
35.4
(2.0)
-
6.6
40.0
Shares held
in Escrow
No. MM
8.6
0.6
(2.7)
5.6
12.1
0.5
(1.7)
-
10.9
*Non-voting shares do not include the treasury shares or the shares held in escrow.
Optional Stock Dividend
The Fund has an Optional Stock Dividend Plan which offers investors an opportunity to elect to receive any declared
dividend in the form of dividend shares at a reference price determined by calculating the five-day weighted average price
post ex-dividend date.
During the year, a total dividend of US$ 44.8 million (2019: US$ 65.2 million) was declared, of which US$ 30.7 million was
paid out as a cash dividend (2019: US$ 44.8 million), and the remaining US$ 14.1 million (2019: US$ 20.4 million) was
reinvested under the Optional Stock Dividend Plan.
Treasury Shares and Share Repurchases
Treasury shares consist of shares that have been bought-back by the Fund from its investors through various tender offers
and plans. Whilst they are held by the Fund, the shares are neither eligible to receive dividends nor are they included in
the shares outstanding in the Consolidated Statement of Financial Position.
During 2020, under the terms of "modified Dutch auctions”, the Fund accepted for purchase approximately 5.5 million
(2019: 4.3 million) non-voting shares at an aggregate cost of US$ 50.2 million (2019: US$ 50.3 million), including applicable
fees and expenses of US$ 0.2 million (2019: US$ 0.3 million).
In January 2020, the Fund purchased 691,921 of its own shares for US$ 8.5 million from TFG Asset Management LP using
the then-current share price of US$ 12.25. The Fund also purchased 287,153 of its own shares for US$ 3.5 million from
Tetragon Financial Management LP using the then-current share price of US$ 12.25.
In October 2020, the Fund purchased 142,240 of its own shares (2019: 145,496) for US$ 1.2 million (2019: US$ 1.8 million)
from TFG Asset Management LP using the then-current share price of US$ 8.74 (2019: US$ 12.35).
35
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 12
Share Capital (continued)
Escrow Shares
Equity-based awards
In the fourth quarter of 2015, the Fund bought back approximately 5.6 million of its non-voting shares in a tender offer for US$
57.4 million (including fees and expenses) to hedge against (or otherwise offset the future impact of) grants of shares under
an equity-based long-term incentive plan and other equity awards by TFG Asset Management for certain of its senior
employees (excluding the principals of the Investment Manager).
Awards under the long-term incentive plan, along with other equity-based awards, are typically spread over multiple vesting
dates up to 2024 which may vary for each employee and are subject to forfeiture provisions. The arrangements may also
include additional periods, beyond the vesting dates, during which employees gain exposure to the performance of the
Fund’s shares, but the shares are not issued to the employees. Such periods may range from one to five years beyond the
vesting dates. The shares underlying these equity-based incentive programs typically will be held in escrow until they vest
and will be eligible to receive shares under the Optional Stock Dividend Plan.
Under IFRS 2, TFG Asset Management is considered to be the settling entity. As the Fund has contributed these shares, the
Fund recorded the imputed value of the shares contributed to escrow as credit to share-based compensation reserve in the
year in which the shares were acquired for this purpose, with a corresponding debit to the cost of investment in TFG Asset
Management.
In July 2019, TFG Asset Management entered into an employment agreement with Reade Griffith, Director of the Fund,
that covers his services to TFG Asset Management for the period through to 30 June 2024. Mr. Griffith is currently the Chief
Investment Officer of TFG Asset Management as well as the Chief Investment Officer of its Polygon event-driven European
equity strategies (in addition to other roles). Under the terms of this agreement, Mr. Griffith received US$ 9.5 million in July
2019 and US$ 3.75 million in July 2020 in cash and will receive the following:
•
•
0.3 million Tetragon non-voting shares in June 2024;
2.1 million Tetragon non-voting shares in June 2024; and
• between zero and an additional 3.15 million Tetragon non-voting shares – with the number of shares based on
agreed-upon investment performance criteria – vesting in years 5, 6 and 7.
All of the Tetragon non-voting shares, as well as the July 2020 payment, covered by Mr. Griffith’s employment agreement
are subject to forfeiture conditions. The shares are held in escrow for release upon vesting and are eligible to participate
in the optional stock dividend program, and as a result of subsequent dividends, further shares will be added to the
escrow.
As the Fund has the obligation to settle the shares, this award is treated as equity-settled. The fair value of the share award
is determined using the share price at grant date of US$ 12.50 (ticker symbol: TFG.NA). The total expense is determined
by multiplying the share price at grant date and the estimated number of shares that will vest. The expense is recognised
in Consolidated Statement of Comprehensive Income on a straight-line basis over the vesting period. A corresponding
entry is made to the share-based compensation reserve. The following table shows the expense for each tranche up to
the year ending 31 December 2024.
36
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 12
Share Capital (continued)
Escrow Shares (continued)
Equity-based awards (continued)
Shares estimated
to vest (MM)
0.3
2.1
1.575*
Vesting date
30 Jun 2021
30 Jun 2024
30 Jun 2024*
2019
US$ MM
0.9
2.6
2.0
5.5
2020
US$ MM
1.9
5.3
3.9
11.1
2021
US$ MM
0.9
5.3
3.9
10.1
2022
US$ MM
-
5.3
3.9
9.2
2023
US$ MM
-
5.3
3.9
9.2
2024
US$ MM
-
2.6
2.0
4.6
*As at 31 December 2020, it is estimated that 1.575 million (2019: 1.575 million) of the maximum 3.15 million shares will
vest according to the agreed-upon investment performance criteria at the end of year 5 with no shares vesting in years 6
and 7. This estimate will be revised at each reporting date and as a result, future expense may be different from the expense
presented in the table above.
As at 31 December 2020, 10.9 million (2019: 12.1 million) shares related to TFG Asset Management’s employee reward
schemes are held in escrow. During the year, 1.7 million shares (2019: 0.3 million) were released from escrow including
stock dividends awarded on the original shares. US$ 13.9 million (2019: US$ 2.3 million) was transferred from share-based
compensation reserve to other equity in relation to the original shares. An amount of US$ 4.2 million (2019: US$ 0.7 million)
was released against retained earnings, based on the stock reference price at each applicable dividend date. These shares
are eligible for stock dividends and during the year, 0.5 million (2019: 0.5 million) shares were allocated to this account.
On 1 January 2020, the Independent Directors were awarded shares in Tetragon which vest on 31 December 2022 and are
subject to forfeiture provisions. The fair value of the aggregate awards, as determined by the share price on grant date of US$
12.25 per share, is US$ 0.9 million. The expense is recognised on a straight-line basis in Consolidated Statement of
Comprehensive Income over the vesting period starting from 1 January 2020. A corresponding entry is made to the share-
based compensation reserve.
Share-Based Compensation Reserve
The balance, US$ 54.6 million (2019: US$ 57.1 million) in share-based compensation reserve is related to Equity-based
awards as described above.
Capital Management
The Fund’s capital is represented by the ordinary share capital, other equity, and accumulated retained earnings, as
disclosed in the Consolidated Statement of Financial Position. The Fund’s capital is managed in accordance with its
investment objective. The Fund is not subject to externally imposed capital requirements and has no legal restrictions on
the issue, repurchase or resale of its shares.
37
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 13
Dividends
Quarter ended 31 December 2018 of US$ 0.1825 per share
Quarter ended 31 March 2019 of US$ 0.1825 per share
Quarter ended 30 June 2019 of US$ 0.1850 per share
Quarter ended 30 September 2019 of US$ 0.1850 per share
Quarter ended 31 December 2019 of US$ 0.1875 per share
Quarter ended 31 March 2020 of US$ 0.1000 per share
Quarter ended 30 June 2020 of US$ 0.1000 per share
Quarter ended 30 September 2020 of US$ 0.1000 per share
31 Dec 2020
US$ MM
-
-
-
-
17.4
9.3
9.0
9.1
44.8
31 Dec 2019
US$ MM
16.1
16.1
16.4
16.6
-
-
-
-
65.2
The fourth quarter dividend of US$ 0.1000 per share was approved by the Directors on 24 February 2021 and has not been
included as a liability in these financial statements.
Note 14
Contingencies and Commitments
The Fund has the following unfunded commitments:
BentallGreenOak investment vehicles
Private equity funds
Contingency Capital loan
TCI III
Note 15
Related-Party Transactions
31 Dec 2020
US$ MM
62.9
29.7
12.5
-
105.1
31 Dec 2019
US$ MM
54.9
31.1
-
14.1
100.1
Investment Manager
The Investment Manager is entitled to receive management fees equal to 1.5% per annum of the NAV of the Fund payable
monthly in advance prior to the deduction of any accrued incentive fee. An incentive fee may be paid to the Investment
Manager as disclosed in Note 11. During the year ended 31 December 2020, the Fund purchased its own shares from the
Investment Manager. See Note 12 for details.
Voting Shareholder
The Voting Shareholder is an affiliate of the Investment Manager and holds all of the voting shares. As a result of its
ownership and the degree of control that it exercises, the Voting Shareholder will be able to control the appointment and
removal of the Fund’s Directors (subject to applicable law). Affiliates of the Voting Shareholder also control the Investment
Manager and, accordingly, control the Fund’s business and affairs.
Directors
The remuneration for Directors shall be determined by resolution of the Voting Shareholder. Each of the Directors’ annual
fee is US$ 125,000 (2019: US$ 125,000) as compensation for service as Directors of the Fund. As at 31 December 2020, US$
93,750 (2019: US$ 93,750) was outstanding in relation to Directors' remuneration. The Directors have the option to elect to
receive shares in the Fund instead of the quarterly fee. With respect to the year ended 31 December 2020, David O’Leary
elected to receive shares in lieu of half of his compensation and received 6,626 shares (2019: 3,752).
38
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 15
Related-Party Transactions (continued)
Directors (continued)
On 1 January 2020, the Independent Directors were awarded shares in Tetragon which vest on 31 December 2022 and are
subject to forfeiture provisions. The fair value of the award, as determined by the share price on grant date of US$ 12.25 per
share, is US$ 300,000 per Independent Director.
Reade Griffith and Paddy Dear have waived their entitlement to a fee in respect of their services as Directors. The Directors
are entitled to be repaid by the Fund all travel, hotel and other expenses reasonably incurred by them in the discharge of
their duties. None of the Directors have a contract with the Fund providing for benefits upon termination of employment.
Reade Griffith, Paddy Dear and David O’Leary – all Directors of the Fund during the year - maintained (directly or indirectly)
interests in shares of the Fund as at 31 December 2020, with interests of 14,505,324, 4,976,960 and 10,378 shares,
respectively (2019: 13,810,679, 4,750,294 and 3,752 shares respectively).
Mr. Griffith has an employment agreement with TFG Asset Management as described in Note 12.
Subsidiaries
The Fund has entered into share-based employee reward schemes with its subsidiary, TFG Asset Management LP. See Note
12 for details.
Polygon Global Partners LLP and Polygon Global Partners LP (together the “Service Providers”) provide operational, financial
control, trading, marketing and investor relations, legal, compliance, administrative, payroll and employee benefits and other
services to the Investment Manager in exchange for fees payable by the Investment Manager to the Service Providers. One of
these entities, the U.K. Investment Manager, which is authorised and regulated by the United Kingdom Financial Conduct
Authority, also provides services to the Investment Manager relating to the dealing in and management of investments,
arranging of deals and advising on investments. In addition, the Service Providers also provided infrastructure services and
administrative services to Polygon Private Investment Partners LP (“PPIP LP”), an affiliate of the Voting Shareholder, pursuant
to applicable separate services agreements. PPIP LP was liquidated in December 2020.
TFG Asset Management, through the Service Providers, has implemented a cost-allocation methodology with the objective
of allocating service-related costs, including to the Investment Manager. TFG Asset Management then charges fees for the
services allocated on a cost-recovery basis that is designed to achieve full recovery of the allocated costs. In the year, the
amount recharged to the Investment Manager was US$ 18.1 million (2019: US$ 19.4 million) and PPIP LP US$ 0.02 million
(2019: US$ 0.2 million). As at 31 December 2020, the outstanding balance due from the Investment Manager was US$ 2.5
million (2019: US$ 2.7 million) and nil from PPIP LP (2019: US$ 0.03 million). During the year ended 31 December 2020, the
Fund purchased its own shares from TFG Asset Management LP. See Note 12 for details.
Reade Griffith and Paddy Dear continue to hold membership interests in Polygon Global Partners LLP (the “U.K. Investment
Manager”) which collectively entitle them to exercise all of the voting rights in respect of the U.K. Investment Manager.
As part of the acquisition of TFG Asset Management in 2012, Mr. Griffith and Mr. Dear have agreed that they will (i) exercise
their voting rights in a manner that is consistent with the best interests of the Fund and (ii) upon the request of the Fund,
for nominal consideration, sell, transfer, and deliver their membership interests in the U.K. Investment Manager to the
Fund.
39
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 15
Related-Party Transactions (continued)
Subsidiaries (continued)
Reade Griffith and Paddy Dear also hold membership interests in Pace Cayman Holdco Limited (“Pace Holdco”), an entity
through which the Fund ultimately owns its equity stake in Equitix. These membership interests collectively entitle them to
exercise all of the voting rights in respect of Pace Holdco. Mr. Griffith and Mr. Dear have agreed that they will (i) exercise their
voting rights in a manner that is consistent with the best interests of the Fund and (ii) upon the request of the Fund, for
nominal consideration, sell, transfer, and deliver their membership interests in the Pace Holdco to the Fund.
Investments in internally managed funds
The Fund holds various investments in funds managed within TFG Asset Management business. Please see Note 5 for details
of these investments and Note 14 for the unfunded commitments related to these funds.
Note 16
Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings for the purposes of basic earnings per share being net profit attributable to
shareholders for the year
Weighted average number of shares for the purposes of basic earnings per share
Effect of dilutive potential shares:
Share-based employee compensation – equity-based awards
Deferred incentive fee shares
Weighted average number of shares for the purposes of diluted earnings per share
Year ended
31 Dec 2020
US$ MM
Year ended
31 Dec 2019
US$ MM
171.1
91.7
10.9
-
102.6
288.0
89.5
9.3
2.0
100.8
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding assuming
conversion of all dilutive potential shares. Share-based employee compensation and deferred incentive fee shares are
dilutive potential shares.
In respect of share-based employee compensation – equity-based awards, it is assumed that all of the time-based shares
currently held in escrow will be released, thereby increasing the weighted average number of shares. The number of
dilutive performance-based shares is based on the number of shares that would be issuable if the end of the period were
the end of the performance period.
40
TETRAGON FINANCIAL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
As at 31 December 2020
Note 17
Segment information
IFRS 8 Operating Segments requires a ‘management approach’, under which segment information is presented on the
same basis as that used for internal reporting purposes.
For management purposes, the Fund is organised into one main operating segment – its investment portfolio - which
invests, either directly or via fund vehicles, in a range of alternative asset classes including equity securities, debt
instruments, real estate, infrastructure, loans and related derivatives. The Fund’s investment activities are all determined
by the Investment Manager in accordance with the Fund’s investment objective.
All of the Fund’s activities are interrelated, and each activity is dependent on the others.
Accordingly, all significant operating decisions are based upon analysis of the Fund as one segment. The financial results
from this segment are equivalent to the financial statements of the Fund as a whole.
The shares in issue are in US Dollars. The Fund's investment geographical exposure is as follows:
Region
North America
Europe
Asia Pacific
Latin America
Note 18
Subsequent Events
31 Dec 2020
42%
48%
8%
2%
31 Dec 2019
46%
45%
7%
2%
In February 2021, TFG Asset Management made commitments to make awards of 3.05 million shares to certain senior
employees (excluding the Principals of the Investment Manager) under an equity-based long-term incentive plan. The vesting
and delivery are spread over multiple vesting and settlement dates out to 2032. It is expected that shares repurchased in 2020
will be transferred and held in escrow to facilitate the future settlement of these awards. The shares held in escrow will be
eligible to receive shares under the Optional Stock Dividend Plan.
The Directors have evaluated the period up to 24 February 2021, which is the date that the financial statements were
approved. The Directors have concluded that there are no material events that require disclosure or adjustment to the
financial statement other than the one mentioned above.
Note 19
Approval of Financial Statements
The Directors approved and authorised for issue the financial statements on 24 February 2021.
41