Diversified.
Alternative.
Investors.
2023 Annual ReportTetragon Financial Group Contents
4 2023 Snapshot
7 Letter to our shareholders
14 Manager’s review
24 Investment review
42 2023 Financial review
46 Governance
66 Other information
96 Audited financial statements
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Tetragon Financial Group
Annual Report 2023
Diversified.
Alternative.
Investors.
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Searching for intrinsic alpha – from
returns in excess to risks taken.
At Tetragon, we seek to provide stable
returns to investors across economic
cycles and market conditions.
Tetragon is a Guernsey closed-ended investment
group. Its non-voting shares are listed on
Euronext in Amsterdam and also traded 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 and who have experience in investing in financial markets and
collective investment undertakings, who 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.
Euronext in Amsterdam is a regulated market of Euronext Amsterdam N.V., Tetragon’s “Home Member State” for the
purposes of the EU Transparency Directive (Directive 2004/109/EC) is the Netherlands.
Tetragon Financial Group
Annual Report 2023
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2023 Snapshot
Distributable income.
Capital appreciation.
Net asset value(1)
Ownership(2)
$2.8Bn
31 December 2023
39.2%
Principal and Employee
Ownership at 31 December 2023
NAV per share total return(3)
6.4%
2023 Full Year
8.8%
5 Years Annualised
9.6%
10 Years Annualised
10.5%
Since IPO Annualised
429%
Since IPO
Investment returns/return on equity(4)
5.5%
10-15%
2023 Return on Equity
RoE Target
11.3%
Annual Average
Since IPO
Dividends
$0.11
Q4 2023 Dividend
$0.44
2023 Dividends
4.5%
Dividend Yield(5)
(9.4%)
Dividend 5-Year CAGR (6)
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Figure 1
Tetragon Financial Group – Performance summary
Net Assets
Fully Diluted NAV Per Share
Share Price(1)
Dividend (past 12 months)
Dividend Yield
Ongoing Charges(2)
Principal and Employee Ownership
Investment Returns/Return on Equity(3)
NAV Per Share Total Return(4)
Share Price Total Return(5)
Tetragon Hurdle: SOFR +2.75%(6)
MSCI ACWI Index Total Return(7)
FTSE All-Share Index Total Return(7)
Figure 2
Change
$66.9m
$1.44
$0.26
$0.00
31 Dec 2023
31 Dec 2022
$2,825.4m
$2,758.5m
$31.13
$9.88
$0.44
4.5%
1.75%
39.2%
2023
5.5%
6.4%
7.3%
8.2%
22.8%
7.7%
$29.69
$9.62
$0.44
4.6%
1.74%
37.3%
2022
(0.8%)
1.0%
18.5%
4.5%
(18.0%)
0.2%
Tetragon’s NAV per Share Total Return and Share Price Since IPO to 31 December 2023
450%
350%
250%
150%
50%
(50%)
(150%)
429%
184%
169%
130%
99%
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TFG NAV per share (TR)
TFG Share Price (TR)
MSCI ACWI (TR)
TFG SOFR-based performance hurdle
FTSE All-Share Index (TR)
Tetragon Financial Group
Annual Report 2023
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Notes
Page 4
Page 5
(1) The value of Tetragon’s assets, less any liabilities, as at
(1) Based on TFG. NA.
31 December 2023. Source: Tetragon.
(2) Shareholdings at 31 December 2023 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 page 92 for more details of these
arrangements. Source:Tetragon.
(3) NAV Per Share Total Return to 31 December 2023, for the past
year, the past five years, the past ten years, and since Tetragon’s
initial public offering in April 2007. NAV Per Share 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 Per Share 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 Figure 12 for further details.
(4) Average RoE is calculated from Tetragon’s IPO in 2007. Tetragon
seeks to deliver 10-15% RoE per annum to shareholders. Over
longer time horizons, Tetragon’s returns will most likely reflect
sensitivity to the underlying short-term risk-free rate regime.
Therefore after periods of transition to high-SOFR environments,
Tetragon should achieve higher sustainable returns; after periods
of transition to low-SOFR environments, Tetragon should achieve
lower sustainable returns.
(5) The dividend yield represents the past four quarterly dividends
divided by the TFG NA share price at 31 December 2023. The
latest declared dividend is included in the calculation.
(6) The five-year Compound Annual Growth Rate (CAGR) figure is
at 31 December 2023. The latest declared dividend is included
in the calculation.
(2) Annual calculation as at 31 December 2023. 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, including the annual management fee of 1.5%.
(3) Please see Note 4 for page 4.
(4) Please see Note 3 for page 4.
(5) 2023 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 SOFR based
hurdle rate. In the period from IPO to June 2008 this was 8%; July
2008 to June 2023, this was three-month USD LIBOR rate on the
first day of each calendar quarter, plus a spread of 2.647858%;
thereafter, the hurdle rate has been determined using the three-
month term SOFR rate on the first day of each calendar quarter,
as sourced from Bloomberg, plus a spread of 2.747858%.
(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 Index” refers to the MSCI
All Country World Index (USD) which captures large- and mid-cap
representation across 23 developed markets and 24 emerging
markets countries. With 2,921 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 UK 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.
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Letter to our shareholders
Long-term capital.
Creating opportunities.
Fellow shareholders:
As diversified, alternative investors, our investment objective
continues to be to generate distributable income and capital
appreciation. We do this by seeking to generate stable
returns across economic cycles and market conditions.
2023 was the first full calendar year with no meaningful
Covid restrictions, and we felt the collaboration and culture
benefits of a return to working together in our offices.
However, despite a return to a more “normal” way of living
and working across the globe, markets continued to be
plagued by uncertainty. Both the priced-in optimism and
despair we talked about in our 2022 letter came to pass.
Given that context, defensive capital preservation was a
priority, as this is what allows us to deliver value based
on the long-term compounding of returns. As ever, we
were supported by our diversified approach, focusing our
attention on identifying alternative investments that are more
likely to have low correlation to markets and to each other.
Tetragon Financial Group
Annual Report 2023
7
Letter to shareholders
Roopa Thakrar
Finance, London
Performance Summary
Tetragon delivered an investment Return on Equity
(RoE) of 5.5%, a NAV per share total return of 6.4% and
a share price total return of 7.3% in 2023. Tetragon also
declared 44.0 cents of dividends per share for the year
– a yield of 4.5%. Further detail relating to Tetragon’s
Key Performance Metrics can be found on page 19.
2023 Market Context
Early 2023 saw a continuation of 2022’s uncertainty,
driven by persistent inflation and the most aggressive
central bank rate hike cycle since the early 1980s.
Expectations of impending recessions in the
United States, Europe and the United Kingdom
peaked in the first quarter, with concerns seemingly
validated as a solvency crisis gripped U.S. regional
banks. This led to the failure of several banks, a
liquidity intervention by the U.S. Federal Reserve
and rapidly tightening lending standards.
U.S. markets shook off these concerns as excitement
around artificial intelligence applications drove a
narrow but impactful rally in the “Magnificent 7”
mega-cap tech companies. Optimism was further
fuelled by clear evidence of slowing inflation, with
the Fed breaking a sequence of 10 consecutive rate
increases by “skipping” a hike in June and pausing
again after a hike in July. Resilient employment data
and remarkably strong third quarter GDP growth
estimates buoyed market hopes that an emerging
“soft landing” narrative would justify a Fed pivot
away from further tightening. By the end of 2023,
the enthusiasm focused on AI beneficiaries had
transformed into a cross-asset class rally with the S&P
500 rising 26.3%,(1) the “Magnificent 7” stocks up an
astounding 111.6% on average, the Euro STOXX 600
up 15.8%(1) and the MSCI ACWI Local Index rising
22.2%.(2) Credit indices rallied from double digit losses
in 2022 with U.S. high yield indices returning 13.4%(1)
and investment grade indices returning 5.5%.(1)
In 2023, Tetragon underperformed relative to the
MSCI ACWI Local Index, which represents the
performance of the MSCI ACWI Index if there
were no foreign exchange fluctuations (similar to a
portfolio with currency hedges), and with dividends
reinvested, gross of any taxes.(3) Nonetheless,
over the time that Tetragon has been trading as a
publicly-listed company, our NAV per share total
return of 429% has demonstrated our ability to
compound investment growth and return value to
shareholders; this compares to the MSCI ACWI
Local Index returning 209% over the same period.
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Annual Report 2023
Tetragon portfolio performance notes
Return on Equity. Tetragon’s gross RoE was
+7.6% in 2023 (+5.5% net), as compared to
+22.2% for the MSCI ACWI Local Index. Over
the last five years, Tetragon’s annualised gross
RoE was +12.6% (+8.6% net) compared to
+12.8% for the MSCI ACWI Local Index.(1)
Volatility. The volatility of Tetragon’s gross RoE
was 5.2% for 2023 (or 4.6% on the basis of its
net RoE) and 10.1% for the last five years (or
8.1% on the basis of its net RoE). The volatility
of the MSCI ACWI Local Index was 12.8% for
2023 and 16.3% for the last five years.(1)
Sharpe Ratio. Over the last five years, Tetragon’s
Sharpe Ratio was 1.06 on a gross basis (and 0.84
on a net basis). The Sharpe Ratio for the MSCI ACWI
Local Index was 0.66 over the same time period.(1)
(1) Source: Bloomberg.
Net asset value(1)
$2.8Bn
31 December 2023
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Ownership(2)
39.2%
Principal and Employee
Ownership at 31 December 2023
Our NAV per share total return
has demonstrated our ability to
compound investment growth and
return value to shareholders.
Tetragon Financial Group
Annual Report 2023
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Letter to shareholders
2023 Performance Highlights
In 2023, six of Tetragon’s seven asset classes
generated gains on the year. The main performance
drivers in Tetragon’s portfolio were Tetragon’s
investments in public equity (“other equities”),
private equity and venture capital investments
and investments in bank loans via CLOs. The only
asset class that generated a loss was real estate.
Of note, Tetragon was able to use its balance sheet
of permanent capital and revolver liquidity to drive
significant performance from its primarily public
equities portfolio which is focused on software and
biotech investments. These investments rallied
strongly in the fourth quarter as sentiment shifted
in the markets, generating gains of +$124.1 million
during 2023. Technology-driven positions contributed
approximately two-thirds of this, driven by companies
well-positioned to benefit from AI infrastructure
demand or to incorporate emergent AI applications
into their business models. Biotechnology contributed
most of the remaining gains, driven by a U.K. biotech
company reporting encouraging developments for
its potential cancer and autoimmune therapies.
Another significant development in the balance sheet
investments was our position in Ripple Labs. In July
2023, a U.S. judge ruled that Ripple Labs did not
violate federal securities law by selling its XRP token
on public exchanges. This ruling was subsequently
upheld in October when the court dismissed the
SEC’s request for an interlocutory appeal. Crypto
markets were further buoyed by expectations
that the SEC was preparing to approve the first
spot Bitcoin ETFs, which contributed to a broad
fourth quarter rally in tokens and related assets.
Our largest investment, TFG Asset Management, had
a number of positive developments in its portfolio:
•
Hawke’s Point, TFG Asset Management’s
mining finance business, had a strong year
of performance led by their largest strategic
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Annual Report 2023
investment, an Australian gold mining, exploration
and development company. In addition,
the team continues to explore investment
opportunities in the battery metals space.
After a challenging 2022, Acasta Partners
delivered double-digit net performance in their
flagship vehicle, in what remained a difficult
environment for many alternative investment
strategies. The Acasta Global Fund was
nominated for the 12th time since its inception in
2009 for the 2023 With Intelligence EuroHedge
Award in the Convertibles and Volatility
category; it has won the award five times.(4)
Following Acasta Partners’ successful rebrand
in 2022, Polygon Global Partners’ event-driven
business was renamed Westbourne River Partners,
inspired by one of London’s historic rivers.
Banyan Square also had positive
momentum in its public portfolio and made
allocations to complete their fund.
As we have discussed previously, in December
2018, GreenOak Real Estate merged with Bentall
Kennedy, Sun Life Financial Inc.’s North American
•
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The Acasta Global Fund was nominated
for the 12th time for the 2023 With
Intelligence EuroHedge Award in the
Convertibles and Volatility category.
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Ross Carden
Acasta Partners, London
NAV Total Return in 2023
6.4%
Return on Equity in 2023
5.5%
Dividends in 2023
$0.44
real estate and property management firm, to form
BentallGreenOak (now trading as BGO). Since
then, TFG Asset Management has continued to
own nearly 13% of the combined entity. There
were a number of cash flow elements to the
transaction, including: TFG Asset Management’s
receipt of approximately $42.3 million upon the
closing of the transaction in July 2019; a series
of fixed quarterly payments; and, the distribution
of a portion of BGO’s earnings over the seven
years from the deal closing. In addition, as part of
the transaction, Sun Life has an option to acquire
the remaining interest in BGO approximately
seven years from the closing (i.e., in 2026). The
transaction also includes a put option that entitles
TFG Asset Management and the other minority
owners of BGO to sell their interest to Sun Life
approximately eight and a half years from the
close of the transaction (2027). As a consequence,
it is expected that TFG Asset Management
will sell its interest in BGO in 2026. Although
this is continuously factored into the valuation,
it will have requisite impacts on Tetragon’s
cash levels and reported AUM for TFG Asset
Management. We will keep shareholders apprised
of developments over the coming quarters.
Tetragon Financial Group
Annual Report 2023
11
Cash
Tetragon’s cash at bank balance was $23.1 million
as at 31 December 2023. After adjusting for known
accruals and liabilities (short- and long-dated), its net
cash balance was -$243.5 million. Tetragon has access
to a credit facility of $400 million with a maturity date
in July 2032. As at 31 December 2023, $250 million
of this facility was drawn and this liability has been
incorporated into the net cash balance calculation.
Other investor matters
As described in the 2023 Half-Yearly report,
Tetragon’s hurdle has moved from a LIBOR-
based hurdle to three-month term SOFR plus
2.747858% per annum as of 1 July 2023.
2024 Outlook
Throughout 2023, the U.S. 10-year Treasury yield
traded between 3.3% and 5.0%, before ending
December at 3.88%, an almost perfect round-trip
to where it began the year. In similar fashion, many
2024 market outlooks seem to echo the beginning of
2023 in balancing hopes for a soft landing against
concerns about slowing global GDP forecasts and
the “last mile” of disinflation. This landscape is further
complicated by hints of weakening in the U.S. jobs
market, the recent recovery in public valuations,
emerging pressures in global shipping and supply
chains, and the growing scale of ongoing geopolitical
tensions across Europe, the Middle East and Asia.
In 2024, more than two billion voters in more than 50
countries will go to the polls, including the U.S. and
U.K. Some of the election outcomes are more likely
than others, but what is certain is that there will be
significant political change against a geopolitically
strained and economically complex backdrop.
Letter to shareholders
We continue to look to add new strategies and help
individuals and teams to create successful asset
management businesses by leveraging TFG Asset
Management’s operating infrastructure and shared
strategic direction with Tetragon, who can support
asset management businesses through co-investment
and working capital. At the same time, we are also
looking for creative ways to help our partners grow
their existing businesses which may involve selling
partial stakes or whole businesses if we believe it may
unlock future growth and value. As we discussed
in our 2021 Annual Report, the strong performance
of BGO, Equitix and LCM, in particular, have
enhanced the attractiveness of individual business
transactions as an important way of realising the
value inherent in TFG Asset Management. As such,
the strategy for TFG Asset Management over the
coming years will continue to include launching new
strategies, and potentially acquiring businesses, but
also executing on individual sale transactions that
would take advantage of this value enhancement.
Although transactions such as these would inevitably
have the effect of shrinking TFG Asset Management’s
portfolio of relatively mature market-leading
businesses – and thus aggregate AUM – thereby
possibly delaying progress toward a strategic
transaction at the TFG Asset Management level – they
would enable TFG Asset Management to monetise
the benefits of its success in growing successful
asset management businesses. Indeed, our view
is that one the key metrics that underscores TFG
Asset Management’s success must be the returns
achieved by successful dispositions of its private
equity stakes in asset management companies.
Board Matters
Dividends and share repurchases
The fourth quarter 2023 dividend was declared
at 11.00 cents per share, bringing the full-year
2023 dividend to 44.00 cents per share.
Tetragon repurchased $60.3 million of its non-voting
shares during 2023. Tetragon is announcing today
its intention to repurchase approximately $25 million
shares, which, based on Tetragon’s current NAV
and share price, will be accretive to NAV per share.
We are pleased that the Company has returned
approximately $1.7 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.
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Annual Report 2023
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While cognisant about macro-economic
risks, we remain excited and highly
selective about emerging opportunities.
Conclusion
Tetragon’s adaptive approach to portfolio construction
is designed to navigate uncertain environments by
identifying and accessing the attractive investment
opportunities that inevitably arise in periods of market
stress, uncertainty, and transformation. While cognisant
about the macro-economic risks, we remain excited
and highly selective about the emerging opportunities
spanning private and convertible credit, legal assets,
asset management partnerships, cryptocurrencies
and equity themes across technology, biotechnology,
raw materials, capital markets and European event-
driven strategies. As we noted in last year’s letter,
Tetragon believes that times like these can set the
stage for the next several years of strong returns.
With Regards,
The Board of Directors
4 March 2024
(1) Source: Bloomberg. Please see note 7 on page 6 for important
disclosures.
(2) We refer throughout this letter to the MSCI ACWI Gross Total Return
Local Index, as the “MSCI ACWI Local Index”. Source: Bloomberg.
Please see note 7 on page 6 for important disclosures.
(3) All statistics are calculated using monthly datapoints.
Source: Bloomberg.
(4) The Acasta Global Fund was nominated for the 2023 EuroHedge
Award in the Convertibles & Volatility category; there were three other
nominees for this award. The With Intelligence EuroHedge Award
is organised by With Intelligence. To be considered for an award,
funds must submit performance data to the HFM 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. To qualify
for nominations, funds must achieve annualised returns higher than
the median returns for their peer groups – and they must also be
within 10% of their high-water marks that were set before the start
of the performance period under review. The winners are those
funds that meet the relevant criteria, and which achieve the highest
returns among the nominated funds – so long as they are also within
25% of the best Sharpe ratios within their nominated peer groups.
Further information about the award, including nomination and
winning criteria, is available at https://awards.withintelligence.com/
eurohedgeawards/en/pageiteria#list-your-data.
Tetragon Financial Group
Annual Report 2023
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Manager’s review
Manager’s
Review
This section includes commentary from
Tetragon’s investment manager and includes
market context, our investment objective and
strategy and key performance metrics.
Investment
objective & strategy
16 – 18
Key performance
metrics
19 – 20
Risk
management
21
Our
impact
22 – 23
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Tetragon Financial Group
Annual Report 2023
Manager’s
Review
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2023 Nav Per Share Total Return
6.4%
2023 Return on Equity
5.5%
2023 Dividends Per Share
$0.44
Tetragon Financial Group
Annual Report 2023
15
Manager’s review
Investment
objective & strategy
Tetragon’s investment objective is to generate distributable
income and capital appreciation. Our investment strategy is
as follows:
Our strategy
Our investment strategy is as follows:
1
Identify attractive
asset classes and
investment strategies
2
Identify asset managers
that Tetragon Financial
Management believes
to be superior
3
Use Tetragon Financial
Management’s market
experience to negotiate
favourable terms for
Tetragon’s investments
4
Own, where appropriate,
all or a portion of the asset
management companies with
which Tetragon invests in
order to enhance the returns
achieved on its capital
Identify asset
classes and
investment
strategies
Own asset
managers
Identify asset
managers
Structure
investment
In addition, the current investment
strategy is to continue to to enhance
the value of the asset management
companies that form part of
TFG Asset Management with a view to
realising value from the enterprise.
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Tetragon Financial Group
Annual Report 2023
The ways we invest
Our investment strategy leads us to invest in three primary ways.
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Investments in
managed funds
Ownership stakes
in asset managers
Direct
investments
Investments in managed funds
Ownership stakes in asset managers
Internally-managed funds
We invest in a range of specialised funds managed
by TFG Asset Management managers, with a view to
obtaining diversified returns on favourable terms. In
so doing, Tetragon aims to not only produce asset-
level returns, but also to enhance these returns with
capital appreciation and investment income from its
ownership stakes in asset management businesses
that derive income from external investors.
Externally-managed funds
We also invest with high-quality third-party managers in
which we do not have an ownership stake, in order to
access asset classes and investment strategies that we
believe are attractive, and we look to create beneficial
structures for these investments.
One of Tetragon’s largest investments is TFG Asset
Management, which manages, oversees and supervises
our ownership stakes in asset management companies.
TFG Asset Management enhances 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.
Factors in building out TFG Asset Management
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.
Tetragon Financial Group
Annual Report 2023
17
Manager’s review
Longer-term investment strategy
Tetragon’s longer-term investment strategy with respect
to TFG Asset Management is to continue to enhance
the value of its asset management companies, with
a view to realising value from the enterprise. This
may be through transactions relating to individual
businesses within TFG Asset Management, that
would take advantage of this value enhancement or
a strategic transaction at the TFG Asset Management
level. Although transactions relating to individual
businesses could shrink TFG Asset Management’s
portfolio of relatively mature market-leading businesses
– thereby possibly delaying progress toward a strategic
transaction at the TFG Asset Management level –
they would enable it to monetise the benefits of its
success in growing asset management businesses.
In any event, TFG Asset Management will continue
to leverage its operating infrastructure and shared
strategic direction, with Tetragon looking to support
investments through co-investment and working capital.
Direct Investments
We make investments directly on our balance sheet.
These investments reflect single-strategy ideas or
idiosyncratic investments that we believe are attractive
but may be unsuitable for an investment via TFG
Asset Management vehicles. These investments
tend to be opportunistic and with a catalyst.
Our alpha-driven ecosystem
Our alpha-driven ecosystem generates ideas, expertise, insights and connections.
Ways we invest
Investment manager
INSIGHTS
EXPERTISE
Ownership
stakes in
asset
managers
Direct
investments
Tetragon
Financial
Management
The investment
manager
Internally-
managed
funds
Externally-
managed
funds
IDEAS
CONNECTIONS
18
Tetragon Financial Group
Annual Report 2023
Manager’s review
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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2023 Nav Per Share Total Return
6.4%
2023 Return on Equity
5.5%
2023 Dividends Per Share
$0.44
Figure 3
Fully diluted NAV per share
NAV per share total return 2019-2023
Fully diluted NAV per share
(NAV per share) was $31.13
at 31 December 2023. NAV
per share total return was
6.4% for 2023.
13.6%
14.1%
9.5%
6.4%
1.0%
2019
2020
2021
2022
2023
Tetragon Financial Group
Annual Report 2023
19
Figure 4
Investment returns/return on equity(1)
Return on equity 2019-2023
RoE for 2023 was 5.5%.
Adjusted earnings per share
(EPS) for the period was $1.72.
(1) Average RoE is calculated from Tetragon’s
IPO in 2007. Tetragon seeks to deliver 10-
15% RoE per annum to shareholders. Over
longer time horizons, Tetragon’s returns
will most likely reflect sensitivity to the
underlying short-term risk-free rate regime.
Therefore, after periods of transition
to high-SOFR environments, Tetragon
should achieve higher sustainable returns;
after periods of transition to low-SOFR
environments, Tetragon should achieve
lower sustainable returns.
17.3%
13.4%
7.6%
5.5%
(0.8%)
2019
2020
2021
2022
2023
Average RoE since IPO: 11.3%
Target RoE: 10-15%
Figure 5
Dividends per share (DPS)
Dividend per share comparison 2019-2023
Tetragon declared a Q4 2023
dividend of $0.11 per share,
for a full-year dividend payout of
$0.44 per share. The cumulative
DPS declared since Tetragon’s
IPO is $8.6075.
$0.74
$0.40
$0.41
$0.44
$0.44
2019
2020
2021
2022
2023
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Tetragon Financial Group
Annual Report 2023
Risk management(i)
Factors that Tetragon monitors with respect to portfolio risk
management:
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risk
Liquidity
risk
Market
risk
Performance
review
1
2
3
4
• Trades done in the
• Concentration limits
month
• Settlement
• Counterparty
• Legal
• Regulatory/
compliance
• Finance/tax
Notes
• Equity exposure
• Risk limits
• CLO credit metrics
• FX exposure
• Scenario analysis
• Interest rate
sensitivity
• Tail hedge monitor
(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.
• Key financial
highlights
• NAV bridge
• Portfolio cash flow
forecast
• Duration profile
• Investment P&L by
• Cash versus debt
asset class
• Valuation
• Allocation shifts
(additions/disposals)
• Leverage facilities
• Review borrowing
covenants
• Short-term cash
management
• Remaining third-
party commitments
• Exogenous uses of
cash (capital call
and FX margining
scenarios)
Tetragon Financial Group
Annual Report 2023
21
Our impact
This year we launched our Tetragon in the
Community initiative. In both London and
New York we have sought to partner with
local organisations from our communities
that we can support both financially
and by volunteering our time.
In London, we partnered with the primary school
across the road from our office, Holy Trinity, which
serves some of the most disadvantaged children in our
London borough. Working with the school’s leadership,
we identified a series of highly targeted and impactful
educational enrichment opportunities to fund, including
Covid catch-up educational support, music lessons for
children with an identified talent and a gardening club for
those that don’t have access to outside space at home.
Our New York office took part in a volunteer day in
collaboration with Children’s Aid, a NYC organisation
whose focus is children living in poverty. The
team travelled to the Dunlevy Milbank Community
Center, located in Central Harlem, where they
took part in a beautification project, including
preparing a large outside wall for a new mural.
TFG Asset Management was the proud sponsor of One
Young World’s Entrepreneur of the Year Award 2023.
Stephen Prince, CEO of TFG Asset Management, chaired
this year’s judging panel, before presenting the award
live at the One Young World Summit 2023 in Belfast. As
a global community for young leaders, One Young World
identifies, connects and promotes the future generation of
leaders, empowering them to build a sustainable future.
The annual Summit, which brings together bright young
leaders from 190+ countries, provides an opportunity for
these individuals to come together to confront the biggest
challenges facing society today. The Entrepreneur of the
Year award celebrates five trailblazing entrepreneurs
under the age of 35 who are addressing important
global issues and inspiring others with their leadership.
Manager spotlight
Acasta Partners launched the inaugural
Acasta Partners Further Education Scholarship
in partnership with the Eastside Young
Leaders’ Academy (EYLA) in London.
EYLA’s aim is to create leaders of character
and purpose for tomorrow’s world through
leadership workshops and seminars, drawn from
those most in need in grassroots communities.
EYLA views education as a launchpad for this
mission and as a gateway to belonging to an
influential peer group who will individually and
collectively exert positive influence in society.
Matthew, a student from Newham, was selected
as the first recipient of the Acasta Partners
Scholarship after a competitive interview process.
The scholarship comprises an award of £10,000
per year toward tuition, course materials, and other
expenses while at university. Matthew also took up
the option of a paid summer internship with Acasta
Partners, alongside ongoing mentorship. Due
to the strength of the applications, the awarding
committee decided to make two further awards
of £5,000 per year to two additional recipients.
Find out more at
www.acasta.com
22
Tetragon Financial Group
Annual Report 2023
New York
Volunteers took part in a
beautification project at the
Dunlevy Millbank Community
Center in Harlem.
It was an honour to attend the 2023
One Young World Summit in Belfast.
Hearing from the winners about
the impact they are having on their
communities was truly inspiring.”
Stephen Prince
CEO of TFG Asset Management
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Manager spotlight
The Equitix Foundation held its annual charity
drinks event, raising over £120,000 in support of
three headline charities, Community Hot-Spots
(a Norfolk-based community that operates a
network of support for those impacted by the
cost of living crisis), Fight 4 Change (a London-
based charity that uses sport to inspire and
educate young people and adults to make
positive change in their lives), and Caring Minds
(a charity that provides comprehensive mental
healthcare service for residents of Birmingham and
Solihull). The Equitix foundation was established
with the vision of creating a lasting entity that
can positively impact charities connected to the
assets and communities that Equitix serves.
Find out more at
www.equitix.com
Belfast
TFG Asset Management was
the proud sponsor of One
Young World’s Entrepreneur
of the Year Award 2023.
Tetragon Financial Group
Annual Report 2023
23
Investment review
Investment
Review
This section covers details on Tetragon’s investment
performance during 2023. We focus our time,
energy and capital on alternative assets. We do so
because we believe that investing in alternatives
delivers stable returns to investors across credit,
equity, interest rate, and inflation cycles.
Overview
26 – 28
Detailed investment
review
29 – 39
Further portfolio
metrics
41
24
Tetragon Financial Group
Annual Report 2023
Investment
Review
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Tetragon Financial Group
Annual Report 2023
25
Investment review
Positive performance
returns in 2023
Tetragon’s Fully Diluted NAV Per Share increased from
$29.69 per share to $31.13 per share year over year. The
“Other equities and credit” segment was the largest positive
contributor to performance returns in 2023, and, apart from
real estate, all asset classes made gains on the year.
Overview
The main performance drivers for the year were
Tetragon’s investments in “other equities and credit”
balance sheet investments, which gained $124.1
million during 2023 and private equity and venture
capital which gained $90.7 million. The only asset
class which generated a loss was real estate, which
lost $5.7 million. Tetragon’s NAV at the end of the
year stood at $2.83 billion, compared to $2.76
billion a year ago. A detailed performance review of
each asset class follows beginning on page 29.
Other equities and credit
+$124M
Gains in 2023
26
Tetragon Financial Group
Annual Report 2023
Figure 6
Year-on-Year NAV Per Share Progression (USD)
Tetragon’s Fully Diluted NAV Per Share increased from $29.69 per share as at 31 December 2022 to $31.13 per share as at
31 December 2023.
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32.50
31.50
30.50
29.50
28.50
29.69
27.50
(0.69)
2.56
(0.27)
(0.44)
(0.95)
1.23
31.13
NAV at
31 December
2022
Investment
income and
losses
Operating
expenses,
management and
incentive fees
Interest
expense
Dividends
Other share
dilution
Share
repurchase
NAV at
31 December
2023
Progression from 31 December 2022 to 31 December 2023 is an aggregate of each of the 12 months’ NAV progressions. With the exception of share repurchases, all
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.
Figure 7
Net Asset Breakdown Summary
The table shows a breakdown of the composition of Tetragon’s NAV at 31 December 2022 and 31 December 2023, and the
factors contributing to the changes in NAV over the period.
Asset Classes
All figures are in millions of U.S. dollars
Private equity in asset management companies
Event-driven equities, convertible bonds and other hedge funds
Bank loans
Real estate
Private equity and venture capital
Legal assets
Other equities and credit(ii)
Net cash(iii)
Total
NAV at
31 Dec
2022
1,343.3
548.9
304.1
151.8
377.6
19.3
181.6
(168.1)
2,758.5
Additions(i)
Disposals/
Receipts(i)
Gains/
Losses
61.0
32.4
6.0
8.9
62.0
14.9
25.9
-
(65.7)
(16.5)
(77.3)
(7.3)
(20.9)
-
(119.4)
(77.8)
6.8
7.7
11.4
(5.7)
90.7
3.3
124.1
2.4
NAV at
31 Dec
2023
1,345.4
572.5
244.2
147.7
509.4
37.5
212.2
(243.5)
211.1
(384.9)
240.7
2,825.4
(i)
(ii)
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.
Assets characterised as “other equities and 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.
Tetragon Financial Group
Annual Report 2023
27
Investment review
Figure 8
Net asset composition summary
Invested in three ways
GP
44%
LP internal
39%
LP external
7%
Direct
10%
Net asset breakdown at 31 Dec 2023
Private equity in asset management
companies
44%
Private equity and venture capital
16%
Event-driven equities, convertible bonds,
other hedge funds
19%
Legal assets
1%
Bank loans
8%
Real estate
5%
Other equities and credit
7%
Net asset breakdown at 31 Dec 2022
Private equity in asset management
companies
46%
Private equity and venture capital
13%
Event-driven equities, convertible bonds,
other hedge funds
19%
Legal assets
1%
Bank loans
10%
Real estate
5%
Other equities and credit
6%
Figure 9
Top 10 Holdings by Value as of 31 December 2023
Rank Holding
Asset Class
Equitix
Westbourne River Event Fund – Low Net(i)
BGO
LCM
Private equity in asset management company
Event-driven equities
Private equity in asset management company
Private equity in asset management company
Westbourne River Event Fund – Long Bias(i)
Event-driven equities
Banyan Square Fund 1
Hawke’s Point Fund 1
Private equity and venture capital
Private equity and venture capital
Ripple Labs Inc. – Series A & B Preferred Stock
Private equity and venture capital
1
2
3
4
5
6
7
8
9
Acasta Global Fund
10
TCI III
Total
Convertible bonds
Bank loans
Value
($ millions)
737.6
% of
Investments
24.0%
302.5
270.5
258.5
144.1
127.0
113.4
103.8
102.8
60.6
9.9%
8.8%
8.4%
4.7%
4.1%
3.7%
3.4%
3.4%
2.0%
72.4%
(i)
28
On 1 November 2023, the Polygon event-driven business was renamed Westbourne River Partners; the Polygon European Equity Fund Absolute Return was
renamed Westbourne River Event Fund – Low Net, and the Polygon European Equity Fund Long Bias was renamed Westbourne River Event Fund – Long Bias.
Tetragon Financial Group
Annual Report 2023
Figure 10
Detailed Investment Review
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 2023; more detailed commentary for each asset class follows.
Asset Classes
All figures are in millions of U.S. dollars
NAV at
31 Dec 2022
Additions(i) Disposals/
Receipts(i)
Gains/
Losses
NAV at
31 Dec 2023
% of
investments
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Equitix
BGO
LCM
Other asset managers
Event-driven equities, convertible bonds and other hedge funds
Westbourne River Event Fund – Low Net(ii)
Westbourne River Event Fund – Long Bias(ii)
Acasta funds
Other hedge funds
Bank loans
U.S. CLOs (LCM)
Tetragon Credit Partners funds
U.S. CLOs (non-LCM)
Real estate
BGO Europe funds & co-investments
BGO U.S. funds & co-investments
BGO Asia funds & co-investments
BGO debt funds
Other real estate
Private equity and venture capital
Hawke’s Point funds & co-investments
Banyan Square funds
Other funds & co-investments
Direct
Legal assets
Contingency Capital funds
Other equities and credit(iii)
Other equities
Other credit
Cash
Net cash(iv)
Total
683.2
283.0
290.7
86.4
287.8
131.8
104.2
25.1
159.7
132.7
11.7
35.3
49.2
21.7
3.9
41.7
59.1
123.6
130.4
64.5
29.6
3.3
3.4
24.7
20.0
8.9
-
3.5
-
6.0
-
5.9
2.2
-
0.5
0.3
6.9
12.6
20.2
22.3
(28.2)
53.0
(17.8)
2.0
-
(35.6)
(19.7)
(12.6)
-
-
(10.0)
(5.3)
3.4
12.4
(6.5)
(2.8)
(42.8)
10.8
(28.8)
1.1
(5.7)
(0.5)
(2.3)
(1.2)
(1.7)
(2.1)
-
-
(12.5)
(1.1)
(7.3)
(0.2)
(4.1)
2.4
0.3
(4.1)
50.7
3.3
4.5
32.2
737.6
270.5
258.5
78.8
302.5
144.1
106.6
19.3
127.7
111.0
5.5
38.7
46.1
22.4
2.6
37.9
116.7
127.0
154.0
111.7
24.0%
8.8%
8.4%
2.6%
9.9%
4.7%
3.5%
0.6%
4.2%
3.6%
0.2%
1.3%
1.5%
0.7%
0.1%
1.2%
3.8%
4.1%
5.0%
3.6%
19.3
14.9
-
3.3
37.5
1.2%
165.7
15.9
25.8
0.1
(119.4)
124.4
-
(0.3)
196.5
15.7
6.4%
0.5%
(168.1)
-
(77.8)
2.4
(243.5)
2,758.5
211.1
(384.9)
240.7
2,825.4
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)
On 1 November 2023, the Polygon event-driven business was renamed Westbourne River Partners; the Polygon European Equity Fund Absolute Return was
renamed Westbourne River Event Fund – Low Net, and the Polygon European Equity Fund Long Bias was renamed Westbourne River Event Fund – Long Bias.
(iii) Assets characterised as “other equities and 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.
Tetragon Financial Group
Annual Report 2023
29
Detailed net asset breakdown
31 December 2022
Private equity in asset
management companies
Event-driven equities,
convertible bonds + other HF
Private equity and
venture capital
Bank loans
Other equities and credit
Real estate
Legal assets
Equitix
BGO
LCM
Other asset
managers
Westbourne River Event Fund – Low Net
Westbourne River
Event Fund – Long Bias
Acasta funds
Other funds & co-investments
Banyan Square funds
Direct
Other hedge funds
U.S. CLOs (LCM)
Tetragon Credit Partners funds
Hawke’s Point funds
& co-investments
Other equities
BGO
U.S. funds &
co-investments
Other real
estate
BGO Europe funds
& co-investments
U.S. CLOs
(non-LCM)
Other credit
BGO Asia funds
& co-investments
BGO debt funds
Contingency Capital funds
30
Tetragon Financial Group
Annual Report 2023
31 December 2023
Private equity in asset
management companies
Event-driven equities,
convertible bonds + other HF
Private equity and
venture capital
Bank loans
Other equities and credit
Real estate
Legal assets
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BGO
LCM
Other asset
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Westbourne River Event Fund – Low Net
Westbourne River
Event Fund – Long Bias
Acasta funds
Other funds & co-investments
Banyan Square funds
Direct
Other hedge funds
Hawke’s Point funds
& co-investments
U.S. CLOs (LCM)
Tetragon Credit Partners funds
Other equities
BGO
U.S. funds &
co-investments
BGO Europe
funds &
co-invest.
Other real estate
BGO Asia funds
& co-investments
Contingency Capital funds
U.S. CLOs
(non-LCM)
Other credit
BGO debt funds
Tetragon Financial Group
Annual Report 2023
31
Investment review
Detailed
Investment Review
Private equity investments
in asset management companies
TFG Asset Management is Tetragon’s diversified
alternative asset management platform. It enables
Tetragon to produce asset level returns on its
investments in managed funds on the platform, and to
enhance those returns through capital appreciation and
investment income from its ownership stakes in the asset
management businesses. The combination 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 2023, TFG Asset Management
comprised LCM, BGO (the new trading name of
BentallGreenOak), Westbourne River Partners
(formerly known as Polygon), Acasta Partners, Equitix,
Hawke’s Point, Tetragon Credit Partners, Banyan
Square Partners and Contingency Capital. TFG Asset
Management recorded an investment gain of $6.8 million
in 2023 as gains in Equitix were offset by downward
valuations in LCM and other asset managers.
Equitix: Equitix is an integrated core infrastructure
asset management and primary project platform,
with a sector focus on social infrastructure, transport,
renewable power, environmental services, network
utilities and data infrastructure. Tetragon owns 75% of
the company. During 2023, Equitix’s AUM increased
from £10.0 billion to £10.9 billion. Equitix started raising
capital for Fund VII after closing Fund VI at £1.5 billion
Tanvir Islam
Technology, London
32
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Annual Report 2023
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During 2023, Equitix started raising
capital for Fund VII after closing
Fund VI at £1.5 billion in AUM.
in AUM, and also raised some capital into managed
accounts during the period. Tetragon’s investment
made a gain of $53.0 million in 2023, mainly during
the first half of the year, driven by a combination of (a)
higher valuation as the business continued to deliver
against its business plan despite a 14% decrease in
the market multiples, (b) a reduction in net debt due to
positive cash generation, (c) dividend income received
by Tetragon of $28.2 million, and (d) foreign exchange
gains on the unhedged portion of this investment.
LCM: LCM is a bank loan asset management
company. LCM manages loan assets through
Collateralised Loan Obligations (CLOs), which are
long-term, multi-year investment vehicles. During
the year, its AUM decreased by 14%, reflecting a
combination of LCM not issuing any new deals due
to market conditions as well as an amortisation of
some existing deals. Tetragon’s investment in LCM
made a loss of $35.6 million in 2023 as the valuation
reflected the impact of the reduction in the AUM.
BGO (the new trading name of BentallGreenOak):
BGO is a real estate-focused principal investing, lending
and advisory firm. During 2023, distributions to Tetragon
totalled $17.8 million, reflecting a combination of fixed
quarterly contractual payments, variable payments and
carried interest. As a result of these distributions, the
value of Tetragon’s investment decreased to $270.5
million during the period with a gain of $2.0 million for the
year. The value of the put/call option decreased by $6.3
million, in part reflecting an update to BGO’s business
plan and forecasts. This was offset by gains in the fixed
quarterly contractual payments due to unwinding of
the discount rate and higher actual variable payments
received in the year as compared to forecast payments.
TFG Asset Management
+$6.8M
2023 performance
Tetragon Financial Group
Annual Report 2023
33
Event-driven equities, convertible
bonds and other hedge funds
Tetragon invests in event-driven equities and
convertible bonds and credit through hedge funds. At
31 December 2023, these investments are primarily
through hedge funds managed by Acasta Partners
and Westbourne River Partners. Investments in these
funds generated a gain of $7.7 million during 2023.
Westbourne River Partners funds: The Westbourne
River Event Fund – Low Net (formerly Polygon European
Equity Opportunity Fund – Absolute Return) focuses
on event-driven investing in European small- and
mid-cap equities to pursue what it believes are more
attractive and less-followed opportunities seeking to
deliver uncorrelated alpha. The Low Net product has
targeted net exposure of between 0-30%. Tetragon’s
investments in this fund recorded a loss of $5.3 million
during the period. Net performance for the fund was
down 1.6% for 2023. Tetragon made an additional
investment of $20 million into this fund during the year.
Investment review
Platform and other asset managers: TFG Asset
Management’s other asset managers consist of
Westbourne River Partners (the renamed European
event-driven equity investing business of Polygon
Global Partners); Acasta Partners, a manager of
open-ended hedge fund and managed account
vehicles, employing a multi-disciplinary approach;
Tetragon Credit Partners, a structured credit investing
business focused on primary CLO control equity
as well as a broader series of offerings across the
CLO capital structure; Hawke’s Point, an asset
management business that provides strategic capital
to companies in the mining and resource sectors;
Banyan Square Partners, a private equity firm focused
on non-control equity investments; and Contingency
Capital, a global asset management business focused
on credit-oriented legal assets investments. The
collective loss on Tetragon’s investments in these
managers was $12.6 million during 2023, owing
to a combination of a reduction in the fair value of
some of these managers, as well as working capital
support provided to relatively nascent businesses.
Please see Note 4 in the 31 December 2023
Tetragon Financial Group Limited 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.
The Westbourne River team believes
the funds should be able to benefit from
steadily recovering asset prices and
easing interest rates in 2024.
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The Westbourne River Event Fund – Long Bias
(formerly Polygon European Equity Opportunity Fund
– Long Bias): this fund follows the same strategy as
the Low Net vehicle, but has targeted net exposure
of approximately 75%. Tetragon’s investment
generated a gain of $3.4 million during 2023. Net
performance for the fund was up 9.5% for 2023.
Taking a moment to reflect on 2023, given the
rally in the tech sector, the funds’ returns may feel
disappointing, but the Westbourne River team believes
that their results over the last two years shows the
benefits of diversification and the focus on reducing
beta to the markets. The team believes the funds
should be able to benefit from steadily recovering
asset prices and easing interest rates in 2024.
Acasta Partners funds: The Acasta Global Fund
pursues a multi-disciplinary approach to investing,
employing niche strategies to profit over economic and
risk cycles. The fund invests opportunistically across the
credit universe with a particular emphasis on convertible
securities, special situations, instruments trading at
stressed or distressed levels, metals and mining capital
structures including related commodities, and in volatility
driven strategies. Acasta Partners also manages the
Acasta Energy Evolution Fund, a portfolio targeted
at opportunities driven by the transition of energy to
renewable resources, and the resulting impact on metals
and mining companies and associated commodities.
Tetragon’s investment in Acasta funds generated a
gain of $12.4 million during 2023. Net performance in
the Acasta Global Fund was +13.0% for its flagship
share class, compared to the HFR RV Fixed Income-
Convertible Arbitrage Index which returned +4.8%
during the period.(1) Facing an uncertain macro outlook
going into 2023, during the year, the fund favoured a
core investment book built on safe carry, long/short
credit positioning and strategies driven by idiosyncratic
events and catalysts. Tetragon reduced its holding in
Acasta Global Fund by $10.0 million during 2023.
The fund was nominated for the 12th time since
its inception in 2009 for the 2023 With Intelligence
EuroHedge Award in the Convertibles and Volatility
category; it has won the award five times.(2)
Other hedge funds: Investments in other hedge funds
had a loss of $2.8 million during 2023. This category now
includes the TFG Asset Management Global Equities
Fund (formerly Polygon Global Equities Fund.) Tetragon
reduced its holdings by net $3.0 million during the period.
Hedge funds
+$7.7M
2023 performance
Bank loans
+$11.4M
2023 Performance
Tetragon Financial Group
Annual Report 2023
35
Investment review
Bank Loans
Tetragon continues to invest in bank loans through
CLOs primarily by taking majority positions in the
equity tranches. Tetragon’s CLO portfolio recorded
a gain of $11.4 million during 2023. Tetragon
made new U.S. CLO investments indirectly via the
Tetragon Credit Partners platform. 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 gained
$10.8 million during 2023. This performance was
driven by rising risk-free rates and loan reinvestment
opportunities which may increase the cash flow
generation ability of CLO equity, and a generally
benign level of loan losses during the year, offset by the
realisation of losses on certain older-vintage underlying
loans. During 2023, investments in this segment
generated $42.8 million in cash proceeds and as of
year-end, the total fair value was $127.7 million. As at the
end of 2023, all LCM CLO transactions were compliant
with their junior-most over-collateralisation (O/C) tests.(3)
Tetragon made no new investments in U.S. CLOs
managed by LCM during 2023. Tetragon currently
expects to make most of its new-issue LCM CLO
majority equity investments via the Tetragon
Credit Partners platform, but may choose to make
opportunistic investments directly, when appropriate.
Tetragon Credit Partners Funds(4): TCI II, TCI III, and
TCI IV are CLO investment vehicles established by
Tetragon Credit Partners, a 100% owned subsidiary
of TFG Asset Management. As of the end of 2023,
Tetragon’s commitment to TCI II was $70.0 million (which
was fully funded), its commitment to TCI III was $85.9
million (which was fully funded), and its commitment
to TCI IV was $25.6 million (which was 76.3% funded).
TCI II and TCI III are fully invested, while TCI IV remains
in its initial investment period. As at the end of 2023,
the total fair value of this segment was $111.0 million.
During 2023, Tetragon’s investments in funds managed
by Tetragon Credit Partners generated $28.8 million
in cash distributions and a gain of $1.1 million.
Performance was positively impacted by rising risk-
free rates and loan reinvestment opportunities which
may increase the cash flow generation ability of CLO
equity, and a generally benign level of loan losses
during the year, offset by the realisation of losses on
certain older-vintage underlying loans. During the year,
TCI IV made three investments in CLO mezzanine
debt tranches. Additionally, TCI IV refinanced the debt
36
Tetragon Financial Group
Annual Report 2023
tranches of one CLO investment and “reset” another
(refinanced all the debt tranches and extended the
reinvestment period of the CLO). All CLOs held by TCI
II, TCI III, and TCI IV were compliant with their junior-
most O/C tests as of the end of December 2023.(5)
U.S. CLOs (non-LCM): The non-LCM-managed CLO
segment saw a loss of $0.5 million during 2023 and
generated $5.7 million in cash distributions. Tetragon
did not add any direct non LCM-managed CLO
investments, and as of the end of 2023, the fair value
of this segment stood at $5.5 million. During the year,
Tetragon directed the optional redemption of one
non LCM-managed CLO which increased the cash
distributions received in 2023. As of the end of 2023,
all non-LCM CLOs were compliant with their junior-
most O/C tests. Tetragon currently expects to make
most of its new issue non-LCM equity investments
indirectly via the Tetragon Credit Partners platform.
Real estate
BGO Europe, U.S. and Asia funds and co-investments:
Tetragon holds most of its investments in real estate
through BGO-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 U.S., Europe and Asia, where BGO 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 had a net loss of $1.6 million in 2023,
primarily due to losses in the U.S.-focused investments.
Other real estate: In addition to the commercial
real estate investments through BGO-managed
real estate funds, Tetragon also has investments
in commercial farmland in Paraguay managed by
a specialist third-party manager in South American
farmland. This investment generated an unrealised loss
of $4.1 million after a third-party revaluation in 2023.
Real estate
-$5.7M
2023 Performance
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Private equity and venture capital
Tetragon’s private equity and venture capital investments
comprise several types of investments: (1) Tetragon’s
investments in Hawke’s Point funds and co-investments;
(2) investments in Banyan Square Partners funds and
co-investments; (3) private equity investments with third-
party managers; and (4) direct private equity investments,
including venture capital investments. This segment
was the second-largest positive driver of performance
during the year, generating gains of $90.7 million.
Hawke’s Point: Tetragon’s mining finance investments
managed by Hawke’s Point generated a gain of $50.7
million during 2023, primarily driven by operational
progress at one of its Australian gold project
investments. Tetragon invested an additional $6.9
million into Hawke’s Point funds during the period.
Banyan Square Partners: In 2023, most of Banyan
Square’s portfolio companies achieved solid operating
results despite macro headwinds, with a particular focus
on profitability. However, the portfolio’s growth was
partially offset by rising interest rates that negatively
impacted several portfolio companies with higher debt
balances. As a result, the net gain during the period
was $3.3 million. There were 12 positions in the fund at
year-end, including positions focused on application
software, infrastructure software, and cybersecurity.
In addition, together with TFG Asset Management,
Banyan Square Partners made a strategic
investment in WovenLight, which is a data-driven
consulting and software services business, which
may add further investment opportunities to the
Banyan Square team. Furthermore, the platform
as a whole stands to benefit from the addition of
WovenLight’s machine learning and AI expertise.
Other funds and co-investments: Investments
in externally-managed private equity funds
and co-investment vehicles in Europe and
North America made gains of $4.5 million in
2023, spread across 36 different positions.
Direct: This category produced gains of $32.2 million
during the period, related to positive performance
in the investment in Ripple Labs Inc. In July 2023,
a U.S. judge ruled that Ripple Labs did not violate
federal securities law by selling its XRP token on
public exchanges. This ruling was subsequently
upheld in October 2023 when the court dismissed
the SEC’s request for an interlocutory appeal.
Crypto markets were further buoyed by expectations
that the SEC was preparing to approve the first
spot Bitcoin ETFs, which contributed to a broad
fourth quarter rally in tokens and related assets.
Hawke’s Point investments gained
$50.7 million, driven by operational
progress at one of its Australian
gold project investments.
Tetragon Financial Group
Annual Report 2023
37
Investment review
Private equity and venture capital
+$90.7M
2023 Performance
Legal assets
+$3.3M
2023 Performance
The “other equities” segment
generated a gain of $124.4 million
during 2023, making it the largest
positive contributor to the portfolio.
Legal assets
Tetragon makes investments in legal assets through
vehicles managed by Contingency Capital. Tetragon has
committed capital of $60 million, $32.1 million of which
has been called to date, including $14.9 million during
2023. A gain of $3.3 million was generated from this
investment. The performance of the Contingency Capital
fund’s portfolio continues to be above the underwritten
projections and performance targets, and remains
uncorrelated to the public equity and debt markets.
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. With a gain of $124.1 million, this was the
best-performing segment for Tetragon during 2023.
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Annual Report 2023
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• Other equities: This segment generated a gain of
+$124.4 million during 2023, making it the largest
positive contributor to the portfolio. Technology-
driven positions contributed approximately two
thirds of this, driven by companies well-positioned
to benefit from AI infrastructure demand or to
incorporate emergent AI applications into their
business models. Biotechnology contributed most
of the remaining gains, driven by a U.K. biotech
company reporting encouraging developments for
its potential cancer and autoimmune therapies.
• Other credit: This segment had flat performance
during 2023 and currently comprises one position.
Cash
Tetragon’s cash at bank balance was $23.1 million
as at 31 December 2023. After adjusting for known
accruals and liabilities (short- and long-dated), its net
cash balance was -$243.5 million. Tetragon has access
to a credit facility of $400 million with a maturity date
in July 2032. As at 31 December 2023, $250 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 2023, Tetragon used $211.1 million
of cash to make investments, $60.3 million to repurchase
its shares and $23.3 million to pay dividends. $307.1
million of cash was received as distributions and
proceeds from the sale of investments. Future cash
commitments are $95.4 million, comprising: investment
commitments to BGO funds of $27.4 million; private
equity funds of $32.4 million; Tetragon Credit Partners
funds of $6.1 million; Contingency Capital funds of $27.9
million; and the Contingency Capital loan of $1.6 million.
Tetragon Financial Group
Annual Report 2023
39
Notes
(1) The indices shown here have not been selected to represent
(3) Based on the most recent trustee reports available as of
31 December 2023. 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) TCI II refers to Tetragon Credit Income II L.P., TCI III refers to
Tetragon Credit Income III L.P., and TCI IV refers to Tetragon
Credit Income IV L.P.
(5) Based on the most recent trustee reports available as of
31 December 2023.
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, Tetragon’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 Tetragon Research
Inc. Further information relating to index constituents and
calculation methodology can be found at www.hfr.com/.
(2) The Acasta Global Fund was nominated for the 2023 EuroHedge
Award in the Convertibles & Volatility category; there were three
other nominees for this award. The With Intelligence EuroHedge
Award is organised by With Intelligence. To be considered for an
award, funds must submit performance data to the HFM 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. To qualify for nominations, funds must achieve annualised
returns higher than the median returns for their peer groups –
and they must also be within 10% of their high-water marks that
were set before the start of the performance period under review.
The winners are those funds that meet the relevant criteria, and
which achieve the highest returns among the nominated funds
– so long as they are also within 25% of the best Sharpe ratios
within their nominated peer groups. Further information about the
award, including nomination and winning criteria, is available at
https://awards.withintelligence.com/eurohedgeawards/en/page/
criteria#list-your-data.
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Annual Report 2023
Investment review
Figure 11
Further portfolio metrics – exposures at 31 December 2023
By geography(1)
By exposure(2)
By investment
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North America
42%
Europe
50%
Asia Pacific
7%
Latin America
1%
Westbourne River Partners(i)
15%
GP
44%
LP Internal
39%
LP External
7%
Direct
10%
Currency exposure
Tetragon is a U.S. dollar-based
fund and reports all its metrics
in U.S. dollars. During 2023, all
investments denominated in other
currencies were hedged to U.S.
dollars, except for some of the GBP-
denominated exposure in Equitix.
LCM(i)
13%
BGO(i)
12%
Acasta(i)
4%
External(ii)
7%
Direct balance sheet(ii)
11%
Equitix(iii)
24%
Tetragon Credit Partners(i)
4%
Hawke’s Point(i)
4%
Banyan Square(i)
4%
Contingency Capital(i)
2%
(1) Assumptions for “By geography”:
– Event-driven equities, convertible bonds, other hedge funds,
private equity and venture capital, legal assets and other
equities and credit investments are based on the geographies
of the underlying portfolio assets.
– U.S. CLOs and Tetragon Credit Partners funds (bank loans) are
treated as 100% North America.
– LCM, Tetragon Credit Partners, Banyan Square Partners, and
Contingency Capital (TFG Asset Management) are treated as
100% North America.
– BGO (TFG Asset Management) is treated as 24% Europe, 66%
North America, and 10% Asia-Pacific.
– Westbourne River Partners and Equitix (TFG Asset
Management) are treated as 100% Europe.
– Hawke’s Point (TFG Asset Management) is treated as 100%
Asia-Pacific.
(2) Assumptions for “By exposure”:
(i) Exposure represents the net asset value of the private equity
position in the relevant asset management company and
the 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.
– Acasta Partners (TFG Asset Management) is treated as 80%
Europe and 20% North America.
Source: Tetragon.
Tetragon Financial Group
Annual Report 2023
41
Financial review
Financial
Review
A summary of Tetragon’s 2023 financial
highlights, and pro forma statements of
comprehensive income and financial position.
Financial
Highlights
44
Pro Forma Statement of
Comprehensive Income
45
Pro Forma Statement
of Financial Position
45
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Annual Report 2023
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Tetragon Financial Group
Annual Report 2023
43
Financial review
Financial
highlights
Figure 12
Financial Highlights 2021 – 2023
Reported GAAP Net income ($MM)
Adjusted Net income ($MM)
Reported GAAP EPS
Adjusted EPS
Return on equity
Net Assets ($MM)
IFRS number of shares outstanding (MM)
NAV per share
Fully diluted shares outstanding (MM)
Fully diluted NAV per share
NAV per share total return
DPS
Tetragon uses the following metrics, among others, to
understand the progress and performance of the business:
44
Tetragon Financial Group
Annual Report 2023
2023
$141.1
$150.4
$1.62
$1.72
5.5%
2022
($32.1)
($22.6)
($0.35)
($0.25)
-0.8%
2021
$418.2
$428.6
$4.68
$4.79
17.3%
$2,825.4
$2,758.5
$2,876.8
81.2
$34.79
90.8
$31.13
6.4%
$0.44
85.6
$32.24
92.9
$29.69
1.0%
$0.44
90.2
$31.88
96.4
$29.86
14.1%
$0.41
• Adjusted Net income ($150.4 million):
Please see Figure 13 for more details and a
breakdown of the Adjusted Net Income.
• Return on Equity ( 5.5%): Adjusted Net
Income ($150.4 million divided by Net Assets
at the start of the year ($2,758.5 million).
• Fully Diluted Shares Outstanding (90.8 million):
Adjusts the IFRS shares outstanding (81.2 million)
for various dilutive factors (9.6 million shares).
Please see Figure 27 for more details.
• Adjusted EPS ($1.72): Calculated as Adjusted Net
Income ($150.4 million) divided by the time-weighted
average IFRS shares during the period (87.3 million).
• Fully Diluted NAV Per Share ($31.13): Calculated
as Net Assets ($2,825.4 million) divided by Fully
Diluted Shares Outstanding (90.8 million).
Figure 13
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Pro Forma Statement of Comprehensive Income 2022 – 2023
2023 ($M)
2022 ($M)
Net gain on financial assets at fair value through profit or loss
Net (loss)/gain on derivative financial assets and liabilities
Net foreign exchange gain
Interest income
Investment income
Management and incentive fees
Other operating and administrative expenses
Interest expense
Total operating expenses
Adjusted Net income
270.6
(32.5)
0.3
2.3
240.7
(58.0)
(8.3)
(24.0)
(90.3)
150.4
18.9
42.4
1.2
0.4
62.9
(67.6)
(7.6)
(10.3)
(85.5)
(22.6)
For 2023, the difference between Adjusted Net income as shown here and IFRS profit and total comprehensive income is an adjustment
to remove share-based compensation expense of $9.3 million (2022: $9.5 million) This adjustment is consistent with how Adjusted Net
income has been determined in prior periods.
During the year, $16.3 million (2022: $26.5 million) of incentive fee was expensed and remain outstanding at 31 December 2023.
Figure 14
Pro Forma Statement of Financial Position
as at 31 December 2022 and 31 December 2023
ASSETS
Investments
Derivative financial assets
Other receivables
Amounts due from brokers
Cash and cash equivalents
Total assets
LIABILITIES
Loans and borrowings
Derivative financial liabilities
Amounts due to brokers
Other payables and accrued expenses
Total liabilities
NET ASSETS
31 Dec 2023 ($M)
31 Dec 2022 ($M)
3,065.7
2,919.2
5.1
4.7
7.2
23.1
21.7
6.1
5.5
21.7
3,105.8
2,974.2
(250.0)
(8.3)
-
(22.1)
(280.4)
2,825.4
(115.0)
(2.5)
(68.0)
(30.2)
(215.7)
2,758.5
Tetragon Financial Group
Annual Report 2023
45
Governance
Governance
This section provides details on Tetragon’s
corporate governance matters, as well as
information regarding the Investment Manager.
Our structure
48
Board
of Directors
49 – 55
Our investment
manager
56 – 61
Directors’
report
62 – 63
AIC Code of Corporate
Governance
64
Additional
information
65
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Annual Report 2023
Governance
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Tetragon Financial Group
Annual Report 2023
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Governance
Our structure
Types of shareholder
Listed entity
External manager
Ways we invest
Investments in
managed funds
Ownership stakes
in asset managers
Direct investments
TFG Asset Management
Non-voting public shareholders
Tetragon Financial Group Limited
(Euronext, SFS London Stock Exchange)
Tetragon Financial Management LP
Tetragon Financial Group’s
investment manager
Permanent capital
$2.8Bn Net Asset Value(I)
Investments in managed funds
Ownership stakes in asset managers
Direct investments
Externally
managed
funds
Internal
funds
TFG Asset Management
$42Bn Assets Under Management (ii)
(i) The value of Tetragon’s assets, less any liabilities, as at 31 December 2023 . Source: Tetragon.
(ii)
Includes the AUM of LCM, Westbourne River Partners, Acasta Partners, Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners and
TCICM, at 31 December 2023 and AUM for BGO representing Tetragon’s pro rata share (12.86%) of BGO AUM ($83.2 billion). Includes, where relevant,
investments by Tetragon.
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Board of
Directors
The Board of Directors currently comprises five
directors, of which three are Independent Directors.
Deron J. Haley
Independent Director
Steven Hart
Independent Director
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, he 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 firmwide operational and management
initiatives. D.J. began his finance career as an
equity research analyst, and later a registered
trader before taking on senior managerial roles.
Prior to finance, he served five years active duty in
the United States Navy. He is a founding Director
of the Navy SEAL Foundation, and sits on the
Investment Committee of The Heinz Endowments.
D.J. 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. Steven 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.
Steven 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. From 2011-2020, he served as a
member of the Boards of Directors of several funds
connected with Blue Harbour Group, L.P. Steven
earned an M.B.A. degree from Stanford University
Graduate School of Business and a B.A. degree
in Math/Economics from Wesleyan University.
Tetragon Financial Group
Annual Report 2023
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Governance
Board of
Directors
David O’Leary
Independent Director
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, David 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. David 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.
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Reade Griffith
Tetragon Co-Founder and Chief Investment Officer
Reade Griffith is Co-Founder and Chief Investment
Officer of Tetragon Financial Group and TFG
Asset Management. Reade is also a member of
Tetragon’s Board of Directors. Prior to co- founding
Tetragon in 2005, Reade co-founded Polygon,
a multi-strategy hedge fund management
business, in 2002. In 2012, Tetragon acquired
Polygon and it became part of TFG Asset
Management, Tetragon’s diversified alternative
asset management business – which now has more
than $41 billion of assets under management.(i)
Reade is also Chief Investment Officer for TFG
Asset Management’s European event-driven
equities business, Westbourne River Partners.
Reade holds an A.B. degree in Economics from
Harvard College and a J.D. degree from Harvard
Law School. Reade also served as an officer
in the U.S. Marine Corps and left as a Captain
following the 1991 Gulf War. Reade 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.
Reade is currently a member of the Royal United
Services Institute Advisory Board and the Dean’s
Advisory Board at Harvard Law School. From
2017 until 2020, Reade and was a member of the
Financial Sector Forum at the Bank of England.
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Paddy Dear
Tetragon Co-Founder
Paddy Dear co-founded Tetragon in 2005,
is based in London and is a member of
Tetragon’s Board of Directors and its investment
manager’s Investment and Risk Committee.
Prior to co-founding Tetragon in 2005, Paddy
co-founded Polygon, a multi-strategy hedge fund
management business, in 2002. In 2012, Tetragon
acquired Polygon and it became part of TFG Asset
Management, Tetragon’s diversified alternative
asset management business – which now has more
than $41 billion of assets under management.(i)
Paddy received a BSc in Petroleum Engineering
from Imperial College London, graduating top of his
year. He started his career as a Petroleum Engineer
with Marathon Oil working in London, Denver and
offshore in the North Sea. He later moved into
finance and prior to setting up Polygon was a
Managing Director at UBS Investment Bank, where
he worked for 14 years in London and New York.
(i)
Includes the AUM of LCM, Westbourne River Partners,
Acasta Partners, Equitix, Hawke’s Point, Tetragon Credit
Partners, Banyan Square Partners and TCICM, as calculated
by the applicable fund administrators at 31 December 2023
and AUM for BGO representing Tetragon’s pro rata share
(12.86%) of BGO AUM ($83.2 billion). Includes, where
relevant, investments by Tetragon.
Tetragon Financial Group
Annual Report 2023
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The Board of Directors of Tetragon
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, or the Directors. As set out
below and as elsewhere described in the risk factors
found on Tetragon’s website at
www.tetragoninv.com/shareholders#risk-factors, 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 Corporate
Governance Code 2018 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 they become bankrupt, if they
become of unsound mind, if they become 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 they become 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 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 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 grounds of any such interest or benefit or because
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Annual Report 2023
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. From
1 January 2024, the Directors’ annual fee is $150,000
in compensation for service on the Board of Directors
of Tetragon (2023: $125,000). The Directors have the
option to elect to receive shares in Tetragon instead
of the fee. 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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On 1 January 2020, the Independent Directors were
awarded 24,490 shares each in Tetragon which vested
on 31 December 2022. 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
November 2022, a further 7,724 shares were awarded
to each Independent Director with one-third of the
shares vesting on 31 December 2023, 31 December
2024, and 31 December 2025. The fair value of the
award, as determined by the relevant share price of
$9.71 per share, is $75,000 per Independent Director.
With respect to Director compensation from 1 January
2024, a further award of 10,122 shares was made to
each Independent Director with 5,061 shares vesting
on each of 31 December 2024 and 31 December
2025. The fair value of the award as determined by the
relevant share price of $9.88 per share is $100,000
per Independent Director. The Independent Directors
have deferred the settlement of all the awards to
earlier of three to five years from the vesting date
and/or separation from service with the Fund.
Ben Lim
Finance, London
Tetragon Financial Group
Annual Report 2023
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The Board of Directors of Tetragon
Shaulie Halberstam
Systems Development,
New York
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 that
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.
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The Audit commitee
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The total audit fee for the year for Tetragon was
$0.8 million. Non-audit fees payable to the independent
auditor and its member firms was $0.1 million in 2023.
In addition to this, $2.2 million of audit fees was payable
by the entities controlled by Tetragon to the independent
auditor and its member firms. The Audit Committee
concluded that these fees do not pose a threat to the
independent auditor’s independence or objectivity.
The Audit Committee
The Audit Committee of Tetragon 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, and for
reviewing Tetragon’s administrator’s and Tetragon’s
investment manager’s statements on internal control
systems prior to endorsement by the Board of Directors.
Emily Cox,
Business Development,
New York
Tetragon Financial Group
Annual Report 2023
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Our Investment Manager
Tetragon Financial Management LP, or TFM, has
been appointed the investment manager of Tetragon
pursuant to an investment management agreement
dated 26 April 2007 (see “Summary of Key Terms of
Tetragon’s Investment Management Agreement”).
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. TFM
is registered as an investment adviser under the
United States Investment Advisers Act of 1940.
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.
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 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 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
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
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Maureen Wainwright,
Research, London
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, including
management fees relating to the administration
of Tetragon and incentive fees (each as
described below), will be paid by Tetragon.
The investment manager is entitled to receive
management fees equal to 1.5% per annum of the
NAV of Tetragon payable monthly in advance prior
to the deduction of any accrued incentive fees.
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 31 March, 30 June, 30 September
and 31 December 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 the Reference
NAV at the end of a Calculation Period, the 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.
Tetragon Financial Group
Annual Report 2023
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Our Investment Manager
Miriam Osman
Acasta Partners, London
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Annual Report 2023
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 prior to
and including 30 June 2023, 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 “Hurdle Rate” for any Calculation Period
commencing with the Calculation Period
beginning on 1 July 2023, equals (x) Term SOFR
(as defined below) plus 2.747858% per annum,
multiplied by (y) the actual number of days in
the Calculation Period, divided by (z) 365.
“Term SOFR” means a rate per annum equal to the
forward-looking term rate, based on the secured
overnight financing rate published by the Federal
Reserve Bank of New York (or any successor
administrator of the secured overnight financing rate),
that is published by the CME Group Inc. (or a successor
administrator of Term SOFR) for a three-month period,
on the first day of the applicable Calculation Period
(the “Term SOFR Determination Date”); provided,
however, that if as of 5:00 p.m. (Central time) on the
Term SOFR Determination Date, Term SOFR for a
three-month period has not been published, Term
SOFR will be the next available Term SOFR for a
three-month period as published by the CME Group
Inc. (or a successor administrator of Term SOFR).(1)
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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. Apart from the management fees
and the incentive fee, the investment manager does not
charge separate fees based on the NAV of Tetragon.
An incentive fee of $16.3 million was accrued in the
fourth quarter of 2023 in accordance with Tetragon’s
investment management agreement. The hurdle rate
for the first quarter of the 2024 incentive fee has been
reset at 8.075188% (Q4 2023: 8.136008%) as per
the process outlined above and in accordance with
Tetragon’s investment management agreement.
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 the 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
• entering into any other contracts or agreements in
connection with any of the foregoing activities.
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.
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.
Tetragon Financial Group
Annual Report 2023
59
Our Investment Manager
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 Tetragon’s
Investment Manager, or TFM, and Certain
Subsidiaries of TFG Asset Management
The investment manager relies on two TFG Asset
Management entities(2) for a broad range of services
to support its activities. 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, TFG Asset
Management UK LLP,(3) which is authorised and
regulated by the United Kingdom Financial Conduct
Authority, also provides services to TFM relating
to the dealing in and management of investments,
arrangement of deals and advising on investments.
Cost Recovery by TFG Asset Management
for Services Provided to Tetragon’s
Investment Manager
TFG Asset Management 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.(4)
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 2023,
the total amount recharged to the investment manager,
excluding direct expenses, was $21.6 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.(5)
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,(6) 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. Core
personnel costs, including salary, bonus, pension and
healthcare, are charged on an actual employee cost
basis 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 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.
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KPMG LLP, reporting directly to Tetragon’s Audit
Committee, is 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.
Investment and Risk Committee
The investment manager’s Investment and Risk
Committee is responsible for the investment and risk
management of Tetragon’s portfolio. The committee
performs active and regular oversight and risk
monitoring. The committee determines the investment
strategy of Tetragon and approves each significant
investment by it. The committee currently consists of
Reade Griffith, Paddy Dear and Stephen Prince.
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Executive 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, Co-
Founder and Chief Investment Officer; Paddy Dear,
Co-Founder; Stephen Prince, Chief Executive Officer of
TFG Asset Management; Paul Gannon, Chief Financial
Officer; Sean Côté, General Counsel and Co-Head of
Legal Regulatory and Compliance; and Greg Wadsworth,
Head of Business Development and Investor Relations.
(1) Tetragon and its investment manager have agreed on a procedure for
determining an alternate benchmark rate in the event that Term SOFR
is unavailable in the future.
(2) These TFG Asset Management subsidiaries also provide infrastructure
services to LCM and Contingency Capital, and infrastructure and
investment management services to Westbourne River Partners,
Acasta Partners, Hawke’s Point, the TCI General Partner and Banyan
Square Partners.
(3) Reade Griffith and Paddy Dear hold certain membership interests in
TFG Asset Management UK LLP which collectively entitle them
to exercise all of the voting rights in respect of the entity.
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 Tetragon and (ii) upon the request of Tetragon, for nominal
consideration, sell, transfer, and deliver their membership interests in
TFG Asset Management UK LLP to TFG Asset Management.
(4) This cost allocation methodology also applies to the other TFG Asset
Management businesses.
(5) Employee compensation will also include TFG Asset Management’s
long-term incentive plan and its other equity-based awards.
(6) Amounts paid by TFG Asset Management to Reade Griffith in
connection with services provided by him to TFG Asset Management
are not allocated to the investment manager.
Zubeen Khan
Westbourne River
Partners, London
Tetragon Financial Group
Annual Report 2023
61
Tetragon Financial Group Limited Directors’ Report
The Directors present to the shareholders their report
together with the audited consolidated financial
statements for the year ended 31 December 2023.
Tetragon and its Investment Objective
Tetragon Financial Group Limited, or Tetragon, 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. 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 (ticker
symbol: TFG.NA) and traded 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. Tetragon’s investment
manager, Tetragon Financial Management LP, or TFM,
is registered as an investment adviser under the U.S.
Investment Advisers Act of 1940, as is TFG Asset
Management L.P., Tetragon’s diversified alternative
asset management business. Two of TFG Asset
Management L.P.’s investment management entities,
TFG Asset Management UK 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
105. 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*
The remuneration for Directors is determined by
resolution of the holder of Tetragon’s voting shares.
* Independent Directors
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Annual Report 2023
Each Director’s annual for the year ended
31 December 2023 was $125,000 (2022: $125,000)
as compensation for service on Tetragon’s Board
of Directors and is paid in quarterly instalments by
Tetragon. Paddy Dear and Reade Griffith have waived
their entitlement to a Director’s fee. From 1 January
2024, the annual fee was increased to $150,000.
The Independent Directors have the option to
elect to receive Tetragon shares instead of their
quarterly Director’s fee. During the year, David
O’Leary received 6,199 shares (2022: 6,508).
In addition to the annual fee, Tetragon has
awarded its shares to the Independent
Directors as described on page 53.
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.
Dividends
The Directors have the authority to declare dividend
payments, based upon the recommendation of
Tetragon’s investment manager, subject to the approval
of the holder of Tetragon’s voting shares and adherence
to applicable law including the satisfaction of a solvency
test as stated under the Companies (Guernsey) Law,
2008. TFM’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 Tetragon’s
cash generation capacity in the short- and medium-term,
(ii) the current and anticipated performance of Tetragon,
(iii) the current and anticipated operating and economic
environment and (iv) other potential uses of cash
ranging from preservation of Tetragon’s investments
and financial position to other investment opportunities.
The Directors declared the following dividends during
the year:
Dividend period
Dividend
per share
Quarter ended 31 December 2022
$0.1100
Quarter ended 31 March 2023
Quarter ended 30 June 2023
$0.1100
$0.1100
Quarter ended 30 September 2023
$0.1100
On 4 March 2024, the Directors declared a dividend
amounting to US$ 0.1100 per share for the quarter
ended 31 December 2023. The total dividend declared
for the year ended 31 December 2023 amounted to
$0.4400 per share (2022: $0.4400 per share).
information included on Tetragon’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.
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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 Tetragon and of the profit or loss of
Tetragon for the relevant financial period.
In preparing those financial statements,
the Directors are required to:
• select suitable accounting policies
and apply them consistently;
• make judgements 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 Tetragon’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
Tetragon 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 Tetragon 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 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 Tetragon and to
prevent and detect fraud and other irregularities.
Tetragon 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”. Tetragon 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 Tetragon as
required by the Disclosure Guidance and Transparency
Rules (DTR) 4.1.12R and by Section 5.25c of the
Financial Markets Supervision Act of the Netherlands
and are in compliance with the requirements set out in
the Companies (Guernsey) Law, 2008 as amended.
This 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 by
Section 5.25c of the Financial Markets 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 Tetragon 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 Tetragon’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
Tetragon’s auditor is aware of that information.
Auditor
KPMG Channel Islands Limited is the appointed
independent auditor of Tetragon and it has expressed
its willingness to continue in office. A resolution
for the re-appointment of KPMG Channel Islands
Limited as auditor of Tetragon is to be proposed
at the forthcoming Annual General Meeting.
Signed on behalf of the Board of Directors by:
David O’Leary Director
Director
Steven Hart
The Directors are responsible for the maintenance
and integrity of the corporate and financial
Date: 4 March 2024
Tetragon Financial Group
Annual Report 2023
63
The AIC Code of Corporate Governance
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
The AIC has a Code of Corporate Governance
approximately 350 members across a broad
(AIC Code) which sets out a framework of
range of closed-ended investment companies,
best practice in respect of the governance
incorporating investment trusts and other
of investment companies. The Board of
closed-ended investment companies.
Directors of Tetragon considers that reporting
Tetragon is classified by the AIC in its Flexible
against the principles and recommendations
Investment sector as a company whose policy
of the AIC Code, and by reference to the
allows it to invest in a range of asset types.
AIC Corporate Governance Guide for
The AIC has indicated that the sector
Investment Companies (which incorporates
may assist investors and advisers to
the UK Corporate Governance Code), will
more easily find and compare those
provide better information to shareholders.
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.
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/shareholders#aic-code.
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Additional information
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Dividend and Capital Return Policy
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.
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 stock
dividend plan.
Tetragon Financial Group
Annual Report 2023
65
Other information
Other
Information
This section provides further detail about
the business including our values and
culture, risk factors, and details on historical
share repurchases and distributions.
TFG Asset
Management
68 – 80
Our values
and culture
82 – 83
Risk
factors
84 – 90
Share repurchases
& distributions
91
Share reconciliation
& shareholdings
92
Certain regulatory
information
93
Equity-based employee
compensation plans
94
Shareholder
information
95
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Annual Report 2023
Other
Information
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Annual Report 2023
67
Other information
TFG Asset
Management
TFG Asset Management(1) is Tetragon’s diversified
alternative asset management platform. It enables
Tetragon to produce asset level returns on its
investments in managed funds on the platform, and
to enhance those returns through capital appreciation
and investment income from its ownership stakes in
the asset management businesses.
The combination 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.
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2010
9
Launched
Asset managers
530
Employees
(Excluding BGO)
$42Bn
Assets Under
Management(2)
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Delivering for Tetragon
Growth
Proven value creation
Access
Specialised products
on favourable terms
Expertise
Insights from alternative
asset managers
Diversification
Wide range of
income streams
Delivering for our managers
Infrastructure
High-quality support
for niche and
scalable businesses
Notes
Access to capital
Tetragon can seed
business growth
Management expertise
Experienced,
strategic insight
Connections
Access to relationships
and information
(1) TFG Asset Management L.P. is registered as an investment adviser under the United States Investment Advisers Act of 1940. TFG Asset Management UK LLP,
which is part of TFG Asset Management, is authorised and regulated by the United Kingdom Financial Conduct Authority. Reade Griffith and Paddy Dear hold
certain membership interests in TFG Asset Management UK LLP which collectively entitle them to exercise all of the voting rights in respect of the entity. 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 Tetragon and (ii) upon the
request of Tetragon, for nominal consideration, sell, transfer, and deliver their membership interests in TFG Asset Management UK LLP to TFG Asset Management.
(2) Includes the AUM of LCM, BGO, Westbourne River Partners, Acasta Partners, Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners, Contingency
Capital and TCICM. Includes, where relevant, investments by Tetragon. The AUM of Westbourne River Partners, Acasta Partners, Hawke’s Point and Banyan Square
Partners is as calculated by the applicable fund administrators. The AUM for LCM and TCICM is the aggregate value of collateral in each CLO as determined
the applicable trustee. The AUM for Equitix and Tetragon Credit Partners is based on committed capital. The AUM for Contingency Capital is the sum of uncalled
committed capital and the NAV as calculated by the applicable administrator. The AUM for BGO represents Tetragon’s pro rata share (12.86%) of BGO AUM at 31
December 2023 ($83.2 billion). Equitix AUM uses the USD-GBP exchange rate at 31 December 2023. TCICM (which comprises TCI Capital Management II LLC and
TCI Capital Management LLC) acts as a CLO collateral manager for certain CLO investments and had AUM of $2.4 billion at 31 December 2023.
Tetragon Financial Group
Annual Report 2023
69
Other information
Figure 15
Established
2001
2010
2002
2009
Joined Tetragon
2009
2010
2012
2012
Strategies
U.S. CLOs
Global real estate
funds
Event-driven equities Multi-disciplinary
Description
AUM at
31 Dec 2023
($Bn)(1)
Percentage
Tetragon
ownership
A specialist in below-
investment grade U.S.
broadly-syndicated
leveraged loans.
An alternative asset
A real estate-focused
management firm focused
principal investing,
on event-driven investing
lending and advisory firm.
in European small- and
mid-cap equities.
An alternative investment
firm that employs
a multi-disciplinary
approach to investing.
$10.7
$10.7
$0.9
$0.9
100%
13%
100%
Non-controlling
interest(2)
Average fund
duration
10-12 years(3)
(1) Please see Note 2 on page 69.
7-10 years
Quarterly liquidity
Quarterly liquidity
(2) TFG Asset Management owns a non-controlling interest in this manager as well as providing all infrastructure services to it. Michael Humphries owns
a controlling stake.
(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) TFG Asset Management owns a non-controlling interest in this manager as well as providing all infrastructure services to it. Brandon Baer owns a controlling stake.
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Annual Report 2023
Our investment in TFG Asset
Management has been a powerful
driver of Tetragon’s performance.”
Reade Griffith
Chief Investment Officer
O
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f
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Established
2007
2014
2015
2019
2020
Joined Tetragon
2015
2014
2015
2019
2020
Strategies
Infrastructure
funds
Mining finance
Structured credit Private equity
Legal assets
An integrated core
infrastructure asset
management and
An asset
A structured credit
A private equity
primary project
platform, with a
management
business that
investing business
firm focused on
focused on control
non-control equity
sector focus on
provides strategic
CLO equity as well
investments, as well
social infrastructure,
capital to companies
as a broader series
as opportunistic
transport, renewable
in the mining and
of offerings across
investments in
power, environmental
resource sectors.
the CLO capital
public equity and
A global asset
management
business focused
on credit-oriented
legal assets.
services, network
utilities and data
infrastructure.
structure.
credit instruments.
$13.9
$0.1
$0.9
$0.1
$0.7
75%
100%
100%
100%
Non-controlling
interest(4)
25 years
Not applicable
10 years
Not applicable
7 years
Description
AUM at
31 Dec 2023
($Bn)(1)
Percentage
Tetragon
ownership
Average fund
duration
Tetragon Financial Group
Annual Report 2023
71
Other information
Figure 16
TFG Asset Management AUM by business at 31 December 2023
This chart shows the breakdown of the AUM by business in billions of U.S. dollars.
LCM
$10.7
BGO
$10.7
Tetragon Credit Partners
$0.9
TCICM
$2.3
Westbourne River Partners
$0.9
Banyan Square
$0.1
Acasta Partners
$1.0
Equitix
$13.9
Contingency Capital
$0.7
Hawke’s Point
$0.1
Figure 17
TFG Asset Management AUM at 31 December 2019 – 2023
This chart depicts the growth of that AUM over the past five years in billions of U.S. dollars.(1)
$41.2
$41.5
$37.1
$30.1
$27.4
LCM
BGO
Westbourne River Partners
Acasta Partners
Equitix
Tetragon Credit Partners
TCICM
Banyan Square
Contingency Capital
Hawke’s Point
2019
2020
2021
2022
2023
Notes
(1) Please see Note 2 on page 69. AUM for BGO represents Tetragon’s pro rata share (12.86%) of BGO AUM at 31 December of each year.
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Figure 18
TFG Asset Management Pro Forma Statement of Operations(i)
Management fee income
Performance and success fees(ii)
Other fee income
Distributions from BGO
Interest income
Total income
Operating, employee and administrative expenses
Non-TFG Asset Management-owned interest
Net income – “EBITDA equivalent”
2023 ($M)
179.5
2022 ($M)
169.4
2021 ($M)
143.4
65.2
40.5
18.4
2.8
306.4
(204.8)
(24.8)
76.8
48.9
30.5
19.7
5.4
273.9
(182.8)
(18.8)
72.3
59.6
24.0
21.6
0.5
249.1
(178.3)
(20.1)
50.7
(i)
(ii)
This table includes the income and expenses attributable to TFG Asset Management’s businesses, (with the exception of BGO) during that period.
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. Similarly, 100% of the income and expenses
from Acasta Partners, 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. BGO 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.
The performance and success fees include some realised and unrealised Westbourne River and Acasta performance fees. These represent
the fees calculated by the applicable administrator of the relevant 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 full management
and performance fees on its investments in the open Westbourne River and Acasta 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.
• 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 funds. EMS continues to be the main
driver, and this increased 34% year on year.
• Distributions from BGO: Distributions from BGO
reflect (i) quarterly fixed distributions, (ii) quarterly
variable distributions and (iii) distributions of carried
interest. A decrease in the variable distributions was
the main driver for the decrease in this line item. For
2023, fixed payments contributed $14.1 million, plus
variable and carried interest payments of $4.3 million.
• Operating expenses: Operating expenses
increased by $22.0 million year-on-year, with
$14.7 million coming from Equitix as this businesses
added headcount and continued to scale up, and
increased costs on Acasta, tracking the higher
performance fee income earned on the funds.
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
2023, this included $12.9 million of management fees
(2022: $12.5 million) and $1.2 million of performance
and success fees (2022: $3.1 million).
• EBITDA: In 2023, TFG Asset Management’s
EBITDA was $76.8 million, 6.2% higher
than 2022, driven principally by growth in
management and performance fee income.
• Management fee income: Management fee income
continued to grow, increasing by $10.1 million, or
6.0%, year-on-year. Of note, Equitix management fee
income increased by $5.9 million, or 6.4%, as its AUM
continued to grow. LCM increased by $2.6 million due
to the annualisation of CLOs raised in the prior year.
Contingency Capital added $1.4 million as the strategy
continued to deploy capital throughout the year.
• 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 $16.3 million
on the prior year, driven primarily by an increase in
performance fee income earned by the Acasta funds.
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Other information
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.
Figure 19
A specialist in below-investment
grade U.S. broadly syndicated
leveraged loans
Strategies: U.S. CLOs
Founded: 2001
Description of business:
• LCM Asset Management is a specialist
in below-investment grade U.S. broadly
syndicated leveraged loans.
• LCM manages loan assets through Collateralised
Loan Obligations (CLOs), which are long-term,
multi-year investment vehicles. LCM has a track
record of over 20 years in CLO issuance and
management and has launched 40 CLOs to date.
• The team combines fundamental credit
analysis with expertise in CLO structuring.
• LCM is based in New York.
• TFG Asset Management owns 100% of the business
and Tetragon is an investor in LCM products.
• Find out more at www.lcmam.com.
LCM AUM history(i)
LCM’s AUM was $10.7 billion at 31 December 2023.
$12.5
$11.2
$10.7
$9.1
$8.9
Find out more at
www.lcmam.com
In billions of U.S. dollars
YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
(i)
Includes, where relevant, investments from Tetragon, TCI II, TCI III and TCI IV.
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A real estate-focused principal
investing, lending and advisory firm
Figure 20
Strategies: Global real estate funds
Founded: 2010
Description of business:
• BGO (the new trading name of BentallGreenOak) is
a real estate-focused principal investing,
lending and advisory firm.
• BGO has $83 billion in Assets Under Management
and over 750 clients and partners. They have
28 offices around the world and have 64 million
square feet of assets under administration.
• BGO was formed in June 2019 upon the merger of
TFG Asset Management’s GreenOak Real Estate
joint venture with Bentall Kennedy, an affiliate
of SLC Management, a global institutional asset
management arm of Sun Life Financial Inc.
• TFG Asset Management owns approximately
13% of the combined business and
Tetragon invests in BGO products.
• Further information on BGO is
available at www.bgo.com.*
*Clicking this link takes you to a website owned and operated by BGO,
a third-party. BGO’s website is not under the control of Tetragon and
Tetragon is not responsible for the content of any hyperlink contained.
BGO AUM history(i)
Tetragon’s pro rata share (12.86%) of BGO’s AUM at
31 December 2023 ($83.2 billion) was $10.7 billion.
The AUM data shows Tetragon’s pro rata
share of BGO AUM for each year.
$10.6
$10.7
$9.5
$6.8
$6.3
YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
North America
Europe
Asia
Global
Find out more at
www.bgo.com
In billions of U.S. dollars
(i)
Includes investment funds and advisory assets managed by BGO. Includes, where relevant, investments from Tetragon.
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Other information
An alternative asset management firm
focused on event-driven investing in
European small- and mid-cap equities
Figure 21
Strategies: Event-driven equities
Founded: 2009
Description of business:
• Westbourne River Partners is an alternative asset
management firm focused on event-driven investing
in European small- and mid-cap equities.
• Westbourne River Partners has offices
in New York and London.
• TFG Asset Management owns 100% of
the business and Tetragon invests in the
Westbourne River Partners funds.
• Find out more at www.westbourneriverpartners.com.
Westbourne River Partners AUM history(i)
Westbourne River Partners’s AUM was
$0.9 billion at 31 December 2023.
$0.79
$0.80
$0.80
$0.86
$0.73
YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
Westbourne River Event Fund
Find out more at
www.westbourneriverpartners.com
In billions of U.S. dollars
(i)
Includes AUM for Westbourne River Event Fund and associated managed account as calculated by the applicable fund administrator at
31 December of each year. Includes, where relevant, investments by Tetragon.
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An alternative investment firm that
employs a multi-disciplinary approach
to investing
Figure 22
Strategies: Multi-disciplinary
Founded: 2009
Description of business:
• Acasta Partners is an alternative investment firm that
employs a multi-disciplinary approach to investing.
• Acasta Partners’ approach includes strategies
directed at convertible bonds and volatility-linked
instruments, metals and mining companies and
commodities, as well as fundamental and event-
driven opportunities across the credit markets.
• Acasta Partners has offices in New
York, London and Florida.
• TFG Asset Management owns a non-controlling
interest in the business, and provides infrastructure
and other services. Tetragon invests in Acasta funds.
• Find out more at www.acasta.com.
Acasta AUM history(i)
Acasta’s AUM was $1.0 billion at 31 December 2023.
$1.0
$0.99
$0.94
$0.75
$0.63
YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
Acasta Global Fund
Acasta Energy Evolution Fund
Find out more at
www.acasta.com
In billions of U.S. dollars
(i)
Includes, where relevant, investments by Tetragon.
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Other information
An integrated core infrastructure
asset management and primary
project platform
Strategies: Infrastructure funds
Founded: 2007
Description of business:
• Equitix is an integrated core infrastructure asset
management and primary project platform, with
a sector focus on social infrastructure, transport,
renewable power, environmental services,
network utilities and data infrastructure.
• Equitix has over 360 assets, across 21 countries,
including projects in the U.K., Europe, North
America, the Middle East and Asia.
• TFG Asset Management owns 75% of the business.
• Find out more at www.equitix.co.uk*.
Figure 23
In billions of pounds
* Clicking this link takes you to a website owned and operated by a
third-party. Equitix’s website is not under the control of Tetragon and
Tetragon is not responsible for the content of any hyperlink contained.
£5.4
Equitix AUM history(i)
Equitix’s AUM was £10.9 billion ($13.9 billion)(i)
at 31 December 2023.
£10.9
£10.0
£8.0
£6.8
Find out more at
www.equitix.co.uk
(i) USD-GBP exchange rate at 31 December 2023.
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YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
Equitix
Fund I
Equitix
Fund II
Equitix
Fund III
Euro Fund
I & II
Managed
Accounts
Energy
Efficiency
Funds
Equitix
Fund VII
Equitix
Fund IV
Equitix
Fund VI
Equitix
Fund V
Rakiza
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$0.91
$0.92
$0.88
$0.80
A structured credit investing business
focused on control CLO equity
Figure 24
Strategies: Structured credit
Founded: 2015
Description of business:
• Tetragon Credit Partners is a structured credit
investing business focused on primary CLO
control equity as well as a broader series of
offerings across the CLO capital structure.
• Tetragon Credit Partners is one of the
largest, longest-tenured CLO equity investors
globally, having invested across 124
CLOs and 35 managers since 2005.
• Tetragon Credit Partners is based in New York.
• TFG Asset Management owns 100% of the
business, and Tetragon is an investor in
Tetragon Credit Partners’ products.
• Find out more at www.tetragoncreditpartners.com.
$0.78
Tetragon Credit Partners committed
capital/AUM history(i)
The sum of total committed capital for
Tetragon Credit Partners vehicles was
$0.9 billion at 31 December 2023.
Find out more at
www.tetragoncreditpartners.com
YE 2019
YE 2020
YE 2021
YE 2022
YE 2023
TCI II
TCI III
TCI IV
TCP Opportunity Fund
(i)
Includes, where relevant, investments by Tetragon.
In billions of U.S. dollars
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Other information
An asset management
business that provides
strategic capital to
companies in the
mining and resource
sectors
A private equity firm
focused on non-control
equity investment
opportunities, as
well as opportunistic
investments in public
equity and credit
instruments
A global asset
management business
focused on credit-
oriented legal assets
Strategies: Mining finance
Strategies: Private equity
Strategies: Legal assets
Founded: 2014
Founded: 2019
Founded: 2020
Description of business:
• Hawke’s Point is an asset
management business that provides
strategic capital to companies in
the mining and resource sectors.
• The team’s investment approach
is supported by detailed technical
analysis and mineral resource
modelling, coupled with financial
modelling based on first-
principles-bottom-up analysis.
• Hawke’s Point’s investments
currently include a series of
gold and battery metal assets in
North America and Australia.
• Hawke’s Point has offices in
London and New York.
• TFG Asset Management owns 100%
of the business and Tetragon is an
investor in Hawke’s Point funds.
• Hawke’s Point’s AUM was $0.1
billion at 31 December 2023.
• Find out more at
www.hawkespointcapital.com.
Description of business:
• Banyan Square Partners is a private
equity firm focused on non-control
equity investments, as well as
opportunistic investments in public
equity and credit instruments.
• Banyan Square Partners primarily
invests in enterprise software
and technology companies.
• Banyan Square Partners is
based in New York.
• TFG Asset Management owns
100% of the business, and Tetragon
invests in Banyan Square products.
• Banyan Square Partners’ AUM was
$0.1 billion at 31 December 2023.
• Find out more at
www.banyansq.com.
Description of business:
• Contingency Capital is a global
asset management focused on
credit-oriented legal assets.
• Contingency Capital invests in a
broad spectrum of legal assets
including loans to law firms, portfolios
of litigation, and distressed and
special situations investments where
the primary driver is related to a
legal, tax or regulatory process.
• Contingency Capital is
based in New York.
• TFG Asset Management owns a non-
controlling interest in this business
as well as providing infrastructure
services. Tetragon invests in
Contingency Capital products.
• Contingency Capital’s AUM was
$0.7 billion at 31 December 2023.
• Find out more at
www.contingencycapital.com.
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Our values
and culture
Our values
Rigour
Partnership
Ambition
We are analytical. We do our own
research and highly value expertise
within our team. We are exacting
in our processes and thoughtful in
the decisions we make. We learn
and evolve from our experiences.
We collaborate to generate
and improve ideas. We empower
colleagues to challenge
assumptions. We are non-
hierarchical. Senior leaders
are approachable and accessible
to the team. We respect, support
and learn from each other.
We are forward-looking,
ambitious and look for people
with drive. We embrace new
challenges and ways of thinking.
We work towards common
goals, trusting our people to take
ownership and responsibility.
To be successful you don’t just need
to attract supersmart, hard-working
people – you need them to stay.
That’s why creating a collegial and
respectful culture is so important.”
Reade Griffith
Chief Investment Officer
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Building an inclusive workplace
that welcomes people of all races,
ethnicities, cultures, sexual orientations,
genders and class backgrounds
is important to our success.”
Stephen Prince
Chief Executive Officer
Our culture
Building an inclusive workplace that welcomes people
of all races, ethnicities, cultures, sexual orientations,
genders and class backgrounds, is important to our
success. So, when we build our teams, we look for
diversity of experience. Combined with intellectual
curiosity, we believe this creates diversity of thought,
superior analysis and a stimulating environment in
which to work and learn.
We strive to ensure that our colleagues and partners
feel comfortable, valued and included. By empowering
them with responsibility. By being open to questions
and ideas from anywhere.
This accessibility and mutual respect for each other’s
experiences and perspectives helps us to work
dynamically and collaboratively. It is how we unlock
innovation and drive growth.
We are committed to conducting our businesses
in accordance with the highest legal and ethical
standards, in furtherance of the interests of our clients
and in a manner that is consistent with all applicable
laws, rules and regulations.
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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 discussed in this section are those that Tetragon
believes are material, but these risks and uncertainties are not the only ones
that the company faces. Additional risks and uncertainties that the company
does not presently know about or that it currently believes are immaterial
may also adversely impact the company’s business, financial condition,
results of operations, the value of its assets or the value of an investment in
Tetragon’s shares. If any of the following risks actually occur, the company’s
business, financial condition, results of operations, the value of its assets and
the value of your investment would likely suffer.
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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.
• Changes in the underlying values
of Tetragon’s investments.
• Illiquidity in the market for Tetragon shares,
including due to the liquidity (or lack thereof)
of the Euronext Amsterdam 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 prices less than fair value.
• A further issuance of shares or
repurchase of shares by Tetragon.
• 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 is comprised of 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, legal assets 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
• The asset management business
is intensely competitive.
• 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.
• Dividends declared by Tetragon.
• Certain of TFG Asset Management’s businesses
• 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.
have a limited or no operating history.
• The asset management business is
subject to 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.
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Risk factors
• 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.
• The performance of these investments may significantly
depend upon the performance of the asset manager
of funds or products in which Tetragon invests.
• Tetragon may be exposed to counterparty risk.
• Tetragon’s investment in TFG Asset
Management is illiquid.
Risks relating to other Tetragon portolio investments
• Tetragon otherwise currently invests or expects
to invest its capital, directly and indirectly, in:
• bank loans, generally through subordinated,
residual tranches of CLOs;
• real estate, generally through private equity-
style funds managed by BGO;
• public and private equity securities, particularly
in event-driven strategies, generally through
the Westbourne River Event Fund;
• convertible securities, mainly in the form of debt
securities that can be exchanged for equity interests,
including through the Acasta Global Fund;
• credit securities (including distressed
securities and structured credit), including
through Tetragon Credit Partners;
• private equity and venture capital through
direct investments and fund investments,
including through Banyan Square Partners;
• infrastructure projects through Equitix Holdings Limited;
• legal assets including through
Contingency Capital; and
• mining industry-related equity securities and
instruments, including through Hawke’s Point.
These portfolio investments are subject to various risks,
many of which are beyond Tetragon’s control, including:
• These securities are susceptible to losses
of up to 100% of the initial investments.
• 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.
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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 controlled 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.
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 judgement 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.
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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
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.
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Annual Report 2023
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Risk factors
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 non-voting shares are subject to restrictions on
ownership by U.S. persons.
Tetragon’s shares have not been and will not be
registered under the United States Securities Act of 1933.
Consequently, Tetragon shares may not be offered, sold
or otherwise transferred within the United States or to, or
for the account or benefit of, “U.S. persons” as defined in
Regulation S under the Securities Act absent registration
or an exemption from registration under the Securities
Act. No public offering of any Tetragon shares is being, or
has been, made in the United States.
Furthermore, Tetragon shares may not be held by any
“benefit plan investor” that is subject to Title I of the
United States Employee Retirement Income Security
Act of 1974. Tetragon’s Articles of Incorporation prohibit
any “ERISA Person” from acquiring or holding Tetragon
shares. The consequences of failing to comply with this
prohibition include the divestment of the relevant shares
and the forfeiture of any dividends previously received
with respect to such shares, as well as any gains from
their disposition.
These restrictions may adversely affect overall liquidity of
Tetragon 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 and who have experience in
investing in financial markets and collective investment
undertakings, who 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.
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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.
Coronavirus and public health emergency risks
In 2020, there was an outbreak of a novel and highly
contagious form of coronavirus, or COVID-19, which
the World Health Organisation declared to constitute
a “Public Health Emergency of International Concern”.
The outbreak of COVID-19 resulted in numerous
deaths, adversely impacted global commercial activity
and contributed to significant volatility in many equity
and debt markets globally. Many governments and
businesses reacted by instituting quarantines and
other social distancing measures, prohibitions on travel
(including on the movement of people and goods
between countries), material monetary and/or fiscal policy
changes, and the closure of offices, businesses, schools,
retail stores and other public venues. Such measures, as
well as the general uncertainty surrounding the dangers
and impact of COVID-19, created significant disruption
in supply chains and economic activity and had a
particularly adverse impact on transportation, hospitality,
tourism, entertainment and other industries.
Any public health emergency, including any outbreak
of COVID-19, SARS, H1N1/09 flu, avian flu, other
coronavirus, Ebola or other existing or new epidemic
diseases, or the threat thereof, could have a significant
adverse impact on Tetragon and could adversely
affect its ability to fulfil its investment objectives. The
spread of COVID-19 creates a variety of potential risks.
The magnitude and duration of these risks cannot be
predicted at this time.
The extent of the impact of any public health emergency
on Tetragon’s investments’ operational and financial
performance will depend on many factors, including the
duration and scope of such public health emergency,
the extent of any related travel advisories and restrictions
implemented, the impact of such public health
emergency on overall supply and demand (consumer
and industrial), goods and services, investor liquidity,
consumer confidence and levels of economic activity
and the extent of its disruption to important global,
regional and local supply chains and economic markets,
disruptions to shipping and other transportation, all of
which are highly uncertain and cannot be predicted.
The effects of a public health emergency may materially
and adversely impact the value and performance of
Tetragon’s investments, Tetragon’s ability to source,
manage and divest investments and its ability to achieve
its investment objectives, all of which could result in
significant losses to Tetragon. In addition, the operations
of Tetragon’s investments may be significantly impacted,
or even temporarily or permanently halted, as a result
of government quarantine measures, voluntary and
precautionary restrictions on travel or meetings and other
factors related to a public health emergency, including
operational disruptions and its potential adverse impact
on the health of any such entity’s personnel and reduced
efficiency due to illness of a portion of the workforce
or the need to work remotely. Tetragon’s key vendors
and service providers, such as providers of outsourced
accounting services, consultants and external counsel,
are also subject to these risks.
Risks resulting from the United Kingdom’s
exit from the European Union
The United Kingdom withdrew from the European Union
on 31 January 2020. This is referred to as Brexit. In
connection with Brexit, the United Kingdom and the
European Union agreed the Trade and Cooperation
Agreement, or TCA, that governs the future trading
relationship between the United Kingdom and the
European Union in specified areas. The TCA took effect
from 1 January 2021 following a transition period that
commenced immediately following the Brexit date.
The United Kingdom is no longer in the European
Union customs union and is outside of the European
Union single market. As a result, logistical disruption
is expected whilst the United Kingdom and European
Union implement the new relationship under the
TCA. Notably, the TCA does not include a EU-wide
cooperation arrangement for financial services, with U.K.
firms instead having to negotiate individual European
Union member state regulations and cooperation/
recognition arrangements. The initial timeframe set to
agree a financial services cooperation framework may
be subject to extension and a cooperation agreement
on financial services is not guaranteed. The uncertainty
surrounding the implementation of the TCA and the
outcome of ongoing negotiations may have economic,
tax, fiscal, legal, regulatory and other implications for
the asset management industry, the broader European
and global financial markets generally and for Tetragon.
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.
Tetragon Financial Group
Annual Report 2023
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Risk factors
high alert and the possibility of significant cyberwarfare
against military and civilian targets globally), it is
difficult to predict the conflict’s ultimate impact on
global economic and market conditions, and, as a
result, the situation presents material uncertainty and
risk with respect to Tetragon and the performance of its
investments and operations, and the ability of Tetragon to
achieve its investment objective.
Risks relating to the Israel-Hamas War
On 7 October 2023, the Hamas militant group breached
the fences separating Israel and Gaza and carried out
a violent terrorist attack. The foregoing attack sparked
an armed conflict, which is currently ongoing, between
Hamas and other Palestinian militant groups and
Israel, known as the 2023 Israel-Hamas war. Although
since the establishment of the State of Israel a state
of hostility has existed in varying degrees of intensity
between various Arab countries and Israel, the current
conflict between Israel and Hamas has escalated to
a heightened level not seen in recent years and may
escalate further. Additionally, while Israel has entered
into peace agreements with both Egypt and Jordan,
and several other Middle Eastern and North African
countries have normalized relations with Israel, the 2023
Israel-Hamas war has created tremendous unrest and
uncertainty in the region, which may threaten any such
peace agreements. A further expansion of the hostilities
between Israel and Palestine could have significant
international ramifications. The 2023 Israel-Hamas war
could potentially have a significant adverse impact and
result in significant losses to Tetragon, including those
described above in “Risks Relating to the Conflict in
Ukraine”. The ultimate impact of the 2023 Israel-Hamas
war and its effect on global economic and commercial
activity and conditions, and on the operations, financial
condition and performance of Tetragon or any particular
industry, business or investee country, and the duration
and severity of those effects is impossible to predict.
The future application of EU-based legislation and/
or taxation to the private fund industry in the United
Kingdom will depend, among other things, on how the
United Kingdom negotiates its relationship with the
European Union as regards financial services. There
can be no assurance that any negotiated laws, taxation
and/or regulations will not have an adverse impact
on Tetragon and its investments. The ongoing effects
of 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
Tetragon and increased legal, regulatory or compliance
burden on Tetragon, each of which may have a negative
impact on the operations, financial condition, returns or
prospects of Tetragon.
Although the most immediate impacts of Brexit on
corporate transactions will likely be related to changes
in market conditions, the development of new regulatory
regimes and parallel competition law enforcement may
have an adverse impact on transactions, particularly
those occurring in, or impacted by conditions in, the
United Kingdom and the European Union.
Risks relating to the conflict in Ukraine
On 24 February 2021, the Russian military commenced a
full-scale invasion into Ukraine and the conflict is currently
ongoing. In response, the United States, United Kingdom,
the European Union and other countries imposed
sanctions designed to target the Russian financial
system. Further sanctions may be forthcoming, and the
United States and allied countries have announced they
are committed to taking steps to prevent certain Russian
banks from accessing international payment systems.
Russia’s invasion of Ukraine, the resulting displacement
of persons both within Ukraine and to neighbouring
countries and the increasing international sanctions could
have a negative impact on the economy and business
activity globally and therefore could adversely affect the
performance of Tetragon’s investments. Furthermore,
given the ongoing and evolving nature of the conflict
between the two nations and its ongoing escalation
(such as Russia’s decision to place its nuclear forces on
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Share repurchases and distributions
Figure 25
Share Repurchase and Dividends History ($ millions)
Amount
Repurchased
$2.2
Cumulative Amount
Repurchased
$2.2
$12.4
$6.6
$25.5
$35.2
$175.6
$16.1
$50.9
$60.9
$157.8
$65.4
-
$50.3
$50.3
-
$67.1
$60.3
$836.6
$14.5
$21.2
$46.7
$81.9
$257.5
$273.6
$324.5
$385.4
$543.2
$608.6
$608.6
$658.8
$709.1
$709.1
$776.3
$836.6
Dividends
$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
$36.8
$38.2
$36.7
$853.2
Cumulative
dividends
$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
$778.3
$816.5
$853.2
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
TOTAL
Figure 26
The below graph shows cumulative historical share repurchases and dividends distributed by Tetragon from inception to 31
December 2023 in millions of U.S. dollars.(i)
$1,450.6
$1,487.4
$741.5
$778.3
$1,592.8
$816.5
$1,689.7
$853.2
$709.1
$709.1
$776.3
$836.6
Inception-2020
2021
2022
2023
Cumulative Share Repurchases ($MM)
Cumulative Dividends Paid ($MM)
Notes
(i)
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.
Tetragon Financial Group
Annual Report 2023
91
Share reconciliation and shareholdings
Figure 27
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 2023
(millions)
139.7
47.7
10.8
81.2
9.6
90.8
1
(i) The Total Escrow Shares of 10.8 million consists of shares held
in separate escrow accounts in relation to certain equity-based
compensation.
(ii) Dilution in relation to equity-based awards by TFG Asset
Management for certain senior employees as well as equity-based
awards by Tetragon to its independent Directors. At the reporting
date, this was 9.6 million. The basis and pace of recognition is
expected to match the rate at which service is being provided to
TFG Asset Management or Tetragon in relation to these shares.
Please see “Equity-based employee compensation plans” on
page 94 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 harbour” 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.
Shareholdings
Persons affiliated with Tetragon maintain significant
interests in Tetragon shares. For example, as of 31
December 2023, the following persons own (directly or
indirectly) interests in shares in Tetragon in the amounts
set forth below:
Figure 28
Individual
Mr. Reade Griffith(2.i)
Mr. Paddy Dear
Mr. David O’Leary
Mr. Steven Hart
Mr. Deron Haley
Other Tetragon/TFG Asset Management Employees
Equity-based awards(2.ii)
Shareholding at 31 December 2023
19,090,590
5,676,316
61,476
31,889
31,889
7,172,266
3,306,101
2.
(i) Includes approximately 2.6 million incentive shares held in escrow
with respect to Mr. Griffith’s employment agreement vesting in
July 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 94 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/TFG Asset Management Employees”.
Please see page 94 for further details
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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 it has been filed
in ESEF format 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).
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 Financial Markets Supervision Act of
the Netherlands as an alternative 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 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.
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 Financial Group
Annual Report 2023
93
Equity-based employee compensation plans
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 2021 and 2023, further awards to certain senior TFG
Asset Management employees (excluding the principals
of the investment manager) totalling approximately 3.4
million shares were made covering vesting and release
periods out to 2030.
The shares underlying these equity-based incentive
programs may 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 Westbourne River Partners 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,
0.3 million Tetragon non-voting shares in July 2021 and
will receive the following:
• 2.1 million Tetragon non-voting shares in July 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 2.1 million shares (plus dividend shares)
vesting in July 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.
Tetragon has awarded its shares to the Independent
Directors as described on page 53.
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 2023,
approximately 9.6 million shares were included in the fully
diluted share count.
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Shareholder information
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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)
Walkers (Guernsey) LLP
Block B, Helvetia Court
Les Echelons
St. Peter Port
Guernsey GY1 1AR
Channel Islands
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
London Stock Exchange
(Specialist Fund Segment)
Administrator and Registrar
TMF Group Fund Services
(Guernsey) Limited
Top Floor
Mill Court, La Charroterie
St. Peter Port
Guernsey GY1 1EJ
Channel Islands
Registered Office of Tetragon
Tetragon Financial Group Limited
Mill Court, La Charroterie
St. Peter Port, Guernsey
Channel Islands GY1 1EJ
Investment Manager
Tetragon Financial Management LP
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America
General Partner of the 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
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 GY1 1DB
Channel Islands
Tetragon Financial Group
Annual Report 2023
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Financial statements
Financial
statements
Independent
Auditor’s Report
98 – 103
Consolidated statement
of Financial Position
104
Consolidated statement
of Comprehensive Income
105
Consolidated statement
of Changes in Equity
106
Consolidated statement
of Cash Flows
107
Notes to the
Financial Statements
108 – 141
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Financial
statements
Tetragon Financial Group
Annual Report 2023
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Independent auditor’s report to the members of
Tetragon Financial Group Limited
Report on the audit of the consolidated
financial statements
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:
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 2023, the
consolidated statements of comprehensive income,
changes in equity and cash flows for the year then
ended, and notes, comprising material accounting
policies and other explanatory information.
In our opinion, the accompanying
consolidated financial statements:
•
•
give a true and fair view of the financial
position of the Group as at 31 December 2023,
and of the Group’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 the FRC Ethical Standard as required by
the Crown Dependencies’ Audit Rules and Guidance.
We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
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The risk
Our response
Valuation of TFG Asset Management included within non-derivative
financial instruments at fair value through profit or loss.
Our audit procedures included:
Control design:
$1,345.4 Million (2022: $1,343.3 Million)
Refer to note 2 accounting policy and note 3 and 4 disclosures
We have obtained an understanding of the valuation process and tested
the design and implementation of the valuation process control.
We performed the procedures below rather than seeking to rely on
the control as the nature of the balance is such that we would expect
to obtain audit evidence primarily through the detailed procedures
described.
Challenging managements’ assumptions and inputs including use of
KPMG valuation specialist:
With the support of a KPMG valuation specialist we:
•
•
•
•
•
assessed the scope of the services provided by the Valuation Agent
and read the valuation report prepared by them;
assessed the objectivity, capabilities and competence of the
Valuation Agent;
assessed the reasonableness of the methodology applied by
the Valuation Agent in developing the fair value of TFG Asset
Management;
critically assessed the valuations provided by the Valuation Agent
by challenging and corroborating the key and other assumptions,
and by agreeing data points to supporting documentation or market
information where available;
assessed whether the WACC, the EV/EBITDA multiples and DLOL
employed were within a reasonable range independently developed
based on market data.
Assessing disclosures:
We considered the adequacy of the disclosures made in the
consolidated 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.
Basis:
As at 31 December 2023, the Group’s investment in TFG Asset
Management represents 47.6% (2022: 48.7%) of the Group’s net asset
value.
TFG Asset Management is valued as a single investment, utilising a sum
of the parts approach, whereby each of the asset managers owned by
TFG Asset Management is valued separately.
This approach aggregates the fair value of the asset managers held
by TFG Asset Management using a combination of discounted cash
flow models (“DCF”) and market multiple approaches, overlayed by the
central costs and net assets at the TFG Asset Management level.
An independent third party valuation specialist (the “Valuation Agent”)
has been engaged to assist in the valuation process of TFG Asset
Management.
Risk:
As the TFG Asset Management investment is unquoted and illiquid, in
order to determine it’s fair value, management adopted a number of
assumptions and data points which are unobservable in the market.
These include:
Key assumptions:
The weighted average cost of capital (“WACC”), the EV/EBITDA multiple
and discount for lack of liquidity (“DLOL”) assumptions have a high
degree of estimation uncertainty with a potential range of reasonable
outcomes greater than our materiality for the consolidated financial
statements as a whole.
Other assumptions and data points:
Whilst we do not consider other assumptions and data points to be at a
significant risk of misstatement, due to the relevance of these elements
in terms of the overall valuation and associated audit effort, the following
areas also have had a significant effect on our audit approach:
•
•
control premium; and
forecast cashflows and its related assumptions.
The consolidated financial statements disclose in note 4 the sensitivities
estimated by the Group.
Tetragon Financial Group
Annual Report 2023
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Independent auditor’s report to the members of
Tetragon Financial Group Limited
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 $55.4 million, determined with reference
to a benchmark of group net assets of $2,825.4 million,
of which it represents approximately 2.0% (2022: 2.0%).
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 their
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 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%
(2022: 75%) of materiality for the consolidated financial
statements as a whole, which equates to $41.5 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 $2.77
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
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 of the Group to comply with debt covenants.
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 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.
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
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• we found the going concern disclosure
We performed procedures including:
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.
• Identifying journal entries and other adjustments
to test based on risk criteria and comparing any
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 sector
experience and through discussion with management
(as required by auditing standards), and from inspection
of the Company’s regulatory and legal correspondence,
if any, 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.
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 and 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’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
Tetragon Financial Group
Annual Report 2023
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Independent auditor’s report to the members of
Tetragon Financial Group Limited
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 annual 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.
Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
63, 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.
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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.
In our opinion, the annual report prepared in the XHTML
format, including the tagged consolidated financial
statements as included in the reporting package
by the Group, has been prepared in all material
respects in accordance with the RTS on ESEF.
The directors are responsible for preparing the
annual report including the consolidated financial
statements in accordance with the RTS on ESEF,
whereby the directors combine the various
components into a single reporting package. Our
responsibility is to obtain reasonable assurance for
our opinion whether the annual report in this reporting
package, is in accordance with the RTS on ESEF.
Our procedures included:
• Obtaining an understanding of the Group’s
financial reporting process, including the
preparation of the reporting package;
• Obtaining the reporting package and performing
validations to determine whether the reporting
package containing the Inline XBRL instance
document and the XBRL extension taxonomy files
have been prepared in accordance with the technical
specifications as included in the RTS on ESEF;
• Examining the information related to the
consolidated financial statements in the reporting
package to determine whether all required
taggings have been applied and whether they
are in accordance with the RTS on ESEF.
Barry Ryan
Report on Regulatory Requirements
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
European Single Electronic Format (“ESEF”)
The Group has prepared its annual report in ESEF. The
requirements for this format are set out in the Commission
Delegated Regulation (EU) 2019/815 with regard to
regulatory technical standards on the specification of a
single electronic reporting format (these requirements
are hereinafter referred to as: the “RTS on ESEF”).
Guernsey
4 March 2024
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Annual Report 2023
103
Consolidated Statement of Financial Position
Note
31 Dec 2023
$M
31 Dec 2022
$M
As of
Assets
Non-derivative financial assets at fair value
through profit or loss
Derivative financial assets
Other receivables and prepayments
Amounts due from brokers
Cash and cash equivalents
Total assets
Liabilities
Loans and borrowings
Derivative financial liabilities
Other payables and accrued expenses
Amounts due to brokers
Total liabilities
Net assets
Equity
Share capital
Other equity
4
4
7
6
6
10
4
9
8
Share-based compensation reserve
12
Retained earnings
Shares outstanding
Number of shares (million)
12
Net Asset Value per share ($)
The accompanying notes are an integral part of the consolidated financial statements.
3,065.7
2,919.2
5.1
4.7
7.2
23.1
3,105.8
250.0
8.3
22.1
-
280.4
2,825.4
0.1
722.3
71.0
2,032.0
2,825.4
81.2
34.79
21.7
6.1
5.5
21.7
2,974.2
115.0
2.5
30.2
68.0
215.7
2,758.5
0.1
768.7
61.7
1,928.0
2,758.5
85.6
32.24
Signed on behalf of the
Board of Directors by:
David O’Leary
Director
Steven Hart
Director
Date: 4 March 2024
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Consolidated Statement of Comprehensive Income
For the year ended
Note
31 Dec 2023
$M
31 Dec 2022
$M
Net gain on non-derivative financial assets at
fair value through profit or loss
Net (loss)/gain on derivative financial assets
and liabilities
Net gain on foreign exchange
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
Operating profit/(loss) before finance costs
Finance costs
Profit/(loss) and total comprehensive
income/(loss) for the year
Earnings per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
15
11
12
10
16
16
16
16
The accompanying notes are an integral part of the consolidated financial statements.
270.6
(32.5)
0.3
2.3
240.7
(41.7)
(16.3)
(4.2)
(9.3)
(0.8)
(3.3)
(75.6)
165.1
(24.0)
141.1
$
1.62
1.53
18.9
42.4
1.2
0.4
62.9
(41.1)
(26.5)
(3.3)
(9.5)
(0.6)
(3.7)
(84.7)
(21.8)
(10.3)
(32.1)
$
(0.35)
(0.34)
Million
Million
87.3
92.2
90.8
94.9
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Annual Report 2023
105
Consolidated Statement of Changes in Equity
Share
capital
Other
equity
Retained
earnings
As at 1 January 2022
Loss and total comprehensive loss 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
Issue of shares
Purchase of treasury shares
As at 31 December 2022
Gain and total comprehensive income for the year
Transactions with owners recognised directly
in equity
Share-based compensation
Cash dividends
Stock dividends
Issue of shares
Purchase of treasury shares
As at 31 December 2023
$M
0.1
-
-
-
-
-
-
-
-
7.9
3.0
-
-
15.0
0.1
(72.0)
-
(3.0)
-
(23.8)
(15.0)
-
-
0.1
768.7
1,928.0
-
-
-
-
-
-
-
-
-
13.8
0.1
(60.3)
141.1
-
(23.3)
(13.8)
-
-
The accompanying notes are an integral part of the consolidated financial statements.
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Share-based
compensation
reserve
$M
Total
$M
$M
$M
814.7
2,001.9
60.1
2,876.8
-
(32.1)
-
(32.1)
(7.9)
-
9.5
-
-
-
-
-
-
9.5
(23.8)
-
0.1
(72.0)
61.7
2,758.5
-
141.1
9.3
-
-
-
-
9.3
(23.3)
-
0.1
(60.3)
0.1
722.3
2,032.0
71.0
2,825.4
Consolidated Statement of Cash Flows
For the year ended
Operating activities
Profit/(loss) 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
Decrease in payables
(Increase)/decrease in amounts due from brokers
(Decrease)/increase in amounts due to brokers
Cash flows from operations
Proceeds from sale/prepayment/maturity
of investments
Net (payments)/receipts from derivative financial
instruments
Purchase of investments
Cash interest received
Net cash 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 generated/(used in) 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
The accompanying notes are an integral part of the consolidated financial statements.
F
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31 Dec 2023
$M
31 Dec 2022
$M
141.1
(238.2)
9.3
(2.3)
24.0
(66.1)
(1.1)
(11.0)
(1.6)
(68.0)
(147.8)
345.1
(5.2)
(220.3)
2.2
(26.0)
(150.0)
285.0
(24.0)
(60.3)
(23.3)
27.4
1.4
21.7
23.1
(32.1)
(61.3)
9.5
(0.4)
10.3
(74.0)
0.1
(77.3)
0.4
68.0
(82.8)
394.8
20.9
(444.3)
0.4
(111.0)
(175.0)
215.0
(10.3)
(72.0)
(23.8)
(66.1)
(177.1)
198.8
21.7
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Notes to the financial statements
Note 1 Corporate Information
Tetragon Financial Group Limited (“Tetragon” or the
“Fund”) was registered in Guernsey on 23 June 2005 as
a company limited by shares, with registered number
43321. All voting shares of the Fund are held by Polygon
Credit Holdings II Limited (the “Voting Shareholder”).
The Fund continues to be registered and domiciled in
Guernsey, and the Fund’s non-voting shares (the “Shares”)
are listed on Euronext in Amsterdam, a regulated market
of Euronext Amsterdam N.V. (ticker symbol: TFG.NA)
and on the Specialist Fund Segment of the London Stock
Exchange plc (ticker symbols: TFG.LN and TFGS.LN). The
registered office of the Fund is Mill Court, La Charroterie,
St. Peter Port, Guernsey, GY1 1EJ, Channel Islands.
Note 2 Material Accounting Policies
Basis of Preparation
The consolidated financial statements of the Fund
(the “Financial Statements”) have been prepared in
accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European
Union (“EU”) and comply with the Companies
(Guernsey) Law, 2008 and give a true and fair view.
The financial statements have been prepared on a
historical cost basis, except for derivative financial
instruments and certain non-derivative financial assets
and financial liabilities held at fair value through profit or
loss (“FVTPL”) that have been measured at fair value.
The accounting policies have been consistently applied
to all periods presented in these financial statements.
The financial statements are presented in United States
Dollars (“USD” or “$”), which is the functional currency
of the Fund, expressed in USD millions (“$m”) (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 holds 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 reasonable plausible downside scenarios
in preparing the cash flow and liquidity projections for
the next twelve 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.
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.
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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
– it has contractual terms which 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, amounts due to
brokers, and other payables and accrued expenses.
(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.
Tetragon Financial Group
Annual Report 2023
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Notes to the financial statements
(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.
(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
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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 brokers include margin accounts
which represent cash pledged as collateral on the
forward foreign exchange contracts, credit default
swaps and contracts for difference. Amounts
due to brokers include cash advances obtained
from the brokers by pledging certain investments.
Refer to the accounting policy for financial
instruments for recognition and measurement.
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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.
Tetragon Financial Group
Annual Report 2023
111
Notes to the financial statements
Expenses
Expenses and fees, including Directors’ fees,
are recognised through profit or loss in the
Consolidated Statement of Comprehensive
Income on the 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 (2022: 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 in the Consolidated
Statement of Changes in 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.
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 Judgements,
Estimates and Assumptions
The preparation of the Fund’s financial statements
requires management to make judgements, 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.
In the process of applying the Fund’s accounting
policies, management has made the following
judgements, estimates and assumptions which
have the most significant effect on the amounts
recognised in the financial statements:
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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 – Quoted in active markets
for identical instruments.
• Level 2 – Prices determined using other significant
observable inputs. These may include quoted
prices for similar securities, interest rates,
prepayments spreads, credit risk and others.
• Level 3 – Unobservable inputs. Unobservable inputs
reflect assumptions market participants would be
expected to use in pricing the asset or liability.
Judgements
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.
Tetragon obtained funds from investors for the purpose
of providing investment management services. 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 at the year-end 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.
Tetragon Financial Group
Annual Report 2023
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Notes to the financial statements
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 2023:
Non-derivative financial assets at FVTPL
Level 1
Level 2
Level 3
TFG Asset Management
Investment funds and vehicles
Listed stock
CLO equity tranches(1)
CLO debt tranches(1)
Unlisted stock
Corporate bonds
$M
-
-
190.4
-
-
-
-
$M
-
673.3
-
-
3.8
2.7
15.7
$M
1,345.4
593.2
-
129.5
-
111.7
-
Total
Fair Value
$M
1,345.4
1,266.5
190.4
129.5
3.8
114.4
15.7
Total non-derivative financial assets at FVTPL
190.4
695.5
2,179.8
3,065.7
Derivative financial assets
Currency options (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
-
-
-
-
-
-
2.2
2.9
5.1
(0.1)
(8.2)
(8.3)
-
-
-
-
-
-
2.2
2.9
5.1
(0.1)
(8.2)
(8.3)
(1) Investment in CLO equity and debt tranches held through special purpose vehicles are included in these captions.
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The following table shows financial instruments measured at fair value by the level in fair value hierarchy as of
31 December 2022:
Non-derivative financial assets at FVTPL
Level 1
Level 2
Level 3
TFG Asset Management
Investment funds and vehicles
Listed stock
CLO equity tranches(1)
CLO debt tranches(1)
Unlisted stock
Corporate bonds
$M
-
-
158.5
-
-
-
-
Total non-derivative financial assets at FVTPL
158.5
Derivative financial assets
Contracts for difference (asset)
Currency options (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
-
-
-
-
-
-
-
Total
Fair Value
$M
$M
1,343.3
1,343.3
$M
-
595.0
570.6
1,165.6
-
-
1.2
-
15.9
612.1
0.3
3.0
18.4
21.7
(0.1)
(2.4)
(2.5)
-
170.2
-
64.5
-
158.5
170.2
1.2
64.5
15.9
2,148.6
2,919.2
-
-
-
-
-
-
-
0.3
3.0
18.4
21.7
(0.1)
(2.4)
(2.5)
(1) Investment in CLO equity and debt tranches held through special purpose vehicles are included in these captions.
Transfers between levels
There were no transfers between levels during the year
ended 31 December 2023 or 31 December 2022.
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/to brokers, cash and cash
equivalents, loans and borrowings, and other payables.
Tetragon Financial Group
Annual Report 2023
115
Notes to the financial statements
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 2023.
Balance at 1 January 2023
Additions
Proceeds
Net gains through profit or loss
Balance at 31 December 2023
Change in unrealised gains/(losses) through profit or
loss for assets held at year-end
CLO
Equity
Tranches
$M
170.2
-
(48.1)
7.4
129.5
(5.3)
Unlisted
Stock
$M
64.5
22.3
(7.3)
32.2
111.7
29.5
Investment
Funds and
Vehicles
$M
TFG
Asset
Management
$M
Total
$M
570.6
61.7
(48.6)
9.5
593.2
1.5
1,343.3
2,148.6
23.8
107.8
(50.0)
(154.0)
28.3
77.4
1,345.4
(17.7)
2,179.8
8.0
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 2022.
CLO
Equity
Tranches
$M
164.4
34.7
Unlisted
Stock
$M
50.3
32.3
(56.6)
(18.7)
27.7
170.2
0.9
0.6
64.5
0.6
Investment
Funds and
Vehicles
$M
TFG
Asset
Management
$M
Total
$M
521.7
95.8
(97.4)
50.5
570.6
9.3
1,256.3
1,992.7
26.1
188.9
(34.8)
(207.5)
95.7
174.5
1,343.3
60.9
2,148.6
71.7
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
their discretion, permit any other method of valuation to
be used if they consider that such method of valuation
better reflects value and is in accordance with IFRS.
Balance at 1 January 2022
Additions
Proceeds
Net gains through profit or loss
Balance at 31 December 2022
Change in unrealised gains through profit or loss for
assets held at year-end
Valuation process (framework)
TMF Group Fund Services (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 Fund’s Audit Committee, which comprises
of independent Directors, from time to time.
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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 judgements and
forward-looking determinations, and its experience and
knowledge is instrumental in the valuation process.
As at 31 December 2023, 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.
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 2023, a discount rate of
13% (2022: 13%) is applied unless the deal is within its
non-refinancing period, in which case the deal internal
rate of return (“IRR”) is utilised as the discount rate.
For deals in this category, the weighted average IRR
or discount rate is 16.7% (2022: 17.9%). If the deal
is past six months from the end of its reinvestment
period, a discount rate of 15% (2022: 13%) is applied.
Constant Annual
Default Rate
(“CADR”)
3.0% up to 31 December 2024, 2.4% thereafter (2022: 2.39%), 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
65% (2022: 65%) up to 31 December 2024, 70% thereafter (2022: 70%).
Prepayment Rate 20% (2022: 20%), the original base-case prepayment rate with a 0% prepayment rate (2022: 0%) on
bonds throughout the life of the transaction.
Reinvestment
Price and Spread
Assumed reinvestment price is par for the life of the transaction with reinvestments being modelled
for deals that are still in their reinvestment period. Reinvestment spread consists of U.S. syndicated
loans with an effective spread over Term SOFR of 379 bps (2022: 379 bps).
Sensitivity analysis
The discount rate used is a key input in 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
31 Dec
2023
$M
3.3
31 Dec
2022
$M
4.8
(3.2)
(4.5)
Tetragon Financial Group
Annual Report 2023
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Notes to the financial statements
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 agent 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.
The DCF Approach calculates the enterprise value of
the investments by utilising a business-specific model
to estimate the generation of future net cash flows.
Each model reflects the business plan over a specific
period of 5-10 years which includes, where applicable,
assumptions (which may not be linear) around planned
capital raising and/or organic growth through investment
returns. The DCF Approach may also include a terminal
value which is calculated by applying a growth formula
to the projected cash flows in the terminal year or to
the average of yearly cash flows in the business plan.
This terminal value calculation is used in the DCF
approach for Equitix, LCM, Westbourne River Partners,
Contingency Capital and Acasta. All estimates of future
free cash flows and the terminal value are discounted
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”), in the range of 5% to 20%.
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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 assets under management (“AUM”),
to derive the enterprise 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 agent considered a
multiple of earnings such as a company’s earnings
before interest, taxes, depreciation, and amortisation
(“EBITDA”), to perform this analysis. These multiples
were then adjusted for control premium if the comparable
companies are valued on a minority basis.
Equitix and LCM are valued using a combination
of DCF Approach and quoted market multiples
(“Market Multiple Approach”) based on comparable
companies to determine an appropriate valuation
range. Both approaches are given 50/50 weighting
in the valuation. Westbourne River Partners,
Acasta, Tetragon Credit Partners and Contingency
Capital are valued using the DCF Approach.
TFG Asset Management holds approximately 13%
interest in BGO and is entitled to receive a series of fixed
and variable profit distributions. Sun Life 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
exercise price will be determined based on the average
EBITDA of BGO during the two years prior to exercising
the option. The Fund’s investment in BGO is valued
using the DCF Approach on expected cash flows.
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The following table shows the unobservable inputs used by the third-party valuation specialist in valuing TFG Asset
Management. For the purposes of IAS 1 Presentation of Financial Statements, control premium is not a significant input.
31 December 2023
Investment
Fair
Value
$M
AUM
(billion)
Valuation
methodology
Equitix
737.6 GBP 10.9
BGO
270.5
$10.7
LCM
258.5
$10.7
Other asset
managers
78.8
$6.2
DCF and
Market
Multiples
DCF (sum-of-
the-parts)
DCF and
Market
Multiples
DCF,
replacement
cost
31 December 2022
Investment
Fair
Value
$M
AUM
(billion)
Valuation
methodology
Equitix
683.2
GBP 10.0
DCF and
Market
Multiples
Significant unobservable inputs
WACC
10.5%
EV/
EBITDA
Multiple
9.5x
DLOL
Control
premium
Forecast
5Y CAGR
10%
20%
5.6-11.8%
NA
5-15%
NA
10.75%
11.8x
15%
20%
11.5%-
13.25%
NA
15-20%
NA
Significant unobservable inputs
WACC
10.5%
EV/
EBITDA
Multiple
11x
DLOL
Control
premium
Forecast
5Y CAGR
10%
20%
BGO
283.0
$10.6 DCF (sum-of-
the-parts)
4.8-12%
NA
10%
NA
LCM
290.7
$12.5
Other asset
managers
86.4
$6.1
DCF and
Market
Multiples
DCF,
replacement
cost
11.5%
12.6x
15%
20%
11-13%
NA
15-20%
NA
9.8%
(AUM)
15.5%
(EBITDA)
7.2%
(AUM)
7.6%
(AUM)
12.6%
(AUM)
21.7%
(EBITDA)
12.0%
(AUM)
8.0%
(AUM)
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Notes to the financial statements
Sensitivity analysis
31 December 2023
Investment
Effects on net assets and profits ($M)
WACC
-100
bps
52.0
+100
bps
(40.9)
EV/EBITDA
multiple
+10%
-10%
39.2
(39.2)
DLOL
Control premium Forecast 5Y CAGR
-500
bps
39.4
+500
bps
(39.4)
+500
bps
17.7
-500
bps
(17.7)
+100
bps
15.1
-100
bps
(16.8)
Equitix
BGO
5.8
(5.6)
NA
NA
14.9
(14.9)
NA
NA
8.9
(8.7)
LCM
14.5
(11.5)
14.3
(14.3)
13.6
(13.6)
6.8
(6.8)
4.6
(4.6)
Other
asset
managers
31 December 2022
Investment
5.7
(4.8)
NA
NA
4.5
(4.5)
NA
NA
8.5
(8.0)
Effects on net assets and profits ($M)
WACC
-100
bps
48.9
+100
bps
(38.8)
EV/EBITDA
multiple
+3%
-3%
11.6
(11.6)
DLOL
Control premium Forecast 5Y CAGR
-500
bps
38.7
+500
bps
(38.7)
+500
bps
17.8
-500
bps
(17.8)
+100
bps
13.6
-100
bps
(13.6)
Equitix
BGO
8.2
(7.8)
NA
NA
13.5
(13.5)
NA
NA
14.3
(10.9)
LCM
14.5
(11.8)
4.9
(4.9)
15.5
(15.5)
7.7
(7.7)
4.0
(4.3)
Other
asset
managers
6.4
(5.4)
NA
NA
4.7
(4.7)
NA
NA
6.5
(8.0)
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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 fair value
hierarchy for the investment funds is determined by the
fair value hierarchy of the underlying investments.
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. The
input is adjusted, between 30% to 40%, for factors
such as recent crop yields, conditions specific to
the farms and broker quotes and bids received.
Sensitivity analysis:
A 10% 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 $59.3 million (2022:
$57.1 million). A decrease in the NAV of the unlisted
investment funds will have an equal and opposite effect.
Unlisted stock
At 31 December 2023, the Level 3 unlisted stock includes the following investments in private companies.
Investment
number
1
2
3
4
Fair value ($M)
Valuation methodology
31 Dec
2023
103.8
31 Dec
2022
54.1
Valued using two different prices. A part of the holding, $9.7 million, is
subject to tender offer and has been valued utilising the tender offer price.
Rest of the shares are valued using broker quotes.
-
7.5
0.4
2.5
7.5
0.4
n/a
Transaction price
Expected value of cash flows
Sensitivity analysis:
A 5% increase in the valuation will increase the net
assets and profits of the Fund by $5.6 million (2022:
$3.2 million). A 5% decrease will have an equal but
opposite effect on the net assets and profits.
Listed stock
For listed stock in an active market, the closing
exchange price is utilised as the fair value price.
Corporate bonds and CLO debt tranches
The corporate bonds and CLO debt tranches
held by the Fund are valued using the broker
quotes obtained at the valuation date.
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.
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Notes to the financial statements
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. Please
refer to Note 14 for details of unfunded commitments.
Below is a summary of the Fund’s holdings in subsidiary unconsolidated structured entities.
As at 31 December 2023
CLO Equity
U.S. CLOs(1)
Investment Funds
Westbourne River Event Fund(2)
TFG Asset Management Global Equities Fund(2)
Tetragon Credit Income funds(3)
Hawke’s Point Holdings LP(3)
Banyan Square Capital Partners LP(3)
Other Real Estate(4)
No. of
investments
Range of
nominal
$M
Average
nominal
$M
Carrying
value
$M
Percentage
of Tetragon’s
NAV
19
100.7–741.5
423.9
124.0
4.5%
Total NAV
$M
484.5
3.3
588.6
119.0
128.7
37.9
1
1
3
2
1
4
NA
NA
NA
NA
NA
NA
446.7
3.3
111.0
116.7
127.0
37.9
15.8%
0.1%
3.9%
4.1%
4.5%
1.3%
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As at 31 December 2022
CLO Equity
U.S. CLOs(1)
Investment Funds
Westbourne River Event Fund(2)
TFG Asset Management Global Equities Fund(2)
Tetragon Credit Income funds(3)
Hawke’s Point Holdings LP(3)
Banyan Square Capital Partners LP(3)
Other Real Estate(4)
No. of
investments
Range of
nominal
$M
Average
nominal
$M
Carrying
value
$M
Percentage
of Tetragon’s
NAV
19
245.6–751.6
491.4
158.5
5.7%
Total NAV
$M
477.2
4.4
674.1
61.8
129.6
41.7
1
1
3
2
1
4
NA
NA
NA
NA
NA
NA
419.5
4.4
132.7
59.1
123.6
41.7
15.2%
0.2%
4.8%
2.1%
4.5%
1.5%
(1) This includes all U.S. CLOs deemed to be controlled by the Fund.
(3) Hawke’s Point Holdings LP, Banyan Square Capital Partners LP,
U.S. CLOs are domiciled in the Cayman Islands.
(2) Westbourne River Event Fund (formerly Polygon European Equity
Opportunity Fund) and TFG Asset Management Global Equities
Fund (formerly Polygon Global Equities Fund) are domiciled in the
Cayman Islands. Given the applicable notice, liquidity up to 25% of
the investment is available on a quarterly basis (subject to certain
conditions), and the entire investment could be liquidated over four
consecutive quarters.
Tetragon Credit Partner funds (Tetragon Credit Income II LP (“TCI
II”), Tetragon Credit Income III LP (“TCI III”) and Tetragon Credit
Income IV LP (“TCI IV”)) 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.
Tetragon Financial Group
Annual Report 2023
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Notes to the financial statements
Below is a summary of the Fund’s holding in non-subsidiary unconsolidated structured entities:
As at 31 December 2023
No. of
investments
Range of
nominal
$M
Average
nominal
$M
Carrying
value
$M
Percentage
of Tetragon’s
NAV
CLO Equity
U.S. CLOs(1)
Real Estate
BGO – U.S.(2)
BGO – Europe(2)
BGO – Asia(2)
Other Funds
Acasta Funds(4)
Private Equity Funds(3)
As at 31 December 2022
CLO Equity
U.S. CLOs(1)
Real Estate
BGO – U.S.(2)
BGO – Europe(2)
BGO – Asia(2)
Other Funds
Acasta Funds(4)
Private Equity Funds(3)
2
7
11
2
2
42
411.9
411.9
5.5
0.2%
Total AUM
$M
37,331
14,680
4,926
Total NAV
$M
1,036.3
54,163.0
NA
NA
NA
NA
NA
46.1
41.3
22.4
106.6
207.5
1.6%
1.5%
0.8%
3.8%
7.3%
No. of
investments
Range of
nominal
$M
Average
nominal
$M
Carrying
value
$M
Percentage
of Tetragon’s
NAV
2
415.0–512.3
463.6
11.7
0.4%
Total AUM
$M
39,333
14,458
4,581
Total NAV
$M
986.2
50,363
7
10
2
2
34
NA
NA
NA
NA
NA
49.2
39.2
21.7
104.2
162.5
1.8%
1.4%
0.8%
3.8%
5.9%
(1) Includes all externally managed CLOs that are outside the Fund’s
(3) Private equity funds are domiciled in the Cayman Islands,
control. U.S. CLOs are domiciled in the Cayman Islands.
Luxembourg and the U.S.
(2) BGO funds hold real estate investments in the U.S., Japan and
various countries in Europe. Total assets under management (“AUM”)
reflects 100% of BGO AUM in structured entities in each region. 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.
(4) Acasta Global Fund and Acasta Energy Evolution Fund are domiciled
in the Cayman Islands. Given the applicable notice, liquidity up to
25% of the investment is available on a quarterly basis (subject to
certain conditions), and the entire investment could be liquidated over
four consecutive quarters.
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TFG Asset Management
The Fund owns 100% holdings and voting rights in
TFG Asset Management LP. As at 31 December 2022
and 31 December 2023, TFG Asset Management
LP’s investments were comprised of the following:
Notes
(1) Equitix and BGO have a presence in North America, Europe, and
Asia.
(2) TFG Asset Management owns a non-controlling interest (“NCI”) as
well as providing infrastructure services to these managers. The chief
investment officers of underlying businesses own a controlling stake.
Ownership interest
Carrying value $M
Percentage of NAV
2023
737.6
270.5
258.5
78.8
2022
683.2
283.0
290.7
86.4
2023
2022
26.1%
24.8%
9.6%
10.3%
9.1%
10.5%
2.8%
3.1%
Investment
Equitix
BGO
LCM
Principal
place of
business
Global(1)
Global(1)
2023
75%
13%
2022
75%
13%
U.S. and U.K.
100%
100%
Other asset managers:
Westbourne River Partners U.S. and U.K.
Acasta Partners
U.S. and U.K.
Tetragon Credit Partners
U.S. and U.K.
Hawke’s Point
U.S. and U.K.
Banyan Square Partners
U.S. and U.K.
Contingency Capital
U.S. and U.K.
100%
NCI(2)
100%
100%
100%
NCI(2)
100%
NCI(2)
100%
100%
100%
NCI(2)
Tetragon Financial Group Holdings LLC and
Tetragon Financial Group (Delaware) LLC
The Fund holds 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 2023
is $1,215.4 million (2022: $1,190.3 million). The
outstanding balance on the credit facility as at 31
December 2023 is $250.0 million (2022: $115.0 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. The following table
shows the breakdown of assets by asset class:
Investment funds and vehicles
TFG Asset Management
Unlisted stock
CLO equity tranches
Total
31 Dec 2023
$M
31 Dec 2022
$M
802.8
332.0
57.8
22.8
1,215.4
780.2
332.8
46.1
31.2
1,190.3
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Notes to the financial statements
LCM Euro LLC and LCM Euro II LLC
The Fund holds 100% ownership interest in LCM Euro
LLC and LCM Euro II LLC Investment Series, domiciled
in Delaware. The subsidiaries have invested in debt
and equity tranches of certain LCM CLOs. They have
entered into sales and repurchase agreements with
regards to some of the CLO debt tranches that it holds.
The timing and amount of payment of repo interest and
repurchase obligations are matched by the interest and
principal payments from the relevant debt tranches.
Additional interest of 0.5% per annum is payable on the
outstanding balance. As of 31 December 2023, LCM
Euro LLC and LCM Euro II LLC Investment Series had
total assets of $162.1 million (2022: $161.7 million) and
aggregate repurchase obligations of $140.5 million
(2022: $140.4 million). The fair value of LCM Euro LLC
and LCM Euro II LLC Investment Series of $21.4 million
(2022: $21.2 million) is included in non-derivative
financial assets at FVTPL. There is no recourse to the
Fund in case of non-payment of principal or interest.
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;
– Liquidity risk; and
– Market risks
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. The ECL on
financial assets at amortised costs are immaterial.
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i. Analysis of Credit Quality
Cash and cash equivalents
The cash and cash equivalents are concentrated
in five (2022: three) financial institutions with credit
ratings between AA– and A+ (S&P) (2022: AA– 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.
The following table details the amounts held by brokers.
Amounts due from brokers
Balances due from brokers represent margin
accounts, cash collateral for borrowed securities and
sales transactions awaiting settlement. Any excess
margin is included in cash and cash equivalents.
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 in three brokers
(2022: one) with S&P’s credit rating between A- and A+
(2022: A+). Due to the high credit rating of the brokers, the
expected credit losses on these balances are immaterial.
BNP Paribas
Bank of America Merrill Lynch
ING
Total
31 Dec 2023
$M
31 Dec 2022
$M
3.7
0.3
3.2
7.2
5.5
-
-
5.5
Corporate bonds
The Fund has an investment in a debt security
of $15.7 million (2022: $15.9 million) with
Moody’s credit rating of Ba1 (2022: B3).
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 (including TCI II, III and IV) by region of underlying assets
and by manager.
Region
United States
Other
Manager
LCM
Other managers
Total
31 Dec 2023
$M
31 Dec 2022
$M
95%
5%
100%
61%
39%
100%
95%
5%
100%
62%
38%
100%
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Notes to the financial statements
Derivatives
The table below shows an analysis of derivative financial assets and liabilities outstanding at 31 December 2023
and 31 December 2022.
31 December 2023
31 December 2022
Derivative assets
Derivative liabilities
Fair Value
$M
Notional Fair Value
$M
Notional
5.1
21.7
281.6
460.9
(8.3)
(2.5)
299.6
59.8
ii. Concentration of credit risk
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. None of the Fund’s financial assets was considered to be past due or impaired on
31 December 2023 or 31 December 2022.
Investment type
CLOs
Cash and cash equivalents
Corporate bonds
Amount due from brokers
Other loans and derivatives
Total
31 Dec 2023
31 Dec 2022
71%
13%
9%
4%
3%
100%
72%
10%
7%
2%
9%
100%
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).
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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 2023
Gross
Amount of
Recognised
Assets/
Liabilities
Assets
ING
UBS AG
Total
Liabilities
ING
UBS AG
Total
31 December 2022
Assets
ING
UBS AG
Total
Liabilities
ING
BNP Paribas
Total
$M
5.1
-
5.1
8.2
0.1
8.3
21.4
0.3
21.7
2.4
0.1
2.5
Gross
Amounts
Offset in the
Consolidated
Statement
of Financial
Position
$M
Net Amounts
Presented
in the
Consolidated
Statement
of Financial
Position
$M
Financial
instruments
eligible for
netting
Cash
collateral
held by
brokers
Net
Amount
$M
$M
$M
-
-
-
-
-
-
-
-
-
-
-
-
5.1
-
5.1
8.2
0.1
8.3
21.4
0.3
21.7
2.4
0.1
2.5
(5.1)
-
(5.1)
(5.1)
-
(5.1)
(2.4)
-
(2.4)
(2.4)
-
(2.4)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.1
0.1
3.2
19.0
0.3
19.3
-
0.1
0.1
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Notes to the financial statements
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
has access to a revolving credit facility (Note 10)
of $400.0 million (2022: $400.0 million) and can
also access prime broker financing (Note 8). As
of 31 December 2023, $250.0 million was drawn
on the credit facility (2022: $115.0 million).
The Fund has unfunded commitments
(Note 14) to private-equity style funds
which can be called immediately.
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.
The following were the contractual maturities of
non-derivative financial liabilities at the reporting
date. The amounts are gross and undiscounted.
The finance costs on borrowings are calculated
assuming the drawn balance on the credit facility
and the interest rate remains unchanged and
principal repaid on the maturity date of the facility.
31 December 2023
Within 1
month
1 – 3
months
3 months
– 1 year
1 – 5
years
$M
90.9
-
-
Greater
than 5
years
$M
80.5
250.0
-
$M
17.1
-
-
17.1
90.9
330.5
8.0
42.4
-
-
-
-
-
-
48.2
115.0
-
-
8.0
42.4
163.2
Total
$M
194.2
250.0
22.1
466.3
101.3
115.0
30.2
68.0
314.5
Finance costs on borrowings
Loans and borrowings
Other payables
Total
31 December 2022
Finance costs on borrowings
Loans and borrowings
Other payables
Amounts due to brokers
Total
$M
1.9
-
5.8
7.7
0.9
-
3.7
68.0
72.6
$M
3.8
-
16.3
20.1
1.8
-
26.5
-
28.3
130
Tetragon Financial Group
Annual Report 2023
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
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.
Inflows
Outflows
Within
1 month
$M
1 – 3
months
$M
3 months
– 1 year
$M
1 – 5
years
$M
Within
1 month
$M
1 – 3
months
$M
3 months
– 1 year
$M
1 – 5
years
$M
181.9
248.7
260.6
190.6
61.9
5.9
-
-
(180.7)
(253.8)
(63.5)
(250.5)
(184.7)
(5.9)
-
-
31 Dec
2023
31 Dec
2022
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
and undrawn balance on credit facility is disclosed below:
Investment type
Cash and cash equivalents
Undrawn balance on credit facility
31 Dec 2023
$M
23.1
150.0
31 Dec 2022
$M
21.7
285.0
c) Market risk
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.
structured to hedge interest rate risk to some degree
through the use of matched funding, there may be
some difference between the timing of SOFR 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 SOFR 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 the Fund’s cash flow, fair
value of its assets and operating results adversely.
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 SOFR plus returns and are sensitive
to interest rate levels and volatility. Although CLOs are
Changes in interest rates may also affect the value
of the Fund’s investment in Acasta Global Fund.
Generally, the value of convertible bonds and other
fixed rate instruments will change inversely with
changes in interest rates. The investment manager
of Acasta Global Fund manages interest rate risk
by, among other things, entering into interest rate
swaps and other derivatives as and when required.
Tetragon Financial Group
Annual Report 2023
131
Notes to the financial statements
The table below shows the sensitivity analysis for interest rates movement
on the investment portfolio held by the Fund.
31 December 2023
Fair Value
U.S. CLOs
TCI II
TCI III
TCI IV
Acasta Global Fund
Total
31 December 2022
U.S. CLOs
TCI II
TCI III
TCI IV
Acasta Global Fund
Total
$M
133.3
29.7
60.5
20.7
102.8
347.0
170.2
41.5
75.6
15.6
100.4
403.3
Effects of +100bps change in
interest rate on net assets
$M
Effects of – 100bps change
in interest rate on net assets
$M
5.6
1.3
2.6
1.0
(1.6)
8.9
8.6
1.5
2.8
1.2
(2.2)
11.9
(5.6)
(1.3)
(2.6)
(1.0)
1.9
(8.6)
(8.6)
(0.9)
(2.4)
(1.0)
2.3
(10.6)
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.
132
Tetragon Financial Group
Annual Report 2023
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
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 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, and NOK by
5%. The analysis assumes that all other variables,
in particular interest rates, remain constant.
31 December 2023
Net Monetary and Non-
Monetary Assets and Liabilities
$M
Forward foreign
exchange hedging
$M
Net
exposure
$M
EUR
GBP
NOK
Total
31 December 2022
EUR
GBP
NOK
Total
49.2
817.1
8.6
874.9
42.8
750.5
4.0
797.3
(44.9)
(433.3)
(9.2)
(487.4)
(45.4)
(369.2)
(6.0)
(420.6)
4.3
383.8
(0.6)
387.5
(2.6)
381.3
(2.0)
376.7
Effect of 5%
on exchange
rate
$M
0.2
19.2
-
19.4
(0.1)
19.1
(0.1)
18.9
A strengthening of the USD against the above
currencies would have resulted in an equal but
opposite effect to the amounts shown above.
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.
Tetragon Financial Group
Annual Report 2023
133
Notes to the financial statements
The Investment Manager manages the Fund’s
price risk and monitors its overall market positions
on a regular basis in accordance with the
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 and debt tranches
Unlisted stock
Listed stock
Corporate bonds
Contracts for difference
Forward foreign exchange contracts and options
The Investment Manager reviews the concentrations
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 and debt tranches
Unlisted stock
Listed stock
Corporate bonds
Contracts for difference
Forward foreign exchange contracts and options
134
Tetragon Financial Group
Annual Report 2023
% of net assets
as at 31 Dec 2023
% of net assets
as at 31 Dec 2022
44.8%
47.6%
4.8%
4.1%
6.7%
0.6%
0.0%
0.1%
31 Dec
2023
$M
12.7
13.5
1.4
1.3
1.8
0.2
-
-
42.3%
48.7%
6.2%
2.3%
5.7%
0.6%
0.0%
0.7%
31 Dec
2022
$M
11.7
13.4
1.7
0.6
1.6
0.2
-
0.2
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
Note 7
Other Receivables and Prepayments
Other receivables
Prepayments
Total
Other receivables are expected to be settled within 12 months.
Note 8
Amounts Due to Brokers
Amounts due to brokers
Value of collateral posted with brokers
31 Dec 2023
$M
31 Dec 2022
$M
0.4
4.3
4.7
2.1
4.0
6.1
31 Dec 2023
$M
31 Dec 2022
$M
-
186.6
68.0
177.7
The collateral is in the form of long- and short-listed
equities and derivatives, and cash. The Fund can
draw cash on the back of these securities from the
broker. During 2023, no charges (2022: $0.2 million)
were paid to the brokers in relation to this financing
arrangement and included in finance costs.
Note 9
Other Payables and Accrued Expenses
Incentive fee payable
Other payables and accrued expenses
Total
All other payables and accrued expenses are due within one year.
31 Dec 2023
$M
31 Dec 2022
$M
16.3
5.8
22.1
26.5
3.7
30.2
Tetragon Financial Group
Annual Report 2023
135
Notes to the financial statements
Note 10
Credit Facility
The Fund has access to a US$ 400.0 million revolving
credit facility with maturity date in July 2032. The
facility is subject to a non-usage fee of 0.5% which
is applied to the undrawn notional amount and
a servicing fee of 0.015% of the total size of the
facility. Any drawn portion incurs interest at a rate
of 3M Term SOFR plus a spread of 3.40%.
Drawn balance at start of the year
Interest and fees expensed
Interest and fees paid
Drawdowns
Repayments
Drawn balance at the end of the year
31 Dec 2023
$M
31 Dec 2022
$M
115.0
24.0
(24.0)
285.0
(150.0)
250.0
75.0
10.1
(10.1)
215.0
(175.0)
115.0
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.
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, prior to and including 30 June 2023,
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% per annum, multiplied by the actual number
of days in the Calculation Period divided by 365.
The Hurdle rate for any Calculation Period commencing
with the Calculation Period beginning on 1 July 2023,
equals Term SOFR as of 5:00 p.m. New York time on the
first day of the applicable Calculation Period on which
Term SOFR is published, plus the Hurdle Spread of
2.747858% per annum, multiplied by the actual number
of days in the Calculation Period, divided by 365.
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.
136
Tetragon Financial Group
Annual Report 2023
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
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 2023
was $16.3 million (2022: $26.5 million). As at 31 December
2023, $16.3 million was outstanding (2022: $26.5 million).
Note 12
Share Capital
Authorised
The Fund has an authorised share capital of $1.0
million divided into 10 voting shares, having a
par value of $0.001 each and 999,999,990 non-
voting shares (which are the “shares” referred to
herein), having a par value of $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.
Share Transactions
Voting
Shares No.
Non-Voting
Shares*
No. M
Treasury
Shares
No. M
Shares held in
Escrow
No. M
Shares in issue at 1 January 2022
Stock dividends
Issued through release of tranche
of escrow shares
Shares purchased during the year
Shares in issue at 31 December 2022
Stock dividends
Shares purchased during the year
Shares in issue at 31 December 2023
10
-
-
-
10
-
-
10
90.2
1.6
1.0
(7.2)
85.6
1.3
(5.7)
81.2
38.6
(2.0)
-
7.2
43.8
(1.8)
5.7
47.7
10.9
0.4
(1.0)
-
10.3
0.5
-
10.8
*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 $37.1 million (2022:
$38.8 million) was declared, of which $23.3 million was
paid out as a cash dividend (2022: $23.8 million), and
the remaining $13.8 million (2022: $15.0 million) was
reinvested under the Optional Stock Dividend Plan.
Treasury Shares and Share Repurchases
Treasury shares consist of non-voting 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 2023, under the terms of “modified Dutch auction”,
the Fund accepted for purchase approximately 5.7 million
(2022: 6.7 million) non-voting shares at an aggregate cost
of $60.3 million (2022: $67.1 million), including applicable
fees and expenses of $0.3 million (2022: $0.3 million).
Tetragon Financial Group
Annual Report 2023
137
Notes to the financial statements
The Fund made the following purchases of its own shares from related parties using the then-current share price:
Date
Purchased from
No. of shares
Cost ($M)
Then-current
share price
January 2022
TFG Asset Management LP
November 2022
TFG Asset Management LP
515,331
41,246
4.4
0.4
$8.50
$8.66
Escrow Shares
Equity-based awards
In 2015, the Fund bought back approximately 5.6
million of its non-voting shares in a tender offer for
$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 may 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 2021 and 2023, further awards to certain senior
TFG Asset Management employees (excluding
the principals of the investment manager) totalling
approximately 3.4 million shares were made
covering vesting and release periods out to 2030.
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 European event-driven equities business,
Westbourne River Partners (in addition to other
roles). Under the terms of this agreement, Mr. Griffith
received $9.5 million in July 2019 and $3.75 million
in July 2020 in cash, 0.3 million Tetragon non-voting
shares in July 2021 and will receive the following:
•
•
2.1 million Tetragon non-voting
shares in July 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.
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 $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.
138
Tetragon Financial Group
Annual Report 2023
F
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
2021
$M
0.9
5.3
3.9
10.1
2022
$M
2023
$M
2024
$M
-
5.3
3.9
9.2
-
5.3
3.9
9.2
-
2.6
2.0
4.6
Vesting date
2019
$M
2020
$M
Shares
estimated
to vest (M)
0.3
2.1
30 Jun 2021
30 Jun 2024
1.575*
30 Jun 2024*
0.9
2.6
2.0
5.5
1.9
5.3
3.9
11.1
*As at 31 December 2023, it is estimated that 1.575 million (2022: 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.
The expense is recognised on a straight-line basis in
Consolidated Statement of Comprehensive Income over
the vesting period of the awards. A corresponding entry
is made to the share-based compensation reserve.
Share-Based Compensation Reserve
The balance, $71.0 million (2022: $61.7 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.
As at 31 December 2023, 10.8 million (2022: 10.3
million) shares related to TFG Asset Management’s
employee reward schemes are held in escrow.
These shares are eligible for stock dividends and
during the year, 0.5 million (2022: 0.4 million)
shares were allocated to this account.
On 1 January 2020, the Independent Directors were
awarded 24,490 shares each in Tetragon which vested
on 31 December 2022. 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
November 2022, a further 7,724 shares were awarded to
each Independent Director with one-third of the shares
vesting on 31 December 2023, 31 December 2024,
and 31 December 2025. The fair value of the award, as
determined by the relevant share price on grant date of
$9.71 per share, is $75,000 per Independent Director.
With respect to Director compensation from 1 January
2024, a further award of 10,122 shares were made to
each Independent Director with 5,061 shares vesting
on each of 31 December 2024 and 31 December
2025. The fair value of the awards as determined by
the relevant share price of $9.88 per share is $100,000
per Independent Director. The Independent Directors
have deferred the settlement of all the awards to
earlier of three to five years from the vesting date
and/or separation from service with the Fund.
Tetragon Financial Group
Annual Report 2023
139
Notes to the financial statements
Note 13
Dividends
Quarter ended 31 December 2021 of $0.1100 per share
Quarter ended 31 March 2022 of $0.1100 per share
Quarter ended 30 June 2022 of $0.1100 per share
Quarter ended 30 September 2022 of $0.1100 per share
Quarter ended 31 December 2022 of $0.1100 per share
Quarter ended 31 March 2023 of $0.1100 per share
Quarter ended 30 June 2023 of $0.1100 per share
Quarter ended 30 September 2023 of $0.1100 per share
Total
31 Dec 2023
$M
31 Dec 2022
$M
-
-
-
-
9.4
9.2
9.2
9.3
37.1
9.9
9.6
9.6
9.7
-
-
-
-
38.8
The fourth quarter dividend of $0.1100 per share was approved by the Directors on 4 March 2024 and has not been included as a liability in these
financial statements.
Note 14
Contingencies and Commitments
The Fund has the following unfunded commitments:
BGO investment vehicles
Private equity funds
Contingency Capital loan
Contingency Capital fund
Tetragon Credit Income IV
Total
140
Tetragon Financial Group
Annual Report 2023
31 Dec 2023
$M
31 Dec 2022
$M
27.4
32.4
1.6
27.9
6.1
95.4
34.1
26.0
2.1
42.6
11.0
115.8
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Note 15
Related-party Transactions
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.
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 for the year ended 31 December
2023 was $125,000 (2022: $125,000) as compensation
for service as Directors of the Fund. From 1 January
2024, the annual fee has been increased to $150,000.
As at 31 December 2023, $15,625 (2022: $15,625) 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 2023, David O’Leary elected
to receive shares in lieu of half of his compensation
and received 6,199 shares (2022: 6,508). In addition
to the annual fee, the Fund has awarded its shares to
the Independent Directors as described in Note 12.
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 for 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, David O’Leary, Steven
Hart, and Deron Haley – all Directors of the Fund during
the year – maintained (directly or indirectly) interests
in shares of the Fund as at 31 December 2023, with
interests of 16,500,187, 5,676,316, 61,596, 31,889 and
31,889 shares respectively (2022: 16,010,947, 5,445,046,
51,458, 28,070 and 28,070 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.
TFG Asset Management UK LLP and TFG Asset
Management US 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, TFG Asset Management
UK LLP, 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.
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 $21.6 million (2022:
$21.3 million). As at 31 December 2023, the outstanding
balance due from the Investment Manager was $0.3
million (2022: $1.6 million). During the year ended 31
December 2022, 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 TFG Asset Management
UK 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 TFG Asset Management UK LLP to the Fund.
Reade Griffith and Paddy Dear also hold membership
interests in Pace Cayman Holdco Limited or 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.
Tetragon Financial Group
Annual Report 2023
141
Notes to the financial statements
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
Weighted average number of shares for the
purposes of diluted earnings per share
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 shares are dilutive potential shares.
Year ended
31 Dec 2023
$M
141.1
87.3
4.9
92.2
Year ended
31 Dec 2022
$M
(32.1)
90.8
4.1
94.9
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.
142
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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.
Region
North America
Europe
Asia Pacific
Latin America
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:
31 Dec 2023
31 Dec 2022
42%
50%
7%
1%
45%
48%
5%
2%
Note 18
Subsequent Events
The Directors have evaluated the period up to 4 March
2024, 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.
Note 19
Approval of Financial Statements
The Directors approved and authorised for issue
the financial statements on 4 March 2024.
Tetragon Financial Group
Annual Report 2023
143