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Tetragon Financial Group
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== Asset allocation<ref name=":2" /> == As at end-April 2022, Tetragon’s NAV stood at US$2.7bn across various alternative asset allocations. TFG Asset Management remains its largest portfolio holding (making up 45% of the NAV). It is a wholly owned subsidiary, holding (mostly) majority stakes in alternative asset management companies generating stable fee income from AUM of US$37bn (at end-2021) in infrastructure, real estate, CLOs and private equity as well as hedge funds (see details below). Tetragon invests predominantly into strategies of these companies (42% of Tetragon’s portfolio at end-March 2022). The remaining 14% of the portfolio is Tetragon’s direct investments (7%) and assets managed by third-party managers (7%). '''Exhibit 1: Portfolio by asset class (April 2022)<ref name=":0">Source: Tetragon Financial Group, Edison Investment Research.</ref>''' [[File:Portfolio by asset class (April 2022).png|506x506px]] '''Exhibit 2: Portfolio exposure by manager (March 2022)<ref name=":0" />''' [[File:Portfolio exposure by manager (March 2022).png]] === TFG Asset Management managers === '''BentallGreenOak''' is a mature real estate funds manager with AUM of US$74bn at end-2021. Tetragon already partially exited the position (GreenOak) through a merger with Bentall Kennedy in 2018 and now owns a 13% stake in the manager valued at US$222m (7.8% of Tetragon’s NAV at end-March 2022). '''LCM''' is a specialist in US below-investment grade leveraged loans. It currently manages 25 CLO structures with total AUM of US$11.2bn and is wholly owned by Tetragon (valued at US$278m, 9.9% of NAV). The largest single-name asset held by Tetragon is the core infrastructure assets manager '''Equitix''', which makes 23.7% of Tetragon’s NAV (US$670m at end-March 2022). The recent popularity of real asset investments supported the rapid growth of Equitix’s AUM (a five-year CAGR at 32% to end-2021, US$10.8bn) and is reflected in its valuation, as the company has been the main driver of Tetragon’s NAV returns in each of the last three years (see below). Tetragon owns a 75% stake in Equitix, with the remainder being held by its management. While Tetragon is not invested in any of the Equitix-managed funds (a sole exception in the case of TFG Asset Management), Equitix does invest in its own funds according to the management. '''Polygon''' manages open-ended hedge funds and private equity vehicles (AUM of US$1.8bn at end-2021). Its subsidiary (Polygon Convertible Opportunities) was renamed in 2022 after the CIO, Michael Humphries, became majority shareholder of the entity in 2020 into Acasta Partners (AUM of US$0.9bn at end-2021). Acasta manages convertible bond investments and continues to utilise TFG Asset Management’s infrastructure. The four remaining managers are in the early stages of development and manage combined AUM of US$1.1bn at end-2021. '''Hawke’s Point''' (established in 2014) invests in mining assets, '''Tetragon Credit Partners''' (2015) invests in CLO tranches, '''Banyan Square Partners''' (2019) is focused on private equity co-investments and '''Contingency Capital''' (2020) on legal assets. === Hedge funds === Within this asset class, Tetragon holds predominantly investments in event-driven equities funds managed by Polygon (98% at end-March 2022, mainly the European Equity Opportunity Fund). The portfolio has limited correlation to public markets as Polygon focuses on special situations (eg restructurings, M&A deals, market dislocation and corporate activism), which are driven by company-level catalysts and take time to unlock the value. Tetragon also invests in a convertible bond strategy managed by Acasta Partners, which is also a concentrated, catalyst-driven portfolio. === Private equity and venture capital === As at end-March 2022, Tetragon’s exposure to private equity and venture capital assets amounted to US$321m (US$314m at end-April 2022), down from US$396m at end-FY20. The reduction is primarily due to early redemption of Ripple Labs’ preferred shares, which generated a gain of c US$100m in FY21. Tetragon was the lead investor (US$150m) of the series C preferred stock issue in 2019, and in late 2021 Ripple elected to redeem the entire class at 1.5x purchase price plus accrued paid-in-kind dividends. Apart from direct investments (US$34m at end-March 2022), Tetragon also invests in Banyan Square Partners managed funds focused on co-investments (US$112m), funds managed by Hawke’s Point (US$58m), as well as externally managed investments (US$127m). Hawke’s Point funds invest in mining assets, predominantly gold mines. Hawke’s Point’s projects are early stage, with their value equally dependent on the gold price and their progress in moving up the development curve. An illustration of this is the US$39m loss (30% decrease in value) in FY21, driven predominantly by developments in one gold mine project in Australia. === Bank loans === Tetragon invests in bank loans through CLO structures, predominantly in equity tranches, which see growing distributions when interest rates increase due to their waterfall structure. Bank loans generated a cash inflow of US$73m in FY21 for Tetragon, up 32% y-o-y (which however may include undisclosed disposals). Tetragon’s investments in CLOs are made either directly (US$142m, 54% of the exposure at end-March 2022), of which 90% are CLOs managed by the fully owned LCM; or through CLO-investing funds managed by fully owned Tetragon Credit Partners (46%). Additionally, Tetragon holds exposure to the CLO market through stakes in asset managers LCM and Tetragon Credit Partners, translating to total portfolio exposure of 19% of NAV at end-FY21 (last available data). As at end of last year, there were no internal test breaches on any CLO structures held by Tetragon. === Other === Tetragon’s quoted assets portfolio (‘other equities and credit’, 6% of portfolio at end-April 2022) is concentrated in several high-conviction positions, including in particular tech and biotech stocks. Its real estate investments are executed through or alongside BentallGreenOak’s managed private equity-style funds and co-investment vehicles that focus on opportunistic investments in the US, Europe and Asia (except for the Paraguayan farmland managed by Scimitar). Litigation Finance is a new endeavour for Tetragon and comprise funds managed by Contingency Capital (investing in legal assets). These make up only a minor part of Tetragon’s portfolio for now (c 1% of NAV at end-March 2022).
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