Tetragon Portfolio: Alpha and Market Sensitivity Notes

Over the five-year period through 31 December 2025, Tetragon’s total gross Return on Equity was +111.8% (+73.6% net), compared to +81.9% for the MSCI ACWI Local Index.⁽¹⁾ As shown in the graph below, over that five-year period, Tetragon’s portfolio exhibited lower equity market sensitivity as measured by relative equity beta⁽²⁾ when compared to the MSCI ACWI Local Index, and generated gross alpha⁽³⁾ of +80.2% (+44.1% net). The graph also shows Tetragon’s gross and net “beta proxy” over that period.  A “beta proxy” represents a hypothetical portfolio delivering the same beta-adjusted market exposure as Tetragon’s RoE, excluding any alpha.  The difference, therefore, between Tetragon’s gross and net beta proxies and its gross and net RoE is the gross and net alpha generated over the period. 

Over the same five-year period, Tetragon’s portfolio produced a Sharpe Ratio⁽⁴⁾ of 1.3 on a gross basis (and 1.1 on a net basis), versus 0.8 for the Index.⁽⁵⁾

⁽¹⁾ We refer to the MSCI ACWI Gross Total Return Local Index as the “MSCI ACWI Local Index”. Source: Bloomberg. Tetragon’s cumulative return over the five-year period is calculated by compounding its annual RoE over the five annual periods. The MSCI ACWI Local Index 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. See also Note 12. 

⁽²⁾ Beta in financial performance is a measure of an investment’s or, in this case, a portfolio’s sensitivity to market movements, representing its volatility-adjusted correlation relative to a broad market index, such as the MSCI ACWI Local Index. The index definitionally has a beta of 1.0 to itself. A beta of less than 1.0 is understood to indicate that the portfolio, in this case, is less sensitive to a market index’s moves and therefore exhibits lower market risk.

 ⁽³⁾ Alpha in financial performance is a measure of an investment’s or a portfolio’s return that cannot be explained by beta to a market index, such as MSCI ACWI Local Index. 

⁽⁴⁾ Each “beta proxy” is calculated using the Jensen’s Alpha framework applied to Tetragon’s applicable monthly RoE. For example, each monthly Tetragon Net Beta Proxy in the graph equals the risk-free rate (determined as the 1-month U.S. Treasury bill) plus its beta of 0.21 × (MSCI ACWI Local Index return − the risk-free rate).

⁽⁵⁾The Sharpe Ratio is a financial metric used to evaluate an investment’s return relative to its risk (volatility) and help determines if higher returns are due to the taking of excessive risk. A higher Sharpe Ratio indicates better risk-adjusted performance. 

⁽⁶⁾ All statistics are calculated using monthly datapoints. The risk-free rate used in the calculation of beta, “beta Proxies”, alpha and the Sharpe Ratio is the 1-month U.S. Treasury bill (source: Bloomberg). Beta, “beta proxies”, alpha and Sharpe Ratio statistics are calculated using Tetragon’s monthly RoEs as reported in Tetragon’s monthly factsheets. Ex-post standard deviation is calculated using the population methodology as described by the Global Investment Performance Standards (GIPS).