2022
Annual Report
Tetragon Financial Group
Contents
4 2022 Snapshot
7 Letter to our shareholders
14 Manager’s review
24 Investment review
40 2022 Financial review
44 Governance
60 Other information
92 Audited financial statements
Tetragon Financial Group2
At Tetragon, we seek to provide stable
returns to investors across economic cycles
and market conditions.
Tetragon is a Guernsey closed-ended investment company.
Its non-voting shares are listed on Euronext in Amsterdam
(1)
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 in a capital appreciation and
income-producing investment. These investors should have experience in investing in financial markets and
collective investment undertakings and be capable themselves of evaluating the merits and risks of Tetragon
shares and they should have sufficient resources both to invest in potentially illiquid securities and to be able
to bear any losses (which may equal the whole amount invested) that may result from the investment.
1 Euronext in Amsterdam is a regulated market of Euronext Amsterdam
(Euronext Amsterdam). Tetragon’s ‘Home Member State’ for the purposes of
the EU Transparency Directive (Directive 2004/109/EC) is the Netherlands.
Diversified.
Alternative.
Investors.
Searching for intrinsic alpha –
from returns in excess to risks taken.
Annual Report 2022 3
Distributable income.
Capital appreciation.
Please see important notes on page 6.
NAV per share total return
(3)
1.0%
2022 Full Year
9.6%
5 Years Annualised
10.5%
10 Years Annualised
10.8%
Since IPO Annualised
398%
Since IPO
Net asset value
(1)
$2.8BN
31 December 2022
Ownership
(2)
37.3%
Principal and Employee Ownership
at 31 December 2022
Investment returns/Return on
Equity
(4)
-0.8%
2022 Return on Equity
10-15%
RoE Target
11.6%
Annual Average Since IPO
Dividends
$0.11
Q4 2022 Dividend
$0.44
2022 Dividends
4.6%
Dividend Yield
(5)
(8.9)%
Dividend 5-Year CAGR
(6)
Tetragon Financial Group4
2022 Snapshot
Figure 2
Tetragon’s NAV per Share Total Return and Share Price Since IPO to 31 December 2022
Figure 1
Tetragon Financial Group – Performance summary
31 Dec 2022 31 Dec 2021 Change
Net Assets $2,758.5m $2,876.8m $(118.3)m
Fully Diluted NAV Per Share $29.69 $29.86 $(0.17)
Share Price
(1)
$9.62 $8.50 $1.12
Dividend (past 12 months) $0.44 $0.41 $0.03
Dividend Yield 4.6% 4.8%
Ongoing Charges
(2)
1.74% 1.70%
Principal and Employee Ownership 37. 3% 34.7%
2022 2021
Investment Returns/Return on Equity
(3)
(0.8%) 17. 3%
NAV Per Share Total Return
(4)
1.0% 14.1%
Share Price Total Return
(5)
18.5% (6.8%)
Tetragon Hurdle: LIBOR +2.65%
(6)
4.5% 2.9%
MSCI ACWI Index Total Return
(7)
(18.0%) 19.0%
FTSE All-Share Index Total Return
(7)
0.2% 18.3%
398%
151%
132%
84%
113%
(100%)
(50%0
0%
50%
100%
150%
200%
250%
300%
350%
400%
Apr-07
Dec-07
Aug-08
Apr-0 9
Dec-09
Aug-10
Apr-11
Dec-11
Aug-12
Apr-13
Dec-13
Aug-14
Apr-15
Dec-15
Aug-16
Apr-17
Dec-17
Aug-18
Apr-19
Dec-19
Aug-20
Apr-21
Dec-21
Aug-22
Dec-22
TFG NAV per share (TR ) TFG Share Price (TR ) MSCI ACWI (TR )
TFG LIBOR-based performance hurdle FTSE All-Share Index (TR )
Annual Report 2022 5
Page 4
1 The value of Tetragon’s assets, less any liabilities, as at
31 December 2022. Source: Tetragon.
2 Shareholdings at 31 December 2022 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 85 for
more details of these arrangements. Source:Tetragon.
3 NAV Per Share Total Return to 31 December 2022, 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 Tetragon seeks to deliver 10-15% Return on Equity (RoE)
per annum to shareholders. Please refer to page 42 for
the calculation of RoE. Tetragon’s returns will most likely
fluctuate with LIBOR or an equivalent risk-free short-
term rate which directly flows through some of Tetragon’s
investments; therefore, in high-LIBOR environments,
Tetragon should achieve higher sustainable returns; in
low-LIBOR environments, Tetragon should achieve lower
sustainable returns. Please note that (i) from 31 December
2021, LIBOR has been replaced by an appropriate
alternate rate as advised by ISDA in the IBOR Fallbacks
Protocol, although certain LIBOR settings will continue to
be calculated and published using panel bank submissions
until 30 June 2023, and (ii) LIBOR will no longer be
available beginning 1 July 2023, and the market generally
is replacing LIBOR with the Secured Overnight Funding
Rate (SOFR), which tracks the interest rate on borrowings
collateralized by U.S. Treasury securities.
5 The dividend yield represents the past four quarterly
dividends divided by the TFG NA share price at
31 December 2022. The latest declared dividend is
included in the calculation.
6 The five-year Compound Annual Growth Rate (CAGR)
figure is at 31 December 2022. The latest declared
dividend is included in the calculation.
Page 5
1 Based on TFG.NA.
2 Annual calculation as at 31 December 2022. 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 2022 total shareholder return, defined as share price
appreciation including dividends reinvested, as sourced
from Bloomberg.
6 Cumulative return determined on a quarterly compounding
basis using the actual Tetragon quarterly incentive
fee LIBOR-based hurdle rate. Beginning 1 July 2023,
Tetragon’s quarterly incentive fee hurdle rate will be SOFR-
based.
7 Any indices and other financial benchmarks are provided
for illustrative purposes only. Comparisons to indices have
limitations because, for example, indices have volatility
and other material characteristics that may differ from the
fund. Any index information contained herein is included
to show general trends in the markets in the periods
indicated, is not meant to imply that these indices are the
only relevant indices, and is not intended to imply that the
portfolio or investment was similar to any particular index
either in composition or element of risk. The indices shown
here have not been selected to represent an appropriate
benchmark to compare an investor’s performance, but
rather is disclosed to allow for comparison of the investor’s
performance to that of certain well-known and widely
recognised indices. The volatility of the indices may be
materially different from the individual performance attained
by a specific investor. In addition, the fund’s holdings
may differ significantly from the securities that comprise
the indices. The MSCI ACWI captures large- and mid-
cap representation across 23 developed markets and 24
emerging markets countries. With 2,885 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.
Notes
Tetragon Financial Group6
Letter to our
shareholders
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.
Tetragon delivered an investment Return on Equity (RoE)
of -0.8%, a NAV per share total return of 1.0% and a share
price total return of 18.5% in 2022. Tetragon also declared
44.0 cents of dividends per share for the year – a yield of
4.6%. Tetragon’s NAV per share total return has averaged
9.6% over the past five years, which compares to annualised
performance of 5.8% for the MSCI ACWI Index.
(1)
Further detail
relating to Tetragon’s Key Performance Metrics can be found
on page 20.
Annual Report 2022 7
2022 Market context
The deeply challenging investment
environment in 2022 was a good test of
our investment strategy and approach.
The first half of 2022 was characterised
by geopolitical crisis in Ukraine,
supply chain disruption, and the U.S.
Federal Reserve and other global rate
setters struggling to address headline
inflation. These combined stresses
drove almost all major asset classes
into double-digit first half declines. By
year-end, equity market indices were
still heavily down, with the MSCI ACWI
Index at -15.6%, the S&P 500 falling
-18.1%
(2)
and the tech- and growth-
heavy NASDAQ 100 down -32.4%.
(2)
Duration-heavy fixed income offered
no refuge, with the U.S. 10 Year
Treasuries
(3)
down -13.9%, Investment
Grade Credit
(4)
down -13.0% and High
Yield
(5)
down -11.2%. Favoured inflation
trades in West Texas Intermediate and
the U.S. Dollar unwound from peaks but
still finished the year up 6.7% and 8.2%,
respectively, with the energy-heavy
FTSE All Share Equity Index up 0.2%.
(2)
Our performance
Over the time that Tetragon has been
trading as a publicly-listed company, our
NAV per share total return of 398% has
demonstrated our ability to compound
investment growth and return value
to shareholders. In stressed market
conditions like we had in 2022, this could
mean that the value is being delivered
through the preservation of capital, which
we believe is essential for delivering
value based on long-term compounding.
As such, we are pleased with our
performance across our key metrics.
This year, Tetragon has outperformed
the MSCI ACWI Index, which represents
the performance of the ACWI index
if there were no foreign exchange
fluctuations (similar to a portfolio with
currency hedges), and with dividends
reinvested, gross of any taxes.
(6)
2022 Performance
highlights
At Tetragon, we value rigour, partnership
and ambition. We believe that these
values, when combined with our
somewhat idiosyncratic structure
of a listed fund owning a diversified
alternative asset management platform,
have helped us to create an alpha-
driven ecosystem of ideas, expertise,
insights and connections. In volatile
and illiquid markets, the strength of our
structure is apparent. Non-voting shares,
combined with permanent capital, gives
us the flexibility to think strategically,
and for the long term. It enables the
agility, patience and resilience that
Tetragon’s manager needs to make the
investment decisions that it believes
are right for shareholders and to deliver
against our target of a 10-15% net
Return on Equity over the long term.
Letter to shareholders
Tetragon Financial Group8
Tetragon portfolio performance notes
Return on Equity. Tetragon’s gross RoE was +1.6% in 2022 (-0.8% net),
as compared to -15.6% for the MSCI ACWI Index. Over the past five years,
Tetragon’s annualised gross RoE was +14.3% (+9.9% net) compared to +6.7%
for the MSCI ACWI Index.
Volatility. The volatility of Tetragon’s gross RoE was 5.3% for 2022 (or 4.7% on
the basis of its net RoE) and 10.2% for the past five years (or 8.1% on the basis
of its net RoE). The volatility of the MSCI ACWI Index’s gross RoE was 18.4% for
2022 and 16.3% for the past five years.
Sharpe Ratio. Both Tetragon and the MSCI ACWI Index exhibited negative
net returns in 2022. Because it is not meaningful to compare negative Sharpe
Ratios (e.g., more volatile negative returns have less-negative Sharpe Ratios), a
longer-term comparison is more appropriate. Over the past five years, Tetragon’s
Sharpe Ratio was 1.27 on a gross basis (and 1.05 on a net basis). The Sharpe
Ratio for the MSCI ACWI Index was 0.33 over the same time period.
Our NAV per
share total return has
demonstrated our ability
to compound investment
growth and return value
to shareholders.”
Annual Report 2022 9
In 2022, diversification and asset
allocation were key drivers of
outperformance relative to traditional
markets. Five of Tetragon’s seven asset
classes generated gains on the year, with
these five asset classes accounting for
71% of NAV at the beginning of the year.
The main performance drivers in 2022
were our private equity investments in
asset management companies – which
are part of TFG Asset Management –
along with bank loans and investments in
private equity and venture capital. These
were offset by Tetragon’s allocation
to other equities and credit. Although
more details of the performance of
each asset class are in the Investment
Review section, we believe that the
performance of the portfolio during the
year highlights some of the benefits
of our portfolio construction.
• The diversification, access to
specialised products, expertise and
growth that TFG Asset Management
delivers to Tetragon continues
to be an important component
of Tetragon’s performance. In
particular, the investment in real
estate manager BentallGreenOak
(7)
drove gains in this segment in
2022, followed by the investment
in bank loan specialist LCM.
(8)
• In 2022, Tetragon leveraged its
investments with a number of
external managers to source further
investments in market segments we
identified as particularly interesting,
including LP and co-investments
in the biotechnology, technology
and semiconductor sectors.
• Our permanent capital gives us
the freedom to take advantage
of opportunities that others often
cannot. We believe that these
opportunities have often enhanced
value for our shareholders, but in
2021, we made a direct investment
in a pharmaceutical company in
the “other equities” bucket of the
portfolio, that we believed had
the potential to transform global
drug usage pending an upcoming
trial in early 2022. Our analysis
estimated a high probability of a
successful trial that would result
in a tenfold increase in valuation,
versus a 75% fall if the trial
was inconclusive or failed. With
careful sizing, opportunities with
such binary, uncorrelated and
asymmetrically positive profiles can
be powerful drivers of long-term
returns. Although the trial in this
example was not successful, these
are exactly the kinds of risk that our
capital structure allows us to take.
Letter to shareholders
NAV Total Return in 2022
1.0%
Return on Equity in 2022
(0.8)%
Dividends in 2022
$0.44
Tetragon Financial Group10
2023 Outlook
Tetragon expects the market outlook
to continue to be challenging. As we
begin 2023, markets are characterised
by uncertainty and contradictions:
simultaneously pricing in optimism and
despair. Although elevated inflation
continues to challenge economies,
there is a growing number of doubters
who believe the Fed will move to cut
rates later this year. Expectations of
rolling recessions over the next
12 months across the United States,
United Kingdom and Europe are balanced
by uncharacteristically strong labour
markets in the United States, where a
3.4% unemployment rate matches multi-
decade lows and job openings continue
to outpace the number of unemployed
seeking work. Market exuberance in
early 2023 reflects optimism that the
wide array of open questions will resolve
favourably towards a “soft landing”,
downplaying concerns from central
bankers, economists and value investors
alike. We, as always, are more cautious.
Although these contradictions may
make allocating capital difficult, Tetragon
believes that times like these can set
the stage for the next several years of
strong returns. Our approach to portfolio
construction and performance allows
us to invest in situations where other
investors are rebalancing portfolios that
are unbalanced, illiquid or impaired.
Board matters
Dividends and share repurchases
The fourth quarter 2022 dividend
was declared at 11.00 cents per
share, bringing the full-year 2022
dividend to 44.00 cents per share.
Tetragon repurchased $67.1 million
of its non-voting shares during 2022.
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 $1.6 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.
Cash
Tetragon’s cash at bank balance was
$21.7 million as at 31 December 2022.
After adjusting for known accruals and
liabilities (short- and long-dated), its
net cash balance was -$168.1 million.
In July 2022, Tetragon extended the
At Tetragon,
we value rigour,
partnership and
ambition”
Annual Report 2022 11
size of its revolving credit facility to
$400 million and its maturity to July
2032. As at 31 December 2022, $115
million of this facility was drawn, and
this liability has been incorporated into
the net cash balance calculation.
Other investor matters
Tetragon’s investment performance in
any measuring period must exceed a
LIBOR-based formula, defined as the
Hurdle Rate, for Tetragon’s investment
manager to earn an incentive fee for
the period. The Hurdle Rate is currently
equal to three-month U.S. LIBOR plus
2.647858% per annum. U.S. LIBOR
will no longer be available beginning
1 July 2023, and the market generally
is replacing LIBOR with the Secured
Overnight Funding Rate (SOFR), which
tracks the interest rate on borrowings
collaterised by U.S. Treasury securities.
As such, Tetragon and its investment
manager have agreed to replace LIBOR
with three-month term SOFR plus ten
basis points in the Hurdle Rate formula.
Accordingly, beginning 1 July 2023,
the Hurdle Rate will be equal to three-
month term SOFR plus 2.747858%
per
annum
. The agreement also includes
provisions setting forth a procedure for
determining an alternate benchmark
rate in the event that three-month term
SOFR is unavailable in the future.
Conclusion
Uncertain environments make
shareholder understanding of a
firm’s structure and approach more
important than ever, especially
when share price performance does
not yet reflect underlying value.
We recognise that shareholders,
along with Tetragon’s principals and
employees, are focused on the share
price. Tetragon’s insider ownership of
37% continues to be one of the largest
of any listed fund in the United Kingdom,
ensuring the investment committee and
leadership team remains invested in both
portfolio and share price performance,
alongside our shareholders.
To enable Tetragon to enhance the way
it communicates, we have invested
significant time this year in relaunching
the Tetragon Financial Group website to
better explain our structure, approach to
investing and portfolio breakdown. We
have also sought to articulate our values
and culture, which underpin our ability
to deliver on our investment strategy;
please see page 76 for more about
this important aspect of our business.
With regards,
The Board of Directors
3 March 2023
Letter to shareholders
Tetragon Financial Group12
Notes:
(1) We refer throughout this letter to the MSCI
All Country World Gross Total Return
Local Index as the MSCI ACWI Index.
(2) Source: Bloomberg. Please see Note 7
on page 6 for important disclosures.
(3) Barclays Capital U.S. 10yr Note
Futures Index. Source: Bloomberg.
(4) Barclays Aggregate. Source: Bloomberg.
(5) ICE BofA US High Yield Index.
Source: Bloomberg
(6) All statistics are calculated using monthly
datapoints. Source: Bloomberg.
(7) BentallGreenOak, a manager
of global real estate funds.
(8) LCM Asset Management LLC,
referred to in this report as “LCM.”
Tetragon’s insider
ownership of 37%
continues to be one of the
largest of any listed fund
in the United Kingdom.”
Annual Report 2022 13
1
Manager’s
review
We have one of the largest insider ownerships of any listed fund in the United Kingdom
and we are invested in our portfolio and in our share price performance.
This section includes commentary from Tetragon’s investment manager and includes
market context, our investment objective and strategy and key performance metrics.
Alignment. Performance. Returns.
/ Key performance
metrics
20
/ Investment objective
& strategy
16
/Risk management
22
/ Environmental,
Social and Governance
23
Tetragon Financial Group14
At Tetragon we have built a firm that gives us the
flexibility to explore investment opportunities that many
others simply can’t. We have a proven ability to compound
investment growth and return value to our shareholders.”
Paddy Dear
Tetragon Co-Founder
Annual Report 2022 15
Tetragon’s investment objective is to generate distributable
income and capital appreciation.
To achieve Tetragon’s investment objective of generating distributable income
and capital appreciation, our investment strategy is as follows:
Manager’s review
Investment
objective & strategy
Own asset
managers
Identify asset
managers
Identify asset
classes and
investment
strategies
Structure
investment
1
Identify attractive asset class
and investment strategies
3
Use Tetragon Financial
Management’s market
experience to negotiate
favourable terms for
Tetragon’s investments
2
Identify asset managers
that Tetragon Financial
Management believes
to be superior
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
In addition, the current investment
strategy is to continue to grow and
diversify TFG Asset Management –
as our diversified alternative asset
management business – as well as
to enhance the value of our asset
management companies with a view
to realising value from the enterprise.
Tetragon Financial Group16
The ways we invest
Our investment strategy leads us to invest in three primary ways.
Investments in
managed funds
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.
Ownership stakes
in asset managers
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.
Investments in managed funds Ownership stakes in asset managers Direct investments
Annual Report 2022 17Annual Report 2022
Longer-term investment strategy
Tetragon’s longer-term investment
strategy with respect to TFG Asset
Management is to continue to grow
and diversify, as well as 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, potentially both
private and public, that would take
advantage of this value enhancement
or an initial public offering or other
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 reap the benefits of its
success in growing asset management
businesses without having to wait for
an IPO or other strategic transaction
at the TFG Asset Management level.
In any event, TFG Asset Management
will continue to seek to grow and
diversify the business, leveraging 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.
Ownership
stakes in
asset
managers
Internally-
managed
funds
Tetragon
Financial
Management
The investment
manager
Externally-
managed
funds
Direct
investments
INSIGHTS
EXPERTISE
CONNECTIONS
IDEAS
Our alpha-driven ecosystem
Our alpha-driven ecosystem generates
ideas, expertise, insights and connections.
Tetragon Financial Group18
We invest in a range
of specialised funds
managed by TFG Asset
Management managers,
with a view to obtaining
diversified returns on
favourable terms.”
Annual Report 2022 19
Figure 3
Fully diluted NAV per share
NAV per share total return 2018-2022
Fully diluted NAV per share (NAV
per share) was $29.69 at 31
December 2022. NAV per share
total return was 1.0% for 2022.
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:
10.3%
2018 2019 2020 2021 2022
13.6%
9.5%
14.1%
1.0%
DividendsInvestment returns
/ Return on Equity
NAV per share
Tetragon Financial Group20
Figure 4
Investment returns /
Return on Equity
(1)
Return on Equity 2018-2022
RoE for 2022 was -0.8%. Adjusted
earnings per share (EPS) for
the period was -$0.25.
(1) Average RoE is calculated from Tetragon’s IPO
in 2007. Tetragon seeks to deliver 10-15% RoE
per annum to shareholders. Tetragon’s returns
will most likely fluctuate with LIBOR or an
equivalent risk-free short-term rate which directly
flows through some of Tetragon’s investments
and therefore in high-LIBOR environments,
Tetragon should achieve higher sustainable
returns; in low-LIBOR environments,Tetragon
should achieve lower sustainable returns. Please
note that (i) from 31 December 2021, LIBOR
has been replaced by an appropriate alternate
rate as advised by ISDA in the IBOR Fallbacks
Protocol, although certain LIBOR settings will
continue to be calculated and published using
panel bank submissions until 30 June 2023,
and (ii) LIBOR will no longer be available
beginning 1 July 2023, and the market generally
is replacing LIBOR with the Secured Overnight
Funding Rate (SOFR), which tracks the interest
rate on borrowings collateralized by U.S.
Treasury securities.
Figure 5
Dividends per share (DPS)
Dividend per share
comparison 2018-2022
Tetragon declared a Q4 2022
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 $8.165.
2018
2018
2019
2019
2020
2020
2021
2021
2022
2022
12.1%
13.4%
7.6%
17.3%
(0.8%)
$0.72
$0.40
$0.41
$0.44
$0.74
Average RoE since IPO: 11.6%
Target RoE: 10-15%
Annual Report 2022 21
Risk management
(i)
Factors that Tetragon monitors with respect to portfolio risk
management:
1
• Trades done in the
month
• Settlement
• Counterparty
• Legal
• Regulatory /
compliance
• Finance / tax
2
• Concentration limits
• Equity exposure
• Risk limits
• CLO credit metrics
• FX exposure
• Scenario analysis
• Interest rate
sensitivity
• Tail hedge monitor
3
• Key financial
highlights
• NAV bridge
• Investment P&L by
asset class
• Valuation
• Allocation shifts
(additions/disposals)
4
• Portfolio cash flow
forecast
• Duration profile
• Cash versus debt
• Leverage facilities
• Review borrowing
covenants
• Short-term cash
management
• Remaining third-
party commitments
• Exogenous uses of
cash (capital call
and FX margining
scenarios)
Notes
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.
3
Performance
review
1
Operational
risk
2
Market
risk
4
Liquidity
risk
Tetragon Financial Group22
ESG-related risks and opportunities vary
depending on multiple factors such as
the industry, geography and individual
firm characteristics. Potential risks
from poor ESG performance include
governance failures, inefficiencies,
operational disruption, reputational
damage, liabilities and low employee
engagement. Potential opportunities
include access to new and high-
growth markets, better relationships
with key external stakeholders
and competitive advantage.
TFM, as the investment manager of Tetragon, is responsible for
Tetragon’s ESG policy.
Purpose and scope
of the policy
This ESG policy aims to provide
transparency around TFM’s ESG beliefs
and outlines its commitment to integrate
material environmental, social, and
governance issues into its investment
process. The policy is applicable to
Tetragon and its investments.
ESG investment criteria
ESG refers to a broad range of issues
that may be considered in the investment
process. Below are some examples
of ESG issues under each category:
ESG beliefs
TFM believes that ESG considerations
could influence the risk-return profile of
Tetragon’s investments. TFM employs
an ESG integration strategy, which is
defined as the inclusion of material ESG
information into the investment process.
It is TFM’s view that ESG integration is
fully consistent with Tetragon’s overall
investment strategy. Additionally, given
the evidence (both from academic and
practitioner studies) demonstrating
the link between ESG performance
and financial performance, TFM
believes that Tetragon’s shareholders
should understand how stronger
ESG integration may help deliver
sustainable value over the long-term.
ESG integration
TFM integrates ESG information into
its investment process to help identify
drivers of risk and return. It is worth
noting that ESG information is not the
only consideration in TFM’s investment
decision making but rather expands the
total information available to it when
evaluating an investment. As part of its
investment evaluation, TFM assesses
ESG information alongside a wide variety
of economic metrics and financial data,
making investment decisions on a
case-by-case basis.
Responsibility for
implementation
TFM’s Investment Committee and
Risk Committee are responsible for
overseeing ESG integration. The ESG
policy will be reviewed annually.
Relevant commitments
and policies
TFM and Tetragon have adopted a
number of policies and commitments
that are complementary to the
ESG integration approach,
including the following:
• the Code of Ethics Policy and
Proxy Voting Policy as found in
the Compliance Manual; and
• a Statement on the UK
Modern Slavery Act.
Tetragon also reports against the Code of
Corporate Governance of the Association
of Investment Companies (AIC).
Manager’s review
Tetragon Financial Management LP
Environmental, Social and Governance (ESG) policy
E - Environmental
Greenhouse gas (GHG) emissions
Energy management
Water and wastewater management
S - Social
Human rights
Data security
Workplace health and safety
Workforce diversity
G - Governance
Minority shareholder rights
Board independence
Board diversity
Legal, regulatory and judicial environment
Annual Report 2022 23
2
Investment
review
This section covers details on Tetragon’s investment performance during 2022.
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. We target a 10-15% net Return on Equity for our
shareholders and have delivered average annual net investment returns of 11.6% since
Tetragon’s initial public offering in 2007.
/ NAV Breakdown
Summary
27
/ Introduction
26
/ Detailed
Investment Review
29
Tetragon Financial Group24
Our investment in TFG Asset Management has been
a powerful driver of Tetragon’s performance. Through the
growth of our investments in alternative asset managers,
we benefit from diversified income streams, supporting
performance across various economic and market
conditions. We also benefit from access to underlying
products and opportunities that we may not otherwise have.”
Reade Griffith
Tetragon Co-Founder and Chief Investment Officer
Annual Report 2022 25
Investment review
Investment review
Tetragon’s Fully Diluted NAV Per Share decreased from $29.86 per
share to $29.69 per share year over year. TFG Asset Management was
the largest positive contributor to performance returns in 2022.
TFG Asset Management
+$127m
gains in the year
The main performance drivers for the
year were Tetragon’s investments in
private equity in asset management
companies, known as TFG Asset
Management, which gained $127.1
million during 2022; bank loans which
gained $48.9 million; and investments in
private equity and venture capital, which
gained $45.3 million. These were offset
by the company’s allocation to other
equities and credit, which generated a
loss of $160.3 million. Tetragon’s NAV at
the end of the year stood at $2.76 billion,
compared to $2.88 billion a year ago.
A detailed performance review of each
asset class follows beginning on page 34.
Tetragon Financial Group26
Progression from 31 December 2021 to 31 December 2022 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 6
Year-on-Year NAV Per Share Progression (USD)
(i)
Tetragon’s Fully Diluted NAV Per Share decreased from $29.86 per share as at 31 December 2021 to $29.69 per share as at
31 December 2022.
Figure 7
Net Asset Breakdown Summary
The table shows a breakdown of the composition of Tetragon’s NAV at 31 December 2021 and 31 December 2022, and the factors
contributing to the changes in NAV over the period.
All figures below are in millions of U.S. dollars.
Asset Classes NAV at
31 Dec 2021
Additions
(i)
Disposals/
Receipts
(i)
Gains/
Losses
NAV at
31 Dec 2022
Private equity in asset management companies 1,256.3 25.8 (65.9) 127.1 1,343.3
Event-driven equities, convertible bonds and other hedge funds 586.0 22.2 (53.2) (6.1) 548.9
Bank loans 285.6 51.0 (81.4) 48.9 304.1
Real estate 158.2 9.8 (21.3) 5.1 151.8
Private equity and venture capital 317. 2 100.0 (84.9) 45.3 37 7. 6
Legal assets 30.3 8.9 (22.4) 2.5 19.3
Other equities and credit
(ii)
235.6 165.5 (59.2) (160.3) 181.6
Net cash
(iii)
7.6 - (176.1) 0.4 (168.1)
Total 2,876.8 383.2 (564.4) 62.9 2,758.5
Notes
(i) Any gains or losses on foreign exchange hedging instruments attributable to a particular strategy or sub-asset class have been included in
“additions” or “disposals/receipts” respectively. For example, where a hedging gain or loss is made, this will result in either cash being received
or paid, or cash being receivable or payable, which is equivalent to a receipt or disposal.
(ii) Assets characterised as “other equities 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.
Annual Report 2022 27
Figure 8
Net Asset Composition Summary
Figure 9
Top 10 Holdings by Value as of 31 December 2022
Rank Holding Asset Class Value
($ millions)
% of
Investments
1 Equitix Private equity in asset management company 683.2 23.3%
2 LCM Private equity in asset management company 290.7 9.9%
3 Polygon European Equity Opportunity Fund Absolute Return Event-driven equities 287.8 9.8%
4 BentallGreenOak Private equity in asset management company 283.0 9.7%
5 Polygon European Equity Opportunity Fund Long Bias Event-driven equities 131.8 4.5%
6 Banyan Square Fund 1 Private equity and venture capital 123.6 4.2%
7 Acasta Global Fund Convertible bonds 100.4 3.4%
8 TCI III Bank loans 75.6 2.6%
9 Hawke's Point Fund 1 Private equity and venture capital 56.3 1.9%
10 Ripple Labs Inc. - Series A & B Preferred Stock Private equity and venture capital 54.1 1.8%
Total 71.1%
Investment review
Invested in three ways
Ownership stakes in asset managers
(TFG Asset Management)
46%
Investments in external funds
7%
Investments in funds on the TFG Asset
Management platform
39%
Direct investments
8%
Net asset breakdown at 31 Dec 2021
Private equity in asset management
companies
44%
Bank loans
10%
Private equity and venture capital
11%
Event-driven equities, convertible bonds,
other hedge funds
20%
Real estate
6%
Legal assets
1%
Other equities and credit
8%
Net asset breakdown at 31 Dec 2022
Private equity in asset management
companies
46%
Bank loans
10%
Private equity and venture capital
13%
Event-driven equities, convertible bonds,
other hedge funds
19%
Real estate
5%
Legal assets
1%
Other equities and credit
6%
Tetragon Financial Group28
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 2022; more detailed commentary for each asset class follows.
Asset Classes
All figures are in U.S. millions of dollars
NAV at
31 Dec 2021
Additions
(i)
Disposals/
Receipts
(i)
Gains/
Losses
NAV at
31 Dec 2022
% of
investments
Private equity in asset management companies
Equitix 725.6 10.0 (47.7) (4.7) 683.2 23.3%
BentallGreenOak 213.5 2.9 (18.2) 84.8 283.0 9.7%
LCM 23 7.8 3.3 - 49.6 290.7 9.9%
Other asset managers 79.4 9.6 - (2.6) 86.4 3.0%
Event-driven equities, convertible bonds and other hedge funds
Polygon European Equity Opportunity Fund Absolute Return 27 7.0 - - 10.8 2 87. 8 9.8%
Polygon European Equity Opportunity Fund Long Bias 133.9 - (6.2) 4.1 131.8 4.5%
Polygon Global Equities Fund 28.8 10.0 (22.0) (12.4) 4.4 0.2%
Acasta funds 131.6 4.2 (25.0) (6.6) 104.2 3.6%
Other hedge funds 14.7 8.0 - (2.0) 20.7 0.7%
Bank loans
U.S. CLOs (LCM) 154.2 36.4 (53.5) 22.6 159.7 5.5%
Tetragon Credit Partners funds 117.8 14.6 (24.6) 24.9 132.7 4.5%
U.S. CLOs (non-LCM) 13.6 - (3.3) 1.4 11.7 0.4%
Real estate
BentallGreenOak Europe funds and co-investments 38.5 5.3 (11. 9) 3.4 35.3 1.2%
BentallGreenOak U.S. funds and co-investments 48.0 2.5 - (1.3) 49.2 1.7%
BentallGreenOak Asia funds and co-investments 23.5 0.6 (6.3) 3.9 21.7 0.7%
BentallGreenOak debt funds 5.5 1.1 (3.1) 0.4 3.9 0.1%
Other real estate 42.7 0.3 - (1.3) 41.7 1.4%
Private equity and venture capital
Hawke’s Point funds and co-investments 57.9 13.3 (27.0) 14.9 59.1 2.0%
Banyan Square funds 95.5 28.2 (14.5) 14.4 123.6 4.2%
Other funds and co-investments 113.5 26.2 (24.7) 15.4 130.4 4.5%
Direct 50.3 32.3 (18.7) 0.6 64.5 2.2%
Legal assets
Contingency Capital funds 30.3 8.9 (22.4) 2.5 19.3 0.7%
Other equities and credit
(ii)
Other equities 215.5 165.5 (57.6) (157.7) 165.7 5.7%
Other credit 20.1 - (1.6) (2.6) 15.9 0.5%
Cash
Net cash
(iii)
7.6 - (176.1) 0.4 (168.1)
Total 2,876.8 383.2 (564.4) 62.9 2,758.5 100.0%
(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) 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.
(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.
Annual Report 2022 29
NAV at 31 December 2021
Detailed net asset breakdown
Private equity in asset
management companies
Other equities and credit Real estate Legal assets
Event-driven equities,
convertible bonds + other HF
Private equity and
venture capital
Bank loans
Cash
Tetragon Financial Group30
NAV at 31 December 2022
Private equity in asset
management companies
Other equities and credit Real estate Legal assets
Event-driven equities,
convertible bonds + other HF
Private equity and
venture capital
Bank loans
Annual Report 2022 31
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 2022, TFG
Asset Management comprised LCM,
BentallGreenOak, Polygon, Acasta
Partners, Equitix, Hawke’s Point,
Tetragon Credit Partners, Banyan
Square Partners and Contingency
Capital. TFG Asset Management
recorded an investment gain of $127.1
million in 2022, driven by investments
in BentallGreenOak and LCM.
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 the year, Equitix
continued to grow its AUM, which
increased 25% from £8.0 billion to
£10.0 billion. Equitix’s Fund VI closed
at £1.5 billion in AUM and it raised
approximately £1.6 billion more in
managed accounts. Despite this,
Tetragon’s investment made a loss of
$4.7 million in the year, driven by, among
other factors, the weakness in the British
pound, which declined 11% against
the U.S. dollar, as well as a decrease
of 27% in observed market multiples
for comparable asset managers.
Tetragon received $16.6 million of
dividends during the year from Equitix.
LCM: LCM is a bank loan asset
management company. LCM manages
loan assets through Collateralized Loan
Obligations (CLOs), which are long-term,
multi-year investment vehicles. Despite
interest rate hikes in 2022 creating
issuance headwinds for both CLOs and
the underlying loans, LCM launched
four new CLOs during the year with
AUM totalling $1.6 billion, raising the
total AUM managed to $12.5 billion. The
growth in AUM in turn drove EBITDA
growth, and, combined with a 75 basis
points decrease in the discount rate
utilised in the DCF valuation approach,
the carrying value of LCM increased to
$290.7 million, leading to a gain of $49.6
million on Tetragon’s investment in 2022.
Investment review
Detailed
Investment Review
Tetragon Financial Group32
BentallGreenOak: BentallGreenOak is
a real estate-focused principal investing,
lending and advisory firm. During
2022, BentallGreenOak continued to
grow its AUM which, by year-end, had
reached $82.6 billion spread across
three continents. Operating income also
increased significantly year-on-year
and distributions to Tetragon during the
period totalled $18.2 million, reflecting a
combination of fixed quarterly contractual
payments, variable payments and
carried interest. The value of Tetragon’s
investment increased to $283.0 million
during the period which, combined with
the distributions, resulted in a gain of
$84.8 million. The main driver of the
gain was an increase in the valuation
of the 2026/27 put-call option, which
reflected an increase in the relevant
projected EBITDAs (2024/25 for the call)
and expected contractual exit multiples,
as well as a reduction in the discount
applied to the calculated value as the
uncertainty around the projected level
of those EBITDA inputs decreases.
Other asset managers: TFG Asset
Management’s other asset managers
consist of Polygon, a manager of
open-ended hedge fund and private
equity vehicles focused on event-driven
equity investing; 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 $2.6 million during 2022.
Please see Note 4 in the 31
December 2022 Tetragon Financial
Group Audited Financial Statements
for further details on the basis for
determining the fair value of TFG
Asset Management. Additionally,
for further colour on the underlying
performance of the asset managers,
please see Figure 18 for TFG Asset
Management’s
pro forma
operating
results and associated commentary.
LCM launched four new
CLOs during the year with
AUM totalling $1.6 billion,
raising the total AUM
managed to $12.5 billion.”
Annual Report 2022 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 2022,
these investments are primarily
through hedge funds managed
by Acasta Partners and Polygon.
Investments in these funds generated
a loss of $6.1 million during 2022.
Event-driven equities
- Polygon European Equity
Opportunity Fund: This fund
focuses on event-driven European
equity strategies with catalysts,
particularly in mergers and
acquisitions, deep-value dislocation
trades, and capital markets special
situations. Tetragon’s investments in
these funds in 2022 recorded a gain
of $14.9 million. Tetragon is invested
in both of the fund’s share classes;
the Absolute Return class had net
performance of +3.8% and the Long
Bias share class returned -1.7% net.
- Polygon Global Equities Fund:
Tetragon’s investment had losses
of $12.4 million during 2022.
Tetragon reduced its holding in
this fund by $12.0 million during
the year. The position remains
relatively small at $4.4 million.
Convertible bonds and credit
- Acasta Global Fund: The Acasta
Global fund invests in securities
across the capital structure of
issuers primarily in Europe and North
America and seeks to identify relative
value opportunities leveraging the
firm’s event-driven and convertible
expertise in a concentrated and
heavily researched portfolio. Acasta
Partners also launched a vehicle
known as the Energy Evolution Fund
in March 2022. Tetragon’s investment
in Acasta funds generated a loss
of $6.6 million for the year. Net
performance in the Acasta Global
Fund was -4.6% for its flagship
share class, compared to the HFR
RV Fixed Income-Convertible
Arbitrage Index which returned
-12.5% in 2022.
(1)
Tetragon reduced
its holding in Acasta Global Fund
by $25.0 million during the year.
Other hedge funds
- Investments in hedge funds managed
by third-party managers lost $2.0
million in 2022. An investment of $8.0
million was made during the year.
Investment review
Tetragon Financial Group34
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 during 2022. Tetragon
made new U.S. CLO investments both
directly and 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 $22.6 million
during 2022. This performance
was driven by higher-yielding
reinvestment opportunities within
the underlying CLOs, rising risk-
free rates which may increase the
cashflow generation ability of CLO
equity, and a generally benign level
of loan losses during the year.
During 2022, investments in this
segment generated $53.5 million in
cash proceeds, including the sale
of one majority position in a CLO.
As of year-end, the total fair value
was $159.7 million. As at the end
of 2022, all LCM CLO transactions
were compliant with their junior-most
overcollateralisation (O/C) tests.
(2)
In May 2022, Tetragon purchased a
majority stake in the equity tranche
of LCM 37 Ltd, for a cost of $21.2
million. During 2022, Tetragon
also made minority investments in
the equity tranches of three other
LCM-managed CLOs (LCM 38,
LCM 39, and LCM 40), for a total
combined cost of $11.6 million.
Tetragon also made investments
in the debt tranches of LCM 38,
LCM 39, and LCM 40 to support the
compliance of EU Risk Retention
rules for those transactions.
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
(3)
:
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 at the end of 2022,
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
57.1% funded). TCI II and TCI III are
fully invested, while TCI IV remains
in its initial investment period. As at
the end of 2022, the total fair value
of this segment was $132.7 million.
During 2022, Tetragon’s investments
in funds managed by Tetragon Credit
Partners generated $24.6 million
in cash distributions and a gain of
$24.9 million. Performance was
positively impacted by higher-yielding
reinvestment opportunities within the
underlying CLOs, rising risk-free rates
which may increase the cashflow
generation ability of CLO equity, and
a generally benign level of loan losses
during the year. During the year, TCI
IV purchased majority stake positions
in four CLO equity tranches and made
two investments in CLO debt tranches.
No CLO debt tranches in any of the
funds were refinanced during 2022, as
market spread levels were significantly
higher than the existing interest
cost of CLO liabilities throughout
the year. 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 2022.
(2)
- U.S. CLOs (non-LCM): The non-LCM-
managed CLO segment saw a gain of
$1.4 million during 2022 and generated
$3.3 million in cash distributions.
Tetragon did not add any direct non-
LCM-managed CLO investments, and
as at the end of 2022, the fair value of
this segment stood at $11.7 million. As
at the end of 2022, 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.
We continue to view
CLOs as attractive
vehicles for obtaining
long-term exposure to
the leveraged loan
asset class.”
Annual Report 2022 35
Real estate
Tetragon holds most of its investments
in real estate through BentallGreenOak-
managed funds and co-investment
vehicles. The majority of these
vehicles are private equity-style
funds concentrating on opportunistic
investments targeting middle-
market opportunities in the United
States, Europe and Asia, where
BentallGreenOak believes it can
increase value and produce positive
unlevered returns by sourcing off-market
opportunities where it sees pricing
discounts and market inefficiencies.
This segment gained $5.1 million during
2022, with gains in the Europe and Asia-
focused funds and co-investments, and
losses in the U.S.-focused investments
and the “other real estate” farmland
investment. Aggregate additions related
to capital calls on new and existing
investments were $9.8 million, and
$21.3 million of distributions from these
vehicles were received during the year.
• BentallGreenOak Europe
funds and co-investments:
BentallGreenOak’s Europe-
focused products are diversified
with investments across multiple
countries in Western Europe.
Tetragon is invested in three funds
and seven co-investments in this
segment, which generated a gain
of $3.4 million during 2022.
• BentallGreenOak U.S. funds
and co-investments: In the
United States, Tetragon is
invested in three funds and four
co-investments. During 2022,
these investments generated a
loss of $1.3 million for Tetragon.
• BentallGreenOak Asia funds and
co-investments: The Asia-focused
investments target investment
opportunities in Japan, predominantly
in Tokyo, with selective Asia Pacific
opportunities, primarily in South
Korea. These focus on balance sheet
restructurings and other distress-
related factors that motivate sellers.
Tetragon is invested in two funds in
Asia. During 2022, these investments
contributed a gain of $3.9 million.
• BentallGreenOak debt funds:
BentallGreenOak provides loans
secured by commercial real
estate throughout the United
Kingdom and Europe. Tetragon’s
investments in this segment are
currently small relative to its
other real estate investments.
• Other real estate: In addition to the
commercial real estate investments
through BentallGreenOak-managed
real estate funds, Tetragon also has
investments in commercial farmland
in Paraguay managed by a specialist
third-party manager in South
American farmland. This investment
generated a loss of $1.3 million
following a revaluation in 2022.
Investment review
In 2022, Banyan
Square’s portfolio
companies achieved
strong operating results
and end market growth.”
Tetragon Financial Group36
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 generated
gains of $45.3 million during 2022.
• Hawke’s Point: Tetragon’s mining
finance investments managed
by Hawke’s Point generated a
gain of $14.9 million during 2022,
driven by operational progress at
one of its Australian gold project
investments and positive drill results
in its recent Canadian nickel project
investment. Tetragon invested
$13.3 million into Hawke’s Point
funds and received $27.0 million in
distributions over the course of 2022.
• Banyan Square Partners: In 2022,
Banyan Square’s portfolio companies
achieved strong operating results
and end-market growth, particularly
within cybersecurity and applications
software sectors. Whilst this strong
performance was partially offset
by the contraction of multiples and
foreign exchange headwinds, the
portfolio still recorded a net gain
during the period of $14.4 million.
• Other funds and co-investments:
Investments in externally managed
private equity funds and co-
investment vehicles in Europe
and North America made gains
of $15.4 million in 2022, spread
across 30 different positions.
• Direct: This category produced gains
of $0.6 million during the period, and
contains the Ripple Labs investment
and three other unlisted positions.
Legal assets
Tetragon makes investments in legal
assets through vehicles managed by
Contingency Capital. Tetragon made its
first commitment of $50 million into the
asset class in late 2021 and increased
it to $60 million in 2022, $17.4 million
of which has been called to date. A
gain of $2.5 million was generated
from this investment during the year.
Other equities
and credit
Tetragon also makes investments
directly on its balance sheet reflecting
single strategy ideas: either co-investing
with some of its underlying managers
or simply idiosyncratic investments
which it believes are attractive but may
be unsuitable for an investment via
TFG Asset Management vehicles. These
investments tend to be opportunistic
and with a catalyst. We believe that
the sourcing of these investments has
been facilitated by the managers on
the TFG Asset Management platform
as well as third-party managers with
whom Tetragon invests. We also
believe this ability to invest flexibly is
a benefit of Tetragon’s structure.
• Other equities: This segment,
comprising European- and U.S.-
listed public equities in technology,
biotechnology and financial services
sectors, generated a loss of $157.7
million during the year. $105.2
million of this loss was driven by
biotechnology exposures, including
an investment in a pharmaceutical
company. In 2021, Tetragon made
the investment with the belief that
the company had the potential to
transform global drug usage, pending
the release of trial results in early
2022. Our analysis estimated a high
probability of a successful trial that
would result in a tenfold increase in
valuation, versus a 75% fall if the trial
was inconclusive or failed. During the
first quarter of 2022, disappointing
results from the trial were published,
leading the shares to trade down.
Four technology positions contributed
an additional $46.3 million in losses,
as growth and technology equities
broadly sold off. Exposure to financial
equity and credit also generated
smaller losses of $6.2 million.
• Other credit: This segment
generated a loss of $2.6
million during 2022, driven
by a corporate bond.
Cash
Tetragon’s cash at bank balance was
$21.7 million as at 31 December 2022.
After adjusting for known accruals and
liabilities (short- and long-dated), its
net cash balance was -$168.1 million.
In July 2022, Tetragon extended the
size of its credit facility to $400.0
million and its maturity to July 2032.
As at 31 December 2022, $115.0
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 2022, Tetragon
used $383.2 million of cash to make
investments, $72.0 million to repurchase
its shares
(5)
and $23.8 million to pay
dividends. $388.3 million of cash was
received as distributions and proceeds
from the sale of investments. Future
cash commitments are approximately
$115.8 million, comprising investment
commitments to BentallGreenOak funds
of $34.1 million, private equity funds of
$26.0 million, Tetragon Credit Partners
funds of $11.0 million, Contingency
Capital funds of $42.6 million and
Contingency Capital loan of $2.1 million.
We believe the ability
to invest flexibly is a
benefit of Tetragon’s
structure.”
Annual Report 2022 37
(1) The indices shown here have not
been selected to represent
appropriate benchmarks to compare
an investor’s performance, but rather
are disclosed to allow for comparison
of the investor’s performance to that
of certain well-known and widely
recognised indices. The volatility
of the indices may be materially
different from the individual
performance attained by a specific
investor. In addition, 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
https://www.hfr.com/.
(2) Based on the most recent trustee
reports available as of 31 December
2022. 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.
(3) 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.
(4) $72.0 million includes $67.1
million of shares purchased
through the tender offer and
$4.9 million of shares purchased
from subsidiaries or affiliates
to facilitate the payment of
withholding taxes on equity-
based share payments.
Notes
Investment review
Tetragon Financial Group38
Currency exposure:
Tetragon is a U.S. dollar-based fund
and reports all its metrics in U.S.
dollars. During 2022, all investments
denominated in other currencies were
hedged to U.S. dollars, except for some
(currently approximately 50%) of the
GBP-denominated exposure in Equitix.
Figure 11
Further portfolio metrics - exposures at 31 December 2022
BY GEOGRAPHY
(1)
Europe
48%
Asia Pacific
5%
Latin America
2%
North America
45%
BY EXPOSURE
2
BY INVESTMENT
Ownership stakes in asset managers
46% Ownership stakes in asset
managers (TFG Asset
Management)
Investments in managed funds
39% Investments in funds on the TFG
Asset Management platform
7% Investments in external funds
Direct Investments
8% Direct Investments
LCM
16%
Tetragon Credit Partners
5%
BentallGreenOak
14%
Hawkeʼs Point
2%
Acasta
4%
Banyan Square
4%
External
7%
Contingency Capital
1%
Direct balance sheet
8%
Polygon
16%
Equitix
23%
(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.
• BentallGreenOak (TFG Asset
Management) is treated as 24% Europe,
66% North America, and 10% Asia-Pacific.
• Acasta Partners (TFG Asset Management)
is treated as 80% Europe and
20% North America.
• Polygon 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.
Source: Tetragon
Annual Report 2022 39
3
Financial
review
A summary of Tetragon’s 2022 financial highlights, and pro forma statements of
comprehensive income and financial position.
/ Pro Forma Statement of
Comprehensive Income
43
/ Financial
Highlights
42
/ Pro Forma Statement
of Financial Position
43
Tetragon Financial Group40
We are alpha-driven investors, with
deep institutional knowledge.”
Stephen Prince
Chief Executive Officer, TFG Asset Management
Annual Report 2022 41
Figure 12
Financial Highlights 2020 - 2022
2022 2021 2020
Reported GAAP Net income ($MM) ($32.1) $418.2 $171.1
Adjusted Net income ($MM) ($22.6) $428.6 $182.5
Reported GAAP EPS ($0.35) $4.68 $1.87
Adjusted EPS ($0.25) $4.79 $1.99
Return on Equity (0.8%) 17.3% 7.6%
Net Assets ($MM) $2,758.5 $2,876.8 $2,474.4
IFRS number of shares outstanding (MM) 85.6 90.2 88.8
NAV per share $32.24 $31.88 $27.87
Fully diluted shares outstanding (MM) 92.9 96.4 93.1
Fully diluted NAV per share $29.69 $29.86 $26.57
NAV per share total return 1.0% 14.1% 9.5%
Dividends per share (DPS) $0.44 $0.41 $0.40
Tetragon uses the following
metrics, among others, to
understand the progress and
performance of the business:
• Adjusted Net income (-$22.6
million): Please see Figure 13
for more details and a breakdown
of the Adjusted Net Income.
• Return on Equity ( -0.8%): Adjusted
Net Income (-$22.6 million)
divided by Net Assets at the start
of the year ($2,876.8 million).
• Fully Diluted Shares Outstanding
(92.9 million): Adjusts the IFRS
shares outstanding (85.6 million)
for various dilutive factors (7.3
million shares). Please see
Figure 27 for more details.
• Adjusted EPS (-$0.25): Calculated
as Adjusted Net Income (-$22.6
million) divided by the time-
weighted average IFRS shares
during the period (90.8 million).
• Fully Diluted NAV Per Share
($29.69): Calculated as Net
Assets ($2,758.5 million)
divided by Fully Diluted Shares
Outstanding (92.9 million).
Financial review
Financial highlights
Tetragon Financial Group42
Figure 13
Pro Forma Statement of Comprehensive Income 2021 - 2022
2022 ($M) 2021 ($M)
Net gain on financial assets at fair value through profit or loss 18.9 621.2
Net gain/(loss) on derivative financial assets and liabilities 42.4 (10.4)
Net foreign exchange gain/(loss) 1.2 (1.4)
Interest income 0.4 0.2
Investment income 62.9 609.6
Management and incentive fees (67.6) (162.1)
Other operating and administrative expenses (7.6) (13.1)
Interest expense (10.3) (5.8)
Total operating expenses (85.5) (181.0)
Adjusted Net income (22.6) 428.6
For 2022, 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 $9.5 million (2021: $10.4 million). This adjustment is
consistent with how Adjusted Net income has been determined in prior periods.
During the year, $26.5 million of incentive fee was expensed and $26.5 million remains outstanding at 31 December 2022.
Figure 14
Pro Forma Statement of Financial Position
as at 31 December 2021 and 31 December 2022
31 December 2022
($M)
31 December 2021
($M)
ASSETS
Investments 2,919.2 2,851.6
Derivative financial assets 21.7 4.2
Other receivables 6.1 2.6
Amounts due from brokers 5.5 5.9
Cash and cash equivalents 21.7 199.6
Total assets 2,974.2 3,063.9
Liabilities
Loans and borrowings (115.0) (75.0)
Derivative financial liabilities (2.5) (1.5)
Amounts due to brokers (68.0) -
Other payables and accrued expenses (30.2) (110.6)
Total liabilities (215.7) (187.1)
NET ASSETS 2,758.5 2,876.8
Although the consolidated net assets are identical to the IFRS net assets reported by Tetragon, the split between
investments and cash is different. Under IFRS, certain investments and cash contained within non-investment fund-
controlled subsidiaries are aggregated as an investment and reported at fair value.
Instead, this table looks through to the underlying investments and cash, and accounts for each separately, at fair value.
There are no differences for the year ended 31 December 2022. For the year ended 31 December 2021, this approach
has the impact of increasing cash by $0.8 million and decreasing investments by $0.8 million. This treatment is consistent
with how Tetragon has reported these investments in prior periods.
Annual Report 2022 43
This section provides details on Tetragon’s corporate governance
matters, as well as information regarding the Investment Manager.
Permanent capital. Structured to perform.
/ Board of Directors
47
/ Our structure
46
/ Directors’ report
56
4
Governance
/ Additional information
59
/ AIC Code of
Corporate Governance
58
Tetragon Financial Group44
Tetragon’s values of rigour, partnership
and ambition are central to our approach”
Sean Côté
General Counsel and Co-Head of Legal,
Regulatory and Compliance
Annual Report 2022 45
Governance
Our structure
Tetragon Financial Group46
The Board of Directors currently comprises five directors, of which three
are Independent Directors.
Deron Haley, also known as D.J., is a founding
Partner and Chief Operating Officer at Durational
Capital Management, LP, a New York-based private
equity firm that specializes 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
firm-wide 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.
Deron J. Haley
Independent Director
Steven W. Hart
Independent Director
Tetragon’s Board of Directors
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 an M.B.A. degree from the University of
Massachusetts, where he graduated first in his
class, an M.S. degree from the State University of
New York and a B.S. degree from Union College.
David C. O’Leary
Independent Director
Annual Report 2022 47
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)
.
In addition to his roles at Tetragon and TFG
Asset Management, Reade continues to manage
Polygon’s European Event-Driven Equities strategy.
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 was a member of the
Financial Sector Forum at the Bank of England.
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, Polygon, Acasta Partners, Equitix,
Hawke’s Point, Tetragon Credit Partners, Banyan Square Partners
and TCICM, as calculated by the applicable fund administrators at
31 December 2022 and AUM for BentallGreenOak representing
Tetragon’s
pro rata
share (12.86%) of BentallGreenOak AUM ($82.6
billion). Includes, where relevant, investments by Tetragon.
Reade Griffith
Tetragon Co-Founder
and Chief Investment
Officer
Paddy Dear
Tetragon Co-Founder
Governance
Tetragon Financial Group48
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 https://
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
Annual Report 2022 49
arrangement shall be void or voidable
on the grounds of any such interest
or benefit or because such Director is
present at or participates in the meeting
of the Directors that approves such
transaction or arrangement, provided that
(i) the material facts as to the interest
of such Director in such transaction or
arrangement have been disclosed or are
known to the Directors and the Directors
in good faith authorise the transaction
or arrangement and (ii) the approval
of such transaction or arrangement
includes the votes of a majority of the
Directors that are not interested in
such transaction or such transaction is
otherwise found by the Directors (before
or after the fact) to be fair to Tetragon
as of the time it is authorised. Under the
Investment Management Agreement, the
Directors have authorised the investment
manager to enter into transactions on
behalf of Tetragon with persons who are
affiliates of the investment manager,
provided that in connection with any
such transaction that exceeds $5 million
of aggregate investment the investment
manager informs the Directors of such
transaction and obtains either (i) the
approval of a majority of the Directors
that do not have a material interest in
such transaction or (ii) an opinion from
a recognised investment bank, auditing
firm or other appropriate professional
firm substantively to the effect that the
financial terms of the transaction are fair
to Tetragon from a financial point of view.
Compensation
The remuneration for Directors is
determined by resolution of the holder
of Tetragon’s voting shares. Currently,
the Directors’ annual fee is $125,000
in compensation for service on the
Board of Directors of Tetragon. The
Directors 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.
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. The
Independent Directors have deferred the
settlement of all the awards to the earlier
of five years from the vesting date or
separation from service with Tetragon.
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.
Governance
Tetragon Financial Group50
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
accountants, the audit and non-audit
fees charged by the independent
accountants and the adequacy of
Tetragon’s internal accounting controls.
The Audit Committee
Annual Report 2022 51
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
Governance
Our Investment
Manager
Tetragon Financial Group52
earned or benefit derived from advice
given by the investment manager to
other persons. The investment manager
will not be liable to Tetragon for any
loss suffered in connection with the
investment manager’s decision to offer
investments to any other person, or
failure to offer investments to Tetragon.
The investment manager is authorised
to enter into transactions on behalf
of Tetragon with persons who are
affiliates of the investment manager,
provided that in connection with any
such transaction that exceeds $5
million of aggregate investment, the
investment manager obtains either
(i) the approval of a majority of the
Directors that do not have a material
interest in such transaction (whether as
part of a Board of Directors resolution
or otherwise) or (ii) an opinion from a
recognised investment bank, auditing
firm or other appropriate professional
firm substantively to the effect that the
financial terms of the transaction are fair
to Tetragon from a financial point of view.
Management and
Incentive Fees;
Expenses
All fees and expenses of Tetragon,
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
one and one-half percent (1.5%) per
annum of the NAV of Tetragon payable
monthly in advance prior to the deduction
of any accrued incentive fees.
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
(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.
below) for the Calculation Period. If the
Hurdle is not met in any Calculation
Period (and no incentive fee is paid),
the shortfall will not carry forward to
any subsequent Calculation Period.
A “Calculation Period” is a period of
three months ending on March 31, June
30, September 30 and December 31 of
each year, or as otherwise determined
by the Board of Directors of Tetragon.
The “Reference NAV” is the greater of
(i) NAV at the end of the Calculation
Period immediately preceding the current
Calculation Period and (ii) the NAV as of
the end of the Calculation Period ending
three months earlier than the Calculation
Period referred to in clause (i). For the
purposes of determining 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.
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)
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 $26.5 million
was accrued in the fourth quarter of
2022 in accordance with Tetragon’s
investment management agreement.
The hurdle rate for the first quarter of
the 2023 incentive fee has been reset
at 7.429718% (Q4 2022: 6.396148%)
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
Annual Report 2022 53
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. 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
(1)
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
(2)
, which
is authorised and regulated by the United
Kingdom Financial Conduct Authority,
Tetragon Financial Group54
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.
(3)
TFG Asset Management then charges
fees to the investment manager for the
services allocated to the investment
manager on a cost-recovery basis designed
to achieve full recovery of the allocated
costs. In 2022, the total amount recharged
to the investment manager, excluding
direct expenses, was $21.3 million.
Most of the costs related to these
services are directly or indirectly
attributable to personnel or “human
capital”, with compensation typically
being the largest single cost.
(4)
Consequently, one of the most critical cost
allocations relates to professionals’ time,
which is commonly expressed as Full
Time Equivalents or “FTEs”. On a monthly
basis, each TFG Asset Management
employee
(5)
, directly or via their team head,
provides a breakdown of the approximate
percentage of time spent supporting the
various businesses for the previous month
(this excludes certain functions such
as office management and technology
that are charged to business users on a
standard basis (e.g., space used or global
headcount) which removes any need
on the part of those teams to allocate
their FTEs to business lines). TFG Asset
Management employees should not be
incentivised to either over- or under-allocate
to any business, as their time allocation is
not a consideration in the determination
of their overall compensation. Once
allocated percentages are determined
and agreed, an FTE is derived, subject
to adjustments for items determined by
contractual arrangements. 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.
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.
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.
Notes:
(1) These TFG Asset Management subsidiaries
also provide infrastructure services to LCM and
Contingency Capital, infrastructure and investment
management services to Polygon, Acasta Partners,
Hawke’s Point, the TCI General Partner and Banyan
Square Partners.
(2) 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.
(3) This cost allocation methodology also applies to
the other TFG Asset Management businesses.
(4) Employee compensation will also include TFG
Asset Management’s long-term incentive plan and its
other equity-based awards.
(5) Amounts paid by TFG Asset Management to Reade
Griffith in connection with services provided by him
to TFG Asset Management are not allocated to the
investment manager.
Annual Report 2022 55
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
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).
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 101. A detailed review of activities
and future developments is contained
in the Annual Report issued with these
consolidated financial statements
to the shareholders of Tetragon.
Directors
The Directors who held office
during the year were:
Paddy Dear
Reade Griffith
Deron Haley*
Steven Hart*
David O’Leary*
* Independent Directors
The remuneration for Directors is
determined by resolution of the holder of
Tetragon’s voting shares. Each Director’s
annual fee is $125,000 (2021: $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.
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 6,508 shares (2021: 6,502).
In addition to the annual fee,
Tetragon has awarded its shares
to the Independent Directors
as described on page 50.
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 2021
$0.1100
Quarter ended
31 March 2022
$0.1100
Quarter ended
30 June 2022
$0.1100
Quarter ended
30 September 2022
$0.1100
On 3 March 2023, the Directors declared
a dividend amounting to US$ 0.1100 per
share for the quarter ended 31 December
2022. The total dividend declared for the
year ended 31 December 2022 amounted
to $0.4400 per share (2021: $0.4100
per share).
Governance
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 2022.
Tetragon Financial Group56
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 judgments and estimates
that are reasonable and prudent;
• state whether applicable accounting
standards have been followed,
subject to any material departures
disclosed and explained in
the financial statements;
• assess 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.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial 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.
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 the
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.
The annual report gives a fair review of
the information required by DTR 4.1.8R
and DTR 4.1.11R of the Disclosure
Guidance and Transparency Rules and
the Financial 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
Steven Hart Director
Date: 3 March 2023
Annual Report 2022 57
In September 2016, Tetragon became a member of The Association
of Investment Companies (AIC), the trade body for closed-ended
investment companies.
Founded in 1932, the AIC represents
approximately 350 members across
a broad range of closed-ended
investment companies, incorporating
investment trusts and other closed
ended investment companies.
Tetragon is classified by the AIC in
its Flexible Investment sector as a
company whose policy allows it to
invest in a range of asset types. The
AIC has indicated that the sector
may assist investors and advisers
to more easily find and compare
those investment companies which
have the ability to invest in a range
of assets and allow investors to
compare investment companies
with similar open-ended funds.
The AIC has a Code of Corporate
Governance (AIC Code) which sets
out a framework of best practice
in respect of the governance of
investment companies. The Board
of Directors of Tetragon considers
that reporting against the principles
and recommendations of the AIC
Code, and by reference to the AIC
Corporate Governance Guide for
Investment Companies (which
incorporates the UK Corporate
Governance Code), will provide
better information to shareholders.
Tetragon’s reporting against
the principles and provisions
of the 2019 AIC Code is also
set out on Tetragon’s website
at https://www.tetragoninv.com/
shareholders#aic-code.
The AIC code of corporate governance
Governance
Tetragon Financial Group58
Dividend and
Capital Return Policy
Tetragon seeks to return value to
its shareholders, including through
dividends and share repurchases.
Tetragon’s Board of Directors has the
authority to declare dividend payments,
based upon the recommendation
of Tetragon’s investment manager,
subject to the approval of Tetragon’s
voting shareholder and adherence to
applicable law, including the satisfaction
of a solvency test as required pursuant
to the Companies (Guernsey) Law,
2008, as amended. In addition to
making dividend recommendations
to the Board of Directors, Tetragon’s
investment manager may
authorise share repurchases.
Decisions with respect to declaration
of dividends and share repurchases
may be informed by a variety of
considerations, including (i) the
expected sustainability of the company’s
cash generation capacity in the short
and medium term, (ii) the current
and anticipated performance of the
company, (iii) the current and anticipated
operating and economic environment,
(iv) other potential uses of cash ranging
from preservation of the company’s
investments and financial position
to other investment opportunities
and (v) Tetragon’s share price.
Tetragon may also pay scrip dividends,
which payments are currently conducted
through an optional stock dividend plan.
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.
Statement Regarding
Non-Mainstream
Pooled Investments
(NMPI)
Tetragon notes the U.K. Financial
Conduct Authority (FCA) rules relating to
the restrictions on the retail distribution
of unregulated collective investment
schemes and close substitutes
(referred to as NMPI), which came
into effect on 1 January 2014.
Tetragon has received appropriate legal
advice that confirms that Tetragon’s
shares do not constitute NMPI under
the FCA’s rules and are, therefore,
excluded from the FCA’s restrictions
that apply to non-mainstream
pooled investment products.
Tetragon expects that it will continue
to conduct its affairs in such a
manner that Tetragon’s shares will
continue to be excluded from the
FCA’s rules relating to NMPI.
Additional information
Annual Report 2022 59
5
Other
information
/ Our values
and culture
76
/ TFG Asset
Management
62
/ Risk
factors
78
This section provides further detail about the business
including TFG Asset Management, our values and
cluture, risk factors, and details on historical share
repurchases and distributions.
/ Share
reconciliation
& shareholdings
85
/ Share
repurchases
& distributions
84
/ Additional CLO
portfolio
statistics
86
/ Certain regulatory
information
89
/Employee-based
compensation plans
90
/Shareholder
information
91
Tetragon Financial Group60
Built over two decades, our in-house research team
supports the investment process by facilitating the
movement of insights and ideas across the business.”
Maureen Wainwright
Head of Research
Annual Report 2022 61
Other information
TFG Asset
Management
TFG Asset Management is Tetragon’s diversified alternative asset
management platform.
(1)
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.
Tetragon Financial Group62
Delivering for Tetragon
2010
Launched
9
Asset managers
525
Employees
(Excluding BentallGreenOak)
$41bn
Assets Under Management
(2)
Growth
Proven value creation
Access
Specialised products
on favourable terms
Expertise
Insights from alternative
asset managers
Diversification
Wide range of
income streams
Notes
(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, BentallGreenOak, Polygon, Acasta Partners, Equitix, Hawke’s Point, Tetragon Credit Partners, Banyan Square
Partners and TCICM, as calculated by the applicable fund administrators at 31 December 2022 (AUM of Tetragon Credit Partners represents
committed capital). TCICM (which comprises TCI Capital Management II LLC and TCI Capital Management LLC) acts as a CLO collateral
manager for certain CLO investments. It had AUM of $2.5 billion at 31 December 2022. Includes, where relevant, investments by Tetragon.
The AUM for BentallGreenOak represents Tetragon’s
pro rata
share (12.86%) of BentallGreenOak AUM ($82.6 billion).
Delivering for our managers
Infrastructure
High-quality support
for niche and
scalable businesses
Management expertise
Experienced,
strategic insight
Access to capital
Tetragon can seed
business growth
Connections
Access to relationships
and information
Annual Report 2022 63
Established
2001 2010 2002 2009
Joined Tetragon
2009 2010 2012 2012
Asset class
Bank loans
Global real estate
funds
Event-driven equity Multi-disciplinary
AUM at
31 Dec 2022
($Bn)
(1)
$12.5 $10.6 $0.9 $1.0
Percentage
Tetragon
ownership
100% 13% 100%
Non-controlling
interest
(2)
Products
U.S. CLOs
Real estate
investment strategies
Open-ended hedge
fund and private
equity vehicles
Open-ended hedge
fund and managed
account vehicles
Average fund
duration
10-12 years
(3)
7-10 years Quarterly liquidity Quarterly liquidity
(1) AUM as calculated by the applicable fund
administrators at 31 December 2022
Includes, where relevant, investments by
Tetragon. The AUM for BentallGreenOak
represents Tetragon’s
pro rata
share
(12.86%) of BentallGreenOak AUM
($82.6 billion).
(2)
TFG Asset Management owns a
non-controlling interest in this manager
as well as providing all infrastructure
services to it. Michael Humphries owns
a controlling stake.
(3) Currently, LCM manages loan assets
exclusively through CLOs, which are
long-term, multi-year investment vehicles.
The typical duration of a CLO, and thus
LCM’s management fee stream, depends
on, among other things, the term of its
reinvestment period (currently typically
four to five years for a new issue CLO),
the prepayment rate of the underlying
loan assets, as well as post-reinvestment
period reinvestment flexibility and
weighted average life constraints.
Other information
Figure 15
Tetragon Financial Group64
Established
2007 2014 2015 2019 2020
Joined Tetragon
2015 2014 2015 2019 2020
Asset class
Infrastructure
funds
Mining finance Structured credit Private equity Legal assets
AUM at
31 Dec 2022
($Bn)
(1)
$12.0 $0.1 $0.9 $0.1 $0.7
Percentage
Tetragon
ownership
75% 100%
100%
100%
Non-controlling
interest
(4)
Products
Infrastructure and
renewable funds
and managed
accounts
Private equity-
style funds
and managed
accounts
Private equity-
style vehicles
Private equity
fund
Private equity
funds and
managed
accounts
Average fund
duration
25 years Not applicable 10 years Not applicable 7 years
(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.
TFG Asset Management enhances the value of each
investment through a shared strategic direction and
operating infrastructure – while giving entrepreneurial
independence to the managers of the underlying
businesses. We support both niche and scalable
strategies, leveraging Tetragon’s long-term capital and our
ecosystem of ideas, insights, connections and expertise.”
Stephen Prince
Chief Executive Officer, TFG Asset Management
Annual Report 2022 65
Notes
(1) Please see Note 2 on page 63. AUM
for BentallGreenOak for 2019-2022
represents Tetragon’s
pro rata
share
(12.86%) of BentallGreenOak AUM at 31
December of those years, and 100% of
the AUM of the GreenOak joint venture for
2018.
Figure 16
TFG Asset Management AUM by Business at 31 December 2022
This chart shows the breakdown of the AUM by business.
Figure 17
TFG Asset Management AUM at 31 December 2022
This chart depicts the growth of that AUM over the past five years. AUM for
TFG Asset Management as of 31 December 2022 totalled $41.2 billion.
(1)
Other information
All numbers in billions of dollars.
Tetragon Financial Group66
i This table includes the income and expenses attributable to TFG Asset Management’s businesses, (with the exception of BentallGreenOak)
during that period. During 2021, Equitix repaid all of its shareholder loans and, as a result, TFG Asset Management’s rights to distributable income
reduced from 85% to 75%. In the table above, 100% of Equitix’s income and expenses are reflected, and 25% of Equitix’s income and expenses
are reversed out through the “Non-TFG Asset Management-owned interest” line, being the proportion not attributable to Tetragon (2020: 15% of
Equitix’s income and expenses were reversed out through the Non-TFG Asset Management-owned interest line). Similarly, 100% of the income and
expenses from 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. BentallGreenOak EBITDA is not included,
but distributions relating to ordinary income and carried interest are included. The EBITDA equivalent is a non-GAAP measure and is designed to
reflect the operating performance of the TFG Asset Management businesses rather than is, or what was, reflected in Tetragon’s financial statements.
ii The performance and success fees include some realised and unrealised Polygon 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 Polygon 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.
Figure 18
TFG Asset Management Pro Forma Statement of Operations
(i)
2022 ($M) 2021 ($M) 2020 ($M)
Management fee income 169.4 143.4 125.8
Performance and success fees
(ii)
48.9 59.6 81.6
Other fee income 30.5 24.0 18.9
Distributions from BentallGreenOak 19.7 21.6 18.1
Interest income 5.4 0.5 4.1
Total income 273.9 249.1 248.5
Operating, employee and administrative expenses (182.8) (178.3) (145.8)
Non-TFG Asset Management-owned interest (18.8) (20.1) (27. 5)
Net income - "EBITDA equivalent" 72.3 50.7 75.2
Overview: Figure 18 shows a
pro forma
statement of operations that reflects
the operating performance of the asset
management companies within TFG
Asset Management (with the exception of
BentallGreenOak). The reported fee income
includes some amounts which were earned
on capital invested in certain funds by
Tetragon. During 2022, this included $12.5
million of management fees (2021: $12.0
million) and $3.1 million of performance
and success fees (2021: $5.0 million).
• EBITDA: In 2022, TFG Asset
Management’s EBITDA was
$72.3 million, 43% higher than
2021, driven principally by growth
in management fee income.
• Management fee income:
Management fee income continued
to grow, increasing by $26.0
million, or 18%, year-on-year.
Of note, Equitix management
fee income increased by $16.5
million, or 22%, as AUM continued
to grow. In addition, LCM added
$7.1 million following the issuance
of new CLOs during 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 down $10.7 million due
to a combination of decline in primary
income earned by Equitix as well as an
overall reduction in performance fees.
• 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 certain seeded funds. EMS
continues to be the main driver, and
this increased 14% year-on-year.
• Distributions from BentallGreenOak:
Distributions from BentallGreenOak
reflect (i) quarterly fixed distributions,
(ii) quarterly variable distributions and
(iii) distributions of carried interest.
A decrease in the carried interest
distributions was the main driver
for the decrease in this line item.
• Operating expenses: Operating
expenses increased by $4.5 million
year-on-year, with $15.7 million coming
from Equitix as this business added
headcount and continued to scale
up. This was offset by lower costs on
Acasta, tracking the lower performance
fee income earned on the funds.
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.
Annual Report 2022 67
A bank loan asset
management company
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 $12.5 billion
at 31 December 2022.
(i) Includes, where relevant, investments from
Tetragon, TCI II, TCI III and TCI IV.
$8.3
$9.1
$8.9
$11.2
$12.5
YE 2018 YE 2019 YE 2020 YE 2021 YE 2022
All data in this section is at 31 December
2022, unless otherwise stated. Products/
mandates listed are not necessarily
open for new investment and are
not an offer to sell or a solicitation
of an offer to purchase securities
in the United States or any other
jurisdiction, but to illustrate the TFG
Asset Management platform strategy.
Data in in billions of dollars.
Figure 19
Tetragon Financial Group68
A real estate-focused
principal investing, lending
and advisory firm
Strategies: Global real estate funds
Founded: 2010
Description of business:
• BentallGreenOak is a real estate-
focused principal investing,
lending and advisory firm.
• BentallGreenOak 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.
• BentallGreenOak 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
BentallGreenOak products.
• Further information on
BentallGreenOak is available at
www.bentallgreenoak.com *
BentallGreenOak AUM history
(i)
Tetragon’s
pro rata
share (12.86%) of
BentallGreenOak’s AUM at 31 December
2022 ($82.6 billion) was $10.6 billion.
The AUM data for 2018 shows 100% of
the historical AUM for the GreenOak joint
venture and Tetragon’s
pro rata
share of
BentallGreenOak AUM for 2019-2022.
$10.6
$6.3
$6.8
$9.5
$10.6
YE 2018 YE 2019 YE 2020 YE 2021 YE 2022
Europe EuropeNorth America North America
Asia Asia Global
(i) Includes investment funds and advisory
assets managed by BentallGreenOak.
* Clicking this link takes you to a website owned
and operated by BentallGreenOak, a third party.
BentallGreenOak’s website is not under the
control of Tetragon and Tetragon is not responsible
for the content of any hyperlink contained.
Data in billions of dollars.
Figure 20
Annual Report 2022 69
A manager of open-ended
hedge fund and private
equity vehicles focused on
event-driven equity investing
Strategies: Event-driven equity
Founded: 2002
Description of business:
• Polygon Global Partners manages
open-ended hedge fund and
private equity vehicles focused on
event-driven equity investing.
• Polygon’s European event-
driven products focus on a
diversified, catalyst-driven and
size-constrained approach.
• Polygon has offices in New
York and London.
• TFG Asset Management owns
100% of the business and Tetragon
invests in the Polygon funds.
• Find out more at
www.polygoninv.com.
Polygon AUM history
(i)
Polygon’s AUM was $0.9 billion
at 31 December 2022 and $0.8
billion for open products.
$0.64
$0.75
$0.80
$0.82
$0.81
YE 2018 YE 2019 YE 2020 YE 2021 YE 2022
European Equity Opportunity Fund Global Equities Fund
Data in billions of dollars.
Figure 21
(i) Includes AUM for Polygon European Equity
Opportunity Master Fund and associated
managed account and Polygon Global
Equities Master Fund, as calculated
by the applicable fund administrator at
31 December of each year. Includes,
where relevant, investments by Tetragon.
Tetragon Financial Group70
A manager of open-ended
hedge fund and managed
account vehicles, employing
a multi-disciplinary approach
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 2022.
$0.64
$0.63
$0.75
$0.94
$0.99
YE 2018 YE 2019 YE 2020 YE 2021 YE 2022
Acasta Global Fund Acasta Energy Evolution Fund
Data in billions of dollars.
Figure 22
(i) Includes investments from Tetragon.
Annual Report 2022 71
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 United Kingdom, Europe, North
America, the Middle East and Asia.
• TFG Asset Management owns
75% of the business.
• Find out more at www.equitix.co.uk *
Equitix AUM history
(i)
Equitix’s AUM was £10.0 billion ($12.0
billion)
(i)
at 31 December 2022.
(i) USD-GBP exchange rate at
31 December 2022.
£3.9
£5.4
£6.8
£8.0
£10.0
YE 2018 YE 2019 YE 2020 YE 2021 YE 2022
Equitix Fund I Equitix Fund II
Equitix Fund III
Equitix Fund IV
Equitix Fund V
Energy
Efficiency Funds
Euro Fund
Managed
Accounts
Equitix Fund VI
Rakiza
* 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.
Data in billions of pounds.
Figure 23
Tetragon Financial Group72
A structured credit
investing business
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 119 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.
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 2022.
$0.75
$0.78
$0.78
$0.88
$0.91
YE 2018
TCI II TCI III TCI IV TCP Opportunity Fund
YE 2019 YE 2020 YE 2021 YE 2022
Data in billions of dollars.
Figure 24
(i) Includes investments from Tetragon.
Annual Report 2022 73
Hawke’s Point provides strategic
capital to companies in the
mining and resource sectors
Strategies: Mining finance
Founded: 2014
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 $66
million at 31 December 2022.
• Find out more at
www.hawkespointcapital.com.
A private equity firm focused on
non-control equity investments
Strategies: Private equity
Founded: 2019
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
$130 million at 31 December 2022.
• Find out more at
www.banyansq.com.
A global asset management
business focused on credit-
oriented legal assets investments.
Strategies: Legal assets
Founded: 2020
Description of business
• Contingency Capital is a multi-
product global asset management
business that sponsors and
manages investment funds 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 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
$658 million at 31 December 2022.
• Find out more at
www.contingencycapital.com.
Tetragon Financial Group74
Annual Report 2022 75
Other information
Our Values and Culture
Our Values
Our Culture
Rigour
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.
Partnership
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.
Ambition
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.
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.
Building an inclusive
workplace that welcomes
people of all races,
ethnicities, cultures,
sexual orientations,
genders and class
backgrounds is important
to our success.”
Tetragon Financial Group76
To be successful you don’t
just need to attract super-
smart, hard-working people –
you need them to stay. That’s
why creating a collegial
and respectful culture is
so important. We want
people to feel empowered
to put forward ideas – and
supported to produce those
ideas in the first place.”
Reade Griffith
Tetragon Co-Founder and
Chief Investment Officer
Annual Report 2022 77
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 below 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.
Other Information
Risk factors
Tetragon Financial Group78
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 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.
• Dividends declared by Tetragon.
• Broad market fluctuations in securities
markets that in general have
experienced extreme volatility often
unrelated to the operating performance
or underlying asset value of particular
companies or partnerships.
• General economic trends and
other external factors.
• Sales of Tetragon shares
by other shareholders.
• The ability to invest in Tetragon
shares or to transfer any shares
may be limited by restrictions
imposed by ERISA regulations and
Tetragon’s articles of incorporation.
Risks relating to Tetragon’s
investment portfolio
Tetragon’s investment portfolio 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.
• Certain of TFG Asset Management’s
businesses 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.
• Failure by TFG Asset Management
to deal appropriately with conflicts
of interest in its investment business
could damage its reputation and
adversely affect its businesses.
• Tetragon’s investment in TFG
Asset Management is illiquid.
Annual Report 2022 79
Risks relating to other Tetragon
portfolio 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 BentallGreenOak;
• public and private equity securities,
particularly in event-driven strategies,
generally through the Polygon
European Equity Opportunity 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 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.
• 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
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
Tetragon Financial Group80
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
judgment of its investment manager in
valuing and determining an appropriate
purchase price for its investments.
Any determinations of value that
differ materially from the values
Tetragon realises at the maturity of
the investments or upon their disposal
will likely have a negative impact
on Tetragon and its share price.
Tetragon’s arrangements with its
investment manager were negotiated in
the context of an affiliated relationship
and may contain terms that are less
favourable than those which otherwise
might have been obtained from unrelated
parties in an arm’s-length negotiation.
The holders of Tetragon’s listed
shares will not be able to terminate its
Investment Management Agreement
with the investment manager,
and the Investment Management
Agreement may only be terminated by
Tetragon in limited circumstances.
The liability of Tetragon’s investment
manager is limited under Tetragon’s
arrangements with it, and Tetragon has
agreed to indemnify the investment
manager against claims that it may face
in connection with such arrangements,
which may lead the investment manager
to assume greater risks when making
investment-related decisions than it
otherwise would if investments were
being made solely for its own account.
The investment manager does not
owe fiduciary duties to Tetragon
shareholders. However, these contractual
limitations do not constitute a waiver
of any obligations that the investment
manager has under applicable law,
including the U.S. Investment Advisers
Act of 1940 and related rules.
The investment manager may devote
time and commitment to other activities.
The fees payable to the investment
manager are based on changes
in Tetragon’s NAV, which will not
necessarily correlate to changes in
the market value of its listed shares.
Tetragon’s compensation structure
with its investment manager may
encourage the investment manager
to invest in high-risk investments.
The management fee payable to the
investment manager also creates an
incentive for it to make investments
and take other actions that increase or
maintain Tetragon’s NAV over the near
term even though other investments
or actions may be more favourable.
The compensation of the investment
manager’s personnel contains significant
performance-related elements,
and poor performance by Tetragon
or any other entity for which the
investment manager provides services
may make it difficult for Tetragon’s
investment manager to retain staff.
Tetragon’s investment manager relies
on two entities that are part of TFG
Asset Management for a broad range
of services to support its activities. The
services include (i) infrastructure services
such as operations, financial control,
trading, marketing and investor relations,
legal, compliance, office administration,
payroll and employee benefits and (ii)
services relating to the dealing in and
management of investments, arrangement
of deals and advising on investments.
TFG Asset Management has implemented
a cost-allocation methodology with the
objective of allocating service-related
costs, including to Tetragon’s investment
manager, in a consistent, fair, transparent
and commercially based manner. TFG
Asset Management then charges fees
to Tetragon’s investment manager for
the services allocated to it on a cost-
recovery basis that is designed to achieve
full recovery of the allocated costs.
Tetragon’s Independent Directors, who
are specifically mandated to approve,
among other things, related-party
transactions, are required to approve
the methodology for allocating costs and
in their sole discretion the application
of that methodology as part of their
oversight processes. As such, the annual
cost allocation methodology update and
the actual annual cost allocations that
result based on these cost methodology
policies and procedures are separately
approved by the Independent Directors.
There are conflicts of interest created
by contemporaneous trading by
Tetragon’s investment manager
and investment managers that are
part of TFG Asset Management.
Risks relating to Tetragon’s
legal environment
and regulation
Changes in laws or regulations or
accounting standards, or a failure to
comply with any laws and regulations
or accounting standards, may
adversely affect Tetragon’s business,
investments and results of operations.
Tetragon has and may become involved
in litigation that may adversely affect
Tetragon’s business, investments
and results of operations.
No formal corporate governance
code applies to Tetragon under
Dutch law and Tetragon reports
against the AIC Corporate
Governance Guide for Investment
Companies (which incorporates
the UK Corporate Governance
Code) on a voluntary basis only.
The rights of the non-voting shareholders
and the fiduciary duties owed by the
Board of Directors to Tetragon will be
governed by Guernsey law and its articles
of incorporation and may differ from the
rights and duties owed to companies
under the laws of other countries.
Tetragon’s shares are subject to
restrictions on transfers to certain
shareholders located in the United States
or who are U.S. persons, which may
impact the price and liquidity of the shares.
Annual Report 2022 81
Tetragon’s shares are not intended for
European retail investors. Tetragon
anticipates that its typical investors will
be institutional and professional investors
who wish to invest for the long term
in a predominantly income-producing
investment and who have experience
in investing in financial markets and
collective investment undertakings and
are capable themselves of evaluating
the merits and risks of Tetragon shares
and who have sufficient resources both
to invest in potentially illiquid securities
and to be able to bear any losses (which
may equal the whole amount invested)
that may result from the investment.
Tetragon is not, and does not intend to
become, regulated as an investment
company under the U.S. Investment
Company Act of 1940 and related rules.
Risks relating to taxation
United States investors may suffer
adverse tax consequences because
Tetragon is treated as a passive
foreign investment company (PFIC) for
U.S. federal income tax purposes.
Changes to tax treatment of derivative
instruments may adversely affect
Tetragon and certain tax positions it may
take may be successfully challenged.
Investors may suffer adverse tax
consequences if Tetragon is treated
as resident in the United Kingdom or
the United States for tax purposes.
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
Organization 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,
have created significant disruption in
supply chains and economic activity and
have 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,
Tetragon Financial Group82
regulation, values or exit opportunities
of companies or assets based, doing
business, or having service or other
significant relationships in, the United
Kingdom or the European Union, including
companies or assets held or considered
for prospective investment by Tetragon.
The future application of 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.
Whilst 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 the Ukraine
On February 24, 2021, the Russian
military commenced a full-scale invasion
of Russia’s forces 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 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.
Annual Report 2022 83
Other information
Share repurchases and distributions
Figure 25
Share repurchase and dividends history ($ millions)
Year Amount
Repurchased
Cumulative Amount
Repurchased
Dividends Cumulative
dividends
2007 $2.2 $2.2 $56.5 $56.5
2008 $12.4 $14.5 $60.4 $117.0
2009 $6.6 $21.2 $18.8 $135.7
2010 $25.5 $46.7 $37.5 $173.3
2011 $35.2 $81.9 $46.4 $219.6
2012 $175.6 $257. 5 $51.5 $271.1
2013 $16.1 $273.6 $55.5 $326.6
2014 $50.9 $324.5 $58.7 $385.3
2015 $60.9 $385.4 $63.3 $448.6
2016 $157.8 $543.2 $61.0 $509.6
2017 $65.4 $608.6 $64.0 $573.6
2018 - $608.6 $65.1 $638.7
2019 $50.3 $658.8 $66.5 $705.2
2020 $50.3 $709.1 $36.4 $741.5
2021 - $709.1 $36.8 $778.3
2022 $67.1 $776.3 $38.2 $816.5
TOTAL $776.3 $816.5
Figure 26
The below graph shows cumulative historical share repurchases and dividends distributed by Tetragon from inception to 31
December 2022 in millions of U.S. dollars.
(i)
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.
$1,364.0
$1,450.6
$1,487.4
$1,592.8
Inception
2019
2020 2021
2022
Cumulative Share Repurchases ($MM)
Cumulative Dividends Paid ($MM)
$816.5
$776.3$709.1$709.1
$658.8
$778.3$741.5
$705.2
Tetragon Financial Group84
Other information
Share reconciliation and shareholdings
Figure 27
IFRS to fully diluted shares reconciliation
Shares at 31 December
2022 (millions)
Legal Shares Issued and Outstanding 139.7
Less: Shares Held in Treasury 43.8
Less: Total Escrow Shares
(1.i)
10.3
IFRS Shares Outstanding 85.6
Add: Dilution for equity-based awards
(1.ii)
7.3
Fully Diluted Shares Outstanding 92.9
Figure 28
Individual Share at 31 December
2022 (millions)
Mr. Reade Griffith
(2.i)
18,491,292
Mr. Paddy Dear 5,445,046
Mr. David O'Leary 51,458
Mr. Steven Hart 28,070
Mr. Deron Haley 28,070
Other Tetragon/Polygon Employees 7,644,946
Equity-based awards
(2.ii)
3,5 00,114
Notes
1 (i) The Total Escrow Shares of 10.3 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 7.3 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 90
for more details. Certain of these persons
may from time to time enter into purchases
or sales trading plans (each a, “Fixed
Trading Plan”) providing for the sale of
Vested Shares or the purchase of Tetragon
shares in the market, or may otherwise sell
their Vested Shares or purchase Tetragon
shares, subject to applicable compliance
policies. Applicable brokerage firms may
be authorised to purchase or sell Tetragon
shares under the relevant Fixed Trading
Plan pursuant to certain irrevocable
instructions. Each Fixed Trading Plan is
intended to comply with Rule 10b5-1 under
the United States Securities Exchange Act
of 1934, as amended. Each Fixed Trading
Plan has been or will be approved by
Tetragon in accordance with its applicable
compliance policies.
Rule 10b5-1 provides a “safe harbor” that is
designed to permit individuals to establish
a pre-arranged plan to buy or sell company
stock if, at the time such plan is adopted, the
individuals are not in possession of material,
non-public information.
2. (i) Includes approximately 2.5 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 90 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 90 for further
details.
Shareholdings
Persons affiliated with Tetragon maintain significant interests in Tetragon shares.
For example, as of 31 December 2022, the following persons own (directly or
indirectly) interests in shares in Tetragon in the amounts set forth below:
Annual Report 2022 85
Other information
Additional CLO Portfolio Statistics
Figure 29
Tetragon’s CLO portfolio details as of 31 December 2022
Transaction
(i)
Status
(ii)
Primary or
Secondary
Investment
(iii)
Original Invest.
Cost ($M)
Deal Closing date Year of maturity End of Reinv
Period
Transaction 83 Outstanding Primary 20.8 2013 2029 2021
Transaction 84 Outstanding Primary 24.6 2013 2027 2021
Transaction 85 Outstanding Primary 1.0 2013 2031 2023
Transaction 88 Outstanding Primary 30.1 2014 2030 2022
Transaction 89 Outstanding Primary 33.6 2014 2031 2023
Transaction 90 Outstanding Primary 20.7 2014 2031 2023
Transaction 91 Outstanding Primary 27.8 2015 2031 2023
Transaction 92 Outstanding Primary 34.6 2015 2027 2020
Transaction 93 Outstanding Secondary 6.1 2016 2031 2023
Transaction 94 Outstanding Secondary 6.6 2016 2031 2023
Transaction 95 Outstanding Primary 2.6 2016 2029 2022
Transaction 96 Outstanding Secondary 2.7 2017 2030 2022
Transaction 97 Outstanding Primary 9.9 2017 2030 2022
Transaction 98 Outstanding Primary 33.2 2017 2030 2022
Transaction 99 Outstanding Primary 8.3 2017 2030 2022
Transaction 100 Outstanding Primary 2.6 2018 2031 2023
Transaction 101 Outstanding Primary 0.2 2018 2031 2023
Transaction 102 Outstanding Primary 5.0 2018 2031 2023
Transaction 103 Outstanding Primary 5.6 2018 2031 2023
Transaction 104 Outstanding Primary 9.8 2018 2031 2023
Transaction 106 Outstanding Primary 2.1 2021 2034 2026
Transaction 107 Outstanding Primary 2.0 2021 2034 2026
Transaction 108 Outstanding Primary 2.0 2021 2034 2026
Transaction 109 Outstanding Primary 2.0 2021 2034 2026
Transaction 110 Outstanding Primary 2.4 2021 2034 2027
Transaction 111 Outstanding Primary 21.2 2022 2034 2025
Transaction 112 Outstanding Primary 0.9 2022 2034 2025
Transaction 113 Outstanding Primary 6.8 2022 2034 2027
Transaction 114 Outstanding Primary 5.3 2022 2036 2028
Total CLO portfolio 330.4
Notes
i Transactions are investments made on
a particular investment date. Multiple
transactions may be associated with the
same tranche of the same CLO deal.
Note that certain transactions may have
been removed from the table above, as
the remaining value of the assets of those
CLOs is immaterial. The transactions
continue to be held as of the date of this
report.
ii “Outstanding” refers to investments in
CLOs which have not yet been optionally
redeemed, sold, or wound down to less-
than-material remaining expected value.
“Called” refers to investments in CLOs
where Tetragon initiated or approved an
optional redemption, and “wound down”
refers to CLOs which have amortised or
repaid without an optional redemption,
in both cases with less-than-material
remaining expected value.
iii “Primary” refers to investments made in
the new issuance CLO market, whereas
“Secondary” refers to investments made
after the original issue date of the CLO.
iv Notional weighted average spread over
each CLO’s liability benchmark rate of
the underlying loan assets in each CLO’s
portfolio as of the most recent trustee
report date.
v Notional weighted average spread over
SOFR of the debt tranches issued by
each CLO as of the closing date of each
transaction. For debt tranches utilizing a
benchmark rate of LIBOR, we assume a
15 bps spread adjustment to convert to a
SOFR-based spread.
vi Notional weighted average spread over
SOFR of the debt tranches issued by each
CLO as of most recent trustee report date.
For debt tranches utilizing a benchmark
rate of LIBOR, we assume a 15 bps
Tetragon Financial Group86
Figure 29
Tetragon’s CLO portfolio details as of 31 December 2022
Wtd Avg
Spread (bps)
(iv)
Original Cost of
Funds (bps)
(v)
Current Cost of
Funds (bps)
(vi)
Current
Jr-Most O/C
Cushion
(vii)
Jr-Most O/C
Cushion at
Close
(viii)
Annalized
(Loss) Gain of
Cushion
(ix)
IRR
(x)
ITD Cash
Received as %
of Cost
(xi)
323 208 175 1.0% 6.2% (0.5%) 12.3% 139.6%
320 198 186 2.0% 4.0% (0.2%) 17. 3% 162.0%
349 185 178 2.2% 5.0% (0.3%) 10.9% 123.5%
330 214 178 1.1% 4.0% (0.3%) 11.7 % 125.6%
336 210 183 2.1% 4.0% (0.2%) 13.4% 123.2%
343 218 174 1.7% 4.0% (0.3%) 12.5% 118.3%
339 230 163 1.6% 4.0% (0.3%) 12.4% 116.8%
318 214 256 3.8% 4.0% (0.0%) 8.0% 102.8%
339 230 163 1.6% 3.6% (0.3%) 16.6% 126.0%
336 210 183 2.1% 3.3% (0.1%) 15.3% 108.9%
338 209 180 1.5% 4.4% (0.5%) 7.5% 81.1%
330 214 178 1.1% 3.0% (0.2%) 4.5% 63.3%
330 193 178 1.1% 3.9% (0.3%) 6.9% 73.4%
332 193 164 1.2% 4.5% (0.6%) 8.5% 86.1%
332 179 162 4.5% 4.5% (0.0%) 11.4% 76.5%
363 126 126 5.0% 7.8% (0.6%) 24.4% 113.7%
349 178 178 2.2% 4.9% (0.3%) 13.8% 86.6%
339 163 163 1.6% 4.5% (0.4%) 19.2% 102.8%
343 174 174 1.7% 4.5% (0.3%) 17. 2 % 82.0%
336 181 183 2.1% 4.5% (0.3%) 13.6% 65.5%
356 177 177 4.8% 4.5% 0.2% 16.4% 28.2%
359 179 179 4.7% 4.5% 0.1% 17.3% 23.5%
361 182 182 4.8% 4.5% 0.2% 16.5% 20.5%
362 182 182 4.3% 4.5% (0.2%) 16.7% 19.0%
369 182 182 4.7% 4.5% 0.2% 17.1% 17.3 %
373 202 202 4.5% 4.5% (0.0%) 20.3% 8.2%
374 255 255 4.6% 4.6% - 23.2% 0.0%
375 273 273 4.5% 4.5% - 12.9% 0.0%
375 283 283 5.0% 5.0% - 18.4% 0.0%
337 207 189 2.3% 4.3% (0.3%) 12.9% 98.7%
spread adjustment to convert to a SOFR-
based spread.
vii The current junior-most O/C cushion is the
excess (or deficit) of the junior-most O/C
test ratio over the test requirement, as of
the latest trustee report available as of the
report date.
viii The junior-most O/C cushion at close is
the excess (or deficit) of the junior-most
O/C test ratio over the test requirement
that was expected on each deal’s closing
date (or date of purchase, if later).
ix Calculated by annualizing the change from
the expected closing date junior-most O/C
cushion to the current junior-most O/C
cushion.
x Calculated from Tetragon’s investment
date. For outstanding investments,
includes both historical cash flows
received to-date and prospective cash
flows expected to be received, based
on Tetragon’s base case modelling
assumptions. For all other investments,
includes only historical realised cash flows
received to-date.
xi Inception-to-report-date cash flow received
on each transaction as a percentage of its
original cost.
Annual Report 2022 87
Figure 30
Reinvestment end date of outstanding investments based on original investment size ($ millions)
CLO deal maturities of outstanding investments based on original investment cost ($ millions)
Current junior-most O/C test cushion distribution of outstanding investments (by number of transactions)
2023
<= 0% 0% to 2% 2% to 4%
7
4% to 6%
1111
Over 6%
00
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037
$0.0
$5.3
$39.4
$119.0
$84.1
$23.4
$59.2
$0.0$0.0$0.0$0.0$0.0$0.0$0.0$0.0
2023 2024 2025 2026 2027 2028 2029
$0.0
$5.3
$9.2
$8.2
$22.1
$119.0
$0.0
Other information
Additional CLO Portfolio Statistics
Tetragon Financial Group88
Other Information
Certain Regulatory Information
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.
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).
Annual Report 2022 89
Other information
Equity-based employee compensation plans
These awards under the long-term
incentive plan, along with other equity-
based awards, are typically spread
over multiple vesting dates up to 2024
which may vary for each employee and
are subject to forfeiture provisions. The
arrangements may also include additional
periods, beyond the vesting dates, during
which employees gain exposure to the
performance of the Tetragon shares, but
the shares are not issued to the employees.
Such periods may range from one to
five years beyond the vesting dates.
In February 2021, further awards to
certain senior TFG Asset Management
employees (excluding the principals of
the investment manager) were made
covering vesting and release periods
out to 2032. 2.3 million shares acquired
during the buybacks made in 2020 will
be used to hedge against (or otherwise
offset the future impact of) these awards.
The shares underlying these equity-based
incentive programs typically will be held in
escrow until they vest and will be eligible to
receive shares under the Tetragon Optional
Stock Dividend Plan (DRIP Shares).
In July 2019, TFG Asset Management
entered into an employment agreement
with Mr. Reade Griffith, Director of
Tetragon, that covers his services to
TFG Asset Management for the period
through to 30 June 2024. Mr. Griffith is
currently the Chief Investment Officer of
TFG Asset Management as well as the
Chief Investment Officer of its Polygon
event-driven European equity strategies
(in addition to other roles). Under the
terms of this agreement, Mr. Griffith
received $9.5 million in cash in July 2019,
$3.75 million in cash in July 2020, 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 50.
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 2022,
approximately 7.3 million shares were
included in the fully diluted share count.
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).
Tetragon Financial Group90
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 Investment Manager
Tetragon Financial Management GP LLC
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America
Investor Relations
Yuko Thomas
ir@tetragoninv.com
Press Inquiries
Prosek Partners
Andy Merrill / Ryan Fitzgibbon
pro-tetragon@prosek.com
Auditors
KPMG Channel Islands Limited
Glategny Court,
Glategny Esplanade
St. Peter Port, Guernsey
Channel Islands GY1 1WR
Sub-Registrar and CREST Transfer Agent
Computershare Investor Services
(Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port, Guernsey
Channel Islands GY1 1DB
Legal Advisor (as to U.S. law)
Covington & Burling LLP
The New York Times Building
620 Eighth Avenue
New York, NY 10018-1405
United States of America
Legal Advisor (as to Guernsey law)
Walkers (Guernsey) LLP
Block B, Helvetia Court
Les Echelons
St. Peter Port, Guernsey
Channel Islands GY1 1AR
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 Administration
(Guernsey) Limited( )
Mill Court, La Charroterie
St. Peter Port
Guernsey GY1 1EJ
Channel Islands
Other Information
Shareholder information
Annual Report 2022 91
6
Financial
statements
/ Consolidated Statement
of Financial Position
100
/ Independent
Auditor’s Report
94
/ Consolidated Statement
of Comprehensive Income
101
/ Consolidated Statement
of Cash Flows
103
/ Consolidated Statement
of Changes in Equity
102
/Notes to the
Financial Statements
104
Tetragon Financial Group92 Tetragon Financial Group92
Tetragon delivered an investment Return on
Equity (RoE) of -0.8%, a NAV per share total return
of 1.0% and a share price total return of 18.5%
in 2022. Tetragon also declared 44.0 cents of
dividends per share for the year – a yield of 4.6%.”
Paul Gannon
Chief Financial Officer
Annual Report 2022 93Annual Report 2022 93
Financial statements
Independent auditor’s report to the members of
Tetragon Financial Group Limited
Our opinion is unmodified
We have audited the consolidated financial
statements of Tetragon Financial Group
Limited (the “Company”) and its subsidiary
(together, the “Group”), which comprise
the consolidated statement of financial
position as at 31 December 2022, the
consolidated statements of comprehensive
income, changes in equity and cash
flows for the year then ended, and notes,
comprising significant accounting policies
and other explanatory information.
In our opinion, the
accompanying
consolidated financial
statements:
• give a true and fair view of the
financial position of the Group as
at 31 December 2022, 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.
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:
Tetragon Financial Group94
Valuation of non-derivative level 3 financial
assets at fair value through profit or
loss (excluding Other Real Estate)
$2,106.9 Million (2021: $1,899.7 Million)
Refer to note 2 accounting policy
and note 3 and 4 disclosures
Basis:
As at 31 December 2022, the Group held
non-derivative level 3 financial assets at fair
value through profit or loss (excluding Other
Real Estate of $41.7 million included within
“investment funds and vehicles” as disclosed
in note 4) (the “Investments”) representing
76% (2021: 66%) of the Group’s net asset
value. These Investments include CLO Equity
Tranches, TFG Asset Management, Unlisted
Stock and other investment funds & vehicles.
The fair value of these investments is based
on the following valuation methodologies:
• for CLO Equity Tranches, a
marked to model approach;
• for TFG Asset Management, a
sum of the parts valuation, using
a combination of marked to model
and market multiple approaches;
• for Unlisted Stock, a last transaction price or
expected value of cash flows approach; and
• for the remaining investments, comprising
investment funds and vehicles,
partner capital or net asset value
statements provided independently by
administrators or fund managers.
In addition, independent third party valuation
providers (the “Valuation Agent”) have
been engaged to assist in the valuation
process for certain level 3 investments
such as TFG Asset Management.
Risk:
The valuation of Investments is considered
a significant area of our audit in view of the
significance of the estimates and judgements
that may be involved in the determination of
their fair value and given that it represents
the majority of the net assets of the Group.
As the Investments are unquoted and illiquid,
their fair value is determined through the
application of valuation techniques. The
application of valuation techniques involves the
exercise of significant judgement by the Group
in relation to the choice of valuation techniques
employed and the inputs and assumptions into
the respective models (eg earnings multiples,
discount rates, net asset values per share).
The effect of these matters is that, as part of
our risk assessment, we determined that the
fair value of the Investments has 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. The consolidated
financial statements disclose in note 4 the
sensitivities estimated by the Group.
Our audit procedures included:
Internal Control:
We have obtained an understanding of the
valuation process and tested the design
and implementation of the valuation process
control. 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 Specialists:
For a risk based sample of CLO Equity Tranches,
with the support of a KPMG valuation specialist,
we independently tested reference prices through
the use of fundamental cash flow modelling,
sourcing key inputs and assumptions used, such
as default rates, prepayment rates, discount rates
and recovery rates, from observable market data.
For TFG Asset Management and Unlisted
Stock, valued by management using the
assistance of their Valuation Agent, with the
support of a KPMG valuation specialist we:
• assessed the scope of the Valuation
Agent’s review and read the valuation
report prepared by them;· assessed the
objectivity, capabilities and competence
of the Valuation Agent engaged to provide
valuation services to the Group;
• 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 and challenged and
corroborated material valuation inputs and
assumptions to supporting documentation
or market available information; and
• for Unlisted Stocks, we considered market
transactions in close proximity to the year
end and assessed their appropriateness
as being representative of fair value.
For investment funds & vehicles valued
using net asset values (“NAVs”) we obtained
independent confirmations from the third party
administrators or fund managers of these
investment values as at 31 December 2022
(or latest available date). Where coterminous
statements were not available we reconciled
these confirmations and subsequent capital
movements to the valuations recorded by the
Group. Where available, we inspected the latest
audited financial statements of investment funds
& vehicles in order to consider the nature of the
investments held by those funds, the financial
reporting standards applied in the preparation
of the financial statements, any modification
to the auditors’ reports and other disclosures
which may have been relevant to the valuation.
Assessing disclosures:
We considered the adequacy of the disclosures
made in the 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.
The risk Our response
Annual Report 2022 95
Financial statements
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 $55.1
million, determined with reference to
a benchmark of group net assets of
$2,758.5 million, of which it represents
approximately 2.0% (2021: 2.0%).
In line with our audit methodology, our
procedures on individual account balances
and disclosures were performed to a lower
threshold, performance materiality, so as
to reduce to an acceptable level the risk
that individually immaterial misstatements
in individual account balances add up to
a material amount across the financial
statements as a whole. Performance
materiality for the Group was set at
75% (2021: 75%) of materiality for the
consolidated financial statements as a
whole, which equates to $41.3 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 $2.76
million, in addition to other identified
misstatements that warranted
reporting on qualitative grounds.
Our audit of the Group was undertaken
to the materiality level specified above,
which has informed our identification of
significant risks of material misstatement
and the associated audit procedures
performed in those areas as detailed above.
The group team performed the audit of
the Group as if it was a single aggregated
set of financial information. The audit
was performed using the materiality level
set out above and covered 100% of total
group revenue, total group profit before
tax, and total group assets and liabilities.
Going concern
The directors have prepared the
consolidated financial statements on the
going concern basis as they do not intend
to liquidate the Group or the Company
or to cease their operations, and as they
have concluded that the Group and the
Company’s financial position means that
this is realistic. They have also concluded
that there are no material uncertainties
that could have cast significant doubt
over 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 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
• we found the going concern disclosure
in the notes to the consolidated
financial statements to be acceptable.
However, as we cannot predict all future
events or conditions and as subsequent
events may result in outcomes that
are inconsistent with judgements that
were reasonable at the time they were
made, the above conclusions are not
a guarantee that the Group and the
Company will continue in operation.
Tetragon Financial Group96
Fraud and breaches of
laws and regulations
– ability to detect
Identifying and responding to risks of
material misstatement due to fraud
To identify risks of material misstatement
due to fraud (“fraud risks”) we assessed
events or conditions that could indicate an
incentive or pressure to commit fraud or
provide an opportunity to commit fraud. Our
risk assessment procedures included:
• enquiring of management as to the
Group’s policies and procedures
to prevent and detect fraud as well
as enquiring whether management
have knowledge of any actual,
suspected or alleged fraud;
• reading minutes of meetings of those
charged with governance; and
• using analytical procedures
to identify any unusual or
unexpected relationships.
As required by auditing standards, we
perform procedures to address the risk
of management override of controls, in
particular the risk that management may
be in a position to make inappropriate
accounting entries. On this audit we do
not believe there is a fraud risk related to
revenue recognition because the Group’s
revenue streams are simple in nature with
respect to accounting policy choice, and are
easily verifiable to external data sources
or agreements with little or no requirement
for estimation from management. We did
not identify any additional fraud risks.
We performed procedures including
• Identifying journal entries and
other adjustments to test based
on risk criteria and comparing 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 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.
Annual Report 2022 97
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 pages 56 and 57, the directors
are responsible for: the preparation of
the consolidated financial statements
including being satisfied that they give a
true and fair view; such internal control
as they determine is necessary to enable
the preparation of consolidated financial
statements that are free from material
misstatement, whether due to fraud or
error; assessing the Group and Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related
to going concern; and using the going
concern basis of accounting unless they
either intend to liquidate the Group or
the Company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the consolidated
financial statements as a whole are free
from material misstatement, whether
due to fraud or error, and to issue our
opinion in an auditor’s report. Reasonable
assurance is a high level of assurance,
but does not guarantee that an audit
conducted in accordance with ISAs (UK)
will always detect a material misstatement
when it exists. Misstatements can arise
from fraud or error and are considered
material if, individually or in aggregate,
they could reasonably be expected
to influence the economic decisions
of users taken on the basis of the
consolidated financial statements.
A fuller description of our responsibilities is
provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
The purpose of this report
and restrictions on its
use by persons other
than the Company’s
members, as a body
This report is made solely to the Company’s
members, as a body, in accordance with
section 262 of the Companies (Guernsey)
Law, 2008. Our audit work has been
undertaken so that we might state to
the Company’s members those matters
we are required to state to them in an
auditor’s report and for no other purpose.
To the fullest extent permitted by law, we
do not accept or assume responsibility
to anyone other than the Company
and the Company’s members, as a
body, for our audit work, for this report,
or for the opinions we have formed.
Tetragon Financial Group98
Report on Regulatory
Requirements
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”).
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
For and on behalf of KPMG
Channel Islands Limited
Chartered Accountants and
Recognised Auditors
Guernsey
3 March 2023
Annual Report 2022 99
As of Note 31 Dec
2022
$M
31 Dec
2021
$M
Assets
Non-derivative financial assets at fair value through profit or loss 4 2,919.2 2,852.4
Derivative financial assets 4 21.7 4.2
Other receivables and prepayments 7 6.1 2.6
Amounts due from brokers 6 5.5 5.9
Cash and cash equivalents 6 21.7 198.8
Total assets 2,974.2 3,063.9
Liabilities
Loans and borrowings 10 115.0 75.0
Derivative financial liabilities 4 2.5 1.5
Other payables and accrued expenses 9 30.2 110.6
Amounts due to brokers 8 68.0 -
Total liabilities 215.7 187.1
Net assets 2,758.5 2,876.8
Equity
Share capital 0.1 0.1
Other equity 768.7 814.7
Share-based compensation reserve 12 61.7 60.1
Retained earnings 1,928.0 2,001.9
Shares outstanding
Number of shares (million) 12 85.6 90.2
Net Asset Value per share ($) 32.24 31.88
The accompanying notes are an integral part of the consolidated financial statements.
Signed on behalf of the
Board of Directors by:
David O’Leary
Director
Steven Hart
Director
Date: 3 March 2023
Financial statements
Consolidated Statement of Financial Position
Tetragon Financial Group100
For the year ended Note 31 Dec
2022
$M
31 Dec
2021
$M
Net gain on non-derivative financial assets at fair value through profit or loss 18.9 621.2
Net gain/(loss) on derivative financial assets and liabilities 42.4 (10.4 )
Net gain/(loss) on foreign exchange 1.2 (1.4 )
Interest income 0.4 0.2
Total income 62.9 609.6
Management fees 15 (41.1 ) (37.5 )
Incentive fee 11 (26.5 ) (124.6 )
Legal and professional fees (3.3 ) (9.8 )
Share-based employee compensation 12 (9.5 ) (10.4 )
Audit fees (0.6 ) (0.7 )
Other operating expenses and administrative expenses (3.7 ) (2.6 )
Operating expenses (84.7 ) (185.6 )
Operating (loss)/profit before finance costs (21.8 ) 424.0
Finance costs 10 (10.3 ) (5.8 )
(Loss)/profit and total comprehensive (loss)/income for the year (32.1 ) 418.2
Earnings per share $ $
Basic 16 (0.35 ) 4.68
Diluted 16 (0.34 ) 4.16
Weighted average shares outstanding Million Million
Basic 16 90.8 89.4
Diluted 16 94.9 100.4
The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statement of Comprehensive Income
Annual Report 2022 101
Share
capital
$M
Other
equity
$M
Retained
earnings
$M
Share-based
compensation
reserve
$M
Total
$M
As at 1 January 2021 0.1 799.6 1,620.1 54.6 2,474.4
Profit and total comprehensive income for the year - - 418.2 - 418.2
Transactions with owners recognised directly in equity
Shares released from escrow - 4.9 - (4.9 ) -
Dividends on shares released from escrow - 0.6 (0.6 ) - -
Share-based compensation - - - 10.4 10.4
Cash dividends - - (24.2 ) - (24.2 )
Stock dividends - 11.6 (11.6 ) - -
Issue of shares - 0.1 - - 0.1
Purchase of treasury shares - (2.1 ) - - (2.1 )
As at 31 December 2021 0.1 814.7 2,001.9 60.1 2,876.8
Loss and total comprehensive loss for the year - - (32.1 ) - (32.1 )
Transactions with owners recognised directly in equity
Shares released from escrow - 7.9 - (7.9 ) -
Dividends on shares released from escrow - 3.0 (3.0 ) - -
Share-based compensation - - - 9.5 9.5
Cash dividends - - (23.8 ) - (23.8 )
Stock dividends - 15.0 (15.0 ) - -
Issue of shares - 0.1 - - 0.1
Purchase of treasury shares - (72.0 ) - - (72.0 )
As at 31 December 2022 0.1 768.7 1,928.0 61.7 2,758.5
The accompanying notes are an integral part of the consolidated financial statements.
Financial statements
Consolidated Statement of Changes in Equity
Tetragon Financial Group102
For the year ended 31 Dec
2022
$M
31 Dec
2021
$M
Operating activities
(Loss)/profit for the year (32.1 ) 418.2
Adjustments for:
Gains on investments and derivatives (61.3 ) (610.8 )
Share-based compensation 9.5 10.4
Interest income (0.4 ) (0.2 )
Finance costs 10.3 5.8
Operating cash flows before movements in working capital (74.0 ) (176.6 )
Decrease in receivables 0.1 0.7
(Decrease)/increase in payables (77.3 ) 37.3
Decrease in amounts due from brokers 0.4 38.4
Increase in amounts due to brokers 68.0 -
Cash flows from operations (82.8 ) (100.2 )
Proceeds from sale/prepayment/maturity of investments 394.8 531.6
Net receipts/(payments) from derivative financial instruments 20.9 (25.8 )
Purchase of investments (444.3 ) (341.5 )
Cash interest received 0.4 0.2
Net cash (used in)/generated from operating activities (111.0 ) 64.3
Financing activities
Repayment of loans and borrowings (175.0 ) (75.0 )
Proceeds from loans and borrowings 215.0 50.0
Finance costs paid (10.3 ) (5.8 )
Purchase of treasury shares (72.0 ) (2.1 )
Dividends paid to shareholders (23.8 ) (24.2 )
Net cash used in financing activities (66.1 ) (57.1 )
Net (decrease)/increase in cash and cash equivalents (177.1 ) 7.2
Cash and cash equivalents at beginning of year 198.8 191.6
Cash and cash equivalents at end of year 21.7 198.8
Consolidated Statement of Cash Flows
The accompanying notes are an integral part of the consolidated financial statements.
Annual Report 2022 103
Financial statements
Notes to the financial statements
Tetragon Financial Group104
Annual Report 2022 105
Tetragon Financial Group106
Annual Report 2022 107
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group108
Annual Report 2022 109
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group110
Annual Report 2022 111
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group112
Annual Report 2022 113
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group114
Annual Report 2022 115
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group116
Annual Report 2022 117
2
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group118
Annual Report 2022 119
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group120
Annual Report 2022 121
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group122
Annual Report 2022 123
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group124
Annual Report 2022 125
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group126
Annual Report 2022 127
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group128
Annual Report 2022 129
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group130
Annual Report 2022 131
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group132
Annual Report 2022 133
Financial statements
Notes to the financial statements (continued)
Tetragon Financial Group134
Annual Report 2022 135
