London, UK, 16 December 2021
Edison issues review on Tetragon Financial Group (TFG)
Tetragon Financial Group (Tetragon) reported a 2.6% NAV total return (TR) year to date to end-October 2021 in US$ terms. All asset classes except for quoted assets showed positive gross returns, with TFG Asset Management (TFG AM, 37% of portfolio) and bank loans delivering 15.1% and 15.5% returns, respectively. However, this performance was largely offset by ongoing charges and fees (including incentive fees) and share dilution, mostly from share-based compensation. Tetragon is fully invested and had US$150m drawn out of its US$250m revolving credit facility at end-September 2021, with a net gearing ratio at end-October of 7.4%.
Tetragon's listed equity portfolio is concentrated (10 positions) and focused on (bio)technology and financials, with value driven by company-specific developments. Polygon funds (making up 97% of Tetragon's hedge funds exposure) have concentrated portfolios focused on special situations. Meanwhile, the privately valued TFG Asset Management remains the main value driver of NAV returns. While Tetragon's historical long-term performance remains intact, the high concentration in some asset buckets, coupled with Tetragon's limited disclosure on individual underlying investments, translates into lower visibility of prospective returns. Tetragon's recent performance is significantly behind the bull market in public and private equity, although we note it aims to deliver returns that are not correlated with broader equity markets.
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