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Edited Transcript of TFG.AS earnings conference call or presentation 28-Feb-20 3:30pm GMT

Q4 2019 Tetragon Financial Group Ltd Earnings Call

ST PETER PORT Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Tetragon Financial Group Ltd earnings conference call or presentation Friday, February 28, 2020 at 3:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Patrick Giles Gauntlet Dear

Tetragon Financial Management LP - Principal

* Paul Ronald Gannon

Tetragon Financial Management LP - CFO

* Stephen L. Prince

Tetragon Financial Management LP - Head of North America




Operator [1]


Good afternoon. Thank you for joining Tetragon's 2019 Annual Report Investor Call. (Operator Instructions) The call will be accompanied by a live presentation, which can be viewed online by registering at the link provided in the company's conference call press release. This press release can be found on the home page of the company's website, www.tetragoninv.com. (Operator Instructions) As a reminder, this call is being voted.

I will now turn you over to Paddy Dear to commence the presentation.


Patrick Giles Gauntlet Dear, Tetragon Financial Management LP - Principal [2]


As one of the principals and founders of the Investment Manager at Tetragon Financial Group Limited, I'd like to welcome you to our investor call, which will focus on the company's 2019 full year results.

Paul Gannon, our CFO, will review the company's financial performance for the year; Steve Prince and I will talk through some of the detail of the portfolio and performance; and Steve will spend some time discussing the outlook. As usual, we will conclude with questions, both taken electronically via our web-based system at the end of the presentation as well as those received since the last update.

The PDF of the slides are now available to download on our website, and if you're on the webcast, directly from the webcast portal.

I would like to remind everyone that the following may contain forward-looking comments, including statements regarding the intentions, beliefs or current expectations concerning performance and financial condition on the products and markets in which Tetragon invests. Our performance may change materially as a result of various possible events or factors.

And with that, over to Paul.


Paul Ronald Gannon, Tetragon Financial Management LP - CFO [3]


Thanks, Paddy. So as a reminder, Tetragon continues to focus on 3 main metrics. We look at how value is being created via NAV per share total returns. We also look at investment returns measured as a return on equity, or ROE. And finally, we monitor how value is being returned to shareholders through distributions, which are mainly in the form of dividends.

The fully diluted NAV per share was $24.76 at the end of 2019. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the year was 13.6%, which compares to 10.3% for the full year in 2018.

Amongst the investment returns, we continue to use an ROE calculation. In 2019, this has been 13.4%, which is net of all fees and expenses. And we're pleased to say that this is within the target of 10% to 15% return range.

With reference to that target, the average ROE achieved since IPO remains at 12.4%. Later on in the call, we'll give more color as to how the specific asset classes contributed to the return this year.

Finally, moving on to the last key metric, Tetragon declared a dividend of $0.1875 for the fourth quarter, which represents a full year dividend of $0.74. This is in line with an aggressive dividend policy, which targets a payout ratio of 30% to 50% of normalized earnings. And based on the year-end share price of $12.25, this represents a yield of approximately 6%.

So now on to what we call the NAV bridge. This breaks down into its component parts, Tetragon's fully diluted NAV per share from $22.48 at the end of 2018 to $24.76 per share at the end of 2019. As you can see from the bridge, investment income contributed $4.23 per share. Operating expenses and management fees then reduced NAV per share by $1.10 with a further $0.04 per share reduction due to interest expense. On the capital side, gross dividends reduced NAV per share by $0.73. There was a net dilution of $0.60 per share, which is labeled other share dilution. This bucket primarily reflects the impact of dilution from stock dividends, plus the additional recognition of equity-based compensation shares.

Finally, the impact of the $50 million share buyback, which was launched in 2018 but did not close until January 2019, resulted in $0.52 of NAV accretion.

I will now hand back over to Paddy.


Patrick Giles Gauntlet Dear, Tetragon Financial Management LP - Principal [4]


Thanks, Paul. As on previous calls, I'd like to put the 2019 performance in the context of the long term. As a reminder, Tetragon began trading in 2005 and became a public entity in April 2007, so we're now coming up to nearly 15 years of invested -- investing history in this front.

The chart we have here shows the NAV per share total return, which is the thick line at the top; the share price total return, which is the dash line beneath it; and the chart also includes equity indices, both the MSCI all share and FT all-share. It also includes, at the bottom, the Tetragon hurdle rate of LIBOR plus 2.65%. As you can see, since IPO, Tetragon has returned 294% on a NAV total return basis, that is nearly fourfold increase in value since IPO.

Continuing the theme of looking at the long term, here is some more long-term performance data. Our return on equity, which is the investment return each year, target is 10% to 15% net to investors over the cycle. And the average return since IPO is currently 12.4%. As Paul has shown, Tetragon's return on equity for 2019 was 13.4%, so within that range, and we're pleased with the 2019 performance in the broader historical context.

Long-term interest rates are down to their lows again. The U.S. 10-year treasury is approximately 1.25%. And with treasury rates so low, we would naturally expect all risk assets to return at the lower end of long-term expectation. But with respect to Tetragon, this means that, that have to -- our return expectations are at the bottom end of our 10% to 15% range for the cycle.

The last figure on this table showed that 30.8% of the public shares are owned by principals of the Investment Manager and TFG Asset Management employees. We believe that this is very important, as it demonstrates a strong belief in what we do as well as the strong alignment of interest between the manager, TFG Asset Management employees and Tetragon shareholders.

This next slide shows the composition of Tetragon's asset. So looking at the breakdown of the $2.4 billion of NAV, these colored discs show the percentage breakdown of the asset classes and strategies as at year-end 2019, which is on the right and compares them with year-end 2018 on the left. I will pick out some notable changes year-on-year.

First, growth in private equity from 7% to 12%. This is a deliberate result of making new investments and these allocations to external managers, which is a strategy discussed at length last year and again in the annual report. Second, we have seen an increase in other equities and credit from 6% to 9%. This is more of an opportunistic approach and will fluctuate with the ideas that we find, and we added new positions during 2019. Third, there has been a decline in cash, which is a result of many things, obviously, from using cash to make investments and repurchase of shares that we did in January and paying dividends, amongst other things. Future cash commitments are approximately $217 million, and Steve will provide more detail on that a bit later on.

I would note that Tetragon currently has $150 million of a revolving credit facility in place, and that was fully drawn as at 31st of December 2019, and that liability is incorporated into the net cash balance calculation.

Now let's move on to discuss the full year performance in more detail. The NAV bridge that Paul showed was a high-level overview of the NAV per share. This table shows the breakdown of the composition of Tetragon's NAV at 31st of December 2018 and 2019 by asset classes and the factors contributing to the changes in NAV. Thus, this table shows investment performance plus capital flows and so turn back to the change in NAV.

As you can see from the bottom row of the table, investment performance, labeled gains and losses -- or the column labeled gains and losses, generated $402.5 million of gross profit for the year. TFG Asset Management, our private equity holdings and asset management, generated $164.6 million of that driven primarily by Equitix, LCM and BentallGreenOak. Hedge fund strategies contributed $53.3 million of that with a particular strong performance from the Polygon European Equity Opportunity Fund. Bank loans generated $30.9 million of the gross profit. Private equity and venture capital generated $131.7 million of those gross profit, primary source of which was investments in direct private equity stakes. Real estate generated $27.7 million of gross profits. And finally, other equities and credit made a loss of $12.5 million.

Now for more detail on each of those categories, and starting with TFG Asset Management, I'll pass over to Steve.


Stephen L. Prince, Tetragon Financial Management LP - Head of North America [5]


Thanks, Paddy. Our private equity investments in asset management companies, through TFG Asset Management, represented the largest asset class in the portfolio at the end of 2019 and produced $165 million of gains during the period. Equitix was the most significant contributor during 2019, with an investment gain of $121.8 million. This gain was primarily driven by a combination of performance, capital raising and accelerated capital deployment. Assets under management grew 40% to $7.1 billion compared to $5 billion a year ago. Fund V closed in the second quarter of 2019 at GBP 1 billion. Euro Fund raised EUR 500 million of capital by the end of 2019 with the first close of Fund VI expected in Q1 2020. These milestones represent an acceleration in capital raising and deployment targets from prior years.

During the year, Equitix repaid $54.9 million of loan notes, including accrued interest, to Tetragon.

The second highest contributor was LTM, which recorded a gain of over $28 million, nearly all valuation gains. The business continued to perform well as LCM continues to issue deals and raise capital with a lower-than-market average default rate.

The third largest contributor was BentallGreenOak. As has been previously highlighted, GreenOak announced in December 2018 a merger with Bentall Kennedy, Sun Life Financial's North American real estate and property management firm, to form BentallGreenOak. The merger closed on the July 2, 2019, and TFG Asset Management continues to own nearly 13% of the combined entity.

Polygon's value fell by $7.8 million during the year, primarily reflecting lower-than-budgeted capital raising and a change in the expected future U.K. tax rate.

The value of Tetragon Credit Partners increased by $8.5 million in 2019 driven by the increase in capital commitments, the amount of capital deployed as well as an increase in projected tariff.

Hawke's Point NAV remains small. AUM at the end of the year was approximately $82 million, although progress has been made in 2020 with positive developments on 2 of their existing positions.

Banyan Square Partners is our newest business. Banyan Square is a private equity firm focused on non-control structured and common equity investment opportunities and seeks to support private equity acquisition financing growth initiatives and liquidity events. Tetragon's investment in Banyan Square Partners has not yet been valued by a third-party valuation specialist.

In 2019, TFG Asset Management's EBITDA was $59.5 million, 51% higher than 2018. Higher management fees due to a continued AUM growth and higher performance in success fees due to better performance of the funds was the driving factors for this increase. Management fees increased by 30% year-over-year driven by Equitix, and Tetragon Credit Partners drove management fee growth as well as LTM. Performance in success fees grew up $27.8 million during the year driven by Polygon and Equitix.

Other fee income increased 19%. Other fee income comprises a number of factors: number one, income generated by Equitix on management services contracts, which is known as the EMS business; second, third-party CLO management fee income relating to certain U.S. CLO 1.0 transactions; and third, certain cost recoveries from Tetragon relating to the seeded Polygon hedge funds. An increase in EMS fee income was behind the growth in this category of income and now accounts for 89% of this bucket.

Distributions from BentallGreenOak were flat: one, distributions from ongoing operations; and two, distributions from carried interest. Up until 2018, carried interest was made up nearly 80% of these distributions. However, post the BentallGreenOak merger, carried interest distributions are supplemented by the fixed and variable payments agreed as part of that deal. For 2019, fixed payments contributed $7 million with carried interest accounting for the remainder.

Operating expenses increased by $30.4 million year-on-year with $9 million coming from Equitix, as this business has added head count and continued to scale up. As expected, bonus expense has also increased in those businesses -- business lines where performance fees increased significantly.

Tetragon Credit Partners also saw an increase in costs, reflecting an increased allocation of resources to this business line with the launch and successful raise of TCI III as well as to support new business lines. We continue to view the increase in expenses as an investment to support greater AUM growth in the future.

Paddy will now go over our hedge fund investments.


Patrick Giles Gauntlet Dear, Tetragon Financial Management LP - Principal [6]


Thanks, Steve. Tetragon invested in event-driven equities, convertible bonds and quantitative strategies through hedge funds. As at the end of 2019, 3 of these 4 investments are through Polygon managed hedge funds, with the fourth being through QT, an external manager.

Our investment in the Polygon European event-driven strategies made $47.4 million for the year. Our investment in the Polygon convertible bond funds made $4.9 million for the year. And our investment in the Polygon global equity fund lost $0.5 million for the year.

Lastly, our investment in the QT quantitative fund made $1.5 million for the year.

The Polygon funds continue to show strong alpha returns over a multiyear period, and we were very pleased with the recognition when the Polygon European event-driven fund won the award for event-driven fund of the year 2019 at the recent annual EuroHedge-sponsored hedge fund award. I would also note that post year-end, we have redeemed some of the QT Fund and expect our proceeds in Q2.

Moving on to the bank loans. We continue to view CLOs as attractive vehicles obtaining long-term exposure to the leveraged loan asset class. And Tetragon invests in bank loans primarily through CLOs by taking majority positions in the equity tranches. This asset class generated $30.9 million of gains during 2019. During the year, Tetragon exercised its optional redemption and refinancing rights on certain CLO transactions and made new U.S. CLO investments indirectly by the Tetragon Credit Partners platform.

The TCI II investment fund, as of the 31st of December 2019, Tetragon's commitment to TCI II was $70 million and that has been fully funded. During 2019, Tetragon's investment in the funds contributed $8.6 million in income for Tetragon. TCI II successfully refinanced certain debt tranches in 4 CLOs during the year, producing the interest cost of debt on those transactions and all things equal increase from the future expected cash flows for the equity tranches.

TCI III had its final close in 2019, bringing the total committed capital to $429.5 million. Of that, Tetragon's commitment is $85.9 million. And of that, $71.8 million had been grown as of the end of 2019.

By the end of 2019, TCI III has made 12 investments and expected to complete its initial investments in early 2020. During 2019, TCI III distributed $6.6 million in income to Tetragon.

Next is real estate. Tetragon holds most of its investments in real estate through BentallGreenOak's managed funds and co-investment vehicles. The majority of these are private equity style funds concentrating on opportunistic investments, targeting middle-market opportunities in the U.S., 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.

The real estate investments generated $27.7 million of gain during 2019. Of that, Europe funds and co-investments generated gains of $6.6 million. U.S. funds and co-investments generated a net loss of $0.3 million. And Asia funds and co-investments generated gains of $24.4 million. The debt funds generated a positive $0.4 million.

In addition to the commercial real estate investments that we have through BentallGreenOak managed real estate funds, Tetragon also has investments in commercial farmland in Paraguay managed by Symitar, a specialist manager in South American farmland. During 2019, the farmlands were revalued, which reduced the market value by $3.4 million.

Now I hand back to Steve.


Stephen L. Prince, Tetragon Financial Management LP - Head of North America [7]


Thanks, Paddy. Tetragon's private equity and venture capital investments are split into the following subcategories: investments managed by Hawke's Point; investments managed by Banyan Square Partners; other funds and co-investments where Tetragon invest in a nonaffiliated fund as a limited partner or in a special purpose vehicle as a co-investor; and direct -- comprising direct private equity investments on the balance sheet, including venture capital investments.

Tetragon's investment into mining finance, a vehicle managed by Hawke's Point, generated $36.1 million of net income in 2019. Tetragon made its first investment into an asset managed by Banyan Square in Q4 2019. Banyan Square's first investment was alongside a leading technology-focused private equity fund where that fund took private a travel-related technology company.

Tetragon had a 1.8% allocation to investments in private equity funds and co-investment vehicles in Europe and North America. This category generated a gain of $7.8 million in 2019.

Lastly, investments in direct private equity stakes, including venture capital, generated net income of $87.8 million in 2019. The main driver of net income relates to the partial disposal of a pre-IPO investment. This segment now represents 6.3% of NAV.

Our direct balance sheet investments in the other equities and credit category produced losses of approximately $12.5 million during 2019. Our other equities bucket generated losses of $19.3 million. These investments comprise European and U.S.-listed public equities. Biotechnology positions in one event-driven investment drove the losses, which were still held on the balance sheet at December 31, 2019. The other credit bucket generated a gain of $6.8 million in the period driven by corporate bond positions.

Tetragon's net cash balance, which is cash adjusted for nonaccruals and liabilities, was $55.4 million at the end of the year. As mentioned previously, Tetragon currently has $150 million revolving credit facility in place, which is fully drawn as of the end of the year. 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 capitalize on opportunistic investments and new business opportunities. During 2019, Tetragon used $493.3 million of cash from investments, $50.3 million to repurchase its shares and $44.8 million to pay dividends. $276.4 million of cash was received as distributions and proceeds from sales investments.

In terms of future cash commitments, they are as follows. In total, Tetragon has $217.4 million of cash commitments. Those comprise hard investment commitments to BentallGreenOak funds of $54.9 million; private equity funds of $31.1 million; and TCI III of $14.1 million. Tetragon also has a soft investment commitments to Banyan Square Partners of $85 million and Hawke's Point fund of $32.3 million.

Lastly, I'm going to cover our future investment expectations. I'll go through a few of our expectations, but it's always worth pointing out that one of our advantages is our ability to be opportunistic as it relates to investing on what we see as the most compelling investment opportunities. As mentioned before, we launched Banyan Square during 2019. Aside from Banyan Square, we have no upcoming new businesses to report. TFG Asset Management, therefore, remains the largest unknown in terms of cash requirements.

In terms of our event-driven exposure, our convertible bond exposure and our quantitative strategies exposures. With our event-driven equity exposure, we expect that to remain relatively stable over time. We expect our convertible strategy to increase somewhat over time. And as Paddy mentioned, we expect to reduce our allocation to quantitative strategies.

In terms of bank loans, our pre-crisis CLOs are now fully amortized, but we do expect to continue to invest in CLOs via TCI III and subsequent vehicles such as TCI IV. And we expect our -- to invest at the rate of $25 million to $50 million per year.

In terms of real estate, while we do commitments to BentallGreenOak funds, we would also expect some of our existing investments to continue distributing capital. So on a whole, we would expect our real estate investments to be relatively stable over the next 12 months.

In terms of the private equity bucket, we would expect those allocations to grow over time. There are a few small additional fee commitments that we have yet to fund, and we expect the Hawke's Point and Banyan Square allocations to continue to grow.

Lastly, on the other equities and credit buckets, that's similar to TFG Asset Management. We expect to continue to invest in these opportunities, but the timing of those investments is not certain.

So with that, I'm going to turn it back to Paddy to address some of the questions.


Questions and Answers


Patrick Giles Gauntlet Dear, Tetragon Financial Management LP - Principal [1]


Thanks, Steve, and thanks very much, everyone. A lot of questions have come through. And what I thought I would do it for the system here is try and tackle both relating to the portfolio first and then move on to, thematically, those that are more about the structure of the company and the discount and buyback and the like.

So just tackling a few questions on the portfolio, I'm going to start with a question on Ripple. It reads, I'm still waiting for an official statement about the Ripple transaction. Don't you think this would be very important to give more color about this transaction from your end? Otherwise, on the agreement spread and, even more important, it would lead to more transparency, which is one of the big criticisms from outside shareholders understandably if you don't even make announcements about a meaningful transaction?

So Tetragon invested in a Ripple Labs private equity offering in December, and that was announced by Ripple Labs at that time, and I think many of you as investors would have seen that announcement. Tetragon itself doesn't make announcements every time it makes an investment, as I think you would see as perfectly normal. And so in line with that, Tetragon did not make an announcement. However, our annual report does refer to this investment, and it does so both in the letter or the letter to shareholders at the beginning of the annual report. But also this investment is now represented in Tetragon's top 10 positions.

I would just add that I think in many ways, the investment exemplifies some of the key investment tenets that we have. We're always looking to source interesting investments, and I would note that this was sourced proprietarily. It's a private company, and we didn't source it through an intermediary bank or the like.

Secondly, we'd like to invest in strategies, as you know, that has idiosyncratic returns, and we think that Ripple Labs is a very exciting company with huge potential, but not necessarily correlated to market returns. And also we'd like to negotiate secure investment structures for Tetragon, and we think we believe that those own a very attractive security in Ripple.

The second question I had was on the QT Fund. It says Tetragon has circa $50 million invested in QT Fund. It has delivered immediate returns, which barely covered management fees. Surely, this time, would it be better to use in buying back stock? Is there any particular reason why you persist with this investment?

Well, I would say that -- well, firstly, as mentioned in the annual report and in the presentation we have given, we have actually redeemed out of the QT Fund and expect our redemption proceeds in the second quarter.

Can you give a little bit more color? We would agree that the performance of the QT Fund has been below and certainly below our expectations and also below their expectations. But when we do make these investments with managers, we generate such of those that can produce high risk-adjusted returns in a non-correlated fashion over multiyear period. I would tend to always find them, but when we do, they create very high repeatable return on equity for Tetragon, which is obviously our goal. And that is why we persist. And in many cases, we're prepared to take our time.

The third one on Sirius Minerals. The question is, would you like to comment on your reasoning and expectations with regards to Polygon's holding in SXX. And the simple answer is, no, I'm not in a position to comment on that position.

And the last one on the portfolio is about cash management. The question read, I noticed your cash levels are lower than historically, and that you've drawn your revolving credit facility. Is there enough cash on hand for interesting investment opportunities should they arise?

I think this is a good and very important question and, obviously, particularly relevant given the market declines over the last week. Just to reiterate some of the numbers that we gave in the presentation and to give clarity, the year-end cash number was $55 million, but that does include, as Steve said, all known accruals and liabilities. In other words, that $55 million is net of the $150 million known liability that is the revolver, so just simply adding that back gives $205 million and even though that liability to pay the revolver back has several years of duration. So if I look at the actual cash on the balance sheet at year-end, somewhat higher than the $55 million given that, that is the accounting number, so that's the first thing to understand.

The second is when we talk about our known cash commitments, Steve showed a number of $217 million, which he then itemized. And I think you will see that over half of that number are soft commitments, either we still have discretionary, but not hard commitments. First, bringing out those 2 numbers is that it's different. And I wouldn't want to take that into account from the initial just observation of $55 million.

And most importantly, I would say, yes, we keep a very close eye on cash management. We try to ensure we have enough cash for when interesting investment opportunities arise.

So I want to move on now to answer some of the questions, which are more structural related, in no particular order. There's one here that we -- for all the excellent growth in the NAV, investors have not seen much benefit. Have you considered returning a fixed percentage of NAV as a dividend, say, 4%, that's allowing shareholders to directly benefit in future value creation? I would be very surprised if TFG traded at a 50% discount along at an 8% yield.

Well, I guess, I've got sort of 2 answers to that. The first, we should just talk a bit about the dividend. The dividend has been, since inception, considered as we want to have a progressive dividend. We don't want it to be volatile with the quarterly or even the annual NAV. We would like to look back over 5, 10, 15, 20 years and see a growing dividend that represents what we think is the repeatable performance of business, as we build over the years. So certainly, it is not the intention to have a yield that could go up and down with the NAV. That's not the objective.

The second comment, I clearly make, is one of our markets. Tetragon yields roughly 6.3% at current levels. The U.S. 10-year is now down to 120, that sort of magnitude. And the shares trade at a 50% discount to their net asset value. So I certainly wouldn't want to make any predictions as to what is possible or not within the market. Certainly, the current yield of 6.3% versus risk-free of closer to 1%, 1.2% is a huge pickup over that.

There are quite a few questions relating to the discount to NAV, and I'm going to read a few because they all have slightly different angles to them. I've been a shareholder of Tetragon for 3 years, and I'm pleased with the investment returns, which are being achieved. I have added to my holdings and taken some dividends in scrip. I'm surprised by the high level of discount and wonders if the Board would consider moving to a standard list of stock on the London Stock Exchange as it would provide greater interest to the U.K. investors, as the stock index fund managers would be strong natural buyers. Unless Tetragon is gaining considerable support from its EMX listing, I believe having LSE as TFG's principal listing with capital TFG and on 53%, 50% Midcap index, it could be significant value in building Tetragon's profile.

My answer to that is that, obviously, we're always looking for solutions to the discount, and I'm going to talk a bit more in a moment. But very specifically to that question, we're not currently eligible for the LSE standard list, and that is primarily due to our nonvoting share structure.

The second question, no buyback this year. It is wise to impose dilution by scrip dividends when the discount is so wide. Those who don't wish to or can't reinvest dividends had been penalized and having NAV diluted due to lack of buybacks to negate scrip dividends.

So firstly, technical point, there was actually a buyback in January of last year, but I do take the point there wasn't one later on in the year. I think the question is really about the scrip dividend. And we see that as a separate issue. It has been in place since inception at the request of shareholders, many of whom prefer receiving it, the cash. And I expect that some investors may not wish to do so. But obviously, they could always prevent the dilution by taking them as scrip or, indeed, reinvesting the cash. So it's not necessarily penalizing them, and I think it's very efficient for those shareholders that are requesting it.

Another question, the discount has widened this year. It's been thought that the company is focused on returns and share price to take care of itself. It clearly hasn't. And what was done previously is now the discount hasn't worked. Probably it's time to try something else. The second question, does the Board intend on trying to reduce the discount to asset price or let the market dictate the price? And thirdly, I'm sure you've had many similar requests, but just in case you do not, during investor call, could you please discuss what actions you've taken and plan to take to reduce the discount to NAV?

So I think within this, there's sort of a lot of questions that I'd like to address. But the broad one on what the market price is, I think we can be clear. The manager, obviously, can and does do expect to grow the NAV and NAV per share of the company and return on equity and, indeed, the dividend. But the market will determine where the shares trade versus that NAV, and that's the same for every publicly traders company. We're no different. I would say that where we are different is we -- and that is for the managers' principals roles and employees of Tetragon's-owned TFG Asset Management, own approximately 30% of the shares and cares hugely about how those shares reflect the true value of the business.

And so of course, we are very concerned of the discount. We talk to many, many shareholders and potential shareholders. And when we speak to shareholders, there are multiple reasons that people postulate for the discount, and some of those I'll talk about now. They are the complexity of what we do. People don't like that complexity. They certainly don't understand, or many people don't understand a lot of the things that we do. If people find the liquidity of our shares frustrating, as it is bifurcated amongst not just LSE and EMX, but about 8 OTC venues as well, and people quite often don't see the aggregate liquidity.

Some people say it's the fact we own illiquid assets and that the closed-end funds market is always wary of illiquid assets. But it's confusing that we are operating businesses. And by that, we refer to TFG Asset Management as well as more passive investments. A lot of people concluded just because we're investing in alternatives. Some people think it's the fees. Some people don't like the 6 months' look-back high watermark. Nonvoting shares is sometimes an issue, which I've touched on already. Some people think it would be solved without an external manager. Some people think that they -- it's the current shareholder list with a high pass with U.S. hedge funds, and some people see that as a potential selling overhang. And some people just say it's not a pure play, and they like to invest in pure plays. And the last one, and perhaps the most frustrating, is some people say it's on a 50% discount because it always has been, and that's how people trade closed-end funds. And these are just to name a few.

There was an interesting piece written by JPMorgan, one of our brokers covering, in their view, all the reasons Tetragon might trade at a discount. And their conclusion was that, whilst these may -- many of these may argue for discount, none of them explained the aggregate to be currently near 50%. I would say that the long-term solution is one where the manager has to continue to make good investment returns. We have to work hard to always improving the investment process. We're always trying to help create repeatable returns. And then if we can do those 2 things, we need to be perpetually educating the market and as many investors as possible as to what we see and what we do. And we still take many meetings every quarter with investors, and many, many, many of them have still never heard of Tetragon. There's a lot more we can do in that space.

So really, it's about making sure the potential shareholders know what we do, and it's a very long-term process. We have JPMorgan and Stifel as our joint brokers. We have engaged Edison and [Catelog], and we have a program of investor meetings every quarter. And we're committed to continuing with that education to investors. But also I would remind you that we have a NAV of nearly $2.5 billion, so it is not a small enterprise and it doesn't get changed with just a few buyers. So that's what I want to say on the discount.

There are some -- couple of questions on buybacks. One is, are there any plans for tender in 2020. And the second is given the current 50% discount to NAV, would it be an opportune time for remaining shareholders to enact some buybacks?

What I would say is, firstly, there are no current plans of share buyback. However, historically, the company has always been very opportunistic in its approach to buybacks, and that is to say, at any given time, we take note of our cash balances, the share price discounts, what the investment opportunities are and balance out the NAV per share accretion that might accrue from a buyback with the alternative investing opportunities. So whilst to reiterate that we have no plans currently and, obviously, as we've discussed already, cash is lower than it has been historically, things can always change.

Last 2 things I would say on buyback. Firstly, the historic context, we have -- or the company has enacted $660 million of buybacks life to date. And the second thing, whilst that is great for NAV per share accretion, it is also evident that we're not the only company that has shown that. There's plenty of market evidence that actually buy backs are not that kind of fair for share price discounts.

And lastly, still on structure here, do you think your company would be better appreciated if the domicile and quotation would move from the U.K. to the U.S.?

Well, I think it would only be speculation, and I'm not going to speculate on this call, but a few comments I can make. We actually have a very high level of U.S. investor interest in the company compared to most U.K. closed-end funds. I would say, the corollary of that is we don't have enough U.K. investors compared to our counterparts. But certainly, we do have U.S. investors, and U.S. investors can own Tetragon in its current format. And we spent -- we have a U.S. office. We spend a lot of time talking to U.S. investors.

But more to the point about would we consider a different domicile, I would say that we're always looking for possibilities. And in fact, we have looked at this one in the past. But I wouldn't want to say that we have nothing currently under review, along these lines.

And I think that finishes the questions. So with that, I'd just like to leave it there and say thank you very much for joining us, and we'll talk to you soon.


Operator [2]


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