Tetragon Financial Group Limited ("TFG") Half Yearly Report for Period Ended 30 June 2016

LONDON, July 29, 2016 /PRNewswire/ -- Tetragon Financial Group Limited ("TFG" or the "Company") is a Guernsey closed-ended investment company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and on the Specialist Fund Segment⁽ⁱ⁾ of the main market of the London Stock Exchange under ticker symbol "TFG.LN".  In this report, we provide an update on TFG's results of operations for the period ending 30 June 2016.⁽ⁱⁱ⁾

This summary release should be read in conjunction with the full Half-Yearly Report which follows.

Key Metrics for H1 2016⁽ⁱⁱⁱ⁾

• Annualised Fair Value Return on Equity ("RoE") of 4.5%^(iv)
• Fair Value EPS of $0.47
• Fair Value NAV Per Share Total Return of 6.4% year to date and Fully Diluted Fair Value NAV per Share of $19.96
• Dividend Per Share for the quarter of 16.75 cents (dividend yield of 6.6%)

Highlights During the First Half

• TFG generated fair value earnings of $45.1 million
• The company bought back approximately 10 million shares in June at an average price of $10.00 per share
• Principal and employee ownership of TFG shares increased to approximately 23%
• TFG Asset Management's assets under management stood at $17.8 billion at 30 June 2016

About TFG:

TFG's investment objective is to generate distributable income and capital appreciation.  It aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles.  The company's investment portfolio comprises a broad range of assets, including a diversified alternative asset management business, TFG Asset Management, and covers bank loans, real estate, equities, credit, convertible bonds and infrastructure.

 

This release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

An investment in TFG 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 TFG.  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 TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), 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.  TFG 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, TFG 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.  TFG is registered in the public register  of  the  Netherlands Authority  for  the  Financial Markets  under  Section  1:107  of  the FMSA as a collective investment scheme from a designated country.

 

TETRAGON FINANCIAL GROUP LIMITED – Half Yearly Report (Period ended 30 June 2016)

London, 29 July 2016
Delivering Results Since 2005⁽¹⁾⁽ⁱ⁾

Figure 1

 

(i)(ii)(iii)(iv)(v)(vi)(vii)(viii) Please refer to end notes for important disclosures.

Tetragon Financial Group Limited ("TFG" or the "Company") is a Guernsey closed-ended investment company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and on the Specialist Fund Segment⁽²⁾ of the main market of London Stock Exchange under ticker symbol "TFG.LN".  In this report, we provide an update on TFG's results of operations for the period ending 30 June 2016.⁽³⁾

29 July 2016

EXECUTIVE SUMMARY

TFG generated Fair Value⁽⁴⁾ earnings of $45.1 million in H1 2016, giving an annualised Return on Equity ("RoE") for the first half of the year of 4.5%.  Whilst the RoE is somewhat below our long-term target of 10-15%⁽⁵⁾, and below our long-term average of 13.0%, we are pleased with the RoE to shareholders over the first half, particularly given the poor results from many market indices and the performance problems of several alternative asset managers.  Furthermore, our RoE may also be viewed in light of the fact that 10-year bonds (supposedly "risk free" returns) are close to, and in some cases below, zero in the major global economies⁽⁶⁾.  Thus, as we have said for some time, we expect that our investment returns will be lower than our long-term goals while this environment persists.

TFG's performance can be measured by a number of metrics, including a long-term RoE target.  In addition, we think it is useful to consider the growth in NAV per share.  Fair Value NAV per share total return grew 6.4% in the first half of 2016.  In line with other listed investment companies, we now report on the "Fair Value NAV Per Share Total Return" in addition to the simple "Fair Value NAV Per Share" in our Key Metrics.⁽⁷⁾  We have added a chart showing this metric since TFG's IPO at the end of this Executive Summary.

During the first half of 2016, noteworthy positive performers were CLOs with net income of $45.1 million and equity hedge funds with net income of $12.3 million, while TFG Asset Management was negative during the first half, with a net loss of $1.9 million during the period.

Notwithstanding the small reduction in Fair Value NAV for TFG Asset Management, there were some positive events for the asset management business during the first half of the year: LCM performed well and increased assets under management ("AUM") from $6.1 billion to $6.4 billion; Equitix continued to raise capital with AUM rising from £1.88 billion to £1.94 billion; and TCI II⁽⁸⁾ (a private equity vehicle that invests in CLOs) had a second close, and has over $200 million of committed capital as of the end of June.  Furthermore, TCICM,⁽⁹⁾ a CLO manager that is a subsidiary of TCI II and an affiliate of TFG Asset Management, was established and started managing capital in May 2016 and its first CLO closed in July.  Also in July, GreenOak⁽¹⁰⁾ completed the acquisition of Grafton Partners, the property adviser to the West End of London Property Unit Trust (WELPUT).  WELPUT was established in 2001 in partnership with Schroder Real Estate and is the top performing fund in the Association of Real Estate Funds Index over the past 10 years.⁽¹¹⁾  Further details are available on GreenOak's website under "News."

During the second quarter, the Company repurchased 10 million TFG shares at an average price of $10.00 per share.  This reduced Fair Value NAV by approximately $100 million, but boosted Fair Value NAV Per Share as it reduced the Pro Forma Fully Diluted number of shares in issue.  The Fully Diluted Fair Value NAV Per Share at the end of H1 2016 was $19.96, up from $19.08 at year end 2015, an increase of 4.6% even after allowing for dividends.  The second quarter dividend was declared at 16.75 cents per share, producing a 12-month rolling dividend growth of 4.4%.

In order to manage its balance sheet more efficiently whilst also hopefully allowing for opportunistic investments during times of market dislocation, TFG obtained a revolving debt facility ("Revolver") for a maximum of $75 million, with a duration of over three years.  TFG's investment manager may potentially seek to increase the amount of loans available alongside the existing facility.

In the first half of 2016, the principals and certain employees of TFG's investment manager and employees of TFG Asset Management continued to increase their holdings in TFG shares.  Including all shares owned outright and those held under deferred schemes, these holdings now total approximately 23 million shares, or 23% of TFG's shares.⁽¹²⁾

Phil Bland, our long-standing Chief Financial Officer for both TFG's investment manager and TFG Asset Management, will be retiring later this year.  He will be succeeded by Paul Gannon, who has been at the firm for 10 years and who has significant experience with all aspects of the Company's investments and financial reporting.  Paul has been promoted to Co-CFO and will work closely with Phil during the implementation of the succession plan.

After 11 years on the TFG board as a non-executive director, Byron Knief stepped down earlier this year.  Mr. Knief has been replaced by William P. Rogers, Jr.  Mr. Rogers has worked with TFG for many years and comes to the Company with a wealth of knowledge of corporate matters.  He retired from Cravath, Swaine & Moore LLP in December 2015 after 36 years at the firm.  His full biography can be found in Appendix VIII.

The next Investor Day will follow the release of the full-year results and thus has been scheduled for 8 March 2017 in London.  A full agenda and more details will follow in due course.

Figure 2

TFG Fair Value NAV Per Share Total Return Since April 2007 IPO⁽¹³⁾

TFG OVERVIEW
TFG is a Guernsey closed-ended investment company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and on the Specialist Fund Segment of the main market of the London Stock Exchange under ticker symbol "TFG.LN."⁽¹⁴⁾

TFG's investment objective is to generate distributable income and capital appreciation.  It aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles.  The Company's investment portfolio comprises a broad range of assets, including a diversified alternative asset management business, TFG Asset Management, and covers bank loans, real estate, equities, credit, convertible bonds and infrastructure. 

TFG's Fair Value Net Asset Value ("NAV") as of 30 June 2016 was approximately $1.9 billion.  Figure 3 shows the Company's current net asset breakdown including TFG Asset Management at full estimated Fair Value.

Figure 3^(i)(ii)

 

To achieve TFG's investment objective of generating distributable income and capital appreciation, TFG's current investment strategy is:

• To identify attractive asset classes and investment strategies.
  
  
• To identify asset managers it believes to be superior.
  
  
• To use the market experience of TFM, TFG's investment manager, to negotiate favourable terms for its investments.
  
  
• Through TFG Asset Management, and where sensible, to seek to own all, or a portion, of asset management companies with which it invests in order to enhance the returns achieved on its capital.

In addition, TFM's current investment strategy is to continue to grow TFG Asset Management – as TFG's diversified alternative asset management business – with a view to a possible initial public offering and listing of its shares.

As part of its investment strategy, TFM may employ hedging strategies and leverage in seeking to provide attractive returns while managing risk.

The Investment Manager seeks to identify asset classes that offer excess returns relative to their investment risk, or "intrinsic alpha."  It analyses the risk/reward, correlation, duration and liquidity characteristics of each potential capital use to gauge its attractiveness and incremental impact on the Company.

The Investment Manager then seeks to find high-quality managers who invest in these asset classes; selects or structures suitable investment vehicles that optimise risk-adjusted returns for TFG's capital; and/or seeks for TFG (via TFG Asset Management) to own a share of the asset management company.  TFG aims to not only produce asset level returns, but also aims to enhance these returns with capital appreciation and investment income from its investments in asset management businesses that derive income from external investors.

Certain 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 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.  The Investment Manager 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.

TFG's asset management businesses can operate autonomously, or on the TFG Asset Management platform.  In either case, the objective is for them to benefit from an established infrastructure, which can assist in critical business management functions such as risk management, investor relations, financial control, technology, and compliance/legal matters, while maintaining entrepreneurial independence.

TFG ASSET MANAGEMENT

Figure 4⁽¹⁵⁾

 

(i)(ii)(iii)(iv)(v)(vi)(vii)(viii) 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.

TFG Asset Management consists of:

• LCM Asset Management⁽¹⁶⁾ – a CLO loan manager.
  
  
• The GreenOak Real Estate joint venture – a real estate-focused principal investing, lending and advisory firm.
  
  
• Polygon Global Partners⁽¹⁷⁾ – a manager of open-ended hedge fund and private equity vehicles across a number of strategies.
  
  
• Equitix⁽¹⁸⁾ – an integrated core infrastructure asset management and primary project platform.
  
  
• Hawke's Point⁽¹⁹⁾ – a business that seeks to provide capital to companies in the mining and resource sectors.
  
  
• Tetragon Credit Income Partners (TCIP)⁽²⁰⁾ – TCIP acts as a general partner of a private equity vehicle that, among other things, makes investments in CLOs relating to risk retention rules.
  
  
• TCI Capital Management LLC (TCICM)⁽²¹⁾ – a CLO loan manager.

Assets under management for TFG Asset Management as of 30 June 2016 totalled approximately $17.8 billion.⁽²²⁾

Board of Directors

TFG's Board of Directors is comprised of six members, four of whom are independent directors who have significant experience in asset management and financial markets.  Biographies of the directors can be found in Appendix VIII.

• Rupert Dorey (Independent Director)
• Frederic Hervouet (Independent Director)
• David Jeffreys (Independent Director)
• William P. Rogers, Jr. (Independent Director)
• Reade Griffith
• Paddy Dear

KEY METRICS

The Company focuses on the following key metrics prepared on a Fair Value⁽²³⁾ basis, when assessing how value is being created for, and delivered to, TFG shareholders:

• Earnings: Fair Value Return on Equity and Fair Value EPS
• Fair Value NAV Per Share: NAV Per Share Total Return and NAV per share
• Dividends

EARNINGS – FAIR VALUE RETURN ON EQUITY ("Fair Value RoE")

Annualised Fair Value RoE for H1 2016 was 4.5%; below TFG's long-term target range of 10-15%.⁽²⁴⁾ 

Overall, the first half of 2016 proved to be a difficult environment for investment funds, so TFG was pleased to record a positive set of results, including a Fair Value Net Income⁽²⁵⁾ of $45.1 million.  This resulted in an annualised Fair Value RoE of 4.5% for the first half of the year, which was slightly above the annualised Fair Value RoE of 4.1% for Q1 2016.

• Continuing from Q1, there were positive contributions from nearly all of the investment classes across the portfolio, other than TFG Asset Management.

Figure 5⁽ⁱ⁾

 

FAIR VALUE EARNINGS PER SHARE ("Fair Value EPS")

TFG generated a Fair Value EPS⁽²⁶⁾ of $0.47 in H1 2016

The Fair Value Net Income of $45.1 million resulted in a Fair Value EPS of $0.47.  These results are significantly down from the same period last year, reflecting the generally adverse and volatile conditions in H1 2016 as well as some strong one-off contributions in H1 2015.⁽²⁷⁾

Figure 6

 

Further detailed information on the drivers of the Company's performance is provided later in this report.

FULLY DILUTED FAIR VALUE NAV PER SHARE

Fully Diluted Fair Value NAV Per Share was $19.96 at the end of H1 2016, up 13.0% from the same period in 2015.  Fair Value NAV Per Share Total Return was 6.4% year to date.

• Fully Diluted Fair Value NAV per Share increased significantly during the period as the positive impact from operating performance was boosted by a repurchase of 10 million shares for an all-in cost of $100.7 million.
• Although the share repurchase reduced net assets, by buying its shares at a discount to NAV, TFG increased the Fair Value NAV Per Share by approximately $0.94.
• As usual, TFG returned value to shareholders through its quarterly dividend. Over the past 12 months, quarterly dividends have amounted to $0.66 per share.

Figure 7

 

Figure 8⁽ⁱ⁾

 

DIVIDENDS PER SHARE ("DPS")

TFG increased its quarterly dividend to 16.75 cents per share in Q2 2016

• TFG declared a Q2 2016 DPS of $0.1675 per share, an increase from $0.165 in Q1 2016. On a rolling 12-month basis, the dividend of $0.66 per share represents a 4.3% increase over the prior 12-month period and equates to an annualised dividend yield of 6.6% on the 30 June 2016 share price of $9.99.
  
  
• This dividend declaration continues TFG's progressive dividend policy, which targets a payout ratio of 30-50% of normalised earnings. The Q2 2016 DPS of $0.1675 brings the cumulative DPS declared since TFG's IPO to $4.4175.

Figure 9

 

H1 2016 IN REVIEW

The figure below illustrates the composition of TFG's Fair Value Net Assets as of 30 June 2016 and 31 December 2015. 

Figure 10: Fair Value Net Asset Composition Summary^(i)(ii)

 

Top 10 Holdings as of 30 June 2016

The table below highlights the fair value of TFG's ten top holdings as of 30 June 2016.

 

Figure 11

 

Net Asset Breakdown and Income for H1 2016

Figure 12

 

Figure 10 above shows Fair Value Net Assets and Fair Value Net Income by asset class for Q1 2016 compared to 2015.

Figure 12 above shows Fair Value Net Assets and Fair Value Net Income by asset class for H1 2016 compared to 2015.

CLOs

• U.S. CLO 1.0: TFG's U.S. CLO 1.0 investments contributed $12.5 million in Fair Value Net Income over the first half of 2016. This segment of the portfolio continues to naturally amortise, and as of the end of H1 2016, had seen a reduction of over 27% from year-end 2015. We continue to monitor opportunities to maximise value and we expect our U.S. CLO 1.0 deals will continue to convert into cash as they unwind over the near and medium term. As of the end of H1 2016, all of TFG's U.S. CLO 1.0 deals were passing their junior-most O/C tests.⁽²⁸⁾
  
  
• U.S. CLO 2.0: TFG's U.S. CLO 2.0 investments produced $23.7 million in Fair Value Net Income during H1 2016. As we intend to achieve our exposure to new issue CLO equity investments via our investment in TCI II over the medium term, we do not expect the directly held U.S. CLO 2.0 segment to grow in a material way absent a more attractive secondary market, and may in fact begin to see declines in our direct U.S. CLO 2.0 investments, as they reach the ends of their reinvestment periods and begin to amortise. As of the end of H1 2016, all of TFG's U.S. CLO 2.0 were in compliance with their junior-most O/C tests.⁽²⁹⁾
  
  
• European CLOs: The European CLO segment of TFG's portfolio produced $8.7 million in Fair Value Net Income during H1 2016. We expect to see this segment of the portfolio continue to convert into cash as we do not view the European CLO equity market as attractive at this time. All of TFG's European CLOs were in compliance with their junior-most O/C tests as of the end of H1 2016.⁽³⁰⁾
  
  
• CLO Equity Fund: The Company's CLO equity investment vehicle, TCI II, continues to make new issue investments during its ramp-up period. Through the end of H1 2016, TCI II had made, or committed to make, investments with a total cost of $100.0 million. TFG's available undrawn capital commitment totalled $50.0 million. During H1 2016, TFG received a small distribution of income from TCI II.

EQUITIES

• Equity Funds: Polygon's event-driven equity investments generated Fair Value Net Income of $12.3 million during H1 2016, with the strongest performance coming from investments in the Polygon European event-driven fund, which was up 5.0% net during H1, and the Polygon mining fund, which was up 12.2% net. Please refer to page 23 for further details on the performance of the individual funds.
  
  
• Other Equities: These assets generated Fair Value Net Income of $6.0 million in H1 2016, which built on the positive performance during Q1.

CREDIT

• Convertible Fund: The Polygon convertible fund investment contributed Fair Value Net Income of $2.1 million during H1 2016. The Polygon Convertible strategy returned 4.1% net during H1. Please refer to page 23 for further details on the fund's performance.
  
  
• Distressed Fund: The Polygon distressed fund investment generated $0.2 million of Fair Value Net Income during H1, after being lossmaking in Q1, and the fund returned 2.0% net during the period. Please refer to page 23 for further details on the fund's performance.

REAL ESTATE

• Real Estate: TFG's investment in Real Estate contributed $5.8 million of Fair Value Net Income during the first half of the year. This was driven primarily by income returned on the Japan Fund and also a commercial property investment in the United Kingdom.

TFG ASSET MANAGEMENT (privately-held securities in asset management businesses)

• TFG Asset Management: TFG's investment in TFG Asset Management comprises a diverse portfolio of alternative asset managers. TFG Asset Management recorded an unrealised loss of $1.9 million during the first half of the year as the valuations of these investments were recalibrated. After adjusting for FX hedging, TFG's investment in Equitix made a positive contribution in H1 of approximately $11.4 million, reflecting the performance of this business. TFG's investments in Polygon, GreenOak and LCM all recorded unrealised losses, reflecting a combination of factors, including, in some cases, the application of less favourable market multiples or discount rates, and a more conservative view on elements of projected performance this year. We continue to believe that the underlying economics and momentum of these businesses remain positive, as measured by, among other things, EBITDA and AUM growth, as described in the TFG Asset Management section in this report. For further information on the basis for determining the Fair Value of the TFG Asset Management investment, please see Appendix IV. TFG Asset Management's pro forma operating results are set out in Figure 16.

Figure 13

 

CASH

• Net Cash: TFG held $373.1 million of Fair Value in net cash at 30 June 2016, a reduction on the balance held at the end of Q1 2016 as a result of the share repurchase. The Company actively manages its cash levels to cover future commitments and to enable it to capitalise on opportunistic investments.

H1 2016 Major New Investments

• Real Estate: TFG continued to add to its real estate exposure with investments in the first half of the year totalling approximately $27.9 million in GreenOak-managed vehicles. These investments were primarily centred on the United States and Europe.
  
  
• CLO Equity Fund: As outlined in the Q1 2016 report, TFG made a commitment of $15.0 million to TCI II, bringing TFG's total commitments to $50.0 million. No commitments had been drawn as of the end of H1 2016. To date, this commitment remains undrawn as TCI II ramps up by utilising a subscription credit facility.
  
  
• Repurchase of TFG Shares: In June, TFG repurchased $100 million of its shares at $10 per share via a tender offer managed by Deutsche Bank AG.

H1 2016 Major Asset Sales and Optional Redemptions

• European CLOs: TFG initiated an optional early redemption of one European CLO during H1 2016, and as of the end of the period, had received all expected liquidation proceeds (approximately €15.1 million)
  
  
• Real Estate: Some real estate investments returned capital and income during H1 2016. This was primarily from US and European-focused investment vehicles.

TFG Asset Management Overview

One of TFG's significant investments is TFG Asset Management, a diversified alternative asset management business that owns majority and minority stakes in asset managers.  At 30 June 2016, TFG Asset Management comprised LCM, the GreenOak joint venture, Polygon, Equitix, Hawke's Point, TCIP⁽³¹⁾ and TCICM (please see Figure 14 for the breakdown of AUM and Fair Value by business line).  TFG Asset Management has approximately $17.8 billion of assets under management⁽³²⁾ and approximately 230 employees globally.  Figure 15 depicts the growth of that AUM over the last five years.  Each of the asset management businesses on the platform are privately-held.

Figure 14⁽³³⁾

 

Figure 15⁽³⁴⁾

 

TFG Asset Management Pro Forma EBITDA (Ex-GreenOak)

Figure 16

 

• Overview: Figure 16 shows a pro forma statement of operations which reflects the operating performance of the majority-owned asset management companies within TFG Asset Management. Although, under U.S. GAAP, they are currently reported partially at Fair Value and partially on a consolidated basis, the aim of also presenting the underlying performance in this way is to give investors insight into a key driver behind that valuation. GreenOak, in which TFG holds a minority interest, is not currently included in the calculation of pro forma EBITDA.
  
  
• EBITDA: During Q2 2016, TFG Asset Management continued the solid start made in Q1, resulting in H1 2016 EBITDA of $17.6 million. Largely as a result of a very strong Q1 2015 for performance (realised and unrealised) and success fees, the EBITDA equivalent for the majority-owned TFG Asset Management businesses fell by 37% between H1 2015 and H1 2016. Management fees made up over 50% of the total fee income, up from 41% in 2015, and we believe that this is an indication of an improvement in the quality of earnings year on year.
  
  
• Management fee income: Management fee income continued to increase with the growth of the fee-paying AUM of the TFG Asset Management businesses. As shown in Figure 16, fee-paying capital increased significantly year on year, primarily through organic growth of the Equitix, Polygon and LCM businesses since H1 2015. See Figures 14 and 15 for further information on TFG Asset Management's AUM. Management fees grew by over 25% between H1 2015 and H1 2016.
  
  
• Performance and success fees: Compared to H1 2015, performance and success fees continued to lag, primarily due to a particularly strong H1 2015 performance from Equitix's primary business. Such fees do not tend to follow seasonal patterns and, indeed, this aspect of the Equitix business is working on an active deal pipeline. This effect has been partially offset by strong performance in certain Polygon funds, which has boosted the performance fees included in the EBITDA vis-a-vis the same period in 2015.
  
  
• Other fee income: This category includes third-party CLO management fee income relating to certain U.S. CLO 1.0 transactions, which continued to decline in line with expectations as these transactions amortised down. In addition, it includes certain cost recoveries from TFG relating to seeded Polygon hedge funds, which fell year on year. The cost recoveries, which are described in more detail in the TFG Asset Management Overview section of this report, decreased slightly year on year although the teams supporting those seeded funds continued to grow. As these businesses mature and build third party capital, we expect that such cost recoveries should decrease. The other fee income category also includes fee income generated by Equitix on certain management services contracts, which is a strongly growing part of the Equitix business.
  
  
• Operating expenses: In H1 2016, a number of factors led to an increase in operating expenses within TFG Asset Management of $9.9 million, or 32% on the equivalent half year period in 2015, although when annualised and compared to the full year 2015 figure, the increase is a more modest 8%.
  
  Costs increased in relation to Equitix, as it continues to grow its business.  H1 2016 also included six months of costs versus five months in H1 2015.  In addition, with respect to TCIP, costs associated with set up and marketing were incurred in H1 2016, compared to H1 2015 when the business had not yet been set up.  Finally, TFG Asset Management continued to invest by increasing headcount in a number of areas, which will hopefully support the continued growth of the platform.

BUSINESS OVERVIEWS

The following pages provide a summary of each asset management business and a review of AUM growth and underlying strategy / investment vehicle performance during the first half of 2016.

All data is at 30 June 2016, unless otherwise stated.

LCM

 

GREENOAK

 

POLYGON

 

EQUITIX

 

HAWKE'S POINT

 

TCIP and TCICM

 

H1 2016 FINANCIAL REVIEW

This section shows consolidated financial data incorporating TFG and its 100% subsidiary, Tetragon Financial Group Master Fund Limited (the "Master Fund"), adjusted from Q3 2015 to reflect the Fair Value of TFG Asset Management's businesses which are consolidated under U.S. GAAP, and provides comparative data where applicable.  Comparative data presented for periods prior to Q3 2015 are disclosed as they were reported at the time and have not been adjusted retrospectively to be presented on a fair value basis.

FINANCIAL HIGHLIGHTS

Figure 22

 

TFG uses, among others, the following metrics to understand the progress and performance of the business:

• Fair Value Net Income ($45.1 million): See Appendix IV for reconciliation to U.S. GAAP net income.
  
  
• Fair Value Return on Equity (2.3%): Fair Value Net Income ($45.1 million) divided by Net Assets at the start of the year ($1,987.3 million).
  
  
• Fully Diluted Shares Outstanding (95.6 million): Adjusts the U.S. GAAP shares outstanding⁽ⁱ⁾ (87.5 million) for various dilutive factors (8.1 million shares). See Figure 35 for more details.
  
  
• Fair Value EPS ($0.47): Calculated as Fair Value Net Income ($45.1 million) divided by weighted-average U.S. GAAP shares⁽ⁱ⁾ during the period (95.8 million).
  
  
• Fully Diluted Fair Value NAV Per Share ($19.96): Calculated as Fair Value Net Assets ($1,907.4 million) divided by Fully Diluted Shares Outstanding (95.6 million).

(i) The time-weighted average daily U.S. GAAP Shares outstanding during the applicable year.

FAIR VALUE EPS ANALYSIS H1 2014 – H1 2016

Figure 23

 

STATEMENT OF OPERATIONS (FAIR VALUE BASIS)

Figure 24

 

Performance Fee

A performance fee of $2.5 million was accrued in Q2 2016 in accordance with TFG's investment management agreement.  The hurdle rate for the Q3 2016 incentive fee has been reset at 3.301208% (Q2 2016: 3.276958%) as per the process outlined in TFG's 2015 audited financial statements and in accordance with TFG's investment management agreement.  Please see TFG's website, www.tetragoninv.com, and the 2015 TFG audited financial statements for more details on the calculation of this fee.

BALANCE SHEET (FAIR VALUE BASIS)

Figure 25

 

See Appendix IV for the reconciliation between the U.S. GAAP consolidated balance sheet and the balance sheet prepared on a Fair Value basis.

 

STATEMENT OF CASH FLOWS (FAIR VALUE BASIS)⁽ⁱ⁾

Figure 26

 

FAIR VALUE NET INCOME TO U.S. GAAP RECONCILIATION

Figure 27

 

TFG is primarily reporting earnings through a non-GAAP measurement called Fair Value Net Income.

The reconciliation on the table above shows the adjustments required to get from this measure of earnings to U.S. GAAP net income. 

1. Adjustment one takes into account a Fair Value adjustment of $8.1 million for Polygon, LCM, Hawke's Point and TCIP as if they were de-consolidated and held at Fair Value rather than consolidated as they currently are for U.S. GAAP purposes.  Further details are provided in Appendix IV.
   
   
2. Adjustment two removes share based compensation of $11.5 million as, under ASC 805, TFG is recognizing the value of the shares given in consideration for the Polygon transaction as compensation over the period in which they are vesting, as well as in relation to certain long-term compensation plans.  This mechanic and future vesting schedule for all share based compensation related shares are described in more detail in the 2016 TFG unaudited interim financial statements.  The long-term compensation plans are also detailed in Appendix VII.

APPENDICES⁽⁴³⁾

APPENDIX I

CERTAIN REGULATORY INFORMATION

This Performance Report constitutes TFG's semi-annual financial report as required pursuant to Section 5:25d of the Dutch Financial Markets Supervision Act ("FMSA").  This 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 been filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) pursuant to 5:25m of the FMSA.  In addition, this report is also made available to the public by way of publication on the TFG website (www.tetragoninv.com).

An investment in TFG 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 TFG.

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 TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), 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.  TFG 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, TFG 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.  TFG is registered in the public register  of  the  Netherlands Authority  for  the  Financial Markets  under  Section  1:107  of  the FMSA as a collective investment scheme from a designated country. 

This release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

TFG shares (the "Shares") are subject to legal and other restrictions on resale and the Euronext Amsterdam N.V. 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 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.

DIRECTORS' STATEMENTS

The Directors of TFG confirm that (i) this Performance Report constitutes the TFG management review for the six month period ended 30 June 2016 and contains a fair review of that period and (ii) the financial statements in the accompanying unaudited interim report for the six month period ended 30 June 2016 for TFG have been prepared in accordance with applicable laws and in conformity with accounting principles generally accepted in the United States of America.

APPENDIX II

FAIR VALUE DETERMINATION OF CLO EQUITY INVESTMENTS

In accordance with the valuation policies set forth on TFG's website, the values of TFG's CLO equity  investments  are  determined  using  a  third-party  cash  flow  modelling  tool.  The  model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward- looking observable data) might potentially impact the performance of TFG's CLO equity investments.  Since this involves modelling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.

Subject to the foregoing, when determining the U.S. GAAP-compliant Fair Value of TFG's portfolio, the Company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate.

The below modelling assumptions are unchanged from last quarter.  The Company will provide analytical information on these assumptions as needed going forward, rather than each quarter.

Figure 28

 

Figure 29

 

Figure 30

 

APPENDIX III

FAIR VALUE DETERMINATION OF TFG ASSET MANAGEMENT

In accordance with the accounting guidance in the AICPA Audit and Accounting Guide (2015): Investment Companies (the "Guide"), as an Investment Company, TFG  carries all of its investments at Fair Value.  However, as outlined in section 7.10 of the Guide, operating entities should be consolidated where TFG (i) has an economic interest in excess of 50%; (ii) is deemed to have control over the significant operational and financial decisions of the entity; and (iii) where the purpose of the operating entity is to provide services to the Investment Company (i.e., TFG) rather than realise a gain on the sale of the investment.  As at 30 June 2016, this consolidation exemption was applied to TFG's holdings in Polygon, LCM, Hawke's Point and TCIP (the "Consolidated Businesses") because these businesses were managing some of TFG's investment capital and thus could be deemed to be providing services to TFG.  In contrast, Equitix is not managing TFG's capital so is not subject to point (iii) above, and GreenOak is minority-owned so is not subject to points (i) or (ii) above.

The resultant inconsistency of treatment under U.S. GAAP of the businesses in TFG Asset Management is potentially confusing to the reader of TFG's financial statements, particularly since the determination and articulation in Q3 2015 of the "IPO Strategy"^([44]) for TFG Asset Management, which confirmed that the primary commercial purpose for TFG Asset Management, including the Consolidated Businesses, is to be held as an investment for capital appreciation, in line with TFG's investment objective.  Consequently, from Q3 2015, TFG has prepared and presented its non-GAAP financial metrics and performance information using a consistent Fair Value basis for all of TFG Asset Management.  Some of the differences resulting from the presentation of non-GAAP metrics are reconciled in Appendix IV.

TFG's investments in the TFG Asset Management businesses are considered to be "Level 3" investments in the U.S. GAAP valuation hierarchy and the Audit Committee of TFG, comprising the Independent Directors, has engaged third-party valuation specialists to determine an indicative valuation for each of these businesses.  These valuations have been adopted for the purposes of reporting the Fair Value impact in TFG's non-GAAP metrics as at 30 June 2016.

Figure 31 sets out the valuation approach utilised for each of the businesses as well as the range of market metrics utilised in determining Fair Value.  Both management and performance fees (collectively, the "Fees") continue to be calculated based on the U.S. GAAP measure of Net Asset Value and thus the non-GAAP adjustments do not currently impact the Fees payable to the Investment Manager.

Figure 31

 

APPENDIX IV

RECONCILIATION BETWEEN U.S. GAAP AND FAIR VALUE BASIS

This section describes how the non-GAAP Fair Value adjustments relating to LCM, Polygon, Hawke's Point and TCIP have been made to the U.S. GAAP financials to arrive at the Key Performance Metrics.

Figure 32 details the impact of such a change in accounting treatment for LCM, Polygon, Hawke's Point and TCIP in terms of carrying value and performance fees.

In arriving at the imputed performance fee, the change in NAV is adjusted by the full amortisation of the remaining base cost ($27.7 million) of the purchase of 25% of LCM in 2012.  Previously, this was being amortised on a straight-line basis over 10 years, and each quarter an applicable adjustment is made to reduce the performance fees payable to the investment manager.

Figure 32

 

RECONCILIATION BETWEEN U.S. GAAP AND FAIR VALUE BASIS (continued)

Figure 33 shows a reconciliation between the Statement of Operations prepared on a full Fair Value basis and on a U.S. GAAP basis.

In addition to adding in the unrealised Fair Value as detailed in Figure 32, the reconciliation shows the removal of the operating P&L for H1 2016, and the reversal of certain balance sheet items relating to Polygon, LCM, Hawke's Point or TCIP.  Such items include the remaining intangible asset balance relating to Polygon's management contracts and a reversal of a deferred tax liability.

We adjust for change in notional performance fees as calculated in Figure 32.

In addition, as in prior periods, we back out share-based compensation of $11.5 million as, under ASC 805, TFG is recognising the value of the shares given in consideration for the Polygon transaction as compensation over the period in which they are vesting.  This mechanic and future vesting schedule for share-based compensation are described in more detail in the 2016 Interim Master Fund unaudited financial statements.

Figure 33

 

Figure 34 shows a reconciliation between the Balance Sheet prepared on a full Fair Value basis and on a U.S. GAAP basis.

In addition to adding in the unrealised Fair Value of $166.9 million as detailed in Figure 32, the reconciliation shows the removal of certain balance sheet items relating to Polygon, LCM, Hawke's Point and TCIP, including the value of Polygon's un-amortised management contracts ($21.7 million), cash of $30.3 million held in TFG Asset Management, a small amount of fixed assets, a deferred tax asset and receivables, which mainly relate to cost recoveries.  On the liability side, we reverse certain accrued expenses including compensation and add back a notional performance fee of $26.3 million relating to the Fair Value adjustment as detailed in Figure 32.

Figure 34

 

APPENDIX V

SHARE RECONCILIATION AND SHAREHOLDINGS

Figure 35⁽⁴⁵⁾

 

SHAREHOLDINGS

Persons affiliated with TFG maintain significant interests in TFG shares.  For example, as of 30 June 2016, the following persons own (directly or indirectly) interests in shares in TFG in the amounts set forth below:

 

*The amounts set forth above in regards to Messrs. Griffith and Dear include their interests with respect to the Escrow Shares.  In addition to the foregoing, as of 30 June 2016, certain employees of subsidiaries of TFG and other affiliated persons own in the aggregate approximately 3.4 million shares, including interests with respect to the Escrow Shares, in each case, however, excluding any TFG shares held by the GreenOak principals or employees.

As previously disclosed, non-voting shares of TFG (together with accrued dividends and previously vested shares, (the "Vested Shares") that were issued pursuant to TFG's acquisition in October 2012 of TFG Asset Management L.P. (f/k/a Polygon Management L.P.) and certain of its affiliates (the "Polygon Transaction") have vested with certain persons (other than Messrs. Griffith and Dear), all of whom are employees or partners of TFG-owned or affiliated entities, pursuant to the Polygon Transaction.

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 TFG shares in the market, or may otherwise sell their Vested Shares or purchase TFG shares, subject to applicable compliance policies.  Applicable brokerage firms may be authorised to purchase or sell TFG 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 TFG in accordance with its applicable compliance policies.

For additional information regarding the Polygon Transaction and the future vesting schedule for shares issued thereunder, see Note 22 to the 2015 Tetragon Financial Group Master Fund Limited audited financial statements.

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.

 

APPENDIX VI

HISTORICAL SHARE REPURCHASES

Figure 36

 

Figure 37

 

Share Repurchases:

The above graph shows historical share repurchases by TFG from inception to 30 June 2016. This has been updated to include the repurchase in Q2 2016 of 10 million shares for an aggregate cost of $100.7 million.  This figure includes certain costs associated with the repurchase.⁽⁴⁷⁾

APPENDIX VII

EQUITY-BASED COMPENSATION PLANS

In Q1 2016, TFG implemented an equity-based long-term incentive plan for certain senior employees of TFG Asset Management (excluding the principals of TFM).

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 TFG shares, but the shares are not issued to the employees.  Such periods may range from one to five years beyond the vesting dates.  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 TFG Dividend Re-investment Program ("DRIP Shares").

Where grants under these equity-based incentive programs will only be settled through the issuance of shares rather than through cash, and in accordance with U.S. GAAP rules for share-based compensation, TFG has elected to account for equity-based plans under ASC 718 – Equity-based payments to employees – and is applying the straight-line method for expense recognition and for calculating the share dilution effect.  This means that the total expense of the initial awards is determined at the award date, or at the date that the award becomes eligible to be settled only in shares ("Award Date"), by applying a reference share price on the Award Date to the shares awarded.  Taking into account all equity-based awards granted to TFG Asset Management employees, including the Q1 2016 LTIP awards, approximately 5.1 million shares have been awarded at a weighted average reference share price of $8.76 per share, implying a total share-based compensation charge of approximately $45 million spread over a period of up to eight years, excluding employer-related taxes.

The dilutive effect of the equity-based compensation plans will be reflected increasingly in TFG's 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 the end of Q2 2016, approximately 0.4 million shares were included in the fully diluted share count.

APPENDIX VIII

BOARD OF DIRECTORS

The Board of Directors currently comprises six directors, of which four are Independent Directors.

Rupert Dorey has over 30 years of experience in financial markets.  Rupert was at CSFB for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt.  He held a number of senior positions at CSFB, including establishing CSFB's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales.  Since 2005, he has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles.  Rupert is a former President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.  Rupert is based in Guernsey and is a Non-Executive, Independent Director.

Frederic Hervouet has over 17 years of experience in financial markets and hedge funds, including in multi-asset class investment and risk management, structured products and structured finance.  Until September 2013, Frederic was a Managing Director and Head of Commodity Derivatives Asia for BNP Paribas, where he was focused on trading, structuring and sales.  Previously, Frederic was a Director and Global Head of Sales at Diapason Commodities Management SA, a partner at Systeia Capital Management, which is now part of Amundi Asset Management, and a Director and Head of European Market Distribution at BAREP Asset Management, the hedge fund management subsidiary of Société Générale.  Frederic has a MSc in Applied Mathematics and International Finance and a Master's Degree (DESS) in Financial Markets, Commodities Markets and Risk Management from the Université Paris Dauphine.  He is a member of the Institute of Directors (IoD) and of the Guernsey Chamber of Commerce.  Frederic is based in Guernsey and is a Non-Executive, Independent Director.

David Jeffreys provides directorship services to a small number of fund groups.  From 1995 until 2010 David worked with EQT, a Scandinavian private equity group, acting as a director of each of its Fund general partners and, from 2006, establishing and serving as Managing Director of EQT Funds Management Limited, its Guernsey based management and administration office.  Between 1993 and June 2004, David was managing director of Abacus Fund Managers (Guernsey) Limited, where he was involved with private client trust arrangements, corporate administration, pension schemes and fund administration.  He was a board member of Abacus' principal administration operating companies and served on the boards of various administrated client companies.  Previously, David worked as an auditor and accountant for 12 years with Coopers & Lybrand (and its predecessor firms).  He has an undergraduate degree in Economics and Accounting from the University of Bristol and is a fellow of the Institute of Chartered Accountants in England and Wales.  David is based in Guernsey and is a Non-Executive, Independent Director.

William P. Rogers, Jr. retired from the Corporate Department of Cravath, Swaine & Moore LLP in December 2015 after 36 years at the firm.  His practice encompassed the representation of both corporate and financial institution clients in a wide variety of matters, including international securities offerings, corporate governance and SEC compliance matters, mergers and acquisitions, and derivative financial products.  Mr. Rogers was repeatedly cited as one of the United States' leading practitioners in capital markets by, among others, Chambers USA: America's Leading Lawyers for Business; Chambers Global: The World's Leading Lawyers for Business; The Legal 500; and IFLR1000.  Mr. Rogers regularly advised a wide variety of clients, including Royal Dutch Shell plc, Bacardi Limited, Time Warner Inc., Northrop Grumman Corporation, CBS Corporation, INEOS Group Limited, Tetragon Financial Group Limited, Costamare Inc., priceline.com Incorporated, FactSet Research Systems Inc., Morgan Stanley, Citigroup, GasLog Ltd. and Goldman Sachs.  Mr. Rogers also regularly advised corporate clients on derivatives matters, including the implications of the new Dodd‑Frank swaps regulation.  He was involved in the formation of the International Swaps and Derivatives Association (ISDA) and, prior to his move to London, regularly represented ISDA on legislative, regulatory and documentation matters.  Mr. Rogers was born in Bronxville, New York.  He received a B.A. from Union College in 1972 and a J.D. from Case Western Reserve School of Law in 1978.  From 1998 to 2001, he served as the Managing Partner of Cravath's Corporate Department and, from 2001 to 2007, headed the firm's London office.  Mr. Rogers is based in New York.

Reade Griffith co-founded Polygon in 2002 and Tetragon Financial Management LP (TFM) in 2005.  He is a Principal of TFM, the Head of TFM's Investment & Risk Committee, a member of TFM's Executive Committee, the CIO of Polygon's European Event Driven Equities strategy, a member of the Investment & Management Committee of Tetragon Credit Income Partners Ltd. and Tetragon Credit Income II L.P., and a member of the TFG board of directors.  He 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.  He was a partner and senior managing director responsible for running the Global Event Driven arbitrage team in Tokyo, London and Chicago for the firm.  He was previously with Baker, Nye, where he was an analyst working on an arbitrage and special situations portfolio.  Reade holds a JD degree from Harvard Law School and an undergraduate degree in Economics from Harvard College.  He also served as an officer in the U.S. Marine Corps and left as a Captain following the 1991 Gulf War.  Reade is based in London.

Paddy Dear co-founded Polygon in 2002 and Tetragon Financial Management LP (TFM) in 2005.  He is a Principal of TFM, a member of TFM's Investment & Risk Committee, a member of TFM's Executive Committee, a member of the Investment & Management Committee of Tetragon Credit Income Partners Ltd. and Tetragon Credit Income II L.P., the Co-Head of TFG Asset Management and a member of the TFG board of directors.  Paddy was previously a Managing Director and the Global Head of Hedge Fund Coverage for UBS Warburg Equities.  Prior to this, he was co-head of European sales trading, execution, arbitrage sales and flow derivatives.  He had been with UBS since 1988, including six years in New York.  Paddy was in equity sales at Prudential Bache before joining UBS and started his career as a petroleum engineer with Marathon Oil Co.  Paddy holds a BSc degree in Petroleum Engineering from Imperial College in London.  Paddy is based in London.

 

FURTHER SHAREHOLDER INFORMATION

 

ENDNOTES

TFG is not responsible for the contents of any third-party website noted in this report.

(1) (i) TFG commenced investing as an open-ended investment company in 2005, before its IPO in April 2007.

(ii) TFG seeks to deliver 10-15% Fair Value RoE per annum to shareholders.  TFG's returns will most likely fluctuate with LIBOR.  LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments.  In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

(iii) Fair Value RoE is calculated from TFG's IPO in 2007.  2015 RoE includes a fair value adjustment for certain TFG Asset Management businesses, the value of which has accumulated over several years.  Consequently the full year return of 14.5% is not prepared on a like for like basis with prior years.  Like for like performance for 2015 was 8.2%.  Please refer to page 28 for a definition of Fair Value RoE and Appendix IV for more details.

(iv) Annualised total shareholder return to 30 June 2016, defined as share price appreciation including dividends reinvested, for the last year, the last three years, the last five years, and since TFG's initial public offering in April 2007, and annualised Fair Value NAV Per Share Total Return to 30 June 2016, for the last year, the last three years, the last five years, and since TFG's initial public offering in April 2007 as sourced from Bloomberg.  Fair Value Total NAV Return is determined in accordance with the "NAV total return performance" calculation as set forth on the Association of Investment Companies ("AIC") website.  TFG's Fair Value NAV per share Total Return is determined for any period by calculating, as a percentage return on the Fair Value NAV per Share at the start of such period, (i) the change in Fair Value 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 Fair Value 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 Fair Value NAV per share from such ex-dividend date through to the end of the applicable period).

(v) Fair Value EPS divided by Dividends per Share at 30 June 2016.

(vi) The vast majority of TFG's investments are held at fair value in accordance with U.S. GAAP.  The fair value basis for TFG's key performance metrics adjusts U.S. GAAP to include the fair value of certain TFG Asset Management businesses that are currently consolidated under U.S. GAAP.  The fair values used are as determined by TFG's Audit Committee based on information provided by an independent valuation specialist.  The consistent use of fair value across all investments is referred to in this report as "Fair Value".  Fair Value Key Metrics such as Fair Value RoE and Fair Value NAV are also adjusted to reflect incentive fees that would otherwise have arisen if these Fair Values were actually reflected in the U.S. GAAP accounting for TFG's financial statements.  Please refer to Appendices III and  IV for further details.

(vii) Fully Diluted Fair Value NAV Per Share based on TFG's financial statements as of 30 June 2016.  Please note that the reported Fair Value NAV per share excludes any shares held in treasury or in a subsidiary as of that date, but includes shares held in escrow which are expected to be released and incorporated into the U.S. GAAP NAV per Share over a five-year period and the number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the Company's IPO.  Please see Figure 22 for more details.

(viii) Partner & Employee shareholdings at 30 June 2016, including all deferred compensation arrangements.  Please refer to the 2015 Audited Tetragon Financial Group Master Fund Limited financial statements for more details of these arrangements.

Executive Summary

(2) TFG's 'home Member State' for the purposes of the EU Transparency Directive (Directive 2004/109/EC) is the Netherlands.

(3) TFG invests substantially all its capital through a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF"), in which it holds 100% of the issued non-voting shares.  In this report, unless otherwise stated, we report on the consolidated business incorporating TFG and TFGMF.  References to "we" are to Tetragon Financial Management LP, TFG's investment manager (the "Investment Manager").

(4) Please see Note (1)(ii).

(5) Please see Note (1)(ii).

(6) Source: Wall Street Journal, "U.S. 10-Year Government Bond Yield Falls to Lowest Since 2012" June 14, 2016. http://www.wsj.com/articles/u-s-10-year-bond-falls-to-near-record-low-as-bund-yield-turns-negative-1465914088

(7) The Fair Value NAV per share Total Return adjusts the Fair Value NAV per share for any dividends paid out over the period (assuming dividends are re-invested at the prevailing Fair Value NAV per share). 

(8) Tetragon Credit Income II L.P. ("TCI II"), referred to in this report as "TCI II".

(9) TCI Capital Management LLC, referred to in this report as "TCICM".

(10) GreenOak Real Estate, LP, is referred to in this report as "GreenOak".  TFG owns a 23% interest in GreenOak.

(11) Source: The Association of Real Estate Funds (AREF)  AREF/IPD UK Pooled Property Fund Index, December 2015 (http://www.aref.org.uk).

(12) Calculated by taking Partner & Employee shareholdings at 30 June 2016, including all deferred compensation arrangements and dividing the sum of US GAAP shares in issue and all future vesting shares for those persons, including deferred compensation arrangements.

(13) (i) Fair Value Total NAV Return is determined in accordance with the "NAV total return performance" calculation as set forth on the Association of Investment Companies ("AIC") website.  TFG's Fair Value NAV per share Total Return is determined for any period by calculating, as a percentage return on the Fair Value NAV per Share at the start of such period, (i) the change in Fair Value 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 Fair Value 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 Fair Value NAV per share from such ex-dividend date through to the end of the applicable period).

(ii)  MSCI ACWI refers to the MSCI All Countries World Index, which is managed by MSCI Inc.  It is a global equity index consisting of developed and emerging market countries.  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 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, the fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  Further information on the composition and calculation of the MSCI ACWI is available at www.msci.com.  The data depicted here is sourced from Bloomberg using Bloomberg's "Custom Total Return Holding Period" function.

(iii) Cumulative return determined on a quarterly compounding basis using the actual TFG quarterly incentive fee LIBOR based hurdle rate.  In the period from IPO to June 2008 this was 8%; thereafter, the hurdle has been determined using the 3 month USD LIBOR rate on the first day of each calendar quarter plus a spread of 2.647858%.

TFG Overview

(14) Euronext in Amsterdam is a regulated market of Euronext Amsterdam N.V. ("Euronext Amsterdam").  As is the case for Euronext Amsterdam, the SFS is a regulated market for the purposes of the Markets in Financial Instruments Directive.

(15) Includes GreenOak funds and advisory assets, LCM, Polygon Recovery Fund LP, Polygon Convertible Opportunity Master Fund, Polygon European Equity Opportunity Master Fund and associated managed account, Polygon Mining Opportunity Master Fund, Polygon Global Equities Master Fund, Polygon Distressed Opportunities Master Fund, Equitix, TCI II, and TCICM as calculated by the applicable administrator for value date 30 June 2016.  Includes, where relevant, investments by Tetragon Financial Group Master Fund Limited.  TFG Asset Management AUM as used in this report includes the assets under management of several investment advisers, including Tetragon Asset Management L.P., and GreenOak, each of which is an investment manager registered under the U.S. Investment Advisers Act of 1940.  Figures for GreenOak and TCI II may also include committed capital.

(16) LCM Asset Management LLC, a CLO loan manager that is part of TFG Asset Management, is referred to in this report as "LCM".

(17) Polygon Global Partners LP and Polygon Global Partners LLP (and certain of their affiliates), managers of open-ended hedge fund and private equity vehicles across a number of strategies that are part of TFG Asset Management, referred to in this report as "Polygon".  Polygon Global Partners LLP is authorised and regulated by the United Kingdom Financial Conduct Authority.

(18) Equitix Holdings Limited, referred to in this report as "Equitix".

(19) Hawke's Point, a mining finance company that is part of TFG Asset Management, referred to in this report as "Hawke's Point".

(20) Tetragon Credit Income Partners, referred to in this report as "TCIP".

(21) Please see Note 9.

(22) Please see Note 15.

Key Metrics

(23) TFG's Key Metrics were modified, effective from Q3 2015, to incorporate the value that is being created in TFG Asset Management on a consistent Fair Value basis using valuations provided by an independent valuation specialist reporting to the Audit Committee.  The resulting Fair Value metrics are described in this section and further detail on the drivers for each of the Fair Value metrics is discussed in the following sections of the report.

(24) Please see note (1)(ii).

(25) Please refer to Financial Highlights on page 28 of this report for the definition of Fair Value Net Income.

(26) Please refer to Financial Highlights on page 28 of this report for the definition of Fair Value EPS.

(27) In Q1 2015, there were strong contributions from Other Equities, U.S. CLO 1.0 transactions and Real Estate.  Please refer to the Q1 2015 report for more details.

H1 2016 in Review

(28) Based on the most recent trustee reports available as of 30 June 2016.

(29) Based on the most recent trustee reports available as of 30 June 2016.

(30) Based on the most recent trustee reports available as of 30 June 2016.

TFG Asset Management

(31) Please see Note 20.

(32) Please see Note 15.

(33) Please see Note 15.

(34) Please see Note 15.

(35) (i) The fund began trading with Class B shares, which carry no incentive fees, on 20 May 2009.  Class A shares of the fund were first issued on 1 April 2010 and returns from inception through March 2010 have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee over a hurdle and other items, in each case, as set forth in the Offering Memorandum).  AUM figure and net performance is for the Polygon Convertible Opportunity Master Fund as calculated by the applicable fund administrator.

(ii) The fund began trading 8 July 2009 with Class B shares which carry no incentive fee.  Class A shares commenced trading on 1 December 2009.  Returns from inception through November 2009 for Class A shares have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the offering Memorandum).  From December 2009 to February 2011, the table reflects actual Class A share performance on the terms set forth in the Offering Memorandum.  From March 2011, forward, the table reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  Class A1 share performance is equivalent to Class A share performance for prior periods.  AUM figure and net performance is for the Polygon European Equity Opportunity Master Fund and associated managed account as calculated by the applicable fund administrators.

(iii) The fund began trading with Class B1 shares, which carry no incentive fees, on 1 June 2012.  Returns through October 2013 have been pro forma adjusted to account for a 2.0% management fee, a 20% incentive fee, and non-trading expenses capped at 1%, in each case, as set forth in the Offering Memorandum.  Class A1 shares of the fund were first issued on 1 November 2013.  From November 2013, forward, performance reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  AUM figure and net performance is for the Polygon Mining Opportunity Master Fund as calculated by the applicable fund administrator.

(iv) The fund began trading on 2 September 2013.  Class A shares of the fund were first issued in September 2013 and returns from inception through September 2014 have been adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the Offering Memorandum).  AUM figure and net performance is for the Polygon Distressed Opportunities Master Fund as calculated by the applicable fund administrator.

(v) The fund began trading with Class B/B1 shares, which carry no incentive fees, on 12 September 2011.  Returns shown from inception through August 2013 have been pro forma adjusted to account for a 2.0% management fee and a 20% incentive fee, in each case, as to be set forth in further definitive documents.  The fund began trading Class A shares, which are not new issue eligible, on 23 September 2011.  Class A1 shares of the fund, which are new issue eligible, were first issued on 1 November 2013, and returns from inception through October 2013 have been pro forma adjusted to match the fund's Class A1 performance.  AUM figure and net performance is for the Polygon Global Equities Master Fund as calculated by the applicable fund administrator.

(vi) The Private Equity Vehicle noted is the Polygon Recovery Fund L.P. ("PRF").  The manager of the PRF is a subsidiary of TFG.  The management fees earned in respect of PRF are included in the TFG Asset Management business segment described herein.  PRF is a limited-life vehicle seeking to dispose of its portfolio securities prior to the expiration of its term.  PRF's term was extended to March 2018 with a potential further one year extension thereafter.  Individual investor performance will vary based on their high water mark.  Currently, the majority of Class C share class investors have not reached their high water mark, so their performance is the same as their gross performance.  The AUM figure for PRF is as calculated by the applicable fund administrator.

(36) The Polygon Convertible Opportunity Fund began trading with Class B shares, which carry no incentive fees, on 20 May 2009.  Class A shares of the fund were first issued on 1 April 2010 and returns from inception through March 2010 have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee over a hurdle and other items, in each case, as set forth in the Offering Memorandum).  From April 2010, forward, the reported returns reflect actual Class A share performance on the terms set forth in the Offering Memorandum.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  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 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, the fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX RV: FI-Convertible Arbitrage Index (Bloomberg Code: HFRXCA) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(37) The Polygon European Equity Opportunity Fund began trading 8 July 2009 with Class B shares, which carry no incentive fee.  Class A shares commenced trading on 1 December 2009.  Returns from inception through November 2009 for Class A shares have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the offering Memorandum).  From December 2009 to February 2011, reported performance reflects actual Class A share performance on the terms set forth in the Offering Memorandum.  From March 2011, forward, the table reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  Class A1 share performance is equivalent to Class A share performance for prior periods.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  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 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, the fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX ED: Event Driven Index (Bloomberg Code: HFRXED) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(38) The Polygon Mining Opportunity Fund began trading with Class B1 shares, which carry no incentive fees, on 1 June 2012.  Returns shown here through October 2013 have been pro forma adjusted to account for a 2.0% management fee, a 20% incentive fee, and non trading expenses capped at 1%, in each case, as set forth in the Offering Memorandum.  Class A1 shares of the fund were first issued on 1 November 2013.  From November 2013, forward, reported performance reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  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 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, the fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX Global Hedge Fund Index (Bloomberg Code: HFRXGL) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.  The Market Vectors Junior Gold Miners Index (Bloomberg Code: GDXJ) is compiled by Market Vectors Index Solutions, a subsidiary of Van Eck.  Further information relating to index constituents and calculation methodology can be found at www.marketvectorsindices.com.

(39) The Polygon Distressed Opportunities Fund began trading on 2 September 2013.  Returns shown are for offshore Class A shares, reflecting the terms set forth in the offering documents (2.0% management fee, 20% incentive fee and other items, in each case, as set forth in the offering documents) as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  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 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, the fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX DS: Distressed Restructuring Index (Bloomberg Code: HFRXDS) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(40) The Polygon Global Equities Fund began trading with Class B/B1 shares, which carry no incentive fees, on 12 September 2011.  Returns shown from inception through August 2013 have been pro forma adjusted to account for a 2.0% management fee and a 20% incentive fee, in each case, as to be set forth in further definitive documents.  The fund began trading Class A shares, which are not new issue eligible, on 23 September 2011.  Class A1 shares of the Fund, which are new issue eligible, were first issued on 1 November 2013, and returns from inception through October 2013 have been pro forma adjusted to match the fund's Class A1 performance.  AUM figure and net performance is as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.

(41) The Private Equity Vehicle noted is the Polygon Recovery Fund L.P. ("PRF").  The manager of the PRF is a subsidiary of TFG.  The management fees earned in respect of PRF are included in the TFG Asset Management business segment described herein.  PRF is a limited-life vehicle seeking to dispose of its portfolio securities prior to the expiration of its term.  PRF's term was extended to March 2018 with a potential further one year extension thereafter.  Individual investor performance will vary based on their high water mark.  Currently the majority of Class C share class investors have not reached their high water mark, so their performance is the same as their gross performance.  AUM figure and net performance is for PRF as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the fund reflects the actual net performance of the fund net of management and performance fees, as well as any commissions and direct expenses incurred by the fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.

(42) For additional information on the Company's CLO equity investments, including its buy and hold strategy, please refer to http://www.tetragoninv.com/portfolio/clo-equity.

Appendices

(43) Additional CLO Portfolio Statistics are not included this report, but may be reported from time to time in the future.

Appendix III

(44) TFM has determined that it will continue to grow TFG Asset Management, as TFG's diversified alternative asset management business, with a view to a planned initial public offering and listing of shares of TFG Asset Management in the next three to five years (referred to as the "IPO Strategy"). 

Appendix V

(45) (i) The Total Escrow Shares of 12.7 million consists of 6.8 million shares which have been used as consideration for the acquisition of Polygon and applicable stock dividends relating thereto, as well as 5.9 million shares held in a separate escrow account in relation to equity-based compensation.

(ii) The number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the Company's IPO with a strike price of $10.00, to the extent such options are in the money at period end.  At the reporting date, this was 0.0 million shares.  The intrinsic value of the manager (IPO) share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $10.00 (being the exercise price per share) times (z) 12,545,330 (being a number of shares subject to the options before the application of potential anti-dilution).  The terms of exercise under the options allow for exercise using cash, as well as, with the consent of the board of the Company, certain forms of cashless exercise.  Each of these prescribed methods of exercise may give rise to the issuance of a different number of shares than the approach described herein.  If the options were to be surrendered for their intrinsic value with the board's consent, rather than exercised, the number of shares issued would equal the intrinsic value divided by the closing price of the shares as of the final trading day in the relevant period.  This approach has been selected because we currently believe it is more reasonably illustrative of a likely outcome if the options are exercised.  The options are exercisable until 26 April 2017.

(iii) The number of shares corresponding to the applicable intrinsic value of the remaining unexercised options issued to the GreenOak Founders in relation to the acquisition of a 10% stake in GreenOak in September 2010.  At the reporting date, this was 0.9 million.  The intrinsic value of the GreenOak share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $5.50 (being the exercise price per share) times (z) 1,954,120 (being a number of shares subject to the options.

(iv) Certain Escrow Shares (6.8 million), which have been used as consideration for the acquisition of Polygon and applicable stock dividends relating thereto, and which are held in escrow and are expected to be released and incorporated into the U.S. GAAP NAV per Share over the next two years.

(v) Dilution in relation to equity-based awards by TFG Asset Management for certain senior employees.  At the reporting date, this was 0.4 million.  The basis and pace of recognition is expected to match the rate at which service is being provided to TFG Asset Management in relation to these shares.  See Appendix VII for more details.

(46) Equity-based awards are intended to give certain senior employees of TFG Asset Management long-term exposure to TFG stock (with vesting subject to forfeiture and certain restrictions).  See Appendix VII for further details.

Appendix VI

(47) TFG has and may also continue to engage in share repurchases in the market from time to time.  Such purchases may at appropriate price levels below NAV represent an attractive use of TFG's excess cash and an efficient means to return cash to shareholders.  Any decision to engage in share repurchases will be made by the Investment Manager, upon consideration of relevant factors, and will be subject to, among other things, applicable law and profits at the time.  The Company also continues to explore other methods of improving the liquidity of its shares.

An investment in TFG 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 TFG.

This release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

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 TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), 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. TFG 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, TFG 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. TFG is registered in the public register of the Netherlands Authority for the Financial Markets under Section 1:107 of the FMSA as a collective investment scheme from a designated country.

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SOURCE Tetragon Financial Group Limited