Paddy Dear - Co-Founder Paul Gannon - CFO Steve Prince - Head of TFG Asset Management David Wishnow - Founder and Principal, Polygon Credit Management LP

Good afternoon. Thank you for joining Tetragon's 2018 Half Yearly Report Investor Call. You are all in listen-only mode. The call will be accompanied by a live presentation, which can be viewed online by registering at the link provided in the company's conference call press release. This press release can be found on the homepage of the company's Web site, www.tetragoninv.com. In addition, questions can be submitted online while watching the presentation. As a reminder, this call is being recorded. I will now turn you over to Paddy Dear to commence the presentation.

Good afternoon. As one of the Principals and Founders of the Investment Manager of Tetragon Financial Group, I'd like to welcome you to our Investor Call which will focus on the company's half yearly results. Paul Gannon, our CFO will review the company's financial performance for the period; Steve Prince and I will talk through some of the detail on the portfolio and performance and Steve will spend some time discussing the outlook. As usual, we will conclude with questions both those taken electronically via our web-based system at the end of the presentation as well as those received since the last update. The PDF of the slides are now available to download on the Web site and if you are on the webcast directly from the webcast portal. I would like to remind everyone that the following may contain forward-looking comments including statements regarding the intentions, beliefs or current expectations concerning performance and the financial condition on the products and markets in which Tetragon invests. Our performance may change materially as a result of various possible events or factors. So with that, I’ll hand it over to Paul.

Thanks, Paddy. As usual, I’m going to provide some high-level comments on some of the key metrics that we continue to focus on. Steve and Paddy will then discuss some of the underlying dynamics for each of the business lines. So Tetragon continues to focus on three overarching main metrics. Firstly, we look at how value is being accumulated in the company via a NAV per share total return. Secondly, we also look at investment returns, measured as a return on equity. And lastly, we monitor how value is being returned to shareholders through distributions mainly in the form of dividends. So, firstly, the fully diluted NAV per share was $21.64 at the end of H1 2018. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the year was 4.4% for the first six months which compares to 9% for the full year in 2017. On a 12-month look back basis, the total return is 10.7%. Since IPO in 2017, the NAV per share total return of Tetragon is now 229%. For monitoring investment returns, we continue to use an ROE calculation, and for the first half of the year, this has been 5.2% which is net of old fees and expenses. Therefore, doing the simple math on an annualized basis this equates to approximately 10.4% which is within the target 10% to 15% return range. With reference to that target, the average ROE achieved since IPO remains at 12.3%. Later in the call, we will give more color as to how the specific asset classes contributed to the return this year. So finally moving on to the last key metrics, Tetragon declared a dividend of $0.18 for the second quarter which represents a rolling 12 months payout of $0.71. This is in line with a progressive dividend policy, which targets the payout ratio of 30% to 50% of normalized earnings. And based on the June month end share price of $12.40, this represents the year would have approximately 5.7%. So now onto what we call the NAV bridge. This breaks down into its component parts. The growth of Tetragon’s free diluted net per share which was $21.08 at the start of the year and we traced that through to the end of the period where it was $21.64. Investment income contributed $1.51 per share and Steve will give you more color on that later in the call. Operating expenses and management fee reduced NAV per share by $0.39 with a further $0.02 per share reduction due to interest expense. On the capital side, gross dividends reduced NAV per share by $0.36. Finally, there was a net dilution of $0.18 per share which is labeled as other share dilution. This bucket primarily reflects the impact of dilution from stock dividends, plus the additional recognition of equity-based compensation shares. That completes the summary of the key metrics. And I'm now going to hand back to Paddy.

Thank you, Paul. Before we go into more detail on the first half numbers, I think we should put the first half performance that Paul has just gone through in the context of the longer term. Tetragon began trading in 2005 and became a public company in April 2007. Since that IPO, the NAV per share has more than tripled on a total return basis. The original $1 billion at IPO is now roughly $2.1 billion of NAV and an addition of approximately $1.2 billion have been returned to shareholders by dividends and share buyback. This chart shows the NAV per share total return which is the thicker line and the share price total return which is the dash line. The chart also includes the equity indices for MSCI and FT All Share and the Tetragon hurdle rate of LIBOR plus 2.65. This number may seem a little peculiar but the hurdle was originally 8% and that LIBOR plus 2.65 at the time and the hurdle was adjusted to being LIBOR dependent, so as to make the performance fees proportional to the outperformance and independent of movements in LIBOR. Here’s a slide in a format many of you will recognize from previous calls and in our half yearly report and annual report. The return on equity or investment return target is 10% to 15% over the cycle and the average return, as Paul said since IPO, is 12.3%. So putting the first half in perspective with the first half performance of 5.2% annualizing at approximately 10.5% and that is within that range, and so we’re pleased with that first half performance; firstly in the broader historical context, and secondly with respect to markets over the first half of the year. The last figure on this table shows that 27% of the public shares are owned by Principles of the Investor Manager and TFG Asset Management employees, and we believe this is a very important number as it demonstrates a strong alignment of interest between the Manager, TFG Asset Management employees and Tetragon’s shareholders. The colored discs on this slide show the breakdown of our asset classes and strategies as of the end of the first half on the right and then compares them with the year-end numbers at the end of 2017 on the left. While asset allocation has not changed meaningfully since year-end as is to be expected from long duration assets, it is worth noting that our investments in asset management companies for our private equity stakes as known as TFG Asset Management is now the largest category due to the strong performance in the first half of the year. So moving on to the net asset breakdown, the NAV bridge that Paul showed was a high level overview of the NAV per share. What this table does is it shows a breakdown of the composition of that NAV moving from the 31st of December 2017 through to the 30th of June 2018 and the factors contributing to the changes in NAV. Thus this table shows investment performance plus capital flows and so ties it back to that change in NAV. As you can see from the bottom row of the table, investment performance under the label gains and losses generated 144.6 million of gross returns for the first half. All asset classes were positive with the single exception of the hedge fund investment where there was a net loss of $2 million driven by the losses in the distressed opportunities. Now let’s to move to a little more detail on each category and first I’ll hand over to Steve to discuss TFG Asset Management which is our private equity investment in asset management companies.

Thanks, Paddy. Our investment in private equity in asset management companies or TFG Asset management, as Paddy mentioned previously, represented the largest asset class in the portfolio at the end of the first half. It produced 72.5 million of gains during the period. The primary driver of these gains was GreenOak which increased in value by 44.1 million reflecting strong performance of the business. In April, GreenOak Europe Fund II held its final close totaling £656 million of equity commitments and exceeding its target of £500 million. Equitix was the second highest contributor in this segment with a positive contribution of $13 million. The value of Equitix increased due to a combination of interest accruing on Tetragon’s debt funding and an increase in valuation driven by improved capital raising projections with respect to Fund V which had its first close in early July. LCM recorded a gain of close to 10 million, nearly all due to valuation gains. The business continued to perform well, as LCM continues to issue deals and raise capital, with a lower than market average default rate. LCM’s EBITDA for the period was ahead of forecast. Other gains and losses within TFG Asset Management were nominal but I would like to mention the $3 million gain in TCIP, driven by the incorporation into the valuation of the first close of $255 million for TCI III vehicle which had its first close in December. TCIP is now valued at 10.4 million on our balance sheet and serves as a good example of the value we can create through, in this case, ceding new asset management businesses. At the end of the first half, TFG Asset Management managed 26 billion of client capital compared to 23 billion at the end of 2017. AUM growth was mainly driven by LCM and GreenOak. In the first half of 2018, TFG Asset Management’s EBITDA was17.3 million, down slightly compared with the same periods in 2017 and 2016. In spite of this reduction, the quality of income on both an absolute and relative basis continued to improve with management fees growing to 69% of total income compared to 59% in the first half of 2017. It is also worth noting that for the first time, GreenOak’s contribution has been captured by including the distributions that it has made to Tetragon. Paddy will now go over our hedge fund investments.

Thank you, Steve. Tetragon invests in event-driven equities, convertible bonds and quantitative strategies through hedge funds. At the end of June, three of these four investments are through Polygon-managed hedge funds with the fourth being through QT, an external manager. The European even-driven strategy was profitable despite volatile European equity markets, mainly due to investments in M&A trade. The convertible bonds strategy was also slightly profitable, despite a negative event in one of their distressed positions during the period. And as you can see, the losses in hedge funds that I alluded to earlier was due to the distressed opportunities strategy. That fund has now returned all of its capital to investors and is now closed. Moving on to bank loans. This asset class generated $12 million of gains during the first half. In the first half, further spreads tightening in the underlying bank loan assets – sorry, in the first half we saw further spread tightening in the underlying bank loan assets in the CLO investment portfolio. The average asset spread was 309 basis points over LIBOR and that compares with 313 basis points at year end. But equally, credit losses remained low with Tetragon’s trailing 12-month loan default rate for its directly held CLO investments ending the first half at 1.7% and that compares to the broader U.S. market’s default rate of 2%. During the first half, Tetragon made add-on investments in the equity tranche of two LCM-managed CLOs that were reset, i.e. restructuring of an existing CLO that refinances its liabilities and increases the duration of the reinvestment period and structure. And in addition, Tetragon made a small investment in the minority of the equity tranche of a LCM managed CLO. TCI II had a successful partial refinancing of the debt tranches of one of its CLOs which, all things being equal, increased the cash generation ability of that CLO’s equity tranche and we believe TCI II may seek to refinance additional transactions during the second half of 2018. As regards to TCI III, Tetragon’s current commitment is $65 million, which at this point is undrawn. Overall, we continue to view CLO as an attractive tool to gain long-term exposure to the bank loan asset class. And furthermore we believe that taking majority equity positions may allow Tetragon or TCI II or TCI III to enhance returns by controlling optional redemptions, refinancings, indenture amendments, and other certain CLO structural features. So moving now to real estate, Tetragon continues to holds most of its investments in real estate through GreenOak-managed funds and co-investment vehicles. The majority of these GreenOak funds are private equity-style funds concentrating on the opportunistic investments targeting middle-market opportunities in the U.S., Europe and Asia, predominately Japan, where GreenOak believes it can increase value and produce positive unlevered returns by sourcing off-market opportunities where it sees pricing discounts and market inefficiencies. The real estate investments collectively generated about $30 million of gains during the first half and the main drivers of the performance, as you can see from the table, were GreenOak Asia funds and co-investments, the GreenOak European funds and co-investments, and what in the table is called other real estate which is an investment in farmland in South America, the latter of which below valuation by an independent valuation specialist. And now I’ll hand back to Steve to talk on the portfolio.

Thanks, Paddy. Moving on to our private equity investments, the company’s private equity investments are divided into two sub-categories; direct investments and funds or co-investments where Tetragon invests either as an LP in a fund or as co-investor in a particular strategy, typically private equity deals. Investments generated net income of $8 million during the first half. Currently, direct investments comprise several investments in growth companies in North America, one of which was added in the second quarter of 2018. There are a number of investments within the second subcategory, funds and co-investments. Excluding Hawke’s Point, which is in the subcategory, roughly 90% of the capital is invested as co-investments with four managers. The remainder of the capital is invested as LPs. Two of the four external managers focus on the technology sector while the third focuses on key privates in the UK and another on secondary. This segment generated a small loss year-to-date. Moving on to other equities and credit, our direct balance sheet investments in the other equities and credit category produced gains of over 20 million during the first half, continuing the strong performance seen in 2017. Tetragon’s investments through externally managed vehicles and through managers within TFG Asset Management often provide the investment manager with either discrete investment opportunities or unique investment insights. Within the other equities category, this segment generated gains of 29.5 million, with all but one of seven investments generating positive returns. These investments comprised European and U.S.-listed public equities. The other credit category generated a loss of 8.9 million in the period, with one of two of the investments in this segment giving back all the gains that it had made in 2017. This position, a distressed credit trade, has since been sold. Within the cash category, Tetragon’s net cash balance at the end of the first half was 349 million. Prospective cash commitments are about 269 million and they comprise hard and soft investment commitments to GreenOak 118.7 million, Hawke’s Point 69.5 million, TCI III 65 million and third party managed private equity funds of 9.1 million. Tetragon has a $150 million revolving credit facility in place, of which $38 million has currently been drawn. Before we get to questions, I’m going to end with our future investment expectations. I’ll go through a few of our expectations but it’s always worth pointing out that one of our advantages is our ability to be opportunistic as it relates to investing and what we see is the most compelling investment opportunities. For TFG Asset Management, we have no new businesses to report. Notwithstanding that, this remains the largest unknown in terms of cash requirements. In event-driven equities and convertible bonds we expect our event-driven equities exposure to remain stable and our exposure to our convertible strategy to increase somewhat over time. Within CLOs, our CLO 1.0 positions which are pre-priced at CLOs will continue to amortize, but we expect to continue to invest in CLOs through TCI III and hopefully TCI IV and beyond at the rate of approximately 50 million to 100 million per year. Within real estate, we’ve made commitments to GreenOak, as previously mentioned, and we expect to be drawn on 25 million to 100 million of capital over the next 12 months. As always, the timings of capital returns are less certain. Within the private equity bucket, we expect this category to grow over time. There are a few additional LP commitments also as mentioned we have yet to fund and we expect the Hawke’s Point allocation will continue to grow under our capital commitment to this business. Lastly, the other equities and credit bucket is a bucket similar to TFG Asset Management. We expect to continue to invest in these opportunities but the timing and magnitude of those investments is less certain. With that, we’ll move on to questions.

Thanks, Steve. So as mentioned, I will get started with the Q&A. A couple of questions here on cash balances and Dutch tenders and share buyback. And first one, as a long-term shareholder, I appreciate how you opportunistically repurchase shares at large discount to accrete value to shareholders. With the discount over 40% now seems like another good opportunity. Would you consider another tender if the discount remains at these elevated levels? And on a similar topic on the subject of capital allocation, the question reads can you discuss the cap you need to retain in order to fund commitments versus the possibility of another Dutch tender at some point? I think the first thing I would say is that we often look at – I guess we always look at buying back shares as a potential use for cash and we do compare it along with our rather known commitments which I think as Steve summed up pretty well, plus a desire to keep cash for opportunistic investment which obviously by their nature one can’t plan for. But yes, we certainly agree with the statement that the larger the discounts NAV, the more accretive the buybacks are for NAV per share. And therefore the discount is an important factor that we taken into account when looking at buybacks. I can’t comment obviously on specifics but I would point people to the bar chart in the annual report that does show the buybacks – the money that has been spent on buybacks over the life of the company and I think I’m right in saying that to-date it’s about $600 million that has been spent on share repurchases. There were some questions here on CLOs. Maybe let’s do – we’ll do one or two on CLOs. Firstly, can you comment on how elevated LIBOR rates and declining loan spreads are reflecting the economics of your CLO investments? And secondly -- maybe I’ll categorize them altogether and then hand over to David. The media has reported about a rush to CLOs by investors. How has the CLO book benefitted from this? And thirdly, there’s another one here, given the rolling of high yield ETF, the rise in LIBOR, have you seen an increase in default rates? So maybe, Wish, I could hand over to you for those.

Thanks, Paddy. So let me take each of these. Firstly, in regards to the question on elevated LIBOR rates, clearly, the assets and liabilities on the CLO structure are matched funded but there is a stub component on the equity piece that we control through our CLO equity investment. So given that this increasing in LIBOR rates, one would expect that your returns on you CLO equity position would also increase. In regards to declining loan spreads, declining loan spreads tend to have a negative effect or adversely affect overall CLO equity returns. Having said that, when you have declining loan spreads you tend to be in a period of time where you also have reduced defaults in your portfolio. So they do tend to offset. After a brief sort of one to two-year non-refinance period you also have the ability to refi or reset those deals and thereby increasing your net interest margin. So that brings back – that will tend to increase your net interest margin and correspondingly better the CLO equity return. In regards to media reports for rush to CLOs by investors and how this has benefitted your business, I’d say the following. You sort of have a few different investor constituents. So in one sense, the advent or the increase in risk retention vehicles; single manager, CLO equity funds; multi-manager, CLO equity funds, what has happened is that the institutional investors have now been able to access the CLO equity investments in a more efficient fashion. So there’s definitely been an increase, and from a firm perspective that has helped us as we’ve raised funds in that manner. You’ve also seen it increase in investors that are participating in the debt stack of CLOs. So that will tend to help our overall financing costs on the CLO structures and can also benefit us as CLO equity investors. In regard to the question given the rolling of high yield ETF and the rise in LIBOR, have you seen an increase in default rates? The short answer is no. We, as a firm, have experienced 1.7% defaults on our portfolio, the markets at 2%. So we continue to outperform on that basis and we have seen no increase in default rates. I’ll hand it back to you, Paddy.

Thanks, David. One more on CLOs which I think is probably best for Paul. How has Tetragon’s proprietary CLO group performed this year from an absolute return perspective and what are the IRRs of the current portfolio?

Thanks, Paddy. So the directly held CLO portfolio is discounted at a rate of 10% for 1.0 deals, 11% for 2.0 deals and at [indiscernible] unseasoned or newer deals which is currently an average of around 11.8%. So if the deals perform as modeled, then this will be the return which is generated. During H1, there were some headwinds primarily from some tightening and that contributed to the actual returns being lower than what you would have expected from the IRR perspective.

Thanks, Paul. Just while we’re staying, there’s a theme of CLOs, there’s one of LCM – sorry, has LCM raised additional capital benefitting from investor CLO interest? I think Steve obviously covered LCM’s asset rating and there are details in the semiannual report. So certainly LCM has increased its AUM not just in the first half of this year but actually through the last couple of years, and obviously some of that will be as a result of investor interest as specified by the question. Okay, so moving on from CLO, just one here on currency hedging. The question reads, are you currently hedging the currency exposure of your non-U.S. dollar denominated investment? And if so, are you seeing any benefits from positive carry in the forward curve?

So, yes, the answer there is quite simply is that we hedged – we hedge against all non-U.S. denominated investments. Our currency hedging activity is actually very basic primarily involves simultaneous spot and forward transactions which are typically struck from a duration of three months to a year at which point we roll the hedge. So we aren’t out there taking any sort of duration risk and therefore we’re not seeing any of those benefits.

Moving on to some more sort of generic questions about TFG Asset Management. What is the pipeline for new managers look like, if any, and have you started to incubate any additional managers or strategies? I think the only thing I can report at this time is that there are no new managers or strategies that we have to report on. But as is normally the case, we have multiple conversations in hand that could change at any time. But just to reiterate, nothing to report on at the moment. A question on Hawke’s Point saying, Hawke’s Point has been a sluggish contributor yet commitment is large. Can you reduce the commitment size until they show significant traction so TFG can use that capital for more accretive purposes? So just firstly to be specific, the dollars that we have allocated or earmarked to potential Hawke’s Point investments which have been $100 million in total are a soft commitment to-date, and that is to say we have the ultimate final on any investment that is made within Hawke’s Point. So in a way to that end, the funds are fully fungible and flexible. But perhaps a bit more comment on the business itself. We believe that the business is progressing well, albeit admittedly at slower rates than we’d hoped. But I think as any follower of the gold market is aware, it’s not too surprising that it’s been sluggish over the last few years. We hope that Hawke’s Point will progress to taking an external capital and obviously at that point, Tetragon’s commitment will likely become a firmer commitment but also furthermore at that point if they do take in capital successfully, then that we’d expect to be accretive for Tetragon in terms of ownership of the business. Staying with TFG Asset Management, how do you value your asset management investments? Is it at a discount to a listed peer group? I think Paul is probably best for that.

Sure. Actually I would like to point the people to – to Note 4 of the financial statements [indiscernible] financial statements because we do include quite a bit of information there on the valuation of the asset management business. But simply to answer the question, the answer is yes. There is a discount for lack of liquidity which is applied against listed peers and that ranges from 15% to 20%.

Asset management growth has been very impressive at TFG Asset Management. Could you comment on, one, the weighted average fee charge on AUM and TFG Asset management; and two, the ratio of staffing costs, operations, employees, admin to fee income which seems a little high compared to listed peers? So I don’t have specific answers to either those two questions but I suppose the first point to make is as people are aware with TFG Asset Management whilst we report on it collectively, each business is to some degree run autonomously, they’re run under separate brands and they have different fee charging models in line with their peer group. All of them have a management fee and performance fee as is the norm with alterative assets. And we do expect a lot of the net income arrive from performance fees. So although I don’t have a specific answer to a weighted average fee charge on AUM, I think it is important to see that as the backdrop. The second question talks about ratio staffing costs, et cetera, to fee income. And again, we see this as not surprisingly bearing hugely across the different businesses. At one end of the spectrum you have the early start-up businesses like Hawke’s Point or TCI where obviously costs run ahead of income and so you’re in a negative part of a J curve. And you then have the – those that have come through the J curve and are profitable businesses, like GreenOak or Polygon and then you have sort of relatively more mature businesses like an Equitix or an LCM. They obviously all through those phases have a different ratio of – you’d expect a different ratio of operating cost to income and therefore looking at the average blended rate is not the way we would look at the business ourselves. Staying with TFG Asset Management, sources say that there’s an experienced CLO investor who will be joining the Tetragon team. Who is it? I mentioned this because it’s been in the press today and we’ve obviously seen what’s in the press. But as we have noted in that press comment, we can’t comment at this time. And sticking with TFG Asset Management equity, Funds V, can you give an indication of that success just on raising capital for this product? And I think I’m afraid the answer to that is no comment. They’re currently in the market raising money for that private fund. So no, we can’t comment on that at the moment. And another one that do you think that a 7% discount rate used to value day J lift [ph] is too high and thus it became undervalued? Is there recent cost for the wider UK listed infrastructure sector? So, again, given that it’s the last transaction, we can’t comment on that. A couple of questions here about the other equities section. Can you shed a bit more light on the gain in other equities? Would it be possible to get full transparency? And another question saying, can you shed some light on other equities and credit asset classes? And the simple answer is that we don’t give full transparency on these positions and in fact we believe that many or most cases there’s a proprietary element to those, so that’s the reason we don’t. I can say that with regard to the current book in other equities, there are seven public equities positions, so fairly diversified. They are quoted in either U.S. or Europe and they’re across a number of industries and geographies. So that will give you a little bit more color on those. So moving to other parts of the portfolio, with regard to farmland investment, what is the business model, renting out the land, capital gain land value, operating the land, et cetera? So the farmland we own in Paraguay is run by a specialist asset manager in the region [Technical Difficulty] taking is to buy farmland that had predominately cattle, to irrigate the land, invest in the land and move it to having rice and soya. And then renting it out with the view therefore to not take – we are not taking the operating risk of running the farming. And the objective obviously then is to sell the land over the next few years. So that’s the high level objective there. I think we’ve got – there are a couple more questions and I apologize if we haven’t got to everyone’s questions. But what I think best given the timing is we follow up with people individually. So if you’ve had a question that we haven’t got to yet, I apologize but not to worry we’ll come back to you individually and catch up on those. But thanks very much everyone for joining. And as I stated, to reiterate, if you didn’t have a question answered, we’ll then definitely get back to you in the next few days. So thank you very much for joining us. And that will conclude.

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.