Tetragon Financial Group Limited (TFG) Earnings Call Transcript & Summary

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 2021 first half 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 of the portfolio and the performance, and Steve will spend time discussing the outlook. As usual, we will conclude with questions, those taken electronically by our web-based system at the end of the presentation, as well as those received since the last update. The PDF of the slides are now available to download on our website, and if you're on the webcast, directly from the webcast portal. Before I go into the presentation, just a few reminders. First, Tetragon's shares are subject to restrictions on ownership by U.S. persons and are not intended for European retail investors. These are both described on our website. Tetragon anticipates that its typical investors will be institutional and professional investors who wish to invest for the long-term and the capital appreciation and income-producing investments. These investors should have experience in investing in financial markets and collective investment undertaking and be capable themselves of evaluating the merits and risks of Tetragon shares. And they should have sufficient resources both to invest in potentially illiquid securities and to be able to bear any losses, which may equal the whole amount invested, that may result from the investment. I'd like to remind everyone that the following may contain forward-looking comments, including statements regarding the intentions, beliefs or current expectations concerning performance and financial condition on the products and markets in which Tetragon invests. Our performance may change materially as a result of various possible events or factors. So with that, I'd like to pass over to Paul.

Thanks, Paddy. Tetragon continues to focus on 3 main metrics. We look at how value is being created via NAV per share total return. We also look at investment returns measured as a return on equity. And we monitor how value is being returned to shareholders through distributions, mainly in the form of dividends. The fully diluted NAV per share was $26.38 at the 30th of June 2021. After adjusting for dividends reinvested at the NAV, the NAV per share total return for the first half of the year was flat, 0%, which compares to down 1.9% for the same period in 2020. For monitoring investment returns, we use an ROE calculation, which was a positive 1.5% for the first half of the year, net of all fees and expenses. With reference to that target, the average ROE achieved since IPO is 11.8%, which is within our target range of 10% to 15%. Later in the call, we'll give more color as to how the specific asset classes contributed to the return this year. Finally, moving on to the last key metric, dividends. Tetragon declared a dividend of $0.10 for the second quarter, which represents a dividend of $0.20 for the year-to-date. Based on the share price at 30th of June of $9.62, the last 4 quarters dividend represents the yield of approximately 4.2%. Finally, on to the NAV bridge. This breaks down into its component parts, the change in Tetragon's fully diluted NAV per share from $26.57 at the end of 2020 to $26.38 per share at 30th of June 2021. Some of the highlights. Investment income increased NAV per share by $0.79 per share. Operating expenses, management and incentive fees reduced the NAV per share by $0.35, with a further $0.03 per share reduction due to interest expense incurred on the revolving credit facility. On the capital side, gross dividends reduced NAV per share by $0.20. And there was a net dilution of $0.40 per share, which is labeled as other share dilution in the bridge. This bucket primarily reflects the impact of dilution from stock dividends plus the additional recognition of equity-based compensation shares. With that, I will now hand back over to Paddy.

Thanks, Paul. As on previous calls, I like to put the company's first half performance in the context of the long term. Tetragon began trading in 2005 and became a public company in April of 2007. So the Fund has roughly 16 years of trading history. This chart shows the NAV per share total return, which is the thick line at the top, and share price total return, which is the dashed line. And the chart also includes equity indices: the MSCI, All-Share, and the FTSE All-Share. And it also includes a Tetragon Hurdle rate of LIBOR plus 2.65%. As you can see, Tetragon has returned 332% since IPO on a NAV total return basis, so over a 4-fold increase in the value since IPO. The last 6 month return of 1.5% return on equity compares with about 11.1% for the FTSE All-Share and 12.5% for the MSCI World Index. So equity markets had a strong first half of the year, and Tetragon, on a comparative basis, has had a quiet first half with only a small positive performance. Moving on, but continuing the theme of looking at the long term, here are some more performance metrics. Our return on equity or investment return target is 10% to 15% per annum over the cycles, and the average return since IPO is 11.8%. Notwithstanding the last few months' inflation numbers as the world tries to emerge from COVID-induced lockdowns, and also the volatility that was created in longer-dated bonds, risk-free interest rates still remain very low. The implication being that we should naturally expect all risk assets to return at the lower end of long-term expectations. And as with respect to Tetragon, this means ex-ante that our return expectations are at the bottom end and possibly even lower than the 10% to 15% range that we expect over the cycle. The last figure I'll point to on this table shows that approximately 35% of the public shares are owned by principals of the Investment manager and employees of TFG Asset Management. And we believe this is a very important number as it demonstrates a strong belief in what we do, as well also a strong alignment of interest between the Manager, TFG Asset Management employees, and of course Tetragon shareholders. So moving on. This next slide shows the composition of Tetragon's assets. So it looks at the breakdown of the $2.5 billion of net asset value. The colored disks show the percentage breakdown of our asset classes and strategies as of the 30th of June 2021, and that is on the right-hand side. And that compares them with year-end 2020 on the left-hand side. There are only some small changes, but the ones I'd like to point out are TFG Asset Management has grown to 35%, and that's up from 34%. And as we'll discuss, a lot of that is due to continued growth in assets under management for these businesses. The second I would note is private equity and venture capital has moved up to 17% from 16%, and that's mainly due to new third party LP investments made. And the third point of note is net cash is now down below 0. And Steve will talk more about that later. So now let's move on to discuss the year's performance or the first half performance in more detail. The NAV bridge that Paul showed was a high-level overview of NAV per share. What this table shows is a breakdown of the composition of Tetragon's NAV at the end of the first half 2021 and compares it to the end of 2020. And does that by asset class and also the factors contributing to both those changes in NAV. So it shows investment performance plus capital flows, and that then ties back to the change in NAV. As you can see from the bottom row of the table, the aggregate investment performance, labeled gains and losses, generated a gross profit for the period of $74 million. Specifically, TFG Asset Management, our private equity holdings and asset management businesses, had gains of $65.2 million and was the strongest performing asset class, as you can see. And these asset management businesses continue to perform well. I mentioned the growth in AUM. And at the end of the half, that was $32.8 billion in client dollars, and that was up from approximately $30 billion at year-end. So a strong first half. Secondly, event-driven equities, convertible bonds and other hedge fund strategies had a positive contribution of $16.3 million. The main Polygon funds had positive net returns in the first half in part due to continued robust convertible bond issuance, but also as we've discussed, a strong backdrop for equity markets. Thirdly, bank loans. And these are investments in CLOs. These generated a gain of $29.7 million, primarily as credit fundamentals continue to improve from their COVID lags. Real estate lost $1 million overall. Our losses in U.S. real estate funds were nearly offset by gains both in Asia and our Paraguayan farmland. First item here, private equity and venture capital. In aggregate, this lost $4.9 million in the first half. The losses were driven by Hawke's Point investments. These are unrealized losses, i.e., a mark-to-market basis, and partially driven by softer gold prices over the second quarter. But these losses were partially offset by gains in other funds and co-investments, including Banyan Square Partners and our investments in direct private equity. And finally, other equities and credit lost $31.5 million over the first half. These were -- the losses were all in equities with a small gain in our credit investment. And now what we'd like to do is go -- delve down and give you more detail on each of these categories. So we'll start with TFG Asset Management, and for that, I will pass over to Steve.

Thanks, Paddy. Our private equity investments in asset management companies through TFG Asset Management represented the largest and strongest performing asset class in the portfolio at the end of the period. They produced gains, as Paddy said, of $65 million, driven primarily by Equitix. Equitix produced gains of $29 million in the first half, primarily driven by the rate at which the company has continued to increase capital raised and deployed, which in turn flows into the business model. Assets under management increased by approximately GBP 340 million during the first half of the year. The valuation gain was tempered by the expected increase in the future U.K. corporate tax rate. TFG Asset Management investment in LCM gained $18.5 million during the first half, the second best performing investment. LCM launched 2 new CLOs during the period, which increased its AUM to $9.5 billion. In addition, a discount -- a decrease in the discount rate applied to the discounted cash flow model, and an increase to approximately 3% in the market multiple utilized in the price to AUM valuation approach, also contributed to the increased valuation. While gains amongst our other asset managers were more modest, I want to share a few of their notable developments. BentallGreenOak. Despite the ongoing challenges of COVID-19, the business continued to grow AUM, and full year 2020 results exceeded the original plan. There were pre-tax distributions to TFG Asset Management of $10.7 million, reflecting a combination of fixed quarterly contractual payments, variable payments and carried interest. This investment is valued using the present value of the various cash flow elements of the BentallGreenOak merger deal, which comprises those 3 elements, plus a call option, as well as Tetragon's share of co-investments. The investment in Polygon recorded a gain of $7.9 million during the first half, which reflects both the positive performance generated by the 2 main hedge funds as well as some additional capital raised. The value of Tetragon Credit Partners increased by $1.5 million in the first half, mainly due to an increase in the projected carry payable by Tetragon Credit Partners funds as the CLO market continued to recover. Its most recent vehicle, TCI IV, had its second close in July, and this will be factored into the Q3 2021 valuation. Tetragon's investment in Hawke's Point recorded a loss of $0.9 million during the period. Tetragon's investment in Banyan Square Partners was valued at $0.8 million, unchanged from the end of the year. Lastly, Tetragon's investment in Contingency Capital has not yet been valued by a third party valuation specialist. Contingency Capital began to raise capital for its commingled fund during the first half. At the end of the first half of 2021, TFG Asset Management's EBITDA was $27.5 million compared to $37.8 million for the same period in 2020. Whilst total income grew 8% when compared to the first half of last year, operating expenses increased at a faster rate. Management fee income grew by $3.0 million. Whilst core recurring management fees in Equitix continued to grow strongly, the management fee line in 2020 was positively impacted by a material one-off fee, which makes this growth less apparent. Performance and success fees grew by $1.4 million, with increases in performance fees being largely offset by a decline in Equitix, primarily -- primary income recorded during the period. Other fee income grew year-on-year and comprises income generated by Equitix on management services contracts, which is known as the EMS business, and certain cost recoveries from Tetragon related to seeded Polygon hedge funds. Operating expenses increased by $13.9 million versus the first half of last year. There were 3 main drivers for the increase in expenses with the primary one being an increase in head count as existing businesses added additional investment and operational capability. Secondly, there were increased expenses associated with the setup of Contingency Capital with the expectation that this will start to bear fruit as capital is raised and invested. Finally, businesses with operations in the United Kingdom saw their cost rise in U.S. dollar terms as the average spot rate between the periods increased by approximately 10%. Paddy will now go over hedge fund investments.

Thanks, Steve. Tetragon cost invests in event-driven equities, convertible bonds and other strategies through hedge funds. And the majority of these investments are through the Polygon managed hedge funds. Investments in the Polygon European event-driven strategies were up $6.7 million across the 3 different trading strategies, as you can see in the chart. Our investment in the Polygon convertible bond fund made $9.7 million in the first half. And as I mentioned, the first half was a strong period for convertible bond issuance, so it continued at that record level pace, which was obviously positive for our performance. And during the period, we redeemed $25 million from EEOF and ELB, so the 2 top funds there. And made a small new investment into a third party hedge fund as shown in the bottom line of this chart. Next, we move on to bank loans. Tetragon predominantly invests in bank loans through CLOs and predominantly by taking majority positions in the equity tranches. Tetragon's investments are split, as shown here, between LCM deals, non-LCM deals and funds managed by Tetragon Credit Partners. So as you can see in aggregate, our bank loan exposure recorded a gain of $30 million for the first half, and this is as credit fundamentals continue to remain healthy and supportive of CLO investments. Specifically, our directly owned LCM CLOs generated $13.4 million of profit during the first half. And fair values benefited from, as I say, the sustained improvement in the underlying loan fundamentals, but also the recalibration of certain modeling assumptions used to value positions that take into account the strong recovery in economic conditions. These investments also returned $13.8 million of cash to Tetragon during the first half. Tetragon also purchased securities in 2 new LCM deals during the first half for a total of $18.6 million between them. There was a majority stake in the equity tranche of LCM 31, and a 5% interest in each tranche of LCM 32, a European risk retention-compliant U.S. CLO. Tetragon's investments in vehicles managed by TCP, or Tetragon Credit Partners, generated profits of $13.4 million. And similar to the LCM deals, this was driven by sustained improvement of the underlying loan fundamentals as well as the recalibration of certain modeling assumptions. During the first half, we completed refinancing in 3 CLO transactions. And this reduced the interest cost of debt and increases the cash flow generation ability both equity investments. In the first half, these TCP investments returned $19.7 million of cash income to Tetragon. We also closed the TCP Opportunity Hedge Fund in the first half, with both principal and profits being returned to investors. And this was as the dislocation in prices that it was established to take advantage of during the crisis last year had subsequently been reversed in the market, and therefore, that opportunity is played out. And finally, the non-LCM managed CLO segment generated a gain of $2.9 million and distributed $2.1 million of cash income during the first half. Next asset class is real estate. And as a reminder, Tetragon holds most of its investments in real estate through BentallGreenOak managed funds and co-investment vehicles, as you can see here on the chart. The majority of these are private equity style funds concentrating on opportunistic investments, targeting middle market opportunities in the U.S., Europe and Asia where BentallGreenOak believes it can increase value and produce positive unlevered returns by sourcing off-market opportunities where it sees pricing discounts and market inefficiency. You can see in the first half that European investments had a small loss of $0.3 million. Investments in the U.S. funds lost $9.7 million, and this was driven by revaluations in properties held in U.S. Fund II. And these are really due to where the fund has exposure to some hospitality and commercial assets in New York City and L.A., in particular. You can see that the Asian funds had a small gain. And the other real estate bucket increased in value by $6.7 million, and this is our commercial farmland in Paraguay, managed by Scimitar, a specialist manager in South American farmland. And during the first half, the farmlands were revalued by an independent valuation specialist. So with that, let me hand you back to Steve.

Thanks, Paddy. I'm going to talk about Tetragon's private equity and venture capital investments. So Tetragon's private equity and venture capital investments are split into the following subcategories: 1, investments managed by Hawke's Point; 2, investments managed by Banyan Square Partners; 3, other funds and co-investments where Tetragon invests in a non-affiliated fund as a limited partner or in a special purpose vehicle as a co-investor; and finally, 4, direct. Those are investments that comprise direct private equity investments on the balance sheet, and those also include venture capital investments. This entire segment generated losses of $4.9 million during the first half. Starting with Hawke's Point. Tetragon's mining finance investments, managed by Hawke's Point, generated a loss of $38.3 million during the first half, driven by softness in the gold mining sector associated with a decline in the gold price. Hawke's Point continues to actively seek and progress new opportunities. In fact, Tetragon invested $6.0 million into a new co-investment vehicle managed by Hawke's Point during the first half of the year. Next, Banyan Square Partners. Banyan Square Partners investments made gains of $2.5 million during the first half of the year. As of the 30th of June, these comprised 5 positions. Capital called during the period was $9.5 million. Within other funds and co-investments, through the first half of the year, Tetragon's allocations to investments in private equity funds and co-investment vehicles in Europe and North America generated $17.5 million in gains. Capital called by these various investments during the period totaled $14.3 million. Finally, the direct category. And this category currently hold 2 pre-IPO positions, including the investment in the Ripple Labs Series C preferred stock. During the first half of the year, it generated gains of $13.4 million, reflecting the accelerate -- the accretion of the Series C preferred stock dividend. Our direct balance sheet investments in the other equities and credit category produced losses of $31.5 million during the period. Our other equities bucket generated losses of $34.3 million. These investments comprised European and U.S.-listed public equities in technology, biotechnology and the financial services sectors. The other credit bucket generated a small gain of $2.8 million during the first half. Finally, going to talk about Tetragon's cash position. You can see that at the bottom part of this chart. Tetragon's net cash balance, which is cash adjusted for known accruals and liabilities, short and long-dated, was negative $93.9 million as of the half year mark. Tetragon has in place a 10-year $250 million revolving credit facility. As of June 30, $150 million of this facility was drawn, and this liability has been incorporated into the net cash balance calculation. The company actively manages its cash levels to cover future commitments and to enable it to capitalize on opportunistic investments and new business opportunities. During the first half, Tetragon used approximately $170 million of cash to make investments and $12 million to pay dividends. $136 million of cash was received as distributions and proceeds from the sale of various investments. Future cash commitments are approximately $200 million. They comprise hard investment commitments to BentallGreenOak funds of $52 million; private equity funds of $27 million; Tetragon Credit Partners funds of $11 million; Contingency Capital funds of $25 million; and a working capital loan to Contingency Capital of $10 million. There's also soft investment commitments, and those included commitments to Banyan Square Partners of $51 million and Contingency Capital of $25 million. I'm going to now turn to the following table, which lays out some of our expectations for the overall portfolio resulting from those various cash flow moves that I just discussed. Going to go through some 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 in what we see as the most compelling investment opportunities. Our outlook has not changed much since the start of the year. As you're no doubt aware, we launched Contingency Capital with Brandon Baer at the end of 2020, and Tetragon made a $25 million commitment to its commingled fund in June. Beyond that, this remains the largest unknown in terms of cash requirements because we remain very opportunistic as it relates to deals, that being TFG Asset Management as a whole. We expect our event-driven equity exposure and our exposure to our convertible strategy to remain relatively stable, subsequent to our $25 million redemption from our Equity Opportunity Fund and the Long Bias Fund. Speaking of -- turning to CLOs, our pre-crisis CLOs are now fully amortized. But we expect to invest in CLOs via various Tetragon Credit Partners vehicles, while at the same time receiving cash back from some of their initial funds. In terms of the BentallGreenOak funds, we have various commitments to them, but we also expect some of our existing investments to continue distributing capital. So on the whole, we would expect our real estate investments to be relatively stable over the next 12 months. In terms of our private equity allocations, we expect them to grow over time. There are a few small additional LP commitments we have yet to fund, and we expect our Hawke's Point and Banyan Square allocations to continue to grow. Similar to what I said about TFG Asset Management, i.e., we expect to continue to invest in opportunities as they come along, we have a similar sentiment with our other equities and credit bucket. The timing of investments are not certain, but we expect to continue to be opportunistic as it relates to investments that we see. And lastly, we're hopeful that in this current environment, there'll be additional allocations that we'll be making to new asset classes. I'm going to now turn it back to Paddy, who will kick off for Q&A.

And thanks, everyone. We've had a lot of questions, which is great. I will try and sort of format them and maybe answer them in bunches. And hopefully, if I don't get to your question specifically, I may have answered it by answering someone else's. Firstly, I think I'm going to tackle questions on dividends and share buybacks, various different questions. But a very specific one I'll start with on dividends, which reads, "Is the Board considering my proposal to reinstate the 2019 dividend and have a transparent link between the dividend and the NAV?" This refers obviously to last year's decision in Q2 where the Board chose a more flexible approach in dealing with dividends and share repurchases. And the headline answer is no, the Board has not changed that dividend policy. But to give a little bit more color, the idea was to have flexibility for both dividends and/or buybacks and use whichever is the most appropriate. So to have a meaningful dividend, whilst at the same time, if a discount was high, to be able to use cash for buybacks. And actually, if we look at 2020 as an example, whilst we cut the dividend, total monies spent on dividend and buybacks was about $86 million, which is obviously rather more than if we hadn't cut the dividend, but it did allow us to spend that more money on buybacks. So last year's bias obviously was to use extra capital for repurchases and giving the discount. So where are we today? Well, about a 4.2% yield. So not an insignificant yield, but also the discount is still greater than 60%. So I think our position is that the -- we're still in the same framework where we would have a bias towards buybacks rather than dividends. But as we've just gone through on the analysis, there is very little -- we have negative $92 million in cash at the moment, as Steve has gone through. So we don't have the free cash to be able to enact buybacks currently. In a related topic, we should tackle for questions on share repurchases. And I might just read out a few. First one reads, "What are the reasons to not do a buyback? And if there weren't any, why should one not then be considered, given the deep discount and alternative investment options?" A second one reads, "On the 2,000 -- or the 2020 investor call, there were a number of questions around the share price's discount to NAV. Since then, equity and credit markets have continued to rally toward relatively expensive levels. It'd be interesting to understand more detail than what was explored on the last call on where Tetragon is able to invest at a higher potential return than buying its own stock at an over 60% discount." And maybe if I just read a third one here. It says, "Over the past years -- past 8 years, Tetragon's share price is down, but including dividends, it's translated to a modest compound shareholder return. I'd humbly suggest that management take some dramatic action to improve the share price, whether it be reinstating the previous dividend level, instituting a significant tender or buyback, reducing management fees, or some other corporate action such as a spinoff. I personally favor large discount buybacks over dividends, and in my view, the dramatic dividend cut is the primary reason the share price remains weak." So obviously all of those focusing on buybacks, but also sort of leaning into the dividend question as well. And I intend to address these together because, as we have stated before, the dividend policy, we do want to be able to flex between both share buybacks and dividends. And both are, in a way, returns of capital to shareholders. I think that there are nuances to the difference. Obviously, dividends are treated as income. Buybacks, if you participate, is a capital return and you get different tax treatments, et cetera. But again, at the risk of stating the same answer, the -- we're not announcing a buyback at this time. We don't have free cash to be able to do so. But that is perhaps an overly simplistic answer. And I accept that the question is also about why are we investing in anything other than buying back shares. And I think it's sort of pertinent, therefore, to address that. I would think of it as being maybe 2 approaches to that answer. The first is -- and as I've said before on these calls, our view of share buybacks -- and this is based on market evidence not just for our company, but in the market in general -- is that whilst they're attractive and accretive if at a big discount to NAV per share, they're certainly not a panacea for the discount. We trade at a very wide discount, and that's notwithstanding many, many millions of dollars of share buybacks over the years. So we do treat it as an opportunistic approach, as I say, and not a single solution for the discount. And the second is more about sort of the view of the long term. So to put it in the context of the investment strategy, which we believe is the ultimate way to optimize value for shareholders in the long term. As I think people know, we're looking for attractive asset classes. We're looking for asset managers. We like to own part of the asset management company. And to that end, we're trying to build -- or continue to build TFG Asset Management. And we think that having a number of uncorrelated businesses across different asset classes is creating value. So what we're trying to do is build new asset management businesses, and obviously that takes capital; both working capital and investment capital. And Contingency is a good example of that, right in the mix at the moment. But we believe that that strategy will create value for shareholders, and we want to continue to invest in the future, just as we have done in the past. So that is the context. Having said that, as I always say, we need to get a balance. We look to return cash to shareholders as and when we can, and obviously we appreciate that with a wide discount, we appreciate how accretive share buybacks can be. Another one related question I've got here on the dividend, and the question reads, "Would it not make sense to stop the scrip dividend policy? It's highly dilutive to other investors, particularly given the current discount, and also partially negates some of the impact of the dividend on reducing the discount. In addition, by stopping the scrip dividend, those investors who wish to reinvest their dividends can do so by buying shares in the market, again, helping to reduce the discount." I think the summary is -- I know there are strong views on both sides here, but the simple answer is we provide a scrip dividend alternative at the request of shareholders. As I understand it, the scrip dividend has certain tax benefits for U.K. taxpayers, and that's why we do it. And the tax treatment would obviously be different if they were receiving income and then subsequently buying shares with that income. So I don't see that as a solution. But just to reiterate, it is a request for shareholders, and I believe it's particularly driven by U.K. tax situation. We have had several questions now on our position in Ripple. So maybe just to read out. There are lots of them, but just maybe just to read out a few. "Can you give more progress on an update on the Ripple investment dispute?" "What costs have been incurred by Tetragon, legal or otherwise?" "How does Tetragon assess the Ripple fundamentals now?" "What is the valuation process for Ripple, and has it changed in any way? Or is any change being considered?" So let's just sort of run through those. Our dispute with Ripple is over. We felt we were entitled to be repaid our capital, but we lost that request. So that is over. Specifically to the legal fees, I'm not going to disclose what our legal fees are. And part of the reason is we have legal fees associated with lots of our investments. We're a very active investor, and it's all part and parcel of the business we're in. So we don't disclose those on a trade by trade basis. Valuation process, no change. Third party valuer has been from day 1, and that continues to be the case. What do we think are the fundamentals? Well, I'm not going to go into the detail on Ripple and its fundamentals as a private company, but I would say the following. We still own the same security that we negotiated for in 2019. So we have the same exposure that we always have. We are excited about the prospects for the company, and we like the security that we own. So that hasn't changed. And I know that obviously Ripple is a private company, but if people are interested, XRP, the currency does trade. It happens to be super volatile, as you might expect for a cryptocurrency. But for benchmarking back in 2019 when we invested, XRP was of the order of $0.20. It has been incredibly volatile. Probably will continue to be incredibly volatile. But currently trades at about $0.70. So that I hope gives people sort of color on where we are with Ripple. Again, another one there have been a few questions on is about the SPAC. And maybe just straightforward questions, "What's the logic behind doing the special purpose vehicle listing?" And a lot of questions on, can you give us an update on the SPAC market? Or can you tell us more about the SPAC that you're entering into? So as you can imagine, I have to be careful. I can't say too much about the SPAC because I can't say more than what we have written in the filing. But for those that are interested, it's an S-1 filing with the SEC. And if you google S-1 filing SEC and Tetragon, you get the full filing. I think the important points that I would highlight is that the SPAC is a TFG Asset Management entity. So if we are successful, it will be part of TFG Asset Management. The target size for the SPAC itself is $500 million, and as I said, the sponsor is TFG Asset Management. The banks are Bank of America and JPMorgan. And as we said in the S-1, the target acquisition, we're looking broadly at alternative asset management, as you would expect from it being part of TFG Asset Management. And we would be highly focused on the high-growth sectors. That's where we think we can add value. So it fits with the current strategy for TFG Asset Management of owning majority/minority positions in alternatives. So that is what we would be looking to do there. Another question on Contingency. What -- "Can you give us a little bit more color on Contingency Capital?" There are 2 or 3 others, but I think that's sort of the gist of it. So what I -- Steve mentioned a bit about this in the presentation, but perhaps give a little more color. Contingency Capital is an investment manager that focuses on legal assets. So what do I mean by that? Well, they're loans to law firms. There is corporate litigation portfolios. Distressed special sits where there's some sort of legal, tax or regulatory outcome to it. So it's a -- you can think of it as a credit business, in a sense, rather than an equity business where you're investing in an asset that is backed by the legal outcome. So heavily driven by legal process. Brandon Baer is an expert in this field. He started with $1.4 billion of co-investment arrangements. So not in funds, but capital that he can put together. And now we're going to set about raising a commingled fund for that business hopefully in the second half of the year. There have been a few questions on attracting -- best way to sum it up is attracting new investors to the business. And I think maybe the best way to summarize all those questions is how would you bring a potential new investor onboard, and how would you sell yourself to someone new? That sort of is a summary of several different questions. And I think the way I would best answer that is anyone buying into Tetragon, I think the first thing they need to do is know that they like the current portfolio of assets. Understand the current portfolio of assets, because a lot of them are illiquid and have idiosyncratic growth prospects within them. I think the next piece is an investor would need to understand what Tetragon does, what the investment strategy is. And obviously that includes building TFG Asset Management, and believe that that is an investment strategy they want to be part of. And I guess the third element is they've got to believe that the Tetragon's management is capable of executing on that strategy. But if they do believe all that, then you get -- obviously the current portfolio, that strategy, current yield of 4.2% and then create a 60% discount to NAV, with the management team owning about 35% of the shares. So strong alignment of interest. You get the growth of that NAV, plus obviously a possibility of a re-rating. And whilst as we have spent a lot of time talking on this call and others, there may not be a short-term catalyst, I think we all agree and hope that in the long term, the expectation is to achieve NAV or greater. So I think that is the way I'd phrase it, and indeed do phrase it when speaking to new and potential investors. We have again a few questions on the other equities bucket. One saying, "The worst performance was from other equities and credit, which lost $32 million, or approximately 12% on its opening valuation. Can you give us more color on these losses?" Or a slightly more prosaic question, "How can you lose $31.5 million on your equity portfolio in a bull market?" So I think that does make sense to give a little bit more color on that. So at a high level, just to reiterate, this section covers the portfolio positions we have that are in public equities and debt. The vast majority of this is equity currently, and it is U.S. and European equities, approximately 10 positions. We have a strong focus on technology and biotechnology, health care. So the biotechnology health care tends to be life sciences and the like. And the losses have come from a combination really of 5 positions in the first half, offset by gains in 1. And to the point about it being an equity bull market, I mean, yes, that is the case. But obviously a lot of the biotech and life sciences companies are not that driven by markets and more driven by their own idiosyncrasies. And in all of these, we tend to trade around the positions. These are currently mark-to-market losses. In other words, we've maintained those positions, and we trade about them on quite an aggressive basis. But yes, that is sort of obviously not a great half, first half of the year, but that's what we're doing in that area. There is one here for Paul, which is about accounting. So let me just read out the question, and then I'll pass over to Paul to answer. We've had a few questions about how we account for our various LTIP and equivalent share-based compensation programs. Yes, I think, as you can tell, that's sort of an amalgamation of 3 or 4 different questions. So I'm going to pass over to Paul to answer that one.

Sure. There are, broadly speaking, 2 buckets of share-based compensation plans at TFG Asset Management. First one's the long-term incentive plan in which certain employees have received equity-based awards with vesting dates ranging from 2020 through to 2030. These are designed to align and incentivize the recipients with shareholders and are in addition to other compensation of salary and cash bonus. The second bucket is the time and performance-based share compensation vesting in 2021 and 2024, which is awarded to the CIO of TFG Asset Management as part of his compensation package in 2019. And in addition, at the Tetragon level, there are share awards for the independent directors vesting at the end of 2022. Now all of these are referenced on Page 41 of the half year report, so I encourage you to have a look there to see more detail. With respect to the valuation of TFG Asset Management, the currently awarded but unvested shares are not included in the discounted cash flow models as they are non-cash items, and because the shares acquired to settle these obligations, should they arise, have already been acquired. With respect to the CIO package, the third party valuation agent has factored into the central cost assumption and expected annual costs beyond 2024, when the current package ends, based on a benchmark CIO salary within the alternative asset management industry. With respect to the employee compensation costs more broadly, the third-party valuation agent takes the company's model and applies adjustments as it deems necessary to arrive at expected cash compensation expense throughout the life of the model. And that service is provided in relation to the share-based compensation. These shares are recognized in the fully diluted share count, which feeds through into the fully diluted NAV per share. Figure 18 in the half year report is where we show the TFG Asset Management pro forma statement of operations. And this shows a net income for the period, or EBITDAR equivalent, which is a non-GAAP reflection of the current performance of TFG Asset Management. And for clarity here, for the purpose of the compilation of the table, the imputed share-based compensation expense has not been included, which is footnoted. Our understanding is that the market practice with respect to this, whether including or not including share-based compensation is mixed, but we've opted not to include it.

Thanks, Paul. Yes, that's great. And actually, a slightly related question. There's one that can you clarify whether the increased employee shareholding is the result of employees buying shares in the market or via compensation schemes. Also in both scenarios, how you're ensuring alignment of incentives if the deep discount NAV is beneficial to employees still in share accumulation mode. So to answer the first part of that question, I think there are 3 ways, thinking off the top of my head, that people can acquire shares internally. The first, as you rightly point out, is through long-term incentive plans. The second is buying in the market, or indeed selling in the market, where we have strict regulatory windows after a -- for a couple of weeks that insiders can deal in shares. And the third is by taking dividends in shares rather than cash. I can't speak on behalf of everyone, but certainly, personally, I have bought shares in the market over many years, and also have taken shares in -- taken dividends in shares. So I think all of those are ways that people can increase. To the latter point of if everyone's acquiring shares, is the deep discount a positive, I think that it is in everyone's interest who owns shares not just to have an accumulation of value, but to be able to spend that money. I can assure you that everyone who owns shares at Tetragon would rather have a healthy share price that's liquid trading at NAV or above, either to be able to borrow against, sell or acquire. And so I think that would be a much more efficient way for people to be able to use that value. One more here on the corporate broker. "Can you give us some context over the decision to appoint Jefferies as a joint corporate broker? And as a result, was there any change to the way that TFG addresses current or potential shareholders?" I think the way I want to start on this, I think Tetragon interacts with brokers across many fronts and probably much more so than a traditional closed end fund. So yes, we're a closed end fund, but also Tetragon, as you know, owns an asset management business that manages $33 billion across a global platform, multi-disciplined. We buy and sell businesses. We create new funds, public and private. We borrow at the fund level, at the asset level, at corporate levels. So our interaction and transaction base is much greater than a traditional closed end fund. And what we think with Jefferies is that they have a, not just a very strong reputation on the closed end fund business in the U.K., but also a global platform that we hope and believe will help TFG Asset Management and the broader Tetragon across a whole range of activities. And so that is what we want to build on with them is build a close relationship across a multitude of different activities. So that's sort of a bit of color on the move. I am going to leave it there. I think we've just about covered everything, and we're coming up for the hour. So I would just want to thank everyone very much for joining us, and leave it then until we speak again. Thanks. Bye.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.