Tetragon Financial Group (TGONF) Q2 2014 Results - Earnings Call Transcript

| About: Tetragon Financial (TGONF)

Tetragon Financial Group Limited (OTCPK:TGONF) Q2 2014 Earnings Conference Call August 12, 2014 10:30 AM ET


Patrick Dear - Principal

Philip Bland - Chief Financial Officer

David Wishnow - Principal

Michael Rosenberg - Principal



Thank you for joining Tetragon's 2014 interim report investor call. You are 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, which is on the company's website at www.tetragoninv.com. In addition, questions can be submitted online, while watching the presentation.

I will now turn over to you, Paddy Dear, to commence the presentation. Please go ahead.

Patrick Dear

As one of the Principals and Founders of the Investment Manager of Tetragon Financial Group Limited, I'd like to welcome you to our investor call, where we'll focus on the first half results.

As usual, I will provide the overview; Philip Bland, our CFO, will cover the company's financials; David Wishnow, Mike Rosenberg, and I will cover the company's investment portfolio and the asset management businesses. We'll also be taking questions electronically by our web-based system at the end of the presentation, as well as answer certain questions that we've received since the last update.

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

So moving to the first Slide, and by way of reminder, cash flow remains approximately $1.8 billion of net asset value, mainly in financial assets, but also including certain operating asset management businesses, collectively TFG asset management. And those businesses manage approximately $10.5 billion of client money.

The second Slide, again you all have seen before, but I just want to remind everyone that TFG's investment strategy differs from that of many other investment companies. We seek to identify attractive assets and asset classes, we seek superior asset managers, we seek to negotiate favorable term for our investments, plus we seek to own some or all of the asset management businesses themselves, plus the company's revenue with a combination of asset returns and fee income from the asset management businesses. In Slide 5, which again you've seen before, shows a schematic of what I've just described.

So with that introduction, let me now hand over to Phil to go through the first half numbers.

Philip Bland

Thanks so much indeed Paddy. I would focus on how the firm performed in the second quarter and year-to-date, while looking initially at TFG's key metrics, and then reviewing the statement of operations.

As on past calls, I'll discuss several non-GAAP measures that we think maybe helpful to better understand the performance of the company. I encourage everyone to look at our recently published quarterly report for full details including a reconciliation of non-GAAP and GAAP measures.

To the next slide, we continue to focus on three key metrics for TFG's business. Firstly, earnings, which we measure both as return on equity and earnings per share, reflecting the ongoing operating performance of the company. Secondly, we gauge how value is being accumulated within the business through a net asset value per share metric. And finally, we look at how value is being returned to shareholders in the form of dividends and other distributions.

As usual, I'll start with the ROE measure, which we define as net economic income for the year or in this case year-to-date divided by capital of this last year and expressed as an annualized metric, and this is a measure of earnings after all fees and expenses. At the mid-year point, ROE was annualizing at 9.5%, so it's down from 10.5% at the end of Q1 and a little below our long-term target range of 10% to 15%.

So let's now look some of the key drivers of the first half of 2014 performance, and by reviewing a breakdown of the EPS number of $0.90 for the first half. We believe this EPS analysis is an important way to review the relative contribution made by the various components of the business, and in particular, the different components of the investment portfolio.

So let's start at the top, looking at these CLOs. The U.S. CLO 1.0 are reducing in balance sheet value, as will be discussed in more detail later on the call. Despite that the performance of that part of the portfolio was boosted in Q2 by two factors. Firstly, realized gains were generated following the sale of eight CLO 1.0 positions. The majority of which was sold at prices above TFG's then carrying value.

Secondly, there were unrealized gains as a result of reducing the discount rate used to value future U.S. CLO 1.0 cash loads, and that reduction was from 13% to 12% in response to an another things, observable market data. The company's CLO 2.0 portfolio has grown over the last year and thus the earnings relative grown accordingly.

On the European CLO side of things, values have boosted by the reduction of discount rates from 60% to 40%, ultimate response to observable data. It's worth noting that the first half of 2013 comparative performance here, reflecting the period of very strong recovery by European CLOs, which have been lagging some time behind U.S. CLO recoveries.

The hedge P&L, which is obviously quite volatile year-on-year, is primarily due to an out-of-the-money interest rate swaption contracts, which we have in place to hedge against the rising interest rates environment. TFG's investments into other asset classes via Polygon hedge funds performed well in the first half of the year, although the main equity fund displayed some volatile performance during Q2.

TFG's direct balance sheet exposures to equities also lost some value in Q2, given back the strong Q1 performance. We believe that one of the benefits of having a more diversified portfolio is evidenced by the positive contribution from real estate investments during the first half of the year, all of which are managed by GreenOak.

The real estate gains both realized and unrealized are mainly on U.S. and Japanese fund investments. It's worth reminding everyone at this point though that those sorts of real estates and revaluations will tend to be down theoretically and typically on annual cycle on those properties sold in three year.

Finally, you can see that TFGM's performance remained strong through Q2 2014. Continued AUM growth in Polygon hedge funds and LCM in particular, drove increases in both management and unrealized performance fees. A recalibration of the fair value of TFG's 23% holding in GreenOak added further to the TFGAM quarterly, and therefore first half performance.

Let's now turn to our next key metric. Pro forma fully diluted NAV per share, which continue to grow in Q2 and brought through $17 for the first time, ending the quarter at $17.08 which was up $0.72 or 4.4% year-to-date. This metric is a measure of the value that's being built and retained within TFG, and is therefore up deducting dividends already distributed in cash form. You'll recall from our Q1 call, that the repurchase of approximately $15 million of TFG shares in Q1 also added around $0.28 to this metric.

Let's now review how TFG has returned value to shareholders in the form of dividends. The firm continues to pursue aggressive dividend policy with a target payout ratio within a range of 30% to 50% of normalized earnings, recognizing that the long-term sustainable ROE is around 10% to 15% per annum.

As is seen in the graph, this progressive pattern has been achieved over the last few years. TFG's Q2 dividend of $0.1550 per share brought the trailing 12 months dividends to $0.5950 per share, a 13.3% increase over the comparable period to the midpoint of 2013. Life-to-date, dividends since IPO has now grown to $3.13 per share.

Let's now turn to have a look at the overall statement of operations for TFG. I've already discussed elements for performance of the various asset classes in the context of EPS and asset side. So I'd now like to make a few observations on some of the line-by-line trends underlying statement of operations for the firm.

Interest income continues to reflect, primarily the recognition of the IRRs on the CLO portfolio. Those IRRs have fallen by average from approximately 17% to 16.1% during the last quarter, which are to be expected as the CLO 1.0 portfolio diminishes over time, leaving a relatively higher percentage of CLO 2.0s, which currently have a weighted average IRR of 11.4%. The decline in interest income by around 22% from the first half of 2013 to the first half of 2014 was therefore mainly as a result of expected amortization of CLO 1.0 portfolio, and more on that later.

Fee income continues to trend upwards, as the Polygon hedge funds and LCM continue to add the assets. This is and will continue to be supported by third-party CLO fees, but is partly offsets by the ongoing reduction in assets in the private equities fund as this portfolio unwinds over time.

Good and the excellent performance across the Polygon hedge funds year-to-date has also generated healthy unrealized performance fees to TFGAM significantly higher than the comparable period in 2013. Other income cost recovery which is up 11% compared with 2013's results, reflect charges led by TFG asset management to non-TFG owned businesses for the use of its infrastructure platform. When we look at the operating metrics for the TFGAM business, we net these off against operating financing costs, which we'll look at later.

Turning out to the unrealized and realized gains for investments, we can see large year-on-year movements, there are only two items to note here. Firstly, the Q2 sales of CLOs have significantly impacted these numbers compared to the prior period. This is because any cumulative life-to-date unrealized gains on the positions sold will reverse from unrealized, hence large negative, and moved into realized, hence the large positive.

The second instance here is that the unrealized depreciation investments line includes both net losses on equity positions, I have already alluded to, and net gains in hedge funds and real estate. Net operating expenses in the first half of the year equated to 42% of total income and net gains, an increase from 37% in the corresponding period in 2013.

I think one thing to note here is that on the TFGAM side of the business we are adding selectively the investment teams in the new or rapidly growing businesses, and we've added to the compliance team in response to growing global regulatory requirements, but other than that the platform continues to demonstrate both it's capability and it's scalability.

Turning now to statement of operations, but by business segments and looking asset consolidation of LCM, Polygon and related management fee income, we can see that the TFG asset management segment generated $16.3 million of net economic income, approximately 18.5% of the total [indiscernible] TFG and that compares with less than 8% in the corresponding period in 2013.

Finally, and still focusing on TFG asset management, in the first half of 2014, this growing business segment generated an EBITDA equivalent of $17.8 million, up almost 12% compared to the first half of 2013. And Paddy will provide more color on the asset management segment later.

But for now, I'll pass it back to Paddy, who is going to focus initially on TFG's investment portfolio.

Patrick Dear

Thanks, Phil, and Slide 15, so it's a breakdown of asset from the portfolio and compare this breakdown with the end of 2013. And as anticipated and by design, the investment portfolio is becoming more diversified and obviously therefore less concentrated in any one asset class.

CLOs are still the largest asset class, but have now reduced to 52% of the portfolio compared with 62% at the end of Q1. Other significant investments are in real estate, probably GreenOak investment vehicles, equities for our Polygon funds, credit and convertibles for our Polygon funds and some investments held directly on the balance sheet in equities, credits and convertibles and distressed opportunities. And in fact, TFG made new investments in all of these asset classes in the first half of the year.

Figure 9, which is shown on Slide 16, shows the NAV in each of the assets or asset classes at the end of the first half, and also shows the net income generated from that asset class during the first half of the year. And just as a brief summary, CLOs performed well in the half with a pick up in Q2 over Q1, and Mike is going to give more detail on that in a moment as is David.

Secondly, Polygon equity fund had a good first half, albeit giving back some of the performance from a very strong Q1, and details of each of those funds performance are in Figure 15 in the first half report. Polygon credit, convertible and distressed funds had a very strong first half continuing the strong first quarter with a strong second quarter. And again the details by fund are in Figure 15 in the half one report. Other equity credit CB and distressed opportunities had a small loss in the half, having shown a profit at the end of Q1. And these are the best ideas that we described last quarter. And lastly real estate had a good half with net income contribution of $10.2 million.

So with that, let me pass on to David, to talk a little bit more about the portfolio.

David Wishnow

Thanks Paddy. The corporate loan exposure continues to be TFG's largest asset class in the investment portfolio, now totaling $950 million and primarily owned through CLO equity. Of this CLO activity exposure approximately 76% is in U.S. broadly-syndicated senior secured loans, 8.5% in U.S. middle markets senior secured loans and 15% in European senior secured loans. On the look-through basis, this represents indirect exposure of approximately $12.6 billion of underlying loan assets, down from approximately $15.6 billion in the previous quarter.

TFG continues to become more diversified with corporate loan exposure. Paddy mentioned this previously, that it now represents 52% of the investment portfolio versus 64% at yearend 2013 and 84% at yearend 2012. As of the end of Q2, TFG held 44 U.S. CLO 1.0 equity position and one debt investment in CLO 1.0 deal.

As Phil mentioned, during Q2 2014, TFG sold eight equity tranche investments in U.S. CLO 1.0 transactions. On evaluating CLO equity disposition opportunities, we assess among other things to be as expected to returns as well as collateral-related risks of increased concentration and potential market value volatility upon liquidation.

We may look to sell additional U.S. CLO 1.0 positions in the future, as we continue to evaluate the expected risk award profile of these investments and alternative uses of TFG's capital. Mike will provide more context on this process in the CLO market review section. The wind down of TFG's U.S. CLO 1.0 portfolio accelerated during Q2, reflecting both loan repayment and certain managers' asset sales, taking advantage of strong loan market conditions.

During Q2, one of TFG's earliest U.S. CLO 1.0 investments was successfully liquidated with net portfolio proceeds distributed to equity holders. A number of TFG's U.S. CLO 1.0 transactions are at various stages of their unwind process. We expect this segment to continue to amortize over the following quarters, both via structural deleveraging and equity-investor or manager-directed optional redemptions.

As of the end of Q2, TFG held 13 equity investments in U.S. CLO 2.0 deals, up from 12 investments at the end of Q1 2014, as TFG took a majority of the equity investments in a new LCM managed CLO. While the new issued CLO equity arbitrage environment remains challenging due to tight corporate loan spreads versus CLO liability funding cost, we believe that the CLO 2.0 equity investments in LCM managed deal maybe attractive when investment returns are combined with management fees earned.

Also of note, we continue to work on additional CLO 2.0 refinancing opportunities, which may allow us to lower the debt financing costs on CLO investments, thereby potentially increasing the returns on our equity tranche investments.

As of the end of Q2, TFG held equity investments in nine European CLOs compared to 10 in the prior quarter, due to the sale of one transaction during the quarter. Similar to the sales of the company's U.S. CLO 1.0 deals, the sale of this European CLO investment was made in an attractive price relative to expectations of future returns. We may look to sell additional European CLO investments in the future, as we continue to assess alternate uses of company's capital.

TFG's direct loan portfolio performed well during Q2, although its size was reduced to $24.7 million, as a number of the underlying loans were repaid, refinanced or sold. The credit quality of this portfolio remained stable during the quarter, and there continue to be no defaults. In the short term, we do not expect to allocate additional capital to this strategy due to the existence of what we believe are more attractive alternative uses of company funds.

Let me now turn the call over to Mike, who will provide an overview of the CLO market.

Michael Rosenberg

Great. Thanks, David. In this quarter's market update section, I thought I would focus a bit on the CLO 1.0s and our efforts to manage the wind down of this segment of the portfolio, as these deals amortize down.

In an effort to maximize the value of this segment of the CLO portfolio, we may look at various different options including calling a transaction, selling TFG's position or continuing to keep the deal outstanding. Having a majority of the equity of these deals often allows us certain options that we feel enhances TFG's value in any of the three scenarios that I just outlined.

During the second quarter, we sold eight CLO equity positions, seven were U.S. CLO 1.0 transactions and one was a European deal. When we sold the positions we were able to take advantage of what we felt were attractive bids that generally were at or above our current marks. Total sales proceeds were in excess of $153 million.

Additionally, we have also initiated redemption or calling of several transactions, some of which are still in the process of unwinding. When analyzing the strategy to the resolution of these deals, we look at several different factors including, but not limited to, default expectations for the market and specific deals, prepayment fees experienced in the portfolio and our expectations for prepayment fees going forward.

The expected cash flow profile of the deal, the underlying market values of the loans, the liquidity of the underlying loans, this was particularly important for middle market CLOs. We also review any currently distressed assets, along with several other factors that we take into consideration. We then take this information and seek to use it to project cash flows and a return profile for an individual deal.

Finally, we also periodically seek market indications for a particular position to give us an idea of the level we can expect, if we decide to sell a position. We believe that all of this may allow us analyze options and choose a path that seeks to maximize the value of the unwind of these CLO transactions.

Looking at the entire CLO 1.0 segment of the portfolio, I would say that we are pretty happy with the results to date. We would expect that we will remain active in managing the ultimate unwind of these deals as they exit their reinvestment periods and continue to analyze.

And with that, I'm going to turn it back over to Paddy.

Patrick Dear

Thanks Mike. And let's move on to TFG asset management. As you all have seen it in the numbers, TFG asset management businesses had a good first half.

Some highlights were: the fee income was $37.7 million, that's up 17% from the first half last year; EBITDA equivalent was $17.8 million, that's up 12% from the first half last year; and net economic income before taxes were $16.3 million, which is up 55% from the first half last year. And as Phil explained, this includes the revaluation of TFG's 23% of GreenOak as discussed. And finally, assets under management are $10.5 billion across the businesses, which is up 21% from the first half of last year.

So just a couple of points of note, very strong performance in many of the Polygon funds, and as I have mentioned, the details are in Figure 15 in the report. Polygon's assets under management and its open hedge funds have written to $1.09 billion and that's up 28% from the $855 million at the end of last year. LCM assets under management grew strong in first half, as it closed two new CLOs, LCM XV, which was $624 million in February, and LCM XVI, which was $725 million in May, and both of those were U.S. broadly-syndicated deals.

On the GreenOak, although the headline asset number, have fallen from $4.1 billion to $3.9 billion, we believe this is slightly unrepresentative as the drop in assets was due to the sale of some assets from managed accounts. The commingled fund asset raising in U.S., Europe and Japan continued very strongly. And the first half has indeed been a very strong one for GreenOak, as the business, and I would say, the first tranche of their working capital volume during Q2.

Moving onto our last slide. Looking at potential new investments, as in previous quarters, we have given some guidance as to the expected future investments, although as you might expect, the actual investments can vary substantially from this guidance depending on the actual opportunities available. As always, the greatest unknown is in the new business, new asset class section. And there are several new opportunities under discussion. And we hope to be able to give you more details on those, if successful, before the end of the year.

So that concludes the presentation. And so I now would like to move onto questions. As you know, we've had some pre-submitted, some submitted as we're speaking, and if you want to enter questions into the system enter them now and we'll try to answer as many as we can.

Question-and-Answer Session

Patrick Dear

So firstly, we've had many emails and questions regarding the Omega lawsuit. Many congratulating the company, for which thank you, and some asking for general comments, and one or two people asking specifically how we plan to deal with Leon Cooperman from now on.

So first, let me say, that we're pleased with the very thorough and unequivocal court opinion dismissing the Leon Cooperman's Omega lawsuit. Second, I guess as a general comment, we're very pleased to have this entirely miraculous lawsuit behind us. We believe it has wasted an enormous amount of time and money, and good to have that up away.

And lastly, as to Mr. Cooperman, I guess my first response is to say that we'll continue to endeavor to make his and Omega's investment in TFG as profitable as possible, just as we think to do with all our shareholders. However, my second response is to note that Mr. Cooperman has long attempted to dictate his desires with respect to TFG's corporate governance policies to the directors and management, notwithstanding how profitable this investment have been.

Indeed, we believe it's very shortly after he commenced acquiring shares and the non-voting shares that Mr. Cooperman began his efforts, to get on this to joint them in cementing litigation against the company and its Investment Manger and to malign us in the press. And we believe that Mr. Cooperman was directly involved in coordinating the dismissed 2011 Silverstein lawsuit against the company. Even though, he publicly conceded that the Investment Manager did nothing wrong during the financial crisis and was entitled to that fees.

As stated yesterday, in our press release, we believe that Mr. Cooperman has been repeatedly unfaithful in his dealings with the company, including in connection with his involvement in the Silverstein lawsuit.

Prior to bringing, the now dismissed Omega lawsuit, Mr. Cooperman was explicit to us as to his goals, and supported not knuckle down under his demands and seek control of the company's strategic direction to him, he would bring his lawsuit attacking the Polygon transaction. Even though this suit plainly had nothing whatsoever to do with the reforms that he demanded.

He told us that he was advised by the counsel that the suit lacks the likelihood of success, but that's even if it's unsuccessful and seemingly notwithstanding the negative effects on the company's business, it would add a luster to his reputation. We now view Mr. Cooperman as an activist, who is looking for short-term payouts in the form of increased dividends and share buybacks would inhibit the company and it's pursuit of new investment opportunity and a long-term growth.

In the past, with sort of engagements with Mr. Cooperman and the spontaneous demand, and spent many hours with him and his team at Omega. And we did so, because we highly value interactions with our investors and commit significant resources to provide transparency on the company's activity.

We went on to publicly discuss our responses to his demands on this quarterly call with investors back in February of 2013 and his lawsuit followed. It's now been dismissed in its entirety. So a lot of long windowed response, but in response to our dealing with Mr. Cooperman based on his course of dealing, we do not intend to gauge with Mr. Cooperman further.

Next question I have here, and I guess, there are sort of two that move on to the same topic. The first one reads as follows. First half 2014 return on equity was 9.5%, as you expected in a lower LIBOR environment. Can you talk about the sensitivity to net earnings that you had, if short-term U.S. rates rising 50 basis point to a 100 basis points in the next 12 months? And second question, but on a similar topic is can you please tell us how an increase in the LIBOR curve would impact our CLO equity valuations, quantified metrics would be applicable as possible.

And I'm going to pass over to Mike for that one.

Michael Rosenberg

Yes. Sure. So while CLOs are match funded with LIBOR-based assets and LIBOR-based liabilities, due to LIBOR floors contained in the majority of bank loans in the market today, there maybe just a mismatch at certain levels of LIBOR for TFG's CLO equity investments.

Let me give you an example. If a portfolio loans may have an average level floor of a 100 basis points, which means the borrower pays a 100 basis points plus the credit spread, despite the fact the three month LIBOR today is only 23 basis points. CLO liabilities do not have Libor floors. So in this example, TFG would benefit from this mismatch since it has been collecting a higher-base LIBOR due to the floor of a 100 basis points and only payout the actual LIBOR level of 23 basis points on the CLO liabilities.

In the event LIBOR increases from the current 23 basis points up to the level of the LIBOR floor, which in this example is 100 basis points, TFG assets would still payout the same level of the floor, but the cost of the company's liabilities, of the CLO liabilities would increase squeezing our net interest margin.

However, for Tetragon mitigating this risk to a significant extent is the fact that if CLO earnings seek to incorporate the forward LIBOR curve, that the risks may not necessarily be arise in LIBOR, but rather a deviation in LIBOR versus the forward curve. Looking at the forward curve, you would see a rise in curve that's incorporating the expectations of LIBOR rising in the future. With that I'm going to hand it back to Paddy.

Patrick Dear

Thanks Mike. The next one have the investment portfolio mix. There are couple of here really on the sell down of CLO 1.0. The first reads, there is $0.21 drop in U.S. CLO 1.0 quarter-on-quarter to $536 million. It looks like the acceleration run down, which has shifted the portfolios investments in U.S. and European CLOs to 52%. What happened here?

And the second reads on the same topic, why sell a $153 million worth of CLOs and increase cash levels of $259 million. What are the take out yields on this paper that we sold and why replace such relatively safe and familiar seasoned assets with cash yielding zero?

And I think Mike covered that the, what we look for in CLO 1.0s and how we evaluate those return, but I don't know if there is anything that you wanted to add to that?

Michael Rosenberg

No. I just think that it was, in our view, the best way of maximizing value of those particular investments.

Patrick Dear

Next we have follow-on from that. How should we think about the investment portfolio mix in CLO versus Polygon investments versus commercial real estate by the end of 2014 and into 2015? And the second question on the related topic reads as follows, cash holdings have risen at the end of Q2 2014. How quickly do you think you can get your you cash to work and in what product areas? Will this cash be used to seek new TFG asset management businesses in the coming quarter?

So a lot of these are not surprisingly focused on the fact that cash has build up recently and how that cash is likely to be put to work. So they're correlated obviously and that they address the future mix of assets and current investment plans. I think as we have said in the past, the investment process, if it continues one, and if looking both from the bottom-up, have good of each investments and from the top-down, have a risk balance within the portfolio.

And furthermore, it's worth noting that many of investments we have, have very long lead times to them. So our real estate, for example, when you're making commitment done at some time before the asset or the cash is put to work. So balancing the investment side of our cash flow is always a complex process.

But to trying to be specific, I think we would expect in 2014 that the current trend will continue. And by that, I mean a reduction in CLO 1.0 exposure and an increase in our exposure to other asset classes, both the current ones. But we also expect through the second half of 2014 and into 2015 to add new asset classes, and new asset management businesses. And so trying to give you some flavor as to how we expect it pan out over the second half of this year.

The next question I have here is reads as follows. There is a major shift in the split between internally managed versus external funds in Q2 2014. While internally managed funds rose to 60%, what drove it and what are the outlook for this ratio in coming quarters?

And I suppose although, technically, I think the way that phrase is correct. I'd like to rephrase it statistic. I like to think that matters is that 40% of our assets currently pay away management and performance fees to external managers. And this is reduced over the last few years as the CLO 1.0 deals have reduced, amortized or being fold, and so we'd expect that trend to continue for the foreseeable future.

Next question is one here on TFG Asset Management. Saying, there was continued growth in AUM at TFG Asset Management, but can you tell us what the net new money flows were in Q2 2014 versus Q1 2014 by business line?

And obviously, yes I can. It's good. I've got -- the net flows for Polygon in Q2, net inflows of approximately $190 million of Q2 over Q1. LCM, I mentioned earlier had two CLO raises, just to reiterate, $624 million on LCM XV and $725 million on LCM XVI. And for GreenOak, I don't have the exact, but as I mentioned in the headline, fell from $4.1 billion to $3.9 billion and it's actually due to some sale of some managed accounts, and actually the underlying commingle fund business continue to grow both strongly in the second half.

Next question I have here is on the Polygon private equity runoff vehicle. And it reads, so that's the Polygon Recovery Fund. And if the pace of runoff accelerates in Q2 2014, when will those funds fall to zero?

So the Recovery Fund, as I think many of you know is a limited life vehicle, and it seeks to dispose of its all of portfolio securities. Its initial term expires in the first half of 2015, and then there are two additional one-year terms based on performance and/or investor approval. So the increasing pace of liquidations that we've seen recently was expected and in line with our original prediction.

And the competition of the portfolio and expected timeline of monetization for the underlying positions, we expect to become less consistent over the coming years, because the portfolio is becoming more highly concentrated. But it is right, in terms of simple piece of art, the initial term expires in first half 2015, but there are two one-year extensions to that.

I have a question here on U.S. listing. You mentioned in the 2013 Annual Report that you're exploring a U.S. listing, can you update us on this please?

And that's correct. We did talk about it in that report and we have mentioned a couple of times on calls. I don't have much to add from previous statements. And that we have, it is correct, I'll say, reviewed a potential move to move a listing, and I guess our previous comments therefore remain.

But in summary, if we were to move, we think the U.S. is the most attractive venue for shareholders. And the reason we believe that is really by going to the depths of the markets for similar type enterprises and a broad understanding of our types of business. However, to move to the U.S. as it currently stand, we would need among other things to have a substantially larger portion of our revenue coming from the operating businesses as opposed to investments. And accordingly we can't, therefore we shouldn't be expecting any change to the U.S. listing in the near future.

A couple of more questions here. Can you provide some color with regards to the Q2 performance of the directly held equity credit and convertible position?

And this is what I referred to on the last call and said that probably is a part of the portfolio. The manager obviously has access to invest in GreenOak, LCM, Polygon funds and vehicles, and therefore has a broad access to a lot of different product ideas. And occasionally there are opportunities to co-invest in specific buildings, for example, with GreenOak or specific trades within the Polygon funds or specific loans with LCM, for example.

And so the equity credit and distressed positions, these are held on TFG's balance sheet and identified in this category. And that Tetragon's going to either co-invest in trades or the Polygon funds, which obviously is subject to [indiscernible] fund policy or in some cases makes the investments, if they are not appropriate for the Polygon funds, but we believe are suitable for Tetragon for reason such as constraints on liquidity, duration or leverage. So that is how that part of the portfolio is made off.

Another question. Since the last tender offer was oversubscribed at the low end of the range, is the company considering additional repurchases of equity to take advancement of a widening disconnect between the stock price and the stated NAV?

Well I think that you more surprisingly have questions on share buybacks on every calls, and it is good that there was a topic for discussion. And I think what I've said in the past still stands, and that is to say that whenever we're looking at uses of case, which is as I said earlier today, an ongoing process, share buybacks are always on the table as a potentials along with new investments, dividends and other uses of cash. I don't think I can add to that on this, but that is always on the table, not always being discussed.

And I think there we finished the question. Sorry, no, I've got one more.

Would you discuss the upcoming Investor Day in September, give some details and a brief overview of what's going to be covered?

Yes. So I think have dealt another way. We have on the September 10, we're hosting what is now our Annual Investor Day, we'll be running the second one. That's our second Annual Investor Day. It's going to take place in London. And we'll provide a VC for those of you who can't join us in person, and the presentation will take place at 3:00 PM London time, around 10:00 o'clock Europe time. And like last year, we'll have a large part of the team presenting.

We've planned to get the agenda out shortly, but its planned to be similar to last time. I would guess about a couple of hours of the introduction we'll be going through the various different assets in the portfolio in some detail, and we'll have multiple members of both the manager and part of TFG Asset Management speaking, and we'll probably close I think with a section on expectations for the future of the business.

And that concludes the question. So we've got to wrap it up. Very much appreciate everyone joining. And look forward to seeing you, for those of you who can make it on the September 10. Thanks very much.


That does conclude our conference for today. Thank you for participating. You may all disconnect.

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