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I don't understand the investment so best not get involved. Well done and good luck to you.
Hi Unhooked, well the buybacks succeeded and the SP has now leapt 25% to $10.40. However it's still on a 64% discount.
I actually tendered quite a chunk and so am happy. (Tendering had the small added bonus of no spread and no selling fees). But I'm pondering a top up here. I am also looking to closely read the next monthly newsletter to gain a sense of direction.
I can't see why it would as the offer price is set so low, but what do I know?
Hi Unhooked, one is dollar denominated and the other is GBP denominated.
Not long now till the tender offer. The $50m buy back will drive some further value.
Why a TFG and a TFGS?
Thanks for reading my long ramble Agricore, any thoughts welcome.
Hi Agricore, it's not the most user-friendly Annual Report I've ever read and in some respects it's still mystifying.
I'm left with more questions than answers. If you have any thoughts I'd be very interested.
Regarding the buy back you mention, is that the $50m Tender Offer to shareholders to buy their shares at between $8.00 and $9.75 per share? If so, do you know why they are going down the Tender Offer route to buy back their shares? I mean companies and Investment Trusts usually buy back their shares in the open market, according to whatever authority was given to them, and, equally, sellers simply sell their shares via the market in the usual way. I can't immediately see the point of the Tender Offer either for TFG, or for shareholders for that matter, who would be receiving a price pitched near enough to the current market price anyway. What reason could there be for a Tender Offer? I'm racking my brain, could it be a lack of liquidity in TFG shares? Then again, $50m doesn't sound like very much, given the size of the Trust. Do you think it'll even move the dial (in terms of reducing the discount to NAV)? If you're a shareholder, are you thinking of taking up the Offer?
Re the possible inflation hedge you mentioned, do you think that's the 20% of NAV invested in 'event driven equities and other hedge funds'? Who knows what 'event driven equities' are - they don't really tell us.
They seem to like owning part or all of the asset management companies they invest in, and I see that 44% of their net assets as at 31/12/22, was ownership of such companies. Owning asset management companies is a leveraged bet on the future of equities... which may not be so rosy in future years (at least compared to the past decade). You may know the investment trust LTI. That trust owns a chunk of privately held asset manager Lindsell Train Ltd (it's the only way retail investors can obtain an interest in the asset manager). As I'm sure you know, LTI Trust often trades at an eye-watering premium to NAV, such is the esteem towards the asset managers. Worth mentioning when this trust is on such a big discount! Of course, unlike TFG, Lindsell Train are very 'open' managers, constantly informing and updating retail investors, which surely helps with the discount..?
Two more reasons for the stubborn discount. Firstly the fees. About 25% of the gross NAV progression for the year (fig 6 on page 24 of the Annual Report) went on fees and Hargreaves Landsdown has the ongoing charge at 7%! These are akin to a hedge fund. Secondly, availability. Platforms make it hard to buy this - the prospective investor is directed to a special questionnaire, which makes it clear that this is some sort of super-sophisticated product only for super-sophisticated investors ( I forget the terminology). This is off-putting. That was Hargreaves. Barclays, my other broker, don't even offer it (although when I phoned them they said that would be changing).
Why a TFG and a
Hi Unhooked, thank you. I exited out of here at $9.60 mainly to get some liquidity, but have bought back on today's update that there will be the (long awaited) buy backs. Amidst people "Russian for the exits" the annual report shows solid progress and particularly they announced $50m buy backs which is around 6.5% of the market cap so that should help close the 70% discount. Interestingly Investors Chronicle included it in their Alpha IT report in their top 25 February although it didn't make their top 10.
https://www.tetragoninv.com/~/media/Files/T/Tetragon-V2/financial-report/2022/annual-report-2021.pdf
Typically good analysis. You're an astute fellow - it seems you timed your entry point to catch the annual NAV uplift, which seems to give the share price a leg up. The question now for me is will it drift gently downwards again as it has done in previous years. I'm a bit short of money atm, but I'm thinking...
As I see it, the kicker here is if management finally do something to realise value and reduce the discount. After all, they are big holders in this Trust too. On the other hand there's no guarantee this will happen anytime soon. I particularly like your point about possible hedging and other strategies employed to mitigate inflation.
https://citywire.com/investment-trust-insider/news/trust-watch-big-new-bargains-as-markets-get-in-a-muddle/a2378673?ref=investment-trust-insider-comment-analysis-list#i=2
Tetragon’s titanic discount
For a change, we start with the week’s big risers. Tetragon Financial (TFG), although not the biggest gainer in our table, is the standout performer with the dormant shares in the alternative investments group jumping to life with a 9.5% leap by Thursday’s close.
That left it in fifth place in our list of investment company fliers, behind the volatile cent or penny stock that is DP Aircraft (DPA), and a broad bevy of private equity funds. Most notable of these is Seraphim Space (SSIT), which rallied 19% after its thumping in the January selloff to leave its shares standing on a 9% premium over NAV, but still down nearly 10% so far this year.
For seasoned watchers of Tetragon, a $2.9bn (£2.1bn) hedge fund with stakes in a range of fund managers, a share price rally in early February is almost a yearly event. That’s because at the end of January it publishes its NAV for 31 December, which includes an annual revaluation of the private equity stakes in its TFG Asset Management business. These jumped 35% to $1.25bn, pushing asset value up 11.6% in December and leaving the portfolio with a total underlying gain of 14.1% for 2021.
Forthcoming annual results will reveal which companies drove this performance, although from earlier statements it looks to be infrastructure fund manager Equitix. In the meantime, investors can only wonder when Tetragon’s chronically wide discount, now stretching to 68% with a market value of just £664m, will ever narrow?
Stifel analyst Iain Scouller lives in hope and believes following Monday’s statement the shares are worth tucking away in the hope something will be done – such as a flotation of the asset management business – to provide a catalyst for a gigantic rerating of the share price.
‘A wide discount has persisted for a long time and is not in itself a reason to buy the shares. However, we assume that at some point common sense will prevail and the board and management will come up with a proposition such as a restructuring to both recognise and realise value for shareholders,’ Scouller said.
Until then, don’t expect fireworks. Despite a 57% investment gain in the past five years, the shares have fallen 10%, illustrating how far the company has fallen out of favour.
I have stats which unfortunately only go back to April 2018 and it's fair to say that performance has been dreadful over that period. In fact the share price hasn't come back from the depths of the pandemic in March 2020. That is until last month's sudden and v unexpected rise.
It does seem an interesting proposition on an apparently v attractive discount but what's stopped me so far is how weird and inscrutable this trust is... even for the standards of PE.
I'd love to understand better the reasons for the poor performance and massive discount.
The recent rise wasn't down to you was it? Have you checked Kepler's research on this? That's what brought it onto my radar, although I'm not yet invested.
I bought in at $8.60 as I saw the technicals were showing very oversold and the discount to NAV was an eye popping 67%. The Z-Score was well under -2 (I think it was -2.6?)
TFG has been remarkable for several reasons:
1/ It has been impervious to the recent (Jan 2022) market fall and "inflation fear". As best as I can ascertain this is because they have some hedging and ambiguously named "market strategies"
2/ They have also popped up on my radar due to overlaps I've detected around biotech holdings compared to my other holdings. Overlap to SUPP, BIOG, ARIX, IPO.
3/ I've attempted to make sense of the NAV and admittedly haven't decisively worked this out. The only analyst following TFG seemed to have a similar challenge 6 months back. But a 67% discount to NAV is what seems at least as far as I can tell solid investments in some diverse and fairly low risk areas (along with some high risk areas like biotech). Their IR haven't been very forthcoming to questions.
4/ This share seems to go by with practically zero trade yet has a narrow spread. That makes it attractive in my book, in that you can set a stop loss to minimise risk of a fall and not be more that a few % down.
5/ This is a classic "margin of safety" share overlooked by the market, trundling away nicely and during 2021 has been driven downwards by sentiment and possibly apathy (NAV stayed the same and SP dropped). The falls have reversed it would seem albeit it's retraced about 3%
6/ The charges are quite high and the voting structure is basically there are 7 votes and you have none of them. These negatives don't bother me.
7/ Didn't I mention a dividend of 4.5%? !!
8/ Also if you look at it's long term record it's impressive (10%+ per annum returns). Lost its way in the past year or so maybe?
Next market update is early March. Even if the update is "business as usual" and zero gains, any kind of substantiation to its NAV will validate a re-rate. I'm pleased to be invested here.
Tetragon Financial Group (TFG:NA, or TFG:LN) (5.5% of current portfolio): Share Price: USD 12.55 Market Cap: USD 1,172 Million Looking at the longer-term chart, one might presume TFG’s NAV discount has been closing steadily…but in reality, the shares have mostly been tracking NAV higher. After the recent $50 million tender offer, I estimate NAV’s increased to $20.12 per share (all else being equal)…leaving Tetragon trading on a 38% discount to NAV. And stripping out net cash, it actually trades on an ex-cash 50% discount to the value of its investments & asset management platform. Noting TFG’s balance sheet strength, its record of compounding NAV by 15% pa in the last 5 years (& 12% pa since the original 2007 IPO), a generous & progressive dividend policy (which now offers a 5.3% dividend yield), and a history of tender offers & buybacks ($250 million+ in the last 3 years), this valuation makes little sense. Two main objections are generally cited: The first being Tetragon’s portfolio, which is supposedly chock-full of CLO equity…whereas in reality, CLO equity now amounts to just 24% of NAV, a ratio that continues to fall. The second is management itself – certainly well deserved, based on past history – but TFG now has 24% insider ownership, and management has actually demonstrated consistent alignment with shareholders in the past few years. Quite obviously, growing the asset management business & increasing the share price/NAV has become a far more lucrative proposition now than attempting to gouge shareholders. Fortunately, technicals confirm this: After trading a tight $9.50-11.60 range for most of the last 4 years, the shares broke decisively higher in December – I wouldn’t be surprised to see a $14 price handle soon (& further progress in due course). Management is also placing increasing emphasis on the AUM growth & earnings of TFG’s alternative asset management platform, currently focused mainly on credit, real estate & infrastructure. AUM has grown (primarily organically) an astonishing 33% pa in the last 4 years, to reach almost $19 billion now – despite the growth focus, it already boasts 30-40% EBITDA margins. Management also dual-listed the shares in London, expanded research coverage, invested more time in dial-in & road-show presentations, and has now begun wooing the business press – the ultimate intention here is to IPO the alternative asset management business. But I’m also conscious another of my holdings here – Fortress Investment Group (FIG:US), also a cash-rich & under-valued alternative asset manager – is actually TFG’s largest shareholder (controlling a 14-15% stake). I’d actually rate the chances of a merger/takeover here just as likely as an IPO, noting FIG’s long & extensive experience with building investment platforms & spinning o