Tetragon Financial Group (TFG) has released its annual financial returns for the 12 month period ending 31 December 2022.
- Over the period TFG reported a return on equity of -0.8%, a NAV total return of 1.0%, and a share price total return of 18.5%. This represents a NAV underperformance relative to TFG’s hurdle of LIBOR+2.65%, which returned 4.5% over 2022. However TFG has outperformed the FTSE All-Share Index, which returned 0.2%, and the MSCI ACWI Index, which returned -18.0%. Tetragon seeks to deliver a 10-15% return on equity per annum to shareholders.
- TFG declared a dividend of 44.0 cents per share in 2022, equal to a yield of 4.6% as of its financial year end.
- TFG repurchased $67.1m of its non-voting shares during 2022, and has announced its intention to repurchase approximately $25m shares. Based on TFG’s current NAV and share price, this will be accretive to NAV.
- US LIBOR will no longer be available as of 1 July 2023. The market will generally replace LIBOR with the Secured Overnight Funding Rate (SOFR). As such TFG will replace LIBOR with three-month term SOFR plus ten basis points in the Hurdle Rate formula. Accordingly, beginning 1 July 2023, the Hurdle Rate will be equal to three month term SOFR plus 2.75% per annum.
TFG’s investment manager commented:
“The deeply challenging investment environment in 2022 was a good test of our investment strategy and approach. The first half of 2022 was characterised by geopolitical crisis in Ukraine, supply chain disruption, and the U.S. Federal Reserve and other global rate setters struggling to address headline inflation. These combined stresses drove almost all major asset classes into double-digit first half declines.
“Tetragon expects the market outlook to continue to be challenging. As we begin 2023, markets are characterised by uncertainty and contradictions: simultaneously pricing in optimism and despair. Although elevated inflation continues to challenge economies, there is a growing number of doubters who believe the Fed will move to cut rates later this year. Expectations of rolling recessions over the next 12 months across the United States, United Kingdom and Europe are balanced by uncharacteristically strong labour markets in the United States, where a 3.4% unemployment rate matches multidecade lows and job openings continue to outpace the number of unemployed seeking work. Market exuberance in early 2023 reflects optimism that the wide array of open questions will resolve favourably towards a “soft landing”, downplaying concerns from central bankers, economists and value investors alike. We, as always, are more cautious.
“Although these contradictions may make allocating capital difficult, Tetragon believes that times like these can set the stage for the next several years of strong returns. Our approach to portfolio construction and performance allows us to invest in situations where other investors are rebalancing portfolios that are unbalanced, illiquid or impaired.”