Tetragon Financial Group Ltd (AS:TFG) is a specialist closed-ended investment company, which aims to provide stable returns across economic and asset class cycles by investing in a diversified portfolio of selected alternative assets. Helped by the uplift to NAV per share from a US$65m tender offer in December 2017, Tetragon delivered a 9.0% NAV total return in US dollar terms in 2017, although currency moves held back returns in sterling terms. Tetragon’s share price discount to NAV has widened in 2018, with the share price declining along with the broader stock market while NAV remained stable, increasing the scope for a narrowing discount to lift future shareholder returns. The total dividend for 2017 progressed 4.1% higher to US$0.70, giving Tetragon a sector-leading 5.6% yield.
Investment strategy: Diversified alternative approach
Tetragon’s manager focuses on alternative asset classes, seeking uncorrelated, alpha-generating strategies that offer excess returns relative to their investment risk. Evaluations of risk/reward, correlation, duration and liquidity are used to gauge investment attractiveness and incremental effect on the portfolio. This approach has driven a steady increase in the diversification of Tetragon’s portfolio to include bank loans, asset management businesses, hedge fund strategies, real estate, private equity and other direct investments. When allocating to a new asset class, Tetragon also seeks to take a stake in the asset manager, aiming to enhance asset level returns. Net cash of c 20% of NAV is typically held to fund cash flow commitments.
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