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2013 Investor Call

August 8, 2013 10:00 AM ET


Paddy Dear - Principal

Philip Bland - CFO

David Wishnow - Principal



Paddy Dear

Good afternoon and good morning everyone. I would like to welcome you to the TFG Investor Call and we’re going to focus on the 2013 interim results. We have a presentation for you to follow on the website and more detail is available as always in the Interim Report which was released recently.

I will provide a brief overview of the company objectives, Philip Bland our CFO will cover the Company's financials, David Wishnow and I will cover the performance of the investment portfolio, Mike Rosenberg will discuss certain aspects of the current CLO market and I will then wrap up with a review of the asset management business and potential and new investments over the coming 12 months. We will also take questions electronically by our web-based system at the end of the presentation but also we'll try and answer certain questions that we've received since our last update during the presentation. I would like to remind everyone that as always, the following contains forward-looking comments including statements regarding intentions, beliefs, current expectations concerning performance and the 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 by way of introduction, we still get a few questions about the business model, as indeed we did have ahead of this call. The slide section (ph) is targeted to answer firstly those questions specifically but also to give introduction to those investors and potential investors who are new to the company. As the introduction slide says TFG maintains two key business segments, mainly an investment portfolio of financial assets and an asset management platform comprised of operating business, and I think this ownership of operating businesses that we believe distinguishes this business model. Currently financial assets are approximately $1.7 billion and the operating businesses under TFG asset management manage over 8 billion of client money by quarter end.

Secondly on the investment strategy, TFG's current investment strategies is try to enter assets, asset classes and opportunities that we believe may achieve sustainable return on equity. And we identifying work with superior investment teams to do this, we seek to optimize the structure of that investment and we're now part of the strategy to own some or all of the asset management companies that are making the investments. This was not only does the company get the returns on the invested capital but it hopefully adds fee income, both management and performance fees received of managing third party client money.

Obviously fee income, management fees and performance fees is fully correlated to performance, but it's the (inaudible) and client money for paying fees, then TFG investors will get a higher return on equity and that would have invested on the invested capital.

In the annual and repeated in the third quarter results, we have specific goals for 2013 which I will just like to highlight here. As regard to the return of earnings equity go, the first bullet point here, I would like to again mention that this is repeatable and sustainable return on equity net to shareholders and obviously those returns we achieved over various different cycles. The value is then delivered to shareholders through capital appreciation and dividend.

Also note that we would expect these returns to be likely to be correlated to LIBOR, and thus with LIBOR at record lows, we would expect (inaudible) that results would obviously be commensurately lower. The other bullet I point, I will (inaudible) in the presentation. So now I will like to turn the call over to our Chief Financial Officer, Philip Bland who will discuss the interim financial results.

Philip Bland

So I think the background to the business, I am going to focus on how the firm performs, particularly first half of 2013, while looking initially at TGF's key metrics, namely earnings, after share and dividends, and then reviewing same operations in different ways. And as Paddy mentioned for further details do please check out the recent report that we posted on the website.

So turning to see slide seven, relating to ROE. The first half of 2013 ROE of 6.1% which is around 12.3% annualized brought the year-to-date performance within TFG's over cycle targets of 10% to 15% per annum. TFG generated net economic income of a little under $100 million in the first half, which in the fall of 24.9% versus the same period in 2012.

While results for Q1 2013 were improved by sustained re-rating of TFG's U.S. CLO portfolio in particular and we anticipated it in our Q1 performance report, it was declined in the catalogs generated by CLOs during Q2.

This arose primarily from the confirmation of loan spread compression and elevates the levels of prepayments reflecting borrowers giving the opportunity to refinance at the lowest price. The same factors which can (inaudible) reduce actual cash flows also impacted predicted cash flows. This is also one of the main drivers behind the decline of TFG’s ROE for Q2 2013 versus the recent quarters to an annualized equivalent of 7.3%.

An improving outlook for our Euro-denominated CLO deals resulted in a reduction of discount rates we applied to the projected future cash flows and that added approximately $8.1 million to the fair value of that part of the CLO portfolio.

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