Tetragon Financial Group Limited - 2015 Annual Report (Period ended 31 Dec 2015)

LONDON, Feb. 29, 2016 /PRNewswire/ --

TFG: Delivering Results Since 2005(1)(i)

Figure 1

LETTER TO OUR SHAREHOLDERS

Tetragon Financial Group Limited ("TFG" or the "Company") is a Guernsey closed-ended investment company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and (as of 9 November 2015) on the Specialist Fund Market(2) of the London Stock Exchange under ticker symbol "TFG.LN".  In this report, we provide an update on TFG's results of operations for the period ending 31 December 2015.(3)

Dear Fellow Shareholders,

The Company made a number of significant achievements in 2015, which was otherwise a challenging year for many investment strategies and a difficult market environment as a whole.  TFG posted strong annual Return on Equity ("RoE") growth, both on a like-for-like basis and on a Fair Value(4) basis.  TFG Asset Management, TFG's diversified alternative asset management business, has continued its growth through active capital raising into existing businesses, the launch of new businesses and acquisitions.  TFG also undertook several important initiatives to enhance shareholder value.

RoE and Fair Value RoE growth(5)

Throughout the industry in 2015, investment performance across asset classes was generally negative and where positive, returns were in many cases only modest.  Against that backdrop, we are pleased that the total return to TFG shareholders was +6.6%(6) for the year, with those results not fully reflecting the positive performance of the underlying business, which had a Fair Value RoE of 14.5%.  In fact, all but one of TFG's asset classes and underlying investment strategies posted positive returns during the year, with TFG Asset Management, U.S. CLOs, European event-driven equities and global real estate investments, in particular, delivering strong positive performance.  A portion of the growth of Fair Value RoE in 2015 was attributable to the inclusion of the Fair Value of certain TFG Asset Management assets (LCM(7), Polygon(8) and Hawke's Point(9)) that have otherwise been consolidated under U.S. GAAP and, as such, reflects value, whilst reported in 2015, that has actually been built over the last three years. 

Both CLO 1.0 investments (approximately $56 million of Fair Value Net Income(10) in 2015) and CLO 2.0 investments (approximately $30 million of Fair Value Net Income) performed well.  The European CLOs (all pre-crisis deals) had positive returns, but continued to underperform their U.S. equivalents.  2015 marked a turning point in TFG's CLO investing, where total investments in CLO 2.0 deals exceeded investments in CLO 1.0s for the first time as the Company continued to invest in new CLO 2.0s while CLO 1.0s continued to amortise.  Event-driven equities produced a particularly strong performance (approximately $67 million of Fair Value Net Income).  We were pleased that in a year that was difficult for many hedge funds, the event-driven hedge fund strategy generated double-digit returns.  The global real estate allocation also contributed approximately $25 million of Fair Value Net Income.  The only negative performer was the distressed strategy, where TFG has approximately $100 million invested, with the strategy down 2.2% net for the year.  TFG continues to hold cash representing just under 20% of Fair Value Net Asset Value ("Fair Value NAV") at year end.  This cash balance is held to fund not only existing investment commitments but also new investments, as well as dividends, fees payable to Tetragon Financial Management LP ("TFM" or the "Investment Manager") and other potential uses of cash.

Continued growth at TFG Asset Management

As announced in 2015, TFG's investment manager is continuing to grow TFG Asset Management with a view to a planned initial public offering and listing of shares of TFG Asset Management in the next three to five years.  To that end, TFG Asset Management continues to execute against key benchmarks: increased EBITDA, growth in assets under management ("AUM"), positive performance of the underlying strategies and the addition of new managers to the platform. 

During the year, TFG Asset Management's EBITDA increased by 102% to $46.6 million, with Fair Value Net Income of approximately $185 million for the year.  TFG Asset Management's aggregate AUM grew 54% to $17.1 billion(11), with LCM, the GreenOak joint venture(12) and Equitix(13) as significant contributors to this growth.  The underlying funds managed by the TFG Asset Management platform generally performed well against their peers(14).  And two of Polygon's hedge funds were nominated for 2015 EuroHedge Awards(15).  TFG Asset Management added two new businesses in 2015: in February, TFG completed its acquisition of Equitix, an integrated core infrastructure asset management and primary project platform; and in the fourth quarter, TFG Asset Management launched Tetragon Credit Income Partners (TCIP)(16), which is the general partner of a private equity vehicle that, among other things, makes investments in CLOs relating to risk retention rules.  TFG is a core investor in the vehicle, which had its first close in November 2015 with committed capital of $142.9 million (of which TFG was $35 million).  By investing alongside third-party investors in one or more TCIP private equity vehicles, TFG (which owns TCIP as general partner), is also potentially able to further diversify its CLO equity holdings across multiple CLO managers and increase its return on equity on those investments as TCIP receives fees for its investment services.

The Fair Value of TFG Asset Management as at 31 December 2015 was approximately $422 million, with LCM and Polygon shown at Fair Value for the first time during Q3 2015, and with the Fair Value for Equitix growing by approximately $41 million during the year.   

Initiatives to enhance shareholder value

During the year, TFG embarked on several initiatives intended to enhance shareholder value. 

• Stephen Prince joined as Co-Head of TFG Asset Management and TFM's Head of North America.  Stephen joined from Silver Creek Capital Management LLC, a $7 billion alternative investment firm, where he most recently served as Deputy Chief Investment Officer and Chair of the Investment Committee.  Stephen is focusing on helping to build value at TFG as it continues to seek to grow TFG Asset Management organically and through acquisitions, attract investment talent and optimise risk-adjusted returns for TFG's capital.
• TFG retained Stifel Nicolaus Europe Ltd. and Cantor Fitzgerald Europe as new joint corporate brokers to the Company in 2015.  The Company is working with its new brokers to bring TFG's story to a broader investor group.
• TFG's shares were admitted for trading on the Specialist Fund Market ("SFM") of the London Stock Exchange on 9 November 2015 (ticker: TFG.LN).  TFG believes that the principal benefits of having this additional trading venue should be improved liquidity through access to a broader investor base and expanded analyst coverage.  TFG will maintain its listing on Euronext in Amsterdam(17).  In conjunction with the SFM admission, the Investment Manager has conducted multiple meetings with potential shareholders in 2015 and early 2016 in London, Edinburgh and Amsterdam.
• In December, TFG purchased 6 million TFG non-voting shares at $10 per share in a tender offer using a modified Dutch auction structure.  Substantially all of the TFG shares acquired in the tender offer are being held to hedge against (or otherwise offset the future impact of) grants of shares under long-term incentive compensation awards by TFG Asset Management for certain long-standing and senior employees.
• As of Q1 2016, principal and employee holdings of TFG's non-voting shares (including through incentive compensation arrangements) increased to approximately 19% of the outstanding shares, thereby continuing to increase the alignment with shareholders.
• TFG's website has been redesigned.
• TFG hosted its annual Investor Day in London on 17 November 2015.  The event was webcast live and the replay can be viewed on our website, www.tetragoninv.com.
• The fourth quarter dividend was declared at $16.5 cents per share, making $64.75 cents for the full year, an increase of 4.9% on 2014.  This gives a current dividend yield of approximately 7%.

Current positioning of TFG's portfolio

We believe that TFG's portfolio is currently well-positioned, with many not easily replicated investments and with an appropriate level of cash.  The Investment Manager continues to seek uncorrelated, alpha-generating strategies in which to deploy TFG's capital.  The Investment Manager then seeks to find high-quality managers who invest in these asset classes and strategies; selects or structures suitable investment vehicles that optimise risk-adjusted returns for TFG's capital; and, where appropriate, seeks for TFG, through TFG Asset Management, to own a share of the asset management company.  TFG aims to not only produce asset level returns, but also aims to enhance these returns with profits from owning asset management businesses that derive income from external investors.  Thus, TFG seeks to use its balance sheet to facilitate the growth of TFG Asset Management to help create value for the Company.  The results of this strategy are reflected in the list of TFG's top ten holdings shown in Figure 2.

Figure 2

 

Outlook

The past several years have witnessed unprecedented monetary easing resulting in historically low interest rates globally.  Although in low-LIBOR environments, TFG may achieve lower sustainable returns, TFG is generally invested, including through the ownership of the relevant asset managers, in strategies that are seeking "absolute" returns rather than returns "relative to a financial index".  We believe that TFG's performance in 2015 reflects this approach.  During 2016, we are hopeful that our mix of asset classes and investment strategies will continue to produce what we believe are generally uncorrelated returns.

In terms of TFG Asset Management, despite increasing global uncertainty, it is continuing to seek to increase AUM across the platform.  In addition, the Investment Manager continues to look for new asset classes and new asset managers to add to the TFG Asset Management platform.  To date, through attractive performance, strong fundraising and good performance, the business has successfully grown.

In closing, we believe that TFG's portfolio, including TFG Asset Management, is well positioned to provide continued growth in 2016.

With Regards,

The Board of Directors 29 February 2016

 

TFG OVERVIEW

Tetragon Financial Group Limited ("TFG") is a Guernsey closed-ended company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and (as of 9 November 2015) on the Specialist Fund Market of the London Stock Exchange under ticker symbol "TFG.LN".

TFG's investment objective is to generate distributable income and capital appreciation.  It aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles.  The company's investment portfolio comprises a broad range of assets, including a diversified alternative asset management business, TFG Asset Management, and covers bank loans, real estate, equities, credit, convertible bonds and infrastructure.  

TFG's Fair Value NAV as of 31 December 2015 was approximately $2.0 billion.  Figure 3 shows the company's current net asset breakdown including TFG Asset Management at full estimated Fair Value.

Figure 3(i)(ii)

(i) Net Cash consists of: (1) cash held directly by Tetragon Financial Group Master Fund Limited, (2) excess margin held by brokers associated with assets held directly by Tetragon Financial Group Master Fund Limited, and (3) cash held in certain designated accounts related to TFG's investments, which may only be used for designated purposes without incurring significant tax and transfer costs, net of "Other Net Assets and Liabilities."

(ii) Assets characterised as "Equities" consist of the Fair Value of investments in Polygon-managed equity funds as well as the Fair Value of, or capital committed to, equity assets (as applicable) held directly on TFG's balance sheet.  Please see Figure 10 for further details on asset composition.

To achieve TFG's investment objective of generating distributable income and capital appreciation, TFG's current investment strategy is:

• To identify attractive asset classes and investment strategies.
• To identify asset managers it believes to be superior.
• To use the market experience of TFM, TFG's investment manager, to negotiate favourable terms for its investments.
• Through TFG Asset Management, and where sensible, to seek to own all, or a portion, of asset management companies with which it invests in order to enhance the returns achieved on its capital.

In addition, TFM's current investment strategy is to continue to grow TFG Asset Management – as TFG's diversified alternative asset management business – with a view to a possible initial public offering and listing of its shares.

As part of its investment strategy, TFM may employ hedging strategies and leverage in seeking to provide attractive returns while managing risk.

The Investment Manager seeks to identify asset classes that offer excess returns relative to their investment risk, or "intrinsic alpha."  It analyses the risk/reward, correlation, duration and liquidity characteristics of each potential capital use to gauge its attractiveness and incremental impact on the Company.

The Investment Manager then seeks to find high-quality managers who invest in these asset classes; selects or structures suitable investment vehicles that optimise risk-adjusted returns for TFG's capital; and/or seeks for TFG (via TFG Asset Management) to own a share of the asset management company.  TFG aims to not only produce asset level returns, but also aims to enhance these returns with capital appreciation and investment income from its investments in asset management businesses that derive income from external investors.

Certain considerations when evaluating the viability of a potential asset manager typically include: performance track records, reputation, regulatory requirements, infrastructure needs and asset gathering capacity.  Potential profitability and scalability of the business are also important considerations.  Additionally, the core capabilities, investment focus and strategy of any new business should offer a complementary operating income stream to TFG Asset Management's existing businesses.  The Investment Manager looks to mitigate potential correlated risks across TFG Asset Management's investment managers by diversifying its exposure across asset classes, investment vehicles, durations, and investor types, among other factors.

TFG's asset management businesses can operate autonomously, or on the TFG Asset Management platform.  In either case, the objective is for them to benefit from an established infrastructure, which can assist in critical business management functions such as risk management, investor relations, financial control, technology, and compliance/legal matters, while maintaining entrepreneurial independence.

Figure 4

TFG Asset Management consists of:

• LCM Asset Management – a CLO loan manager.
• The GreenOak Real Estate joint venture – a real estate-focused principal investing, lending and advisory firm.
• Polygon Global Partners – a manager of open-ended hedge fund and private equity vehicles across a number of strategies.
• Equitix – an integrated core infrastructure asset management and primary project platform.
• Hawke's Point – a business that seeks to provide capital to companies in the mining and resource sectors.  
• Tetragon Credit Income Partners (TCIP) – TCIP acts as a general partner of a private equity vehicle that, among other things, makes investments in CLOs relating to risk retention rules.

Assets under management for TFG Asset Management as of 31 December 2015 totalled approximately $17.0 billion.(18)

BOARD OF DIRECTORS

TFG's Board of Directors is comprised of six members, four of whom are Independent Directors who have significant experience in asset management and financial markets.  Biographies of the directors can be found in Appendix IX.

• Rupert Dorey (Independent Director)
• Frederic Hervouet (Independent Director)
• David Jeffreys (Independent Director)
• Byron Knief (Independent Director)
• Reade Griffith
• Paddy Dear

KEY METRICS

The Company focuses on the following key metrics when assessing how value is being created for, and delivered to, TFG shareholders:

• Earnings: Fair Value Return on Equity and Fair Value EPS;
• NAV per share; and
• Dividends.

As noted in the Letter to Shareholders, TFG's Key Metrics have been modified, effective from Q3 2015, to incorporate the value that is being created in TFG Asset Management on a consistent Fair Value basis using valuations provided by an independent valuation specialist reporting to the Audit Committee.  The resulting Fair Value metrics are described in this section and further detail on the drivers for each of the Fair Value metrics is discussed in the following sections of the report.

EARNINGS – FAIR VALUE RETURN ON EQUITY ("Fair Value RoE")

Fair Value RoE for 2015 was 14.5%, close to the top of TFG's long-term target range of 10-15%,(19) enhanced by the move to fair value-based metrics in Q3 2015

Following a challenging environment for investing in Q3, TFG ended the year strongly, with Fair Value Net Income(20) of $35.5 million in the quarter and $263.9 million for the full year.  This equated to a full year Fair Value RoE of 14.5% which included the impact of an uplift in the Fair Value of TFG Asset Management representing 6.3% ($114.6 of net income net of fees).

Stand out performers in 2015 were CLOs, Polygon's equity funds, "other equity" investments, real estate and TFG Asset Management, each of which is described in more detail later in the report.

Figure 5(i)

(i) Average RoE is calculated from TFG's IPO in 2007.  2015 RoE includes a fair value adjustment for certain TFG Asset Management businesses, the value of which has accumulated over several years.  Consequently the full year return of 14.5% is not prepared on a like for like basis with prior years.  Like for like performance for 2015 was 8.2%.

FAIR VALUE EARNINGS PER SHARE ("Fair Value EPS")

TFG generated a Fair Value EPS(21) of $2.72 in 2015

The Fair Value Net Income of $263.9 million resulted in a Fair Value EPS of $2.72, of which $1.18 related to the move to fair value accounting for elements of TFG Asset Management.  The underlying EPS performance of $1.54 represents a 24% increase over the corresponding period in 2014.

Figure 6

Further detailed information on the drivers of the Company's performance is provided later in this report.

FULLY DILUTED FAIR VALUE NAV PER SHARE

Fully Diluted Fair Value NAV per Share was $19.08 at the end of 2015, up 11.9% from the end of Q4 2014

• Total Fair Value NAV for TFG rose to $1,987.3 million at 31 December 2015, which equated to Fully Diluted Fair Value NAV per Share(22) of $19.08.
• The 11.9% growth recorded in the year is after distributing dividends of $0.64 during that period.

Figure 7(i)

(i) Source: Fully Diluted Fair Value NAV per share based on TFG's financial statements as of 31 December of each of the years shown.  Please see Figure 22 on page 33 for more details on the calculation of Fully Diluted Fair Value NAV Per Share.

 

DIVIDENDS PER SHARE ("DPS")

TFG increased its quarterly dividend to 16.50 cents per share in Q4 2015 from 16.25 cents the prior quarter

• TFG declared a Q4 2015 DPS of $0.165, an increase on the level declared for Q2 and Q3 2015.  On a rolling 12-month basis, the dividend of $0.6475 per share represents a 4.9% increase over the prior 12-month period and equated to an annualised dividend yield of 6.5% on the 31 December 2015 share price of $9.91.
• This dividend declaration continues TFG's progressive dividend policy, which targets a payout ratio of 30-50% of normalised earnings.  The Q4 2015 DPS of $0.165 brings the cumulative DPS declared since TFG's IPO to $4.09.

Figure 8

 

2015 IN REVIEW

The figure below illustrates the composition of TFG's Fair Value Net Assets as of 31 December 2015 and 31 December 2014.

Figure 9(i)(ii)

(i) Net Cash consists of: (1) cash held directly by Tetragon Financial Group Master Fund Limited, (2) excess margin held by brokers associated with assets held directly by Tetragon Financial Group Master Fund Limited, and (3) cash held in certain designated accounts related to TFG's investments, which may only be used for designated purposes without incurring significant tax and transfer costs, net of "Other Net Assets and Liabilities."

(ii) Assets characterised as "Equities" consist of the Fair Value of investments in Polygon-managed equity funds as well as the Fair Value of, or capital committed to, equity assets (as applicable) held directly on TFG's balance sheet.  Please see Figure 10 for further details on asset composition.

Top 10 Holdings as of 31 December 2015

The table below highlights the fair value of TFG's ten top holdings as of 31 December 2015.

Figure 10

 

Net Asset Breakdown and Income for 2015

Figure 11

(i)  "U.S. CLO 1.0" refers to U.S. CLOs issued before or during 2008.  "U.S. CLO 2.0" refers to U.S. CLOs issued after 2008.  The U.S. CLO 1.0 segment includes an investment in the BB tranche of a U.S. CLO 1.0 with Fair Value of $1.7 million.

(ii)  Assets characterised as "Other Equities" consist of the Fair Value of, or capital committed to, investment assets held directly on the balance sheet.

(iii)  The TFG Asset Management income figure includes the consolidated net income before tax of Polygon, LCM and Hawke's Point to 30 June 2015, and changes in the Fair Value of those investments from 1 July to 31 December 2015.  The income relating to investments in Equitix and GreenOak reflects the changes in the carrying value of these equity investments, and in the case of Equitix, interest income and changes in Fair Value connected to the loans held.

Figure 11 above shows Fair Value Net Assets and Fair Value Net Income by asset class for Q4 2015 and full year 2015, compared to 2014.

• U.S. CLO 1.0: TFG's U.S. CLO 1.0 investments continued to make a positive contribution to the Company's earnings during 2015, producing $55.7 million of income for the year, despite a pick-up in credit market volatility, particularly in energy and commodity related credits.  The average remaining expected duration of this segment of the portfolio declined in 2015 due to continued post-reinvestment period structural deleveraging, optional redemptions, and one asset sale, driving an approximate 41% reduction in the fair value of TFG's U.S. CLO 1.0 investments.  The aggregate fair value of the U.S. CLO 1.0 portfolio is now below that of the U.S. CLO 2.0 portfolio.  As of the end of 2015, all of TFG's U.S. CLO 1.0 deals were passing their junior-most O/C tests.(23)
• U.S. CLO 2.0: TFG's U.S. CLO 2.0 investments performed well in 2015 generating income of $30.2 million for the year.  As with U.S. CLO 1.0 investments, the CLO 2.0 segment faced oil/gas and commodity credit related headwinds as well as a handful of idiosyncratic defaults.  The second half of the year also saw leveraged loan spreads widen with the average single-B institutional U.S. loan spread rising by more than 26% from the lows registered earlier in the year.(24) We believe this allowed our CLO managers to reinvest into loans at lower prices and wider effective spreads, increasing the potential arbitrage available to our CLO equity investments (all else being equal).  Certain of our managers also focused on recalibrating the overall credit risk composition of their respective portfolios, by making opportunistic sales and substitutions.  As of the end of 2015, all of TFG's U.S. CLO 2.0s were in compliance with their junior-most O/C tests.(25)
• European CLO: TFG's European CLO investments generated positive returns on the year, recording $6.0 million of income.  As with the U.S. CLO 1.0 portfolio, we continued to see amortization of these European CLOs and undertook certain optional redemptions, reducing the U.S. dollar fair value by over 50%.  The vast majority of these optional calls were finalised during the year and TFG has received the net redemption proceeds.  At the end of 2015, all of TFG's European CLOs were in compliance with their junior-most O/C tests.(26)
• Equity Funds: Polygon's event-driven equity investments generated Fair Value Net Income of $15.3 million during 2015, compared to a loss of $3.2 million in 2014.  Fair Value Net Income generated in Q4 2015 was $9.6 million, a turnaround from a challenging Q3.  Polygon's European event-driven strategy returned 10.3% net during 2015, and its mining equity vehicle returned 6.2% net; the HFRX Event-Driven index(27) was down 6.94% in 2015 by comparison.  Please refer to page 26 for further details on the performance of the individual funds.
• Other Equities: These assets had positive returns of $4.2 million in Q4 2015, and full year fair value net income of $51.6 million for 2015.
• Convertible Fund: The contribution from Polygon's convertible fund investment had Fair Value Net Income of $0.6 million during Q4 2015, and full year net income of $2.3 million.  The fund's performance was up 4.56% net during 2015, compared to -0.12% for the HFRX Convertible Index.(28)  Please refer to page 26 for further details on the fund's performance.
• Distressed Fund: This asset subcategory had a loss of $0.6 million during Q4 2015 and a loss of $5.4 million for the full year.  Polygon's distressed fund performance was down 2.2% net during 2015, compared to the HFRX Distressed Index which was down 11.1% net in 2015; 6.7% of this drawdown was during Q4 alone.(29)  It should be noted that the net loss attributable from TFG's investment in the Distressed Fund also reflects start up costs for this aspect of the asset management business.  Please refer to page 26 for further details on the fund's performance.
• Real Estate: Despite a loss of $2.5 million during the quarter, real estate investments contributed $25.2 million to net income during 2015, with the majority of the year's contribution coming from U.S. and Japanese investments.  Overall, approximately $17.3 million of cash was returned during the quarter bringing the life-to-date cash returned to $106.1 million on the GreenOak-managed investments.
• TFG Asset Management: TFG's investment in TFG Asset Management generated $26.3 million of capital appreciation and investment income during the fourth quarter, as the valuations of these investments were recalibrated.  The main contributors were increases in the carrying value of TFG's investments in Equitix and LCM as both businesses continued to grow their AUM and profitability.  For further information on the basis for determining the Fair Value of the TFG Asset Management investment, please see Appendix IV.  TFG Asset Management's pro forma operating results are set out in Figure 15.
• Net Cash: TFG held $391 million of Fair Value in net cash at 31 December 2015.  The Company actively manages its cash levels to cover future commitments and to enable it to capitalise on opportunistic investments.

 

Figure 12

2015 Major New Investments

• U.S. CLO 2.0: In 2015, TFG acquired majority equity positions in two LCM-managed CLOs for a total cost of $62.4 million.  During Q4 2015, TFG made a capital commitment of $35.0 million to Tetragon Credit Income II L.P. ("TCI II"), a new vehicle focused on CLO investments relating to risk retention rules.  TCIP acts as the general partner of TCI II.  Although no capital was drawn from TFG before the end of 2015, TCI II had made its first investment into LCM XX Limited Partnership, to which TFG has exposure on a look-through basis.
• Real Estate: During 2015, TFG invested $81.4 million into various real estate funds and vehicles which focus on a variety of geographical areas including the Americas, Europe, and Asia.
• Equitix: In February 2015, TFG completed the acquisition of 85%(30) of Equitix Holdings Limited for a total enterprise value of £159.5 million.

2015 Major Asset Sales and Optional Redemptions

• U.S. CLO 1.0:  During 2015, TFG sold one U.S. CLO 1.0 transaction for total proceeds of $6.5 million.  In addition, TFG exercised its optional call/redemption rights on 11 U.S 1.0 CLOs, generating unwind proceeds of $67.1 million through the end of 2015.  Certain of these transactions have not yet liquidated all of their underlying assets and the Company expects to receive additional proceeds from these redemptions in 2016.
• European CLOs: TFG initiated an optional early redemption of two European CLOs in 2015, which generated partial unwind proceeds of €23.1 million during the year.  The Company expects to receive additional liquidation payments from the redemptions in 2016.
• Real Estate: During 2015, TFG received approximately $49.7 million in return of capital and income on certain investments in GreenOak-managed real estate vehicles; of this, $2.9 million was received in 2016.

TFG Asset Management Overview

One of TFG's significant investments is TFG Asset Management, a diversified alternative asset management business that owns majority and minority stakes in asset managers.  At 31 December 2015, TFG Asset Management comprised LCM, the GreenOak joint venture, Polygon, Equitix, Hawke's Point and TCIP (please see Figure 13 for the breakdown of AUM and Fair Value by business line).  TFG Asset Management has approximately $17.0 billion of assets under management(31) and approximately 210 employees globally.  Figure 14 depicts the growth of that AUM over the last five years.

During 2015, TFG Asset Management performed well, generating Fair Value Net Income of $185.2 million during the year, compared to $55.0 million in 2014.  The total Fair Value Net Assets of TFG Asset Management was $422.1 million at 31 December 2015.  Each of the underlying businesses increased its AUM during the year and the amount of fee income generated; see Figure 15 for details.  We are hopeful for continuing positive progress during 2016.

Figure 13(32)

Figure 14(33)

 

TFG Asset Management Pro Forma EBITDA (Ex-GreenOak)

Figure 15

(i)  The above table includes the income and expenses attributable to TFG's majority owned businesses, Polygon, LCM and Equitix during that period.  In the case of Equitix this only covers the period from 2 February 2015, the date of the closing of TFG's acquisition of Equitix.  Although TFG currently has an 85% effective economic share of its business, 100% of Equitix's income and expenses are reflected with the 15% not attributable to TFG backed out through the minority interest line.  GreenOak is not included.  The EBITDA equivalent is a non-GAAP measure and is designed to show the performance of the TFG Asset Management businesses rather than what is reflected in TFG's U.S. GAAP financial statements.

(ii)  The performance and success fees include some realised Polygon performance fees.  These represent the fees calculated by the applicable administrator of the relevant Polygon funds, in accordance with the applicable fund constitutional documents, when determining NAV at year end.  Similar amounts, if any, from LCM and GreenOak are recognised when received.  TFG is able to invest at a preferred level of fees.

• Overview: Figure 15 shows a pro forma statement of operations which reflects the operating performance of the majority-owned asset management companies within TFG Asset Management.  Although they are currently reported under U.S. GAAP, partially at Fair Value and partially on a consolidated basis, the aim of also presenting the underlying performance in this way is to give investors insight into a key driver behind that valuation.  GreenOak, in which TFG holds a minority interest, is not included in the pro forma EBITDA currently.
• EBITDA: EBITDA equivalent for the majority-owned TFG Asset Management businesses rose by 102% in 2015 compared with 2014, accelerated in large part by the inclusion of Equitix from the start of February 2015.
• Management fee income: Management fee income continued to increase with the growth of the TFG Asset Management businesses.  Fee-paying capital increased significantly year on year, both through organic growth of the Polygon and LCM businesses and, notably, from the acquisition of Equitix which added approximately $2.0 billion of fee-paying AUM from early February onwards.  See Figures 13 and 14 for further information on TFG Asset Management's AUM.
• Performance and success fees: Compared to last year, performance and success fees have increased significantly – by 174% – boosted by the addition of Equitix to TFG Asset Management.  After a challenging third quarter for performance, TFG Asset Management finished the year with a strong Q4, with particularly strong performances from both the Primary and Secondary businesses within Equitix, from realised performance fees generated by LCM and from performance fees relating to certain of Polygon's hedge funds, as described earlier in this report.
• Other fee income: This category includes third party CLO management fee income, all of which relates to U.S. CLO 1.0 transactions, which continued to decline in line with expectations as these transactions amortised down.  In addition, it includes certain cost recoveries from TFG relating to seeded Polygon hedge funds and management services revenues earned by Equitix.  The cost recoveries, which are described in more detail in the TFG Asset Management Overview section of this report, decreased slightly year on year although the teams supporting the seeded funds continued to grow.  As these businesses mature and build third party capital, such cost recoveries should reduce.  This category also includes fee income generated by Equitix on certain management services contracts, which is a growing part of the Equitix business.
• Operating expenses: Operating expenses rose by approximately 30% in 2015 compared to 2014, largely driven by the addition of the Equitix business in early 2015, plus additions to the teams supporting the growing Polygon and Hawke's Point businesses.

BUSINESS OVERVIEWS

The following pages provide a summary of each asset management business and a 2015 review of AUM growth and underlying strategy / investment vehicle performance.

All data is at 31 December 2015, unless otherwise stated.

LCM

 

 

GREENOAK

 

 

 

POLYGON

 

 

EQUITIX

 

 

HAWKE'S POINT

 

TCIP

 

CORPORATE RESPONSIBILITY

TFG believes that being a good citizen is an important part of doing business.  It aims to contribute positively to the communities around it by participating in the following initiatives:

• TFG Asset Management continues to be the largest contributor to BACIT Limited (the Battle Against Cancer Investment Trust) a UK-based charitable investment vehicle.  BACIT only invests where the relevant investment manager provides investment capacity on a ''gross return'' basis, meaning that BACIT and its subsidiaries (the "Group") do not bear the impact of management or performance fees on its investments.  This may be achieved by the relevant manager or fund agreeing not to charge management or performance fees, by rebating or donating back to the Group any management or performance fees charged or otherwise arranging for the Group to be compensated so as effectively to increase its investment return on the relevant investment by the amount of any such fees.  BACIT does not charge its investors fees.  However, it donates 1% of NAV each year to charity (50% to The Institute of Cancer Research and 50% to The BACIT Foundation).  In addition, BACIT also intends to invest up to one per cent per annum of NAV to acquire interests in drug development and medical innovation projects undertaken by the Institute of Cancer Research or its subsidiaries in the field of cancer research and therapeutics which have the potential for commercial development and application.  Further information on this initiative can be found on BACIT's website, www.bacitltd.com.
• TFG Asset Management also supports Hedge Funds Care │Help for Children, a charity for the prevention and treatment of child abuse.  Hedge Funds Care, also known as Help For Children (HFC), is an international charity, supported largely by the hedge fund industry, whose sole mission is preventing and treating child abuse.  Its main goals are to raise as much money as possible to fund the programs that do the preventing and treating of child abuse; and to showcase the philanthropy of the hedge fund and finance industries.  Further information can be found at www.hfc.org.
• TFG Asset Management is a corporate supporter of the Royal Court Theatre, its neighbour in London.  The Royal Court bills itself as "the writer's theatre" and has a particular mission to develop and cultivate new theatrical works from established and budding playwrights.  Corporate sponsorships such as ours enable the Royal Court to support and develop exciting new plays.  Further information can be found at www.royalcourttheatre.com.
• TFG Asset Management's Polygon business is a member of the Alternative Investment Management Association ("AIMA") and is a signatory of the Standards of the Hedge Fund Standards Board ("HFSB").
• Equitix, one of TFG Asset Management's businesses, has adopted specific initiatives regarding Environmental, Social and Governance ("ESG") policies, by incorporating ESG policy and requesting socially responsible analysis and reporting within corporate governance of the projects they own and manage through all of their Funds.  Furthermore, Equitix has a fund dedicated to making investments within the energy efficiency sector, which will make a direct contribution to the reduction of energy consumption and greenhouse gas emissions.  Equitix is a signatory of the United Nations Principles of Responsible Investment (www.unpri.org) and a member of the UK Sustainable Investment and Finance Association (www.uksif.org).  Please visit the Equitix website for further information: http://www.equitix.co.uk/sri.html.

2015 FINANCIAL REVIEW

This section shows consolidated financial data incorporating TFG and its 100% subsidiary, Tetragon Financial Group Master Fund Limited (the "Master Fund"), adjusted from Q3 2015 to reflect the Fair Value of TFG Asset Management's businesses which are consolidated under U.S. GAAP, and provides comparative data where applicable.(43)

FINANCIAL HIGHLIGHTS

Figure 22

TFG uses, among others, the following metrics to understand the progress and performance of the business:

• Fair Value Net Income ($263.9 million): Adds back to the U.S. GAAP net income ($127.3 million) the imputed 2015 share based compensation ($22.0 million), which is generated on an ongoing basis resulting from the 2012 Polygon transaction and the Fair Value adjustment ($114.6 million) attributable to Polygon, LCM, Hawke's Point and TCIP which are currently consolidated under U.S. GAAP but are reflected in TFG's key metrics as if they are held at Fair Value and not consolidated.  Please see Appendix V for further details.
• Fair Value Return on Equity (14.5%): Fair Value Net Income ($263.9 million) divided by Net Assets at the start of the year ($1,818.5 million).
• Pro Forma Fully Diluted Shares (104.2 million):(44) Adjusts the U.S. GAAP shares outstanding (95.9 million) for the impact of escrow shares used as consideration in the Polygon transaction and associated stock dividends (together, 6.6 million) and for the potential impact of share options issued (1.7 million).  These options represent the intrinsic value of shares available for the GreenOak Founders as at the end of 2015 (1.7 million) plus potential impact of options issued to TFG's investment manager at the time of TFG's IPO (0.0 million).  See also Figure 40.
• Fair Value EPS ($2.72): Calculated as Fair Value Net Income ($263.9 million) divided by weighted-average U.S. GAAP shares(i) during the period (97.1 million).
• Fully Diluted Fair Value NAV per Share ($19.08):(44)  Calculated as Fair Value Net Assets ($1,987.3 million) divided by Pro Forma Fully Diluted shares (104.2 million).

(i) The time-weighted average daily U.S. GAAP Shares outstanding during the applicable year.

FAIR VALUE EPS ANALYSIS 2013 - 2015

Figure 23

 

STATEMENT OF OPERATIONS (FAIR VALUE BASIS)

Figure 24

 

Performance Fee

A performance fee of $4.7 million was accrued in Q4 2015 in accordance with TFG's investment management agreement.  In 2015, the Investment Manager earned performance fees of $35.8 million.  The hurdle rate for the Q1 2016 incentive fee has been reset at 3.259558% (Q4 2015: 2.971858%) as per the process outlined in TFG's 2015 audited financial statements and in accordance with TFG's investment management agreement.  Please see TFG's website, www.tetragoninv.com, and the 2015 TFG audited financial statements for more details on the calculation of this fee.

BALANCE SHEET (FAIR VALUE BASIS)

Figure 25

See Appendix V for the reconciliation between the U.S. GAAP consolidated balance sheet and the balance sheet prepared on a Fair Value basis.

 

STATEMENT OF CASH FLOWS(i)

Figure 26

(i) The gross dividend payable to shareholders was US$ 62.5 million (2014: US$ 58.4 million, 2013: US$ 53.9 million) with a value equivalent to US$ 12.0 million (2014: US$ 6.4 million, 2013: US$ 4.4 million) elected to be taken by the dividend recipient in shares rather than cash.

 

FAIR VALUE NET INCOME TO U.S. GAAP RECONCILIATION

Figure 27

TFG is primarily reporting earnings through a non-GAAP measurement called Fair Value Net Income.

The reconciliation on the table above shows the adjustments required to get from this measure of earnings to U.S. GAAP net income. 

1.    Adjustment one takes into account a Fair Value adjustment of $114.6 million for Polygon, LCM, Hawke's Point and TCIP as if they were de-consolidated and held at Fair Value rather than consolidated as they currently are for U.S. GAAP purposes.  Further details are provided in Appendix IV.

2.    Adjustment two removes share based compensation of $22.0 million as, under ASC 805, TFG is recognizing the value of the shares given in consideration for the Polygon transaction as compensation over the period in which they are vesting.  This mechanic and future vesting schedule are described in more detail in the 2015 TFG audited financial statements.

APPENDICES

APPENDIX I

DIRECTORS' STATEMENTS

The Directors of TFG confirm that (i) this Annual Report constitutes the TFG management review for the year ended 31 December 2015 and contains a fair review of that period and (ii) the 2015 audited financial statements accompanying this Annual Report for TFG have been prepared in accordance with applicable laws and in conformity with U.S. generally accepted accounting principles.

APPENDIX II

CERTAIN REGULATORY INFORMATION

This Performance Report constitutes TFG's annual financial report as required pursuant to Section 5:25c of the Dutch Financial Markets Supervision Act ("FMSA").  Pursuant to Section 5:25c and 5:25m of the FMSA, this report is made public by means of a press release and has been filed with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) and also made available to the public by way of publication on the TFG website (www.tetragoninv.com).

An investment in TFG involves substantial risks.  Please refer to the Company's website at www.tetragoninv.com for a description of the risks and uncertainties pertaining to an investment in TFG.

This release does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction.  The securities of TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in the United States or to U.S. persons unless they are registered under applicable law or exempt from registration.  TFG does not intend to register any portion of its securities in the United States or to conduct a public offer of securities in the United States.  In addition, TFG has not been and will not be registered under the U.S. Investment Company Act of 1940, and investors will not be entitled to the benefits of such Act.  TFG is registered in the public register  of  the  Netherlands Authority  for  the  Financial Markets  under  Section  1:107  of  the FMSA as a collective investment scheme from a designated country.  This release constitutes regulated information ("gereglementeerde informatie") within the meaning of Section 1:1 of the FMSA.

TFG shares (the "Shares") are subject to legal and other restrictions on resale and the Euronext Amsterdam N.V. and SFM trading markets are less liquid than other major exchanges, which could affect the price of the Shares.

There are additional restrictions on the resale of Shares by Shareholders who are located in the United States or who are U.S. persons and on the resale of Shares by any Shareholder to any person who is located in the United States or is a U.S. person.  These restrictions include that each Shareholder who is located in the United States or who is a U.S. person must be a "Qualified Purchaser" or a "Knowledgeable Employee" (each as defined in the Investment Company Act of 1940), and, accordingly, that Shares may be resold to a person located in the United States or who is a U.S. person only if such person is a "Qualified Purchaser" or a "Knowledgeable Employee" under the Investment Company Act of 1940.  These restrictions may adversely affect overall liquidity of the Shares.

APPENDIX III

FAIR VALUE DETERMINATION OF CLO EQUITY INVESTMENTS

In accordance with the valuation policies set forth on TFG's website, the values of TFG's CLO equity  investments  are  determined  using  a  third-party  cash  flow  modelling  tool.  The  model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward- looking observable data) might potentially impact the performance of TFG's CLO equity investments.  Since this involves modelling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.

Subject to the foregoing, when determining the U.S. GAAP-compliant Fair Value of TFG's portfolio, the Company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate.

The below modelling assumptions are unchanged from last quarter.

Figure 28

U.S. CLOs modelling assumption

 

Figure 29

European CLOs Modelling Assumption

 

Figure 30

Discount Rates

 

APPENDIX IV

FAIR VALUE DETERMINATION IN TFG ASSET MANAGEMENT

In accordance with the accounting guidance in the AICPA Audit and Accounting Guide (2015): Investment Companies (the "Guide"), as an Investment Company, TFG  carries all of its investments at Fair Value.  However, as outlined in section 7.10 of the Guide, operating entities should be consolidated where TFG (i) has an economic interest in excess of 50%; (ii) is deemed to have control over the significant operational and financial decisions of the entity; and (iii) where the purpose of the operating entity is to provide services to the Investment Company (i.e., TFG) rather than realise a gain on the sale of the investment.  As at 31 December 2015, this consolidation exemption was applied to TFG's holdings in Polygon, LCM and Hawke's Point (the "Consolidated Businesses") because these businesses were managing some of TFG's investment capital and thus could be deemed to be providing services to TFG.  In contrast, Equitix is not managing TFG's capital so is not subject to point (iii) above, and GreenOak is minority-owned so is not subject to points (i) or (ii) above.

The resultant inconsistency of treatment under U.S. GAAP of the businesses in TFG Asset Management is potentially confusing to the reader of TFG's financial statements, particularly since the determination and articulation in Q3 2015 of the "IPO Strategy"(45) for TFG Asset Management, which confirmed that the primary commercial purpose for TFG Asset Management, including the Consolidated Businesses, is to be held as an investment for capital appreciation, in line with TFG's investment objective.  Consequently, from Q3 2015, TFG has prepared and presented its non-GAAP financial metrics and performance information using a consistent Fair Value basis for all of TFG Asset Management.  Some of the differences resulting from the presentation of non-GAAP metrics are reconciled in Appendix V.

TFG's investments in the TFG Asset Management businesses are considered to be "Level 3" investments in the U.S. GAAP valuation hierarchy and the Audit Committee of TFG, comprising the Independent Directors, has engaged third-party valuation specialists to determine an indicative valuation for each of these businesses.  These valuations have been adopted for the purposes of reporting the Fair Value impact in TFG's non-GAAP metrics as at 31 December 2015.

Figure 31 sets out the valuation approach utilised for each of the businesses as well as the range of market metrics utilised in determining Fair Value.  Both management and performance fees ("Fees") continue to be calculated based on the U.S. GAAP measure of Net Asset Value and thus the non-GAAP adjustments do not currently impact the Fees payable to the Manager.

Figure 31

 

APPENDIX V

RECONCILIATION BETWEEN U.S. GAAP AND FAIR VALUE BASIS

This section describes how the non-GAAP Fair Value adjustments relating to LCM, Polygon, Hawke's Point and TCIP have been made to the U.S. GAAP financials to arrive at the Key Performance Metrics.

Figure 32 details the impact of such a change in accounting treatment for LCM, Polygon and Hawke's Point in terms of carrying value and performance fees.

In arriving at the imputed performance fee, the change in NAV is adjusted by the full amortisation of the remaining base cost ($29.9 million) of the purchase of 25% of LCM in 2012.  Previously, this was being amortised on a straight-line basis over 10 years, and each quarter an applicable adjustment is made to reduce the performance fees payable to the investment manager.

Figure 32

 

Figure 33 shows a reconciliation between the Statement of Operations prepared on a full Fair Value basis and on a U.S. GAAP basis.  We assume that the date of notional de-consolidation was the start of Q3 2015, the quarter in which the IPO Strategy, and thus the change in the purpose for the expanded TFG Asset Management, was confirmed.

In addition to adding in the unrealised Fair Value as detailed in Figure 32, the reconciliation shows the removal of the operating P&L for H2 2015, and the reversal of certain balance sheet items relating to Polygon, LCM, Hawke's Point or TCIP.  Such items include the remaining intangible asset balance relating to Polygon's management contracts and a reversal of a deferred tax liability.

We adjust for notional performance fees of $28.3 million as calculated in Figure 32.

In addition, as in prior periods, we back out share-based compensation of $22.0 million as, under ASC 805, TFG is recognizing the value of the shares given in consideration for the Polygon transaction as compensation over the period in which they are vesting.  This mechanic and future vesting schedule are described in more detail in the 2015 Master Fund audited financial statements.

Figure 33

 

Figure 34 shows a reconciliation between the Balance Sheet prepared on a full Fair Value basis and on a U.S. GAAP basis.  As noted above, we assume that the date of notional de-consolidation was the start of Q3 2015, the quarter in which the IPO Strategy, and thus the purpose for the expanded TFG Asset Management – to be held as an investment for IPO – was confirmed.

In addition to adding in the unrealised Fair Value of $178.3 million as detailed in Figure 32, the reconciliation shows the removal of certain balance sheet items relating to Polygon, LCM, Hawke's Point and TCIP, including the value of Polygon's un-amortised management contracts ($23.4 million), cash of $37.7 million held in TFG Asset Management, a small amount of fixed assets, a deferred tax asset and receivables, which mainly relate to cost recoveries.  On the liability side, we reverse certain accrued expenses including compensation and add back a notional performance fee of $28.3 million relating to the Fair Value adjustment as detailed in Figure 32.

Figure 34

 

APPENDIX VI

ADDITIONAL CLO PORTFOLIO STATISTICS

Each individual deal's metrics used in the calculation of the figures below will differ from the overall averages and vary across the portfolio.

[Figure 35 cannot be reproduced]

[Figure 36 cannot be reproduced]

 

CLO PORTFOLIO CREDIT QUALITY

Figure 37

 

CLO EQUITY PORTFOLIO DETAILS AS OF 31 DECEMBER 2015

Figure 38

 

 

CLO EQUITY PORTFOLIO DETAILS AS OF 31 DECEMBER 2015 (continued)

Notes

(i)     Transactions are investments made on a particular investment date.  Multiple transactions may be associated with the same tranche of the same CLO deal.  Note that certain transactions may have been removed from the table above, as the remaining value of the assets of those CLOs is immaterial. TFG may continue to hold such transactions as of the date of this report.

(ii)    The USD investment cost reflects a USD-EUR exchange rate fixed at a single historical rate to avoid the impact of skewed weightings and FX volatility over time.  As such, the investment costs of European CLOs as shown in this table may not be comparable to the investments costs as shown in TFG's financial statements.

(iii)    Par weighted-average spread over LIBOR or EURIBOR (as appropriate) of the underlying loan assets in each CLO's portfolio.

(iv)   Notional weighted-average spread over LIBOR or EURIBOR (as appropriate) of the debt tranches issued by each CLO, as of the closing date of each transaction.

(v)    Notional weighted-average spread over LIBOR or EURIBOR (as appropriate) of the debt tranches issued by each CLO, as of the most recent trustee report date.

(vi)   The current junior-most O/C cushion is the excess (or deficit) of the junior-most O/C test ratio over the test requirement, as of the latest trustee report available as of the report date. Calculations are ignored and stated as "N/A" In certain cases where debt has been substantially, but not fully, repaid, resulting in a junior-most O/C test cushion that is not meaningful.

(vii)  The junior-most O/C cushion at close is the excess (or deficit) of the junior-most O/C test ratio over the test requirement that was expected on each deal's closing date.  Please note that two of TFG's investments are so called "par structures" which don't include a junior O/C test.  They have been marked by an "N/A" in the relevant junior-most O/C test columns.

(viii)  Calculated by annualising the change from the expected closing date junior-most O/C cushion to the current junior-most O/C cushion.

(ix)   Calculated from TFG's investment date.  Includes both historical cash flows received to-date and prospective cash flows expected to be received, based on TFG's base case modelling assumptions.

(x)    Inception to report date cash flow received on each transaction as a percentage of its original cost.

 

[Figure 39 cannot be reproduced]

 

APPENDIX VII

SHARE RECONCILIATION AND SHAREHOLDINGS

Figure 40(46)

 

SHAREHOLDINGS

Persons affiliated with TFG maintain significant interests in TFG shares.  For example, as of 31 December 2015, the following persons own (directly or indirectly) interests in shares in TFG in the amounts set forth below:

*The amounts set forth above in regards to Messrs. Griffith and Dear include their interests with respect to the Escrow Shares.  In addition to the foregoing, as of 31 December 2015, certain employees of subsidiaries of TFG and other affiliated persons own in the aggregate approximately 3.3 million shares, including interests with respect to the Escrow Shares, in each case, however, excluding any TFG shares held by the GreenOak principals or employees.

As previously disclosed, non-voting shares of TFG (together with accrued dividends and previously vested shares, (the "Vested Shares")) that were issued pursuant to TFG's acquisition in October 2012 of TFG Asset Management L.P. (f/k/a Polygon Management L.P.) and certain of its affiliates (the "Polygon Transaction") have vested with certain persons (other than Messrs. Griffith and Dear) (such persons, the "Sellers"), all of whom are employees or partners ("Employees") of TFG-owned or affiliated entities, pursuant to the Polygon Transaction.

Certain Sellers agreed to sell to Messrs. Griffith and Dear and certain employees of TFG Asset Management on 29 October 2015 an aggregate of approximately 0.26 million Vested Shares at a price equal to the tender offer clearing price of $10.  Messrs. Griffith and Dear acquired acquire in aggregate approximately 0.12 million Vested Shares and these are included in their shareholdings disclosed above.

Certain of these persons may from time to time enter into purchases or sales trading plans (each a, "Fixed Trading Plan") providing for the sale of Vested Shares or the purchase of TFG shares in the market, or may otherwise sell their Vested Shares or purchase TFG shares, subject to applicable compliance policies.  Applicable brokerage firms may be authorised to purchase or sell TFG shares under the relevant Fixed Trading Plan pursuant to certain irrevocable instructions.  Each Fixed Trading Plan is intended to comply with Rule 10b5-1 under the United States Securities Exchange Act of 1934, as amended.  Each Fixed Trading Plan has been or will be approved by TFG in accordance with its applicable compliance policies.

For additional information regarding the Polygon Transaction and the future vesting schedule for shares issued thereunder, see Note 22 to the 2015 Tetragon Financial Group Master Fund Limited audited financial statements.

Rule 10b5-1 provides a "safe harbor" that is designed to permit individuals to establish a pre-arranged plan to buy or sell company stock if, at the time such plan is adopted, the individuals are not in possession of material, nonpublic information.

APPENDIX VIII

ADDITIONAL CORPORATE INFORMATION

DESCRIPTION OF BUSINESS

TFG (company number 43321) is a Guernsey closed-ended company traded on Euronext Amsterdam N.V. under the ticker symbol "TFG.NA" and on the Specialist Fund Market of the London Stock Exchange under the symbol "TFG.LN".  

TFG's investment objective is to generate distributable income and capital appreciation.  It aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles.  The company's investment portfolio comprises a broad range of assets, including a diversified alternative asset management business, TFG Asset Management, and covers bank loans, real estate, equities, credit, convertible bonds and infrastructure.

TFG's asset-management platform, TFG Asset Management, consists of LCM, the GreenOak joint venture, Polygon, Equitix, Hawke's Point, and TCIP.  TFG Asset Management is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 and one of its investment management entities, Polygon Global Partners LLP, is authorised and regulated by the United Kingdom Financial Services Authority. 

TFG is registered in the public register of the Netherlands Authority for the Financial Markets under section 1:107 of the FMSA as a collective investment scheme from a designated country.

ORGANISATIONAL STRUCTURE

TFG currently invests through a "master-feeder" structure whereby TFG's only direct investment is in shares of Tetragon Financial Group Master Fund Limited, or the TFG Master Fund.

[Figure 41 cannot be reproduced]

TFG has an authorised share capital of $1,000,000 divided into 10 voting shares, having a par value of $0.001 each, and 999,999,990 non-voting shares.  The 10 voting shares in issue were issued at par and are owned by Polygon Credit Holdings II Limited, which is a non-U.S. affiliate of TFG's investment manager and is ultimately controlled by Reade Griffith and Paddy Dear.

TFG's voting shares are the only shares of TFG entitled to vote for the election of TFG's and the Master Fund's boards of directors and on all other matters, subject to the limited rights of the shares described in TFG's Memorandum and Articles of Incorporation.  TFG's voting shares are not entitled to receive dividends.

Except as described in TFG's Memorandum and Articles of Incorporation, the non-voting shares are not entitled to vote on any matter.  The non-voting shares carry a right to any dividends or other distributions declared by TFG.

INVESTMENT MANAGEMENT

Tetragon Financial Management LP, or TFM, has been appointed the investment manager of TFG and the Master Fund pursuant to an investment management agreement dated 26 April 2007 (the "Investment Management Agreement").  TFM's general partner, Tetragon Financial Management GP LLC, is responsible for all actions of the investment manager.  The general partner is ultimately controlled by Reade Griffith and Paddy Dear, who also control the holder of TFG's voting shares and are the voting members of TFM's Investment and Risk Committees.  Reade Griffith acts as the authorised representative of the general partner and TFM.

TFM's Investment Committee is responsible for the investment management of TFG and the Master Fund portfolio and currently consists of Reade Griffith, Paddy Dear, Jeffrey Herlyn, Michael Rosenberg, David Wishnow and Stephen Prince.  The Investment Committee determines the investment strategy of TFG and the Master Fund and approves each significant investment by them.

TFM's Risk Committee is responsible for the risk management of TFG and the Master Fund portfolio and performs active and regular oversight and risk monitoring.  The risk committee has the same composition as the investment committee.

TFM's Executive Committee oversees all key non-investment and risk activities of TFM and currently consists of Reade Griffith, Paddy Dear, David Wishnow, Stephen Prince, Phil Bland, Sean Côté and Greg Wadsworth.

Summary of Key Terms of TFG's Investment Management Agreement

Under the terms of the Investment Management Agreement, TFM has full discretion to invest the assets of TFG and the Master Fund in a manner consistent with the investment objective of TFG.  TFM has the authority to determine the investment strategy to be pursued in furtherance of the investment objective, which strategy may be changed from time to time by TFM in its discretion. TFM is authorised to delegate its functions under the Investment Management Agreement.

The Investment Management Agreement continues in full force and effect unless terminated (i) by the investment manager at any time upon 60 days' notice or (ii) immediately upon TFG or the Master Fund giving notice to the Investment Manager or the Investment Manager giving notice to TFG or the Master Fund in relation to such entity in the event of (a) the party in respect of which notice has been given becoming insolvent or going into liquidation (other than a voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the other party) or a receiver being appointed over all or a substantial part or of its assets or it becoming the subject of any petition for the appointment of an administrator, trustee or similar officer, (b) a party committing a material breach of the Investment Management Agreement which causes a material adverse effect to the non-breaching party and (if such breach shall be capable of remedy) not making good such breach within 30 days of service upon the party in breach of notice requiring the remedy of such breach or (c) fraud or wilful misconduct in the performance of a party's duties under the Investment Management Agreement.

The Investment Management Agreement provides that none of the Investment Manager, its affiliates or their respective members, managers, partners, shareholders, directors, officers and employees (including their respective executors, heirs, assigns, successors or other legal representatives) (each, as an indemnified party) will be liable to the Master Fund, TFG or any investor in the Master Fund or TFG for any liabilities, obligations, losses (including, without limitation, losses arising out of delay, mis-delivery or error in the transmission of any letter, cable, telephonic communication, telephone, facsimile transmission or other electronic transmission in a readable form), damages, actions, proceedings, suits, costs, expenses (including, without limitation, legal expenses), claims and demands suffered in connection with the performance by the investment manager of its obligations under the Investment Management Agreement or otherwise in connection with the business and operations of TFG or the Master Fund, in the absence of fraud or wilful misconduct on the part of an indemnified party, and TFG and the Master Fund have each agreed to indemnify each indemnified party against any such liabilities, obligations, losses, damages, actions, proceedings, suits, costs, expenses, claims and demands, except as may be due to the fraud or wilful misconduct of the indemnified party.

TFM may act as investment manager or advisor to any other person, so long as its services to TFG or the Master Fund are not materially impaired thereby, and need not disclose to TFG or the Master Fund anything that comes to its attention in the course of its business in any other capacity than as investment manager.  The Investment Manager is not liable to account for any profit earned or benefit derived from advice given by the investment manager to other persons. The Investment Manager will not be liable to TFG or the Master Fund for any loss suffered in connection with the Investment Manager's decision to offer investments to any other person, or failure to offer investments to TFG or the Master Fund.

The Investment Manager is authorised to enter into transactions on behalf of TFG and the Master Fund with persons who are affiliates of the investment manager, provided that in connection with any such transaction that exceeds $5 million of aggregate investment, the investment manager obtains either (i) the approval of a majority of the members of the Board Directors of TFG and the Master Fund that do not have a material interest in such transaction (whether as part of a Board of Directors resolution or otherwise) or (ii) an opinion from a recognized investment bank, auditing firm or other appropriate professional firm substantively to the effect that the financial terms of the transaction are fair to TFG and the Master Fund from a financial point of view.

Management and Incentive Fees; Expenses

All fees and expenses of TFG and the Master Fund, except for the incentive fees for TFM as investment manager (as described below), will be paid by the Master Fund, including management fees relating to the administration of TFG.

The Investment Manager is entitled to receive management fees equal to one and one-half percent (1.5%) per annum of the net asset value (NAV) of TFG payable monthly in advance prior to the deduction of any accrued incentive fees.  No separate management fees are payable with respect to the NAV of the Master Fund.

TFG will also pay to the Investment Manager an incentive fee for each Calculation Period (as defined below) equal to 25% of the increase in the NAV of TFG during the Calculation Period (before deduction of any dividend paid or the amount of any redemptions or repurchases of Shares (or other relevant capital adjustments) during such Calculation Period) above (i) the Reference NAV (as defined below) plus (ii) the Hurdle (as defined below) for the Calculation Period. If the Hurdle is not met in any Calculation Period (and no incentive fee is paid), the shortfall will not carry forward to any subsequent Calculation Period.

A "Calculation Period" is a period of three months ending on March 31, June 30, September 30 and December 31 of each year, or as otherwise determined by the Board of Directors of TFG.

The "Reference NAV" is the greater of (i) NAV at the end of the Calculation Period immediately preceding the current Calculation Period and (ii) the NAV as of the end of the Calculation Period ending three months earlier than the Calculation Period referred to in clause (i). For the purposes of determining Reference NAV at the end of a Calculation Period, NAV shall be adjusted by the amount of accrued dividends and amounts of any redemptions or repurchases of Shares (or other relevant capital adjustments) and incentive fees to be paid with respect to that Calculation Period.

The "Hurdle" for any Calculation Period will equal (i) the Reference NAV multiplied by (ii) the Hurdle Rate (defined below).

The "Hurdle Rate" for any Calculation Period equals 3-month U.S. Dollar LIBOR determined as of 11:00 a.m. London time on the first London business day of the then current Calculation Period plus the hurdle spread of 2.647858%, in each case multiplied by (x) the actual number of days in the Calculation Period divided by (y) 365.

The incentive fee in respect of each Calculation Period is calculated by reference to the increase in NAV of the Shares before deduction of any accrued incentive fee. The incentive fee is normally payable in arrears within 14 calendar days of the end of the Calculation Period. If the Investment Management Agreement is terminated other than at the end of a Calculation Period, the date of termination will be deemed to be the end of the Calculation Period. The Investment Manager does not charge separate fees based on the NAV of the Master Fund.

TFG and the Master Fund generally bear all costs and expenses directly related to their investments or prospective investments, such as brokerage commissions, interest on debit balances or borrowings, custodial fees and legal and consultant fees. TFG and the Master Fund also generally bear all out-of-pocket costs of administration including accounting, audit, administrator and legal expenses, costs of any litigation or investigation involving their activities, costs associated with reporting and providing information to existing and prospective investors and the costs of liability insurance.

Investment Manager Options

In recognition of the work performed by the Investment Manager in successfully arranging the 2007 global offering and the associated raising of new capital for the company, TFG granted to the investment manager options to purchase 12,545,330 of TFG's non-voting shares (subject to the application of customary anti-dilution provisions) at an exercise price per share equal to the IPO offer price (U.S. $10.00).  These options became fully vested and immediately exercisable as of the date of admission to the Euronext Amsterdam N.V. and will remain exercisable until the 10th anniversary of that date (i.e., 26 April 2017).  None of the options have been exercised.

The Investment Manager's Role with respect to TFG Asset Management

TFM's responsibilities with respect to TFG and the Master Fund include, inter alia:

• investing and reinvesting the assets of TFG and the Master Fund in securities, derivatives and other financial instruments and other investments of whatever nature and committing the assets of TFG and the Master Fund in relation to agreements with entities, issuers and counterparties;
• holding cash balances or investing them directly in any short-term investments, and reinvesting any income earned thereon in accordance TFG's investment strategy;
• purchasing, holding, selling, transferring, exchanging, mortgaging, pledging, hypothecating and otherwise acting to acquire and dispose of and exercise all rights, powers, privileges and other incidents of ownership or possession with respect to investments held or owned by TFG and the Master Fund, with the objective of the preservation, protection and increase in value thereof;
• exercising any voting or similar rights attaching to investments purchased on behalf of TFG and the Master Fund;
• borrowing or raising monies from time to time without limit as to amount or manner and time of repayment;
• engaging consultants, attorneys, independent accountants or such other persons as the investment manager may deem necessary or advisable; and
• entering into any other contracts or agreements in connection with any of the foregoing activities.

TFG Asset Management is an investment of the Master Fund, and, as such, TFM, as the investment manager, is responsible for exercising any of the Master Fund's voting or similar rights with respect to TFG Asset Management, as an investment.  As with any other category of investments, TFM is also responsible for decisions with respect to acquisitions and dispositions by the Master Fund of asset management businesses – as investment decisions with respect to the Master Fund's cash or other assets.(48)  Following the acquisition of an asset management business, that business then becomes a part of TFG Asset Management.

TFG Asset Management seeks to generate income and value from its asset management businesses by having these businesses manage third-party investor capital.  TFG Asset Management has an internal management team that is responsible for the TFG Asset Management business as a whole, including the oversight of its various asset management businesses as they form and grow the funds that they manage, and is responsible for its own costs.

The Master Fund may invest in the various funds and other vehicles managed by a TFG Asset Management business.  It may also provide financial support to any fund managed by a TFG Asset Management business (such as a "seeding" arrangement), or provide equity, loans or other financial support to TFG Asset Management or its asset management businesses.  TFM is responsible for any decision to invest cash into any fund or other vehicle managed by a TFG Asset Management business(49) and is also responsible for decisions regarding financial support for TFG Asset Management.

Services Agreement between the Investment Manager and Certain Subsidiaries of TFG Asset Management

TFM has, since its inception, relied on two Polygon entities(50) for a broad range of services to support its activities.(51) 

Following TFG's 28 October 2012 acquisition of Polygon Management L.P., these entities have been part of TFG Asset Management.  The services provided to TFM under a Services Agreement by TFG Asset Management, through these entities, include infrastructure services such as operations, financial control, trading, marketing and investor relations, legal, compliance, office administration, payroll and employee benefits.  One of those entities, Polygon Global Partners LLP, which is authorised and regulated by the United Kingdom Financial Conduct Authority, also provides services relating to the dealing in and management of investments, arrangement of deals and advising on investments.

Cost Recovery by TFG Asset Management for Services Provided to TFG's Investment Manager

TFG Asset Management, through its Polygon subsidiaries, has implemented a cost-allocation methodology with the objective of allocating service-related costs, including to TFM, in a consistent, fair, transparent and commercially-based manner.(52)

TFG Asset Management then charges fees to TFM for the services allocated to TFM on a cost-recovery basis that is designed to achieve full recovery of the allocated costs.

Most of the costs related to these services are directly or indirectly attributable to personnel or "human capital", with compensation typically being the largest single cost.(53)

Consequently, one of the most critical cost allocations is related to professionals' time, which is commonly expressed as Full Time Equivalents or "FTEs".  On a monthly basis, each TFG Asset Management employee, directly or via their team head, provides a breakdown of the approximate percentage of time spent supporting the various businesses for the previous month (this excludes certain functions such as office management and technology that are charged to business users on a standard basis (e.g., space used or global headcount) which removes any need on the part of those teams to allocate their FTEs to business lines).  TFG Asset Management employees should not be incentivised to either over or under allocate to any business as their time allocation is not a consideration in the determination of their overall compensation.  Once allocated percentages are determined and agreed, a FTE is derived.  Personnel costs (excluding bonuses) of each function are calculated using a standard costing methodology, which includes a standard add-on for employment taxes and standard employee benefits.  Bonuses are charged to each business line (including TFM) based on the FTE allocation described above.

In addition to FTE costs, there are a number of other costs that reflect the use of resources by TFG Asset Management personnel on behalf of TFM (in addition to the other TFG Asset Management businesses), including real property costs, technology, travel and entertainment and market data. A standard cost methodology is used to allocate these costs across the various business lines that are supported, including TFM.  The setting of standard costs is designed to reflect what those costs would be on an arm's-length basis.  The methodology is designed to create consistency in order to provide a fair allocation of resource costs to all businesses.

Employee FTE data is collated and is used to process monthly cost allocations.  Such allocations are invoiced monthly to users of the TFG Asset Management platform which are not owned by TFG Asset Management, including TFM, or allocated within the TFG Asset Management general ledger for businesses owned by TFG Asset Management.

TFG Asset Management cost allocation methodology is documented and updated annually by TFG Asset Management's finance team in consultation with its legal and compliance teams and is approved each year by TFG Asset Management's executive committee.

The methodology used to allocate costs forms part of the preparation of the financial statements of TFG and the Master Fund and is therefore within the terms of reference of TFG's Audit Committee.  TFG's auditors, reporting directly to TFG's Audit Committee, are currently employed under an agreed upon procedures assignment to periodically test that the costs allocated to (and therefore recovered from) TFM have been properly calculated in accordance with the approved cost-allocation methodology.  TFG's Independent Directors, who are specifically mandated to approve, among other things, related-party transactions, are required to approve the methodology for allocating costs and in their sole discretion the application of that methodology as part of their oversight processes.  As such, the annual cost allocation methodology update and the actual annual cost allocations that result based on these cost methodology policies and procedures are separately approved by the Independent Directors.

For additional information, please see TFG's Financial Statements.

VALUATION

State Street (Guernsey) Limited serves as TFG's independent administrator and values the investments of the Master Fund on an ongoing basis.  The NAV per Share is expected to fluctuate over time with the performance of TFG's investments.  The NAV of TFG and the Master Fund and the NAV per Share are determined as at the close of business on the last business day of each fiscal quarter for purposes of calculating incentive fees.  As TFG makes all of its investments through the Master Fund, TFG's NAV will equal the NAV of the Master Fund before any TFG specific liabilities, such as incentive fees.  The Company's valuation policies are set forth on the Company's website at www.tetragoninv.com.  The information on the "Valuation" page of the website supersedes any other disclosure by the Company with respect to such information.  Subject to the foregoing, additional information with respect to TFG's or the Master Fund's valuation policies may be found in each Company's annual audited financial statements accompanying this Annual Report.

DIVIDENDS AND OTHER DISTRIBUTIONS

The Company has sought to continue to return value to its shareholders, including through dividends and share repurchases.

Dividends:

TFG continues to pursue a progressive dividend policy with a target payout ratio of 30-50% of normalised earnings, based on the long-term target RoE of 10-15%.(54)

The Board of Directors will have the authority to declare dividend payments, based upon the recommendation of the Investment Manager, subject to the approval of the voting shares of TFG and adherence to applicable law, including the satisfaction of a solvency test as required pursuant to the Companies (Guernsey) Law, 2008, as amended.

The Investment Manager's recommendation with respect to the declaration of dividends (and other capital distributions) may be informed by a variety of considerations, including (i) the expected sustainability of the Company's cash generation capacity in the short and medium term, (ii) the current and anticipated performance of the Company, (iii) the current and anticipated operating and economic environment and (iv) other potential uses of cash ranging from preservation of the Company's investments and financial position to other investment opportunities.

TFG has and may continue to also pay scrip dividends currently conducted through an optional dividend reinvestment program.  If the Board of Directors declares a cash dividend payable by TFG, they will also (in their capacity as directors of the Master Fund) declare an equal dividend per share payable concurrently by the Master Fund.

Share Repurchases:

TFG has and may also continue to engage in share repurchases in the market from time to time.  Such purchases may at appropriate price levels below NAV represent an attractive use of TFG's excess cash and an efficient means to return cash to Shareholders.  Any decision to engage in share repurchases will be made by the Investment Manager, upon consideration of relevant factors, and will be subject to, among other things, applicable law and profits at the time.  The Company also continues to explore other methods of improving the liquidity of its shares.

REPORTING

In accordance with applicable regulations under Dutch law, TFG publishes monthly statements on its website for the benefit of its investors containing the following information: the total value of the investments of the Master Fund; a general statement of the composition of the investments of the Master Fund; and the number of legal issued and outstanding shares of TFG.

In addition, in accordance with the requirements of Euronext Amsterdam N.V. and applicable regulations under Dutch law, TFG provides annual and semi-annual reports to its shareholders, including year-end financial statements, which in the case of the financial statements provided in its annual reports, will be reported in accordance with U.S. GAAP and audited in accordance with international auditing standards as well as U.S. GAAS for regulatory purposes, if applicable.  The NAV of TFG is available to investors on a monthly basis on the Company's website at www.tetragoninv.com.

APPENDIX IX

BOARD OF DIRECTORS AND THE AUDIT COMMITTEE

The Board of Directors

The Board of Directors currently comprises six directors, of which four are Independent Directors.

Rupert Dorey has over 30 years of experience in financial markets.  Rupert was at CSFB for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt.  He held a number of senior positions at CSFB, including establishing CSFB's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales.  Since 2005, he has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles.  Rupert is a former President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.  Rupert is based in Guernsey and is a Non-Executive, Independent Director.

Frederic Hervouet has over 17 years of experience in financial markets and hedge funds, including in multi-asset class investment and risk management, structured products and structured finance.  Until September 2013, Frederic was a Managing Director and Head of Commodity Derivatives Asia for BNP Paribas, where he was focused on trading, structuring and sales.  Previously, Frederic was a Director and Global Head of Sales at Diapason Commodities Management SA, a partner at Systeia Capital Management, which is now part of Amundi Asset Management, and a Director and Head of European Market Distribution at BAREP Asset Management, the hedge fund management subsidiary of Société Générale.  Frederic has a MSc in Applied Mathematics and International Finance and a Master's Degree (DESS) in Financial Markets, Commodities Markets and Risk Management from the Université Paris Dauphine.  He is a member of the Institute of Directors (IoD) and of the Guernsey Chamber of Commerce.  Frederic is based in Guernsey and is a Non-Executive, Independent Director.

David Jeffreys provides directorship services to a small number of fund groups.  From 1995 until 2010 David worked with EQT, a Scandinavian based private equity group, acting as a director of each of its Fund general partners and, from 2006, establishing and serving as Managing Director of EQT Funds Management Limited, its Guernsey based management and administration office.  Between 1993 and June 2004, David was managing director of Abacus Fund Managers (Guernsey) Limited, where he was involved with private client trust arrangements, corporate administration, pension schemes and fund administration.  He was a board member of Abacus' principal administration operating companies and served on the boards of various administrated client companies.  Previously, David worked as an auditor and accountant for 12 years with Coopers & Lybrand (and its predecessor firms).  He has an undergraduate degree in Economics and Accounting from the University of Bristol and is a fellow of the Institute of Chartered Accountants in England and Wales.  David is based in Guernsey and is a Non-Executive, Independent Director.

Byron Knief is Managing Director of Court Square Capital Advisor, LLC. Since 1989, he has raised and invested over $3 billion of capital through a series of mezzanine and leveraged debt funds.  Prior to 1989, he ran a variety of businesses for Citigroup in the United States, Europe, Canada and Latin America.  Byron received an undergraduate degree from Northwestern University and an MBA from Columbia University.  He has served as a director on the boards of several public and private companies. Current corporate board memberships include DavCo Restaurants, Inc., JAC Products, Inc. and Olameter, Inc.  He was also formerly a director of Polygon Global Opportunities Fund and certain of its affiliates.  Byron's charitable board memberships include The Milbank Memorial Fund and The Mountain Top Arboretum.  Byron is based in New York and is a Non-Executive, Independent Director.

Reade Griffith co-founded Polygon in 2002 and Tetragon Financial Management LP in 2005.  He was previously the founder and former chief executive officer of the European office of Citadel Investment Group, a multi-strategy hedge fund that he joined in 1998.  He was a partner and senior managing director responsible for running the Global Event Driven arbitrage team in Tokyo, London and Chicago for the firm.  He was previously with Baker, Nye, where he was an analyst working on an arbitrage and special situations portfolio.  Reade holds a JD degree from Harvard Law School and an undergraduate degree in Economics from Harvard College.  He also served as an officer in the U.S. Marine Corps and left as a Captain following the 1991 Gulf War.  At Polygon, he is primarily focused on the trading businesses and risk management.  Reade is based in London and is an Internal Director.

Paddy Dear co-founded Polygon in 2002 and Tetragon Financial Management LP in 2005.  He was previously managing director and the global head of Hedge Fund Coverage for UBS Warburg Equities.  As global head of Hedge Fund Coverage and Chairman of the Global Hedge Fund Committee, Paddy was responsible for the delivery of all of the bank's products and services to hedge fund clients globally.  He was on the board of UBS Netherlands, and was a member of both the European Equity Business Committee and the Extended Global Equity Business Committee.  Prior to this, Paddy was co-head of European sales trading, execution, arbitrage sales and flow derivatives.  He had been with UBS since 1988, including six years in New York.  Paddy was in equity sales at Prudential Bache before joining UBS.  Prior to working in investment banking, he was a petroleum engineer with Marathon Oil Co.  Paddy holds an undergraduate degree in Petroleum Engineering from Imperial College in London.  His responsibilities at Polygon include risk management, overseeing Polygon's non-trading activities, managing investment bank interfaces and relationships and new business development.  Paddy is based in London and is an Internal Director.

The Audit Committee

The Audit Committee of TFG is responsible for, among other items, assisting and advising TFG's Board of Directors with matters relating to TFG's accounting and financial reporting processes and the integrity and audits of TFG's financial statements.  The Audit Committee is also responsible for reviewing and making recommendations with respect to the plans and results of each audit engagement with TFG's and the Master Fund's independent accountants, the audit and non-audit fees charged by the independent accountants and the adequacy of TFG's and the Master Fund's internal accounting controls.

Size, Independence and Composition of the Board of Directors of TFG and the Master Fund

The structure, and practices and committees of the Board of Directors of each of TFG and the Master Fund, including matters relating to the size, independence and composition of the Board of Directors, the election and removal of members of the Board of Directors, requirements relating to board action and the powers delegated to board committees, are governed by each entity's respective Memorandum and Articles of Incorporation.

Each of TFG and the Master Fund has six directors (referred to herein as the Directors).  Subject as set out below and as elsewhere described in the risk factors found on TFG's website at http://www.tetragoninv.com/investor/riskfactors.aspx, not less than a majority of the Directors are independent.  A Director will be an "Independent Director" if the Board of Directors determines that the person satisfies the standards for independence contained in the U.K. Combined Code in all material respects.  If the death, resignation or removal of an Independent Director results in the Board of Directors having less than a majority of Independent Directors, the vacancy must be filled promptly.  Pending the filling of such vacancy, the Board of Directors may temporarily consist of less than a majority of Independent Directors and those Directors who do not meet the standards for independence may continue to hold office.  A Director who is not an Independent Director will not be required to resign as a Director as a result of an Independent Director's death, resignation or removal.  In addition, the TFG's Memorandum and Articles of Incorporation prohibit the Board of Directors from consisting of a majority of Directors who are resident in the United Kingdom. 

Election and Removal of Directors of TFG and the Master Fund

Each member of TFG's and the Master Fund's Boards of Directors is elected annually by the holder of TFG's voting shares.  All vacancies on the Board of Directors including by reason of death or resignation may be filled, and additional Directors may be appointed, by a resolution of the Voting Shareholder.

A Director may be removed from office for any reason by notice requesting resignation signed by all other Directors then holding office, if the Director is absent from four successive meetings without leave expressed by a resolution of the Directors or for any reason by a resolution of the holder of TFG's voting shares.  A Director will also be removed from the Board of Directors if he becomes bankrupt, if he becomes of unsound mind, if he becomes a resident of the United Kingdom and such residency results in a majority of the Board of Directors being residents of the United Kingdom or if he becomes prohibited by law from acting as a Director.  A Director is not required to retire upon reaching a certain age.

Action by the Board of Directors of TFG and the Master Fund

The Boards of Directors of TFG and the Master Fund may take action in a duly convened meeting, for which a quorum is five Directors, or by a written resolution signed by at least five Directors.  When action is to be taken by the Board of Directors, the affirmative vote of five of the Directors then holding office is required for any action to be taken.  As a result, the Board of Directors will not be able to act without the affirmative vote of one of the directors affiliated with the holder of TFG's voting shares.

The Directors are responsible for the management of TFG and the Master Fund.  They have delegated to the Investment Manager certain functions, including broad discretion to adopt an investment strategy to implement TFG's investment objective.  However, certain matters are specifically reserved for the Board of Directors under the Memorandum and Articles of Incorporation.

Transactions in which a Director has an Interest

Provided that a Director has disclosed to the other Directors the nature and extent of any interests of his in accordance with the Companies (Guernsey) Law, 2008, as amended, a Director, notwithstanding his office: (a) may be a party to, or otherwise interested in, any transaction or arrangement with TFG or the Master Fund or in which TFG or the Master Fund is otherwise interested; (b) may be a director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by TFG or the Master Fund or in which TFG of the Master Fund is otherwise interested; and (c) shall not be accountable to TFG or the Master Fund for any benefit derived from any such transaction or arrangement or from any interest in any such body corporate, and no such transaction or arrangement shall be void or voidable on the ground of any such interest or benefit or because such Director is present at or participates in the meeting of the Directors that approves such transaction or arrangement, provided that (i) the material facts as to the interest of such Director in such transaction or arrangement have been disclosed or are known to the Directors and the Directors in good faith authorise the transaction or arrangement and (ii) the approval of such transaction or arrangement includes the votes of a majority of the Directors that are not interested in such transaction or such transaction is otherwise found by the Directors (before or after the fact) to be fair to TFG or the Master Fund as of the time it is authorised. Under the Investment Management Agreement, the Directors have authorised the Investment Manager to enter into transactions on behalf of TFG or the Master Fund with persons who are affiliates of the Investment Manager, provided that in connection with any such transaction that exceeds $5 million of aggregate investment the Investment Manager informs the Directors of such transaction and obtains either (i) the approval of a majority of the Directors that do not have a material interest in such transaction or (ii) an opinion from a recognised investment bank, auditing firm or other appropriate professional firm substantively to the effect that the financial terms of the transaction are fair to TFG and the Master Fund from a financial point of view.

Compensation

The remuneration for Directors is determined by resolution of the holder of TFG's voting shares. Currently, the Directors' annual fee is $100,000, in compensation for service on the Boards of Directors of both TFG and the Master Fund.  The Master Fund pays Directors' fees.  The Directors affiliated with the Voting Shareholder have waived their entitlement to a fee.  The Directors are entitled to be repaid by TFG for all travel, hotel and other expenses reasonably incurred by them in the discharge of their duties.  Directors of the Master Fund are compensated and reimbursed on the same basis.  None of the Directors has a contract with TFG or the Master Fund providing for benefits upon termination of employment.

Certain Corporate Governance Rules

TFG and the Master Fund are required to comply with all provisions of Guernsey company law relating to corporate governance to the extent the same are applicable and relevant to TFG's activities.  In particular, each Director must seek to act in accordance with the "Code of Practice-Company Directors" and "Code of Corporate Governance" issued by the Guernsey Financial Services Commission.  No formal corporate governance code applies to TFG or the Master Fund under Dutch law.

Indemnity

Each present and former Director or officer of TFG and the Master Fund is indemnified against any loss or liability incurred by the Director or officer by reason of being or having been a Director or officer of TFG or the Master Fund.  In addition, the Directors may authorise the purchase or maintenance by TFG and the Master Fund for any Director or officer or former Director or officer of TFG or the Master Fund of any insurance, in respect of any liability which would otherwise attach to the Director or officer or former Director or officer.

APPENDIX X

RISK FACTORS

An investment in TFG (together with the Master Fund, the "company") involves substantial risks and uncertainties.  Investors may review a more detailed description of these risks and uncertainties and others to which the company is subject on TFG's website at www.tetragoninv.com.

These risks and uncertainties include, among others, those listed below.

Risks Relating to the Company's Asset Management Platform

• As the company becomes more of a financial services firm that functions as a company that owns operating companies, it may face difficulties as it invests in asset classes in which it does not have substantial experience.
• The asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, investor liquidity and willingness to invest, fund terms (including fees), brand recognition and business reputation.  Our asset management business competes with a number of private equity funds, specialised investment funds, hedge funds, funds of hedge funds and other sponsors managing pools of capital, as well as corporate buyers, traditional asset managers, commercial banks, investment banks and other financial institutions (including sovereign wealth funds).
• Asset management and financial advisory businesses are subject to extensive regulation, which affects the company's activities and creates the potential for significant liabilities and penalties.  The possibility of increased regulatory focus could result in additional burdens on the company's business.  Recent legislative and regulatory changes in the United States, such as the Dodd-Frank Act, and the European Union, such as the Alternative Investment Fund Managers Directive and the European Market Infrastructure Regulation, could adversely affect the company's business.
• As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our activities.  Certain of our funds may have overlapping investment objectives, including funds that have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among those funds.  To the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds or result in potential litigation against us.
• Poor performance of our managed investment funds and vehicles would cause a decline in our asset management revenue, income and cash flow, and could adversely affect our ability to raise capital for future investment funds.
• Our asset management business depends in part on our ability to raise capital from third-party clients. If we are unable to raise capital from third-party clients, we would be unable to collect management fees or deploy their capital into investments and potentially collect transaction fees or incentive fees, which would materially reduce our asset management revenue and cash flow.
• Misconduct of our employees or at our portfolio companies could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm.
• The performance of LCM and, in turn, the company's operating results, may be negatively influenced by various factors, including the (i) performance of LCM-managed CLOs, which in general are subject to the same risks as the company's CLO investments and are currently the primary source of LCM's revenues and (ii) ability of LCM to retain key personnel, the loss of whom may negatively affect LCM's ability to provide asset and collateral management services in a fashion, and of a quality, consistent with its prior practice. Furthermore, the company's ownership of LCM may negatively impact certain aspects of the company's CLO investment strategy and as a result the company's performance as well as the company's ability to diversify its investments across multiple asset managers.
• The performance of Polygon and, in turn, the company's operating results, may be negatively influenced by various factors, including the (i) performance of Polygon-managed funds, and (ii) ability of Polygon to retain key personnel, the loss of whom may negatively affect Polygon's ability to provide asset management services in a fashion, and of a quality, consistent with its prior practice.
• GreenOak has a limited operating history and it may be unable to successfully operate its business or achieve its investment objectives.
• The company established Hawke's Point as a new start-up mining finance business in the fourth quarter of 2014.  There is no assurance that Hawke's Point will find appropriate financing and investment opportunities, will raise third-party funds necessary to pursue opportunities or generate fee income, or that its investments in such opportunities will generate profitable returns in the future.
• Equitix has a limited operating history and the company has controlled Equitix for a short period. The company acquired Equitix in February 2015. The company may not achieve the growth and performance that it expects to achieve by acquiring Equitix, which may adversely affect the company's results of operations.
• TFG Asset Management has organized Tetragon Credit Income Partners Ltd. ("TCIP") in connection with the company's efforts to deploy capital and resources intended to assist CLO collateral managers (including LCM) in satisfying recent "risk retention" rules which were promulgated by U.S. federal regulators pursuant to the Dodd-Frank Act (the "U.S. Risk Retention Rules") and/or similar rules promulgated by the European Union (the "E.U. Risk Retention Rules").  The company, together with certain third parties, is a significant investor in TCIP's affiliated investment vehicle.  There can be no assurance that the U.S. Risk Retention Rules or the E.U. Risk Retention Rules will not change or be interpreted by regulators in a manner such that TCIP's proposed transactions and arrangements do not facilitate compliance with the U.S. Risk Retention Rules and/or the E.U. Risk Retention Rules, or in a manner that otherwise precludes the contemplated transactions or arrangements.  If the structures and arrangements established by TCIP were, in the future, determined to subject TCIP, its affiliated investment vehicle, any other TFG affiliate or any third-party manager to unacceptable regulatory risk, TCIP's ability to make investments would likely be severely and negatively limited and arrangements with third-party managers may be terminated as a result.
• As the company invests in new asset classes and as its asset mix changes, its revenues and profitability could be reduced.

Risks Relating to the Company's Investment Portfolio

• Many of the company's investments are in the form of highly subordinated securities, which are susceptible to losses of up to 100% of the initial investments, including losses resulting from changes in the financial rating ascribed to, or changes in the market value or fair value of, the underlying assets of an investment.
• CLO vehicles, which make up a large portion of the company's current investment portfolio generally invest in fixed income securities rated lower than Baa by Moody's or lower than BBB by S&P (or, if not rated, of comparable quality) and may be regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments.  Moreover, market developments (including, without limitation, deteriorating economic outlook, rising defaults and rating agency downgrades) may impact the fair value of an investment and/or its underlying assets, as we experienced during the period from the third quarter of 2008 through the first half of 2009.
• Defaults, their resulting losses and other losses on underlying assets (including bank loans) may have a negative impact on the value of the company's portfolio and cash flows received.  In addition, bank loans may require substantial workout negotiations or restructuring in the event of a default or liquidation which could result in a substantial reduction in the interest rate and/or principal.
• The modeled cash flow predictions and assumptions used to calculate the IRR and fair value of each CLO investment may prove to be inaccurate and require adjustment.  Factors affecting the accuracy of such modeled cash flow predictions include: (1) uncertainty in predicting future market values of certain distressed asset types, (2) the inability to accurately model collateral manager behaviour and (3) the divergence of assumed variables from realised levels over the period covered by the model.
• Bank loans are generally subject to liquidity risks and, consequently, there may be limited liquidity if a Securitization Vehicle is required to sell or otherwise dispose of such bank loans.
• Many of the company's investments in securitization vehicles are and will be illiquid and have values that are susceptible to changes in the ratings and market values of such vehicles' underlying assets, which may make it difficult for the company to sell such holdings.
• The company may be exposed to counterparty risk, which could make it difficult for the company to collect on the obligations represented by investments and result in significant losses.
• The performance of many of the company's investments may depend to a significant extent upon the performance of its asset managers (internal and external).
• The company is subject to concentration risk in its investment portfolio, which may increase the risk of an investment in TFG.
• The company's CLO investments are subject to (i) interest rate risk, which could cause the company's cash flow, fair value of its assets and operating results to decrease and (ii) currency risk, which could cause the value of the company's CLO investments in U.S. Dollars to decrease regardless of the inherent value of the underlying investments.
• The Investment Manager may not be successful in the utilization of hedging and risk management transactions, which could subject the company's investment portfolio to increased risk or lower returns on its investments and in turn cause a decrease in the fair value of the company's assets.
• The ability of securitization vehicles in which the company invests to sell assets and reinvest the proceeds may be restricted, which may reduce the yield from the company's investment in those Securitization Vehicles.
• In connection with the transaction with GreenOak, the company will invest its capital, directly and indirectly, in certain real estate investments.  Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond the company's control.
• The real estate investments made, and to be made, by GreenOak are relatively difficult to sell quickly. Return of capital and realisation of gains, if any, from an investment generally will occur upon disposition or refinance of the underlying property. GreenOak may be unable to realise its investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy.
• The company invests a portion of its capital, directly and indirectly, in certain European-listed equity securities.  Such investments are subject to various risks, many of which are beyond the company's control.  Risks or events which could negatively affect such equity security investments include, but are not limited to: increased volatility in the market price and with respect to trading volume of the equity securities and increased uncertainty and government intervention in global financial markets.
• The company invests a portion of its capital, directly and indirectly, in certain mining-industry related equity securities, including through Hawke's Point.  Such investments are subject to various risks, many of which are beyond the company's control.  In addition to the risks discussed above associated with equity investments generally, risks or events which could negatively affect mining-industry related equity investments include, but are not limited to: exploration, developmental and operational risks.
• The company invests a portion of its capital, directly and indirectly, in certain convertible securities, mainly in the form of debt securities that can be exchanged for equity interests.  Such investments are subject to various risks, many of which are beyond the company's control.  Risks or events which could negatively affect convertible security investments include, but are not limited to: declining credit quality of issuers of the convertible securities and increased volatility in the market price and with respect to trading volume of the underlying equity into which the convertible securities are convertible.
• The company invests a portion of its capital, directly and indirectly, in certain distressed opportunities.  Such investments are subject to various risks, many of which are beyond the company's control.  Risks or events which could negatively affect distressed opportunity investments include, but are not limited to: difficulty in obtaining information as to the true condition of the issuer; potential for abrupt and erratic market movements and above average price volatility of the securities; and potential for litigation.
• The company may invest or intends to invest a portion of its capital, directly or indirectly, in infrastructure projects through Equitix, which the company acquired in February 2015. Investments in infrastructure projects are subject to specific risks including, but not limited to: (i) construction risks, (ii) subcontractor risks, (iii) financing risks, (iv) governmental risks and (v) long time horizons.
• Direct investments in asset managers will expose the company's business to additional risks, including: a decline in the price of securities, a more complex regulatory environment and competition.

Risks Relating to TFG and the Master Fund

• TFG's principal source of cash will be the investments that it makes through the Master Fund.  TFG's ability to pay dividends will depend on it receiving distributions from the Master Fund.
• Shareholders will not be able to terminate the company's investment management agreement.  None of the Investment Manager or the Service Providers owe fiduciary duties to the shareholders of TFG.
• The shares of TFG may continue to trade below NAV.  The NAV per Share will change over time with the performance of the company's investments and will be determined by the company's valuation principles. The fees payable to the Investment Manager will be based on NAV and changes in NAV, which will not necessarily correlate to changes in the market value of the shares of TFG.
• TFG and the Master Fund have approved a very broad investment objective and the Investment Manager will have substantial discretion when making investment decisions. In addition, the Investment Manager's strategies may not achieve the company's investment objective.
• TFG is an investment company that has been registered under the laws of Guernsey.  The rights of its Shareholders and the fiduciary duties that the Board of Directors owes to TFG and the Shareholders are governed by Guernsey law and TFG's articles of incorporation.  As a result, the rights of the Shareholders and the fiduciary duties that are owed to them and TFG may differ in material respects from the rights and duties that would be applicable if TFG were organised under the laws of a different jurisdiction or if it were not permitted to vary such rights and duties in its articles of incorporation.
• The liability of the Investment Manager is limited under the company's arrangements with it, and the company has agreed to indemnify the Investment Manager against claims that it may face in connection with such arrangements, which may lead the Investment Manager to assume greater risks when making investment related decisions than it otherwise would if investments were being made solely for its own account.
• TFG is not, and does not intend to become, regulated as an investment company under the Investment Company Act and related rules.
• The company may become involved in litigation that adversely affects the company's business, investments and results of operations.
• No formal corporate governance code applies to TFG under Dutch law and TFG will not be bound to comply with the U.K. Combined Code other than as set forth in its articles of incorporation.

Risks Relating to the Investment Manager and Services Providers and Affiliated Relationships

• The company's organizational, ownership and investment structure may create significant conflicts of interest that may be resolved in a manner which is not always in the best interests of the company or the shareholders of TFG.
• The company's success depends on its continued relationship with the Investment Manager and its principals.  If this relationship were to end or the principals or other key professionals were to depart, it could have a material adverse effect on the company's business, investments and results of operations.
• The Investment Manager's compensation structure may encourage the Investment Manager to invest in high-risk investments.
• The liability of the Investment Manager to the company is limited and the company's indemnity of the Investment Manager may lead the Investment Manager to assume greater risks when making investment related decisions than it otherwise would.
• The Investment Manager may devote time and commitment to other activities.

Risks Relating to Taxation

• U.S. investors may suffer adverse tax consequences because TFG will be treated as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes.
• Investors may suffer adverse tax consequences if TFG or the Master Fund is treated as resident in the U.K. or the U.S. for tax purposes.

Risks Relating to the Shares

• Shares of TFG (the "Shares") do not carry any voting rights other than limited voting rights in respect of variation of their class rights.  The holder of the voting shares of TFG will be able to control the composition of the Board of Directors and exercise extensive influence over TFG's and the Master Fund's business and affairs.  Additional information on the organizational structure and corporate governance of TFG may be found on TFG's website at www.tetragoninv.com.
• The Shares are subject to legal and other restrictions on resale and the Euronext Amsterdam N.V. and SFM trading markets are less liquid than other major exchanges, which could affect the price of the Shares.  TFG may decide in the future to list the Shares on a stock exchange other than Euronext in Amsterdam and SFM.  There can be no assurance that an active trading market would develop on such an exchange.
• There are additional restrictions on the resale of Shares by Shareholders who are located in the United States or who are U.S. persons and on the resale of Shares by any Shareholder to any person who is located in the United States or is a U.S. person.  These restrictions include that each Shareholder who is located in the United States or who is a U.S. person must be a "Qualified Purchaser" or a "Knowledgeable Employee" (each as defined in the Investment Company Act), and, accordingly, that Shares may be resold to a person located in the United States or who is a U.S. person only if such person is a "Qualified Purchaser" or a "Knowledgeable Employee" under the Investment Company Act.  These restrictions may adversely affect overall liquidity of the Shares.
• Your ability to invest in the Shares or to transfer any Shares that you hold may be limited by restrictions imposed by ERISA regulations, TFG's articles of incorporation and other tax considerations.
• The company may issue additional securities that dilute existing holders of Shares, including as a result of the exercise of the Investment Management Options.

The foregoing is not a comprehensive list of the risks and uncertainties to which the company is subject. 

 

ENDNOTES

TFG is not responsible for the contents of any third-party website noted in this report.

(1)  

(i) TFG commenced investing as an open-ended investment company in 2005, before its IPO in April 2007.

(ii) TFG seeks to deliver 10-15% Fair Value RoE per annum to shareholders.  TFG's returns will most likely fluctuate with LIBOR.  LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments.  In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

(iii) Average RoE is calculated from TFG's IPO in 2007.  2015 RoE includes a fair value adjustment for certain TFG Asset Management businesses, the value of which has accumulated over several years.  Consequently the full year return of 14.5% is not prepared on a like for like basis with prior years.  Like for like performance for 2015 was 8.2%.  Please refer to page 33 for a definition of Fair Value RoE and Appendix V for more details.

(iv) Annualised total shareholder return to 31 December 2015, defined as share price appreciation including dividends reinvested, for the last year, the last three years, the last five years, and since TFG's initial public offering in April 2007.  Source: Bloomberg TRA function.

(v) Fair Value EPS divided by Dividends per Share at 31 December 2015.

(vi) The vast majority of TFG's investments are held at fair value in accordance with U.S. GAAP.  The fair value basis for TFG's key performance metrics adjusts U.S. GAAP to also include the fair value of certain TFG Asset Management businesses that are currently consolidated under U.S. GAAP.  The fair values used are as determined by TFG's Audit Committee based on information provided by an independent valuation specialist.  The consistent use of fair value across all investments is hereinafter referred to in this report as "Fair Value".  Fair Value Key Metrics such as Fair Value RoE and Fair Value NAV are also adjusted to reflect incentive fees that would otherwise have arisen if these Fair Values were actually reflected in the U.S. GAAP accounting for TFG's financial statements.  Please refer to Appendices IV and  V for further details.

(vii) Fully Diluted Fair Value NAV per share based on TFG's financial statements as of 31 December 2015.  Please note that the reported Fair Value NAV per share excludes any shares held in treasury or in a subsidiary as of that date, but includes shares held in escrow which are expected to be released and incorporated into the U.S. GAAP NAV per Share over a five-year period and the number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the Company's IPO.  Please see Figure 22 for more details.

(viii) Partner & Employee shareholdings at 31 December 2015, including all deferred compensation arrangements.  Please refer to the 2015 Audited Tetragon Financial Group Master Fund Limited financial statements for more details of these arrangements.

Letter to Shareholders

(2) TFG's 'home Member State' for the purposes of the EU Transparency Directive (Directive 2004/109/EC) is the Netherlands.

(3) TFG invests substantially all its capital through a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF"), in which it holds 100% of the issued non-voting shares.  In this report, unless otherwise stated, we report on the consolidated business incorporating TFG and TFGMF.  References to "we" are to Tetragon Financial Management LP, TFG's investment manager (the "Investment Manager").

(4) Please see Note (1)(vi).

(5) Please see Note (1)(ii).

(6) Annualised total shareholder return from 1 January to 31 December 2015, defined as share price appreciation including dividends reinvested.  Source: Bloomberg TRA function.

(7) LCM Asset Management LLC, a CLO loan manager that is part of TFG Asset Management, hereinafter referred to in this report as "LCM".

(8) Polygon Global Partners LP and Polygon Global Partners LLP (and certain of their affiliates), managers of open-ended hedge fund and private equity vehicles across a number of strategies that are part of TFG Asset Management, hereinafter referred to in this report as "Polygon".  Polygon Global Partners LLP is authorised and regulated by the United Kingdom Financial Conduct Authority.

(9) Hawke's Point, a mining finance company that is part of TFG Asset Management, hereinafter referred to in this report as "Hawke's Point".

(10) Please refer to Financial Highlights on page 33 of this report for the definition of Fair Value Net Income.

(11) Includes GreenOak funds and advisory assets, LCM, Polygon Recovery Fund LP, Polygon Convertible Opportunity Master Fund, Polygon European Equity Opportunity Master Fund and associated managed account, Polygon Mining Opportunity Master Fund, Polygon Global Equities Master Fund, Polygon Distressed Opportunities Master Fund, Equitix, and Tetragon Credit Income II L.P. ("TCI II") as calculated by the applicable administrator for value date 31 December 2015.  Includes, where relevant, investments by Tetragon Financial Group Master Fund Limited.  TFG Asset Management AUM as used in this report includes the assets under management of several investment advisers, including Tetragon Asset Management L.P., and GreenOak, each of which is an investment manager registered under the U.S. Investment Advisers Act of 1940.  Figures for GreenOak and TCI II may also include committed capital.

(12) GreenOak Real Estate, LP, hereinafter referred to in this report as "GreenOak".  TFG owns a 23% interest in GreenOak.

(13) Equitix Holdings Limited, hereinafter referred to in this report as "Equitix".

(14) Please refer to the "Business Overviews" in the TFG Asset Management Overview section of this report for further information on performance benchmarks.

(15) The Polygon Convertible Opportunity Fund was nominated for the 2015 EuroHedge Award in the Convertibles & Volatility category.  There were four other nominees for this award.  The Polygon European Equity Opportunity Fund was nominated for the 2015 EuroHedge Award in the Event Driven and Distressed category.  There were five other nominees for this award.  The EuroHedge Award is organised by EuroHedge magazine, a publication of Hedge Fund Intelligence.  To be considered for an award, funds must submit performance data to the HedgeFund Intelligence Database and have at least a 12-month track record history.  The only exception to this rule is for new fund awards where a minimum seven-month track record is required; for these awards, the funds' whole performance history to date is taken into account.  Winners are decided using an established methodology based upon a combination of Sharpe ratios and returns over the relevant time period.  Nominations are decided by those funds in each peer group that achieve the strongest Sharpe ratios over 12 months, so long as they also beat the median returns in their relevant peer groups and are within 10% of their high-water marks.  The eventual winners will be the funds that have the best returns, as long as they also have Sharpe ratios within 25% of the best Sharpe of the nominees in their relevant peer groups.  Most of the award categories require a minimum asset level of at least $100 million.  Most of the award categories require a minimum asset level of at least $100 million.  Further information about the award, including nomination and winning criteria, is available at www.hedgefundintelligence.com.

(16) Tetragon Credit Income Partners, hereinafter referred to in this report as "TCIP".

(17) Euronext in Amsterdam is a regulated market of Euronext Amsterdam N.V. ("Euronext Amsterdam").  As is the case for Euronext Amsterdam, the SFM is a regulated market for the purposes of the Markets in Financial Instruments Directive.

TFG Overview

(18) Please see Note 11.

Key Metrics

(19)  Please see note (1)(ii).

(20) Please refer to Financial Highlights on page 33 of this report for the definition of Fair Value Net Income.

(21) Please refer to Financial Highlights on page 33 of this report for the definition of Fair Value EPS.

(22) Please refer to Financial Highlights on page 33 of this report for the definition of Pro Forma Fully Diluted Shares and Fully Diluted Fair Value NAV per Share.

2015 in Review

(23) Based on the most recent trustee reports available as of 31 December 2015.

(24) "LCD Leveraged Lending Review," S&P, Q4 2015.

(25) Based on the most recent trustee reports available as of 31 December 2015.

(26) Based on the most recent trustee reports available as of 31 December 2015.

(27) Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Funds' holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX ED: Event Driven Index (Bloomberg Code: HFRXED) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(28) Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Funds' holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX RV: FI-Convertible Arbitrage Index (Bloomberg Code: HFRXCA) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(29) Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Funds' holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX DS: Distressed Restructuring Index (Bloomberg Code: HFRXDS) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(30) TFG's 85% economic share of Equitix is expected to decline to approximately 74.8% over time.

TFG Asset Management Overview

(31) Please see Note 11.

(32)  Please see Note 11.

(33)  Please see Note 11.

(34) The LCM III, LCM IV, LCM V, LCM VI, LCM IX, LCM X, LCM XI, LCM XII, LCM XIII, LCM XIV, LCM XV, LCM XVI, LCM XVII, LCM XVIII, LCM XIX, and LCM XX CLOs are referred to as the "LCM Cash Flow CLOs."  LCM-managed CLOs that are no longer outstanding are not included in the LCM Cash Flow CLO statistics.  In addition, these statistics do not include the performance of certain transactions that were developed and previously managed by a third-party prior to being assigned to LCM, some of which continue to be managed by LCM.

(35)

(i) The fund began trading with Class B shares, which carry no incentive fees, on 20 May 2009.  Class A shares of the fund were first issued on 1 April 2010 and returns from inception through March 2010 have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee over a hurdle and other items, in each case, as set forth in the Offering Memorandum).  AUM figure and net performance is for the Polygon Convertible Opportunity Master Fund as calculated by the applicable fund administrator.

(ii)  The fund began trading 8 July 2009 with Class B shares which carry no incentive fee.  Class A shares commenced trading on 1 December 2009.  Returns from inception through November 2009 for Class A shares have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the offering Memorandum).  From December 2009 to February 2011, the table reflects actual Class A share performance on the terms set forth in the Offering Memorandum.  From March 2011, forward, the table reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  Class A1 share performance is equivalent to Class A share performance for prior periods.  AUM figure and net performance is for the Polygon European Equity Opportunity Master Fund and associated managed account as calculated by the applicable fund administrators.

(iii) The fund began trading with Class B1 shares, which carry no incentive fees, on 1 June 2012.  Returns through October 2013 have been pro forma adjusted to account for a 2.0% management fee, a 20% incentive fee, and non-trading expenses capped at 1%, in each case, as set forth in the Offering Memorandum.  Class A1 shares of the Fund were first issued on 1 November 2013.  From November 2013, forward, performance reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  AUM figure and net performance is for the Polygon Mining Opportunity Master Fund as calculated by the applicable fund administrator.

(iv) The fund began trading on 2 September 2013.  Class A shares of the fund were first issued in September 2013 and returns from inception through September 2014 have been adjusted to match the fund's class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the Offering Memorandum).  AUM figure and net performance is for the Polygon Distressed Opportunities Master Fund as calculated by the applicable fund administrator. 

(v) The fund began trading with Class B/B1 shares, which carry no incentive fees, on 12 September 2011.  Returns shown from inception through August 2013 have been pro forma adjusted to account for a 2.0% management fee and a 20% incentive fee, in each case, as to be set forth in further definitive documents.  The fund began trading Class A shares, which are not new issue eligible, on 23 September 2011.  Class A1 shares of the Fund, which are new issue eligible, were first issued on 1 November 2013, and returns from inception through October 2013 have been pro forma adjusted to match the Fund's Class A1 performance.  AUM figure and net performance is for the Polygon Global Equities Master Fund as calculated by the applicable fund administrator.

(vi) The Private Equity Vehicle noted is the Polygon Recovery Fund L.P. ("PRF").  The manager of the PRF is a subsidiary of TFG.  The management fees earned in respect of PRF are included in the TFG Asset Management business segment described herein.  PRF is a limited-life vehicle seeking to dispose of its portfolio securities prior to the expiration of its term.  It is contemplated that PRF's term will be extended to March 2018 with a potential further one year extension thereafter based on investor approval.  Individual investor performance will vary based on their high water mark.  Currently, the majority of Class C share class investors have not reached their high water mark, so their performance is the same as their gross performance.  The AUM figure for PRF is as calculated by the applicable fund administrator.

(36) The Polygon Convertible Opportunity Fund began trading with Class B shares, which carry no incentive fees, on 20 May 2009.  Class A shares of the fund were first issued on 1 April 2010 and returns from inception through March 2010 have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee over a hurdle and other items, in each case, as set forth in the Offering Memorandum).  From April 2010, forward, the reported returns reflect actual Class A share performance on the terms set forth in the Offering Memorandum.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  Any indices and other financial benchmarks are provided for illustrative purposes only.  Comparisons to indices have limitations because, for example, indices have volatility and other material characteristics that may differ from the fund.  Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX RV: FI-Convertible Arbitrage Index (Bloomberg Code: HFRXCA) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(37)  The Polygon European Equity Opportunity Fund began trading 8 July 2009 with Class B shares, which carry no incentive fee.  Class A shares commenced trading on 1 December 2009.  Returns from inception through November 2009 for Class A shares have been pro forma adjusted to match the fund's Class A share terms as set forth in the Offering Memorandum (1.5% management fee, 20% incentive fee and other items, in each case, as set forth in the offering Memorandum).  From December 2009 to February 2011, reported performance reflects actual Class A share performance on the terms set forth in the Offering Memorandum.  From March 2011, forward, the table reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  Class A1 share performance is equivalent to Class A share performance for prior periods.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX ED: Event Driven Index (Bloomberg Code: HFRXED) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(38) The Polygon Mining Opportunity Fund began trading with Class B1 shares, which carry no incentive fees, on 1 June 2012.  Returns shown here through October 2013 have been pro forma adjusted to account for a 2.0% management fee, a 20% incentive fee, and non trading expenses capped at 1%, in each case, as set forth in the Offering Memorandum.  Class A1 shares of the Fund were first issued on 1 November 2013.  From November 2013, forward, reported performance reflects actual Class A1 share performance on the terms set forth in the Offering Memorandum.  The return figures shown are final values as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX Global Hedge Fund Index (Bloomberg Code: HFRXGL) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.  The Market Vectors Junior Gold Miners Index (Bloomberg Code: GDXJ) is compiled by Market Vectors Index Solutions, a subsidiary of Van Eck.  Further information relating to index constituents and calculation methodology can be found at www.marketvectorsindices.com.

(39) The Polygon Distressed Opportunities Fund began trading on 2 September 2013.  Returns shown are for offshore Class A shares, reflecting the terms set forth in the offering documents (2.0% management fee, 20% incentive fee and other items, in each case, as set forth in the offering documents) as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.  Any index information contained herein is included to show general trends in the markets in the periods indicated, is not meant to imply that these indices are the only relevant indices, and is not intended to imply that the portfolio or investment was similar to any particular index either in composition or element of risk.  The indices shown here have not been selected to represent appropriate benchmarks to compare an investor's performance, but rather are disclosed to allow for comparison of the investor's performance to that of certain well-known and widely-recognised indices.  The volatility of the indices may be materially different from the individual performance attained by a specific investor.  In addition, the Fund's holdings may differ significantly from the securities that comprise the indices.  You cannot invest directly in an index.  The HFRX DS: Distressed Restructuring Index (Bloomberg Code: HFRXDS) is compiled by HFR Hedge Fund Research Inc.  Further information relating to index constituents and calculation methodology can be found at www.hedgefundresearch.com.

(40)  The Polygon Global Equities Fund began trading with Class B/B1 shares, which carry no incentive fees, on 12 September 2011.  Returns shown from inception through August 2013 have been pro forma adjusted to account for a 2.0% management fee and a 20% incentive fee, in each case, as to be set forth in further definitive documents.  The fund began trading Class A shares, which are not new issue eligible, on 23 September 2011.  Class A1 shares of the Fund, which are new issue eligible, were first issued on 1 November 2013, and returns from inception through October 2013 have been pro forma adjusted to match the Fund's Class A1 performance.  AUM figure and net performance is as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.  Past performance or experience (actual or simulated) does not necessarily give a guide for the future and no representation is being made that the funds listed will or are likely to achieve profits or losses similar to those shown.

(41) The Private Equity Vehicle noted above is the Polygon Recovery Fund L.P. ("PRF").  The manager of the PRF is a subsidiary of TFG.  The management fees earned in respect of PRF are included in the TFG Asset Management business segment described herein.  PRF is a limited-life vehicle seeking to dispose of its portfolio securities prior to the expiration of its term.  It is contemplated that PRF's term will be extended to March 2018 with a potential for a further one year extension thereafter, based on investor approval.  Individual investor performance will vary based on their high water mark.  Currently the majority of Class C share class investors have not reached their high water mark, so their performance is the same as their gross performance.  AUM figure and net performance is for PRF as calculated by the applicable fund administrator.  All performance numbers provided herein with respect to the Fund reflects the actual net performance of the Fund net of management and performance fees, as well as any commissions and direct expenses incurred by the Fund, but before withholding taxes, and other indirect expenses.  All returns include the reinvestment of dividends, if any.  Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results.  Differences in the methodology used to calculate performance may also lead to different performance results than those shown.  Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment funds.  Investments cannot be made directly in a broad-based securities index.

(42) For additional information on the company's CLO equity investments, including its buy and hold strategy, please see refer to http://www.tetragoninv.com/portfolio/clo-equity.

2015 Financial Review

(43) On occasion, figures may not total due to rounding.

(44) 

Fair Value Fully Diluted NAV per Share seeks to reflect certain potential changes to the total non-voting shares over the next few years, which may be utilised in the calculation of NAV per Share.  Specifically, the number of shares used to calculate U.S. GAAP NAV per Share has been adjusted to incorporate:

(i)   The Escrow Shares, which have been used as consideration for the acquisition of Polygon and applicable stock dividends relating thereto, and which are held in escrow and are expected to be released and incorporated into the U.S. GAAP NAV per Share over the next two years.

(ii)  The number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the company's IPO with a strike price of $10.00, to the extent such options are in the money at period end.  The intrinsic value of the manager (IPO) share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $10.00 (being the exercise price per share) times (z) 12,545,330 (being a number of shares subject to the options before the application of potential anti-dilution).  The terms of exercise under the options allow for exercise using cash, as well as, with the consent of the board of the company, certain forms of cashless exercise.  Each of these prescribed methods of exercise may give rise to the issuance of a different number of shares than the approach described herein.  If the options were to be surrendered for their intrinsic value with the board's consent, rather than exercised, the number of shares issued would equal the intrinsic value divided by the closing price of the shares as of the final trading day in the relevant period.  This approach has been selected because we currently believe it is more reasonably illustrative of a likely outcome if the options are exercised.  The options are exercisable until 26 April 2017.

(iii) The number of shares corresponding to the applicable intrinsic value of the options issued to the GreenOak Founders in relation to the acquisition of a 10% stake in GreenOak in September 2010.  The intrinsic value of the GreenOak share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $5.50 (being the exercise price per share) times (z) 3,908,241 (being a number of shares subject to the options).  Previously, As there were a number of contingent elements to the vesting of these options, including the repayment of the working capital loan and continued service provision to GreenOak by the Founders, in accordance with U.S. GAAP, the options were carried as a liability in the balance sheet of TFG Limited.  Using a Black-Scholes model, these were revalued at each reporting date, and changes in the valuation were reflected through the Statement of Operations.  On 15 September 2015 the options vested, and as a result of vesting, all contingent elements to the options, other than market price, were removed.  Under ASC 815, once the vesting conditions were met, the options were reclassified to equity.  The accounting result of this is that a liability of $16.3 million was reclassified to the capital reserve in respect of share options, and accordingly these share options are now incorporated into this dilution calculation.

(iv) In December 2015, TFG purchased 6 million TFG non-voting shares at $10 per share in a tender offer using a modified Dutch auction structure.  Approximately 5.65 million shares acquired in the tender offer are being held to hedge against (or otherwise offset the future impact of) grants of shares under the LTIP and other equity-based awards by TFG Asset Management for certain senior employees.  Commencing from when the equity awards under the Plans are effective, the fully diluted share count will start to be increased to reflect the level of shares "earned" under the LTIP and other equity-based awards.  The basis and pace of recognition is expected to match the rate at which service is being provided to TFG Asset Management in relation to these shares.

Appendix IV

(45)  TFM has determined that it will continue to grow TFG Asset Management, as TFG's diversified alternative asset management business, with a view to a planned initial public offering and listing of shares of TFG Asset Management in the next three to five years (referred to as the "IPO Strategy"). 

Appendix VII

(46) For (46.i) please see Note 44(i).

(47)The LTIP and other equity-based awards are intended to give certain senior employees of TFG Asset Management long-term exposure to TFG stock (with vesting subject to forfeiture and certain restrictions).

Appendix VIII

(48) TFM has determined that TFG's current investment strategy is to continue to grow TFG Asset Management with a view to a possible initial public offering and listing of its shares.

(49) TFM is also responsible for selecting third-party managers who invest in asset classes appropriate for the TFG Master Fund.

(50) These Polygon entities also provide infrastructure services to LCM and the GreenOak joint venture, infrastructure and investment management services to Hawke's Point and the TCI General Partner, and oversight services with respect to Equitix.

(51) Polygon Private Investment Partners LP, an investment management entity in which Reade Griffith and Paddy Dear have an interest and that was not included in TFG's 28 October 2012 acquisition of Polygon Management L.P., also continues to rely on TFG Asset Management for certain services to support its activities.  TFG Asset Management employs a cost allocation and recovery methodology from Polygon Private Investment Partners LP that is the same as the cost allocation and recovery methodology applied to TFM.

(52)  This cost allocation methodology also applies to the other TFG Asset Management businesses to which the Polygon entities provide services.

(53)  Employee compensation will also include TFG Asset Management's LTIP and its other equity-based awards.  The cost of purchasing the TFG shares which are being held to hedge against grants under such incentive programmes includes the principal and interest payable on a loan from the TFG Master Fund to TFG Asset Management.

(54) Please see Note (1)(ii).

An investment in TFG involves substantial risks.  Please refer to the company's website at www.tetragoninv.com for a description of the risks and uncertainties pertaining to an investment in TFG.

This release does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction.  The securities of TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in the United States or to U.S. persons unless they are registered under applicable law or exempt from registration.  TFG does not intend to register any portion of its securities in the United States or to conduct a public offer of securities in the United States.  In addition, TFG has not been and will not be registered under the U.S. Investment Company Act of 1940, and investors will not be entitled to the benefits of such Act.  TFG is registered in the public register  of  the  Netherlands Authority  for  the  Financial Markets  under  Section  1:107  of  the FMSA as a collective investment scheme from a designated country.  This release constitutes regulated information ("gereglementeerde informative") within the meaning of Section 1:1 of the FMSA.

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SOURCE Tetragon Financial Group Limited