Tetragon Financial Group's (TGONF) CEO Paddy Dear on Q1 2015 Results - Earnings Call Transcript
May. 13, 2015 12:32 PM ET | About: Tetragon Financial Group (TGONF)
Our first measure of operating performance is return on equity or ROE which we defined as net economic income divided by net assets at the start of the year. ROE for Q1 2015 was an annualized 16.8%, so that’s above TFG’s long-term range target of 10% to 15%, reflect a strong start for the year approximately in the business areas. TFG generates a net economic income of $76.2 million in the first quarter, compared with $47.2 million in the equivalent quarter of 2014 that’s an increase of 61%. I will discuss in more detail during today’s call various support [ph] of TFG’s businesses have a strong start of the year, including CLOs, real estate and equity investments in the investment portfolio.
Additionally, TFG asset management was boosted primarily by the addition of Equitix for the last two months of the quarter and Paddy will comment on this in a little bit more detail later on. It also finds these measures defined and described in our recent performance report and of course this presentation will be posted presently to the company’s website.
Our second measure of earnings is EPS and the RE expressed in terms of EPS it was $0.79 for the quarter. The highest quarterly adjusted EPS results for the company since Q4 2013. I think, you’ll in the financial highlights section of our Q1 report, our EPS metrics is calculated using average U.S. GAAP shares in the period. So we have net economic income which is a non-U.S. GAAP measure, but U.S. GAAP average shares.
Let’s take a look at how the EPS was split by major business line. Now we tend to use this view to discuss the performance of the businesses with you round up your U.S. GAAP statement of operations, because the results for any particular business activity content to be split across multiple lines of the U.S. GAAP format. Good example of that is a result of the CLOs, which is typically reflected in both interest income and changes in unrealized or in these realized values on the U.S. GAAP.
Brought together on an EPS basis, the CLOs generated $0.40 on the quarter, significant increase on the same period in 2014. So this was a contribution of around 51% of the total EPS for Tetragon, which as you can see - as you’ll see with a 14% compared to Q1 2014 as other asset classes and the TFG asset management’s are now contributing proportionally move in line with strategy. We didn’t sell any CLO positions in Q1, so there are no realized gains in the quarter unlike the gains you saw last year during December 2014.
Despite the fact that the CLO 1.0 portfolio is amortizing down as expected, the CLO position held up extremely well. Expected returns as reflected in the discount rates we used to value the CLO portfolio are now lodging between 11% and 13% although the actual return is being generated have been higher in recent quarters.
The category of other asset classes here included material positive contributions from real estate investments in GreenOak products, in which TFG is invested and these largely reflect the recognition of 2014 year end independent revaluations that we tend to receive on a bit of time lag, plus the significant contribution from certain direct balance sheet investments including rising to European equities.
I will touch on TFG asset management expenses later, but the overall corporate expenses of running the TFG complete structure continues to be driven mainly by two factors. Firstly, the active level of NAV and that really drives both the investment management fees and administrative costs. And the second factor is, operating performance will change in NAV and this is really the key driver of investment manager incentive fees, and typically, if you see an increase in those fees that means that performance is generally pretty good.
Turning out to our next metric, which is NAV per share, totally NAV for Tetragon rose to $1.88 billion as at the end of the quarter, which equated to pro forma of fully diluted NAV per share of $17.57. This was another new high for this particular metric, which is a measure of how we build value within the company. This was up 3% from the end of the prior quarter, the end of 2014 as well as being up 4.4% from the end of the equivalent quarter in 2014. We’re noticing that 3% growth in the quarter is after the distribution of the Q4 2014 dividends of $0.1575 per share during that period, so if you adjust for that the actual growth was 4% pre dividend pay away.