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  • 21 Oct 16

TFG’s marmite status is a function of its fee and corporate governance structures which you either accept or don’t. The actual underlying investment strategy and historic realised net returns are pretty sensible. This is our first comment on TFG and follows a meeting with management (Paddy Dear, Principle, and Quentin Nason, Head of Capital Markets), who are working to achieve a rating of the fund from its current 40-45% level to a 20% discount. This comment doesn’t touch on the detail of the investment management strategy; our meeting largely focused on strategy and governance. While unconvinced that a 20% discount is currently possible (given the governance and fee arrangements, see later) our gut feel is that 30% should be. TFG is a dividend paying (5.9% yield) alternative investment vehicle that has delivered a c12%pa ROE net to investors since IPO. The fund’s portfolio is hedged into US$ and comprises loans (CLO equity, 30% of the NAV), credit (distressed and CBs, 7.2%), property (physical, 7%) and equity (long/short equity hedge funds, 14.5%), their underlying investment managers (20%) and cash (20%). The fund’s size ($1.9bn NAV) means that even at a c40-50% discount (current rating) TGF has scale. The upside available from discount narrowing (30% = 24% upside, 20% = 42%), the fund’s historic ROE (12% since IPO) and dividend policy (30-50% of normalised earnings) should enable a reasonable investment return.


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