The Exchanges

Q There's a lot of interesting aspects of it to break down. So why don't we start with sourcing the opportunity? How do you go about the process of deciding where you want to allocate your capital to?

A So first and foremost, we'll start with my partners on the strategy level. My fellow founding partner, Patty Deer, Steve Prince, who has joined us to head TFG Asset Management and a senior partner in New York. The three of us Spend time thinking about what should we be doing that we're not doing currently? Where do we see in the market that there's alpha? Where do we think alpha will come in a sustainable way? Where will there be appetite for institutional investors to get involved in these products? And then once we find something or two things or three things we think are interesting, We go out and start doing work, and that work can be working with consultants. Tell us, what do you know about this industry? Who do you think is good? What information can you share with us? Obviously, we pay people for data. We run data ourselves, look at people's returns. You know, we start to invest with people. Sometimes small amounts of money we'll put with them to follow them, follow their letters, learn from them, try to figure out what do we think of Their approach. We don't do much investing with other managers. It tends to be very small amounts, but it's just to really get to know them better and to learn about the industry better. So it's quite methodical, right? We try to find things we like. We go through a consulting process. We then try to figure out who's good in the industry. W…

AI assessment note: “we'll start with my partners on the strategy level... The three of us Spend time”

Q Well, why don't we just go to your background and your path into finance?

A So, I didn't have a clear path into finance until I'd spent a summer working as a summer associate at Goldman Sachs. At the time, I was at Harvard Law School, and Was cross-enrolling into both MIT and Harvard's Business School for financial classes that were going to be relevant to things I was interested in, and I convinced them during my second summer of law school to bring me in as a summer associate. I was told at the time that was the first time that Goldman had ever hired a Harvard Law student or any law student as a summer associate. It was supposed to be for Business school students, but I managed to convince them that I had what they needed, and I had an interesting background for them. So anyway, they let me come in. I worked that summer in the equities division, and that was meant to be a bit of a survey of everything that Goldman Sachs did with regard to stock markets. And I quickly found one particular desk At Goldman, that was intriguing to me, and it was the arbitrage desk. And that desk at the time was managed and run by Eric Mindich and his team. Eventually a lot of them left to set up their own hedge fund and, and that some of them went together. Some of them went off and did their own things, but it was fascinating because I could see that there were legal and regulatory elements to some of the investments they were making. There were obviously financial elem…

AI assessment note: “I didn't have a clear path into finance until I'd spent a summer”

Q On the people analysis side, you mentioned litigation finance as an area that sounds like it's a newer area in your suite of strategies. How did you go about finding that opportunity set process and then finding the people and what was it about them? Maybe use that as an example to describe the common things you'd say about the types of entrepreneurs you want to be backing.

A We've been looking at litigation finance for a decade. And we've only partnered with somebody in the last two years. So it's been a long process to get where we are today. And so that's, I think, one thing about the example that's interesting is this process of identifying something that's interesting, but trying to figure out when is the right time or when can we find the right partner? These things don't happen in the first two years necessarily of your analysis and work. It might take five years, might take 10 years. You may never get there. In this case, we've gotten there, which makes it a more interesting story than if we hadn't gotten there. For sure, but I've had a lot of exposure to litigation-driven investments by being an event-driven investor. We have a lot of Harvard Law DNA throughout the Tetracon organization, and the person that we found to partner with had also been there, and so we had a lot of connectivity to him, so we could cross-reference him very well through people that had known him earlier than his investing career, even, to build up a picture of the person. My partner, Steve Prince, had also been an allocator before he had joined us and had invested with some of the firms that he was working at before he set off on his own to build a business, and so Brandon Baer, who is the runner of Contingency Capital, which is the business that we're building on t…

AI assessment note: “Brandon Baer, who is the runner of Contingency Capital, which is the business”

Q One of the things that's interesting is you still are running this event-driven fund, and you're also involved in helping form and back these businesses. You've had a lot of conversations with allocators who have invested in Polygon. What do you think differentiates you when you're talking to someone that you're looking to back from those types of conversations that you've had on the other side of the table?

A I still own risk every day for the firm, for strategies. So I'm in the market. I'm involved in risk. I'm evaluating investments every day. So like them, I feel the stress of the markets. I'm not somebody above and beyond it, right? I'm there at the coalface with them, understanding what they're going through. Hopefully can add some insights to them as well. As a big investor in the fund, we might be a passive investor on their investment committee. We might go through the memos. We might ask questions that enables me to Hopefully give insight. They have control. We give insight and makes me a better investor as well by working with world-class people in other disciplines. It opens my eyes to other things and how to do things and learn. You never want to stop learning. Once you're just listening to your own dialogue and not listening to others, you're not evolving. And in these businesses, they're so competitive. If you're not evolving, you're dying.

AI assessment note: “I still own risk every day... I'm there at the coalface with them”

Q So with your investor hat on, how do you think about the case for the stock compared to the case for some of the funds on the TFG platform?

A Well, as always, it's a case of a pure play versus a diversified play, and it depends what your requirement is at the time. If you look at the stock and say, okay, is that a discount? Well, if the discount tightens, you'll make a little extra. If the discount widens, you'll make a little less, but basically over any medium term timeframe in three to five year investment, your returns are going to be very correlated to the returns of all the businesses together. So if you like our suite of businesses and you like the diversification, And can own that exposure. So maybe you're a family office and you just like all the different asset classes. So you'll put an allocation into that diversified portfolio. If you're an institutional investor and you want an allocation to European events, or you have an allocation to infrastructure or real estate or whatever it is, then you need a pure play investment into one of the funds. Cause that's your mandate. That's what the risk you're looking for. That's what you're targeting. We offer both. At the fund level, we offer the pure play. At the stock level, we offer the diversified play, and people can pick and choose based on whatever their horizons are.

AI assessment note: “it's a case of a pure play versus a diversified play”

Q On the strategy side, you focused in Europe in this event strategy for a long time. What are the idiosyncrasies of Europe compared to a similar event-driven strategy in the US?

A By being in Europe, what I've seen and learned has been And to live through much more volatile events on a macro side, markets have not gone up and to the right like they have in the US. I mean, since 2008, other than the last 12 months, the US market was just up and to the right. There are a lot of people who are in the middle of their careers who've only seen getting long risk benefit, and those who took the most risk made the most, and it's a self-reinforcing thing. In Europe, It has been a massive roller coaster. In fact, what we're seeing this year is nothing. I mean, the fact the markets were down 20, since 2008, we've had periods of down 40 in Europe over periods of time, let alone down 20, plenty of down twenties. From a European perspective, the volatility this year is not very much. You've got, obviously, a war we're dealing with in Europe right now at our doorstep. It's a big deal. We dealt with Brexit. People thought that Greece would potentially be leaving the euro, and what did that mean? And the peripheral would have been sovereign defaults in Europe. A whole series of things that people got very concerned about over the last 1015 years that led to a lot of this volatility. And so being someone who's been focused on Europe, we have had to manage volatility. You've had to be hedged. You've had to get to the other side. You've had to be able to craft your portfolio…

AI assessment note: “In Europe, It has been a massive roller coaster.”

Q Most of these complex asset management firms tend to trade at a discount to whatever NAV is. It's been true in the closed-end fund investment trust space for years. How have you thought about capital structure of Tetragon when it trades at often a meaningful discount to NAV?

A So yeah, you're right. The KCARA vehicle immediately went to a big discount. A lot of these, we trade at a discount, right? So the first thing is we've never issued shares, done a placing or anything like that. We wouldn't do that, and we have consistently bought back stock in the market since we've been public, you know, as long as we've had the liquidity to do it. We've consistently used that as one of the tools to return value to investors. We obviously try to pay a meaningful dividend to people, and that's one component of returning value. The other is to buy back shares. So that's clearly how we think of it, but we don't exclusively do that. If we Buyback shares in the market. We are basically buying more of what we already have, which we think is very good, but we aspire to build new things as well. So we don't want to use all our money to do that. We want to continue to build new businesses, continue to evolve, to continue to grow and do interesting things and provide interesting opportunities for investors. And so that is another use of cash is the new businesses and growing and finding interesting things to do. So there's a menu of things that we do. And we do it consistently for people. And as a result, the investors who like the story get the benefit of that use of cash. And yeah, if you buy at a discount and sell at a discount, you get the return of NAV along the wa…

AI assessment note: “we've never issued shares... and we have consistently bought back stock”

Q What are some of those tools that you use in portfolio construction to be able to manage around the macro risks?

A Well, first and foremost, you need to think about whether the next events you perceive are priced in Appropriately by the market. So if the market perceives as you perceive, if you, so there's a risk that you perceive differently and you think it's more risky or less risky, you can be long and short risk could be through options. It could be through long and shorting various could be sovereign instruments, currencies, various other things as part of your portfolio hedging. But if the market is already anticipating what you're anticipating, it's priced in, and there's probably nothing you can use. But what I've often seen is that there has been mispricing in Europe In what I perceive to be short duration risk, things that might happen in the next two or three months that could be very volatile, and you've been able to buy the equity market or currency or shorting sovereigns in certain peripheral countries at various times for very little cost and adding those layers in your portfolio. If the bad thing didn't happen, great. It didn't cost you much. If the bad thing did happen, it saved you money and gave you a chance to Be in a better position than your competitors when you're trying to reshape your portfolio should that thing happen. And so there's been a lot of things in Europe like that. Not always, but often been things that have been too cheap for the ultimate headline risks…

AI assessment note: “could be through options. It could be through long and shorting various could be sovereign instruments”

Q And then at the portfolio level, how have you thought about gross net exposure, factor exposure, things like that in managing through these times?

A We're involved in lots of different strategies across the firm, but if I just look at that European event strategy for a moment, that strategy has elements to it that are very hard to hedge because it's not like a long, short portfolio where you're Factor risks are easy to quantify. By their nature, they're involved in some kind of an event. It might be a merger, it might be some kind of a regulatory event, litigation, something that's driving their valuation, which makes the recent history not a good predictor of the near term and future. Should the event not happen? Should the thing fall apart? Yes, the stock may fall back to its historical patterns and correlations and factor risks, et cetera. So they're notoriously difficult portfolios To hedge. One thing is for sure. When you're an event driven investor, you're short volatility. Volatile events makes events take longer. It reduces the probability of certain events happening. And so you certainly want to do as much as possible. If you can afford to, if the instrument volatilities aren't so expensive that they're prohibitive to own them, you try to own options and volatility around your portfolio to help reduce those extension risks and other risks that come through. That's a very important component of it. The other is just to make sure that if something bad happens, typically there's an ownership risk. Who owns the things …

AI assessment note: “you try to own options and volatility around your portfolio to help reduce”

Q In that decision process, how did you take the framing that you had learned both in your experience investing and prior to that in the military to apply it to that key decision at that moment in your life?

A It's a good question, and I'm a very methodical person and process thinking person. I'm not impetuous, I would say. So for me, It was a calculation, as it would be for anybody. I was, at this point, I'd been involved in investing for only seven years, but I'd had a great experience. I had been at a firm that had been involved in the business for 30 years. I'd learned from people who had been there. I'd helped build a very exciting new business in London for Citadel and open up their approvals, hire all the people, run the office, build the businesses, Even at that time, I'd also helped Citadel open up their office in Tokyo and helped hire the people, and I'd spent some time out there in the first few months when we got that office up and running and came back to London. So I had started and helped build some new businesses for a firm, a great firm like Citadel. Certainly in the London market, I now had some profile because I was, from a regulatory perspective, CEO of London for Citadel and running the event-driven business. We had great, had success that was well known in the market. I didn't have a lot of exposure to investors. I had some exposure, small amount of exposure. Most of the handling of investors was done in Chicago by Ken and other partners that were there, but sometimes people had come to London or wanted to, to meet me as well. And so I'd had some exposure, but i…

AI assessment note: “So for me, It was a calculation, as it would be for anybody.”

Q So when you set out to form Polygon, based on the investing you had done, what were the core principles of your philosophy and strategy?

A So I think one of the things is culture. You have to think about what kind of culture you want for your firm, whether you get it perfectly right or not. You know, hopefully you evolve it correctly over time, but I think that's an important first principle because there's a certain type of people you're looking to partner with and certain type of people you're looking to hire. And I obviously had Experience with hiring a lot of people and seeing a couple of other cultures in the investment community, both Citadel Baker and I before that, and other firms where I had friends and I talked to them about what they'd done. And I think first and foremost for me, I wanted a firm that was collegial. I wanted a firm where people were respectful to each other. And there's lots of examples of very, very successful firms where it's much more of a aggressive, pit people against each other kind of culture, which is great. That can work really well. It just wasn't what I wanted and what I wanted to be presiding over. But I also wanted people who were really, really smart, Really, really hardworking, and we're kind of mid-career. I didn't want to spend a lot of time with people who hadn't yet made mistakes. As a private market investor, you get, at least in your starting gun, you have near perfect information, all the data about the business, you get inside, you can do your surveys of what other…

AI assessment note: “I think one of the things is culture... I wanted a firm that was collegial.”

Q You mentioned it in Baker Nye was the micro investing. So looking at companies, what you've described in Europe comes from that macro side. How have you brought those two together, as you said, to be able to manage through these volatile markets?

A Well, I think that's a great question. Europe, you have not been able to strip the macro from the micro because the macro has been driving the micro for much of the last two decades. In the U.S. it's been much less so. 2008 obviously was a very macro driven event, but post that in the U.S. macro strategies, just focusing on the U.S., there was less to play for. You've seen that macro volatility in the last 12 months has led to macro funds doing extremely well, and there was a Period of time where it's extremely hard for macro funds to make any money because it was just sort of trending one way. And so in the US, you've been very much, I think, much more able to just focus on the micro and the investing in corporates, et cetera. And only in the last 12 months have people really had to take a step back and go, what's my overlay? Where are we in the cycle? In Europe, you've been unable to strip the micro investing away from the macro. And this led to changes in investor appetite, flows of funds, It's been driving the market much more than even the corporate strategy. I'd say the macro element has been more than 50% of what's driven Europe over the last 15 years. So you had to learn to do both. And I think that is interesting. And that's something I very much have learned since we've set up Tetragon and Polygon and all the other businesses that we've done is to be much better at th…

AI assessment note: “So you had to learn to do both... to be much better at the macro”

Q Which two people have had the biggest impact on your professional life?

A So the decisions I made to get involved in investing, I didn't come from a background where people had been involved in finance. I came from middle of nowhere, Minnesota. So for me, I got it from books. It was books I read. Those were the things that really influenced me. And, you know, I asked other people what I should do. They said, go read books. Learn. And so there were a series of books I read. Probably the first one was the reminiscences of a stock operator, Edwin Lefevre, which sort of described the wild, wild west of emotional trading and flows before the Securities and Exchange Act came into place. It also teaches the importance of regulation. And then it were things like, you got to think Alfred Jones and what he did was setting up a hedge fund. Peter Lynch, Ben Graham, of course, everybody's read Benjamin Graham's Intelligent Investor. Jack Schrager wrote these books, market wizards, new market wizards. I read all these things voraciously. They were kind of accounts of really successful people and how they made money. Those are the things that really had an impact on me and what I wanted to do. So I just say I buried myself in books for a few years and that's really what helped me get focus.

AI assessment note: “So for me, I got it from books. It was books I read.”