Unlocking the Value of Ripple Labs in Tetragon

Special Sits Sally on Tetragon Financial (TFG-AMS | tetragonfin)

4/21/2025

Summary

Tetragon Financial Group (TFG), a London- and Amsterdam-listed alternative asset manager, trades at a 60% discount to its stated Net Asset Value (NAV) of ~$35/share, with shares languishing near $14. This disconnect stems from historical distrust in management, structural complexity, and opacity around key assets. Plus a general market discount for closed end funds in general. However, two near-term catalysts could unlock transformative upside: The imminent sale of Equitix, TFG’s largest holding (81.5% stake), which could inject $1 billion of cash into TFG’s balance sheet enabling aggressive share buybacks to close the NAV discount. Radical undervaluation of TFG’s ~2.5% stake in Ripple Labs, the blockchain company behind the XRP token. Tetragon is in no hurry to show Ripple’s true value. A revaluation of Ripple to $250/share in an IPO could add $8.6/share to the NAV ($44/share). These catalysts together could boost TFG’s NAV to $40-50/share, offering >100% upside from current levels. Investors coming into TFG at an already high 60% discount to NAV, a 3% dividend yield, and a history of accretive buybacks. With insiders owning 40% of shares and incentivized to close the discount, TFG represents an asymmetric sum of the parts opportunity with catalysts. The price target of $20 assumes a future NAV of $40/share based on higher rating for Ripple Labs, but a continued discount of 50% to NAV. This price target would still be a 43% discount to the presently stated NAV.

Thesis

1. Structural Discount to NAV: A Legacy of Mistrust TFG’s $3.1 billion NAV ($35/share) comprises a diversified portfolio of alternative assets, including infrastructure funds (Equitix), hedge funds, litigation finance, and private equity. 44% of the NAV is a collection of investments into asset management companies. Despite compounding NAV at 10-11% annually, the stock has underperformed due to: Self-dealing by management: Historical allegations of fee double-dipping (e.g., writing down assets during crises and repricing fees on recovery). Non-voting share structure: Limited partners (LPs) lack governance rights, enabling management to prioritize their interests. Complexity and opacity: Assets like Ripple Labs are poorly disclosed and conservatively marked. Yet, the current 60% discount to NAV implies extreme pessimism. For context, even if TFG’s assets were liquidated at 50% of stated value, the stock would still trade near fair value. This creates a margin of safety rarely seen in public equities. 2. Catalyst 1: Equitix Monetization and Capital Returns Equitix (81.5%-owned by TFG) is a $14 billion AUM infrastructure manager marked at $900 million on TFG’s books. A potential sale at 1 billion GBP ($1.3 billion), aligning with recent infrastructure M&A multiples (e.g., BlackRock’s acquisition of Global Infrastructure Partners at 13-15% of AUM). Impact of a sale: NAV uplift: TFG’s stake could realize $1 billion (81.5% stake) vs. its current $900 million mark, adding $1/share to NAV, but more importantly giving TFG $1bn in liquidity. Cash for buybacks: Post-sale, TFG would hold $1 billion net cash ($11.75/share), enabling a tender offer at a premium. TFG could do a $500 million tender offer (e.g., $20/share) to retire ~25 million shares (28% of float). The new NAV/share would be $41/share (+16%). Management’s self-interest aligns with this path: insiders own 40% of shares ($1.4 billion at NAV) and stand to gain disproportionately from NAV accretion. 3. Catalyst 2: Ripple Labs – The Hidden Crypto Gem TFG’s stake in Ripple Labs, creator of the XRP token, is grossly undervalued. Key points: Ownership: It’s hard to know exactly, but it looks like TFG holds 4.5 million Ripple shares (2.5% of 179 million diluted shares), marked at $50/share ($220 million total) as of February 2025. Ripple’s intrinsic value: XRP holdings: Ripple owns 43 billion XRP tokens ($86 billion at $2/XRP). Operating business: RippleNet (cross-border payments) at $2 billion. Sum-of-the-parts: $ 88 billion after-tax or $370/share post-25% tax. TFG’s stake at fair value: Secondary market prices for Ripple shares recently traded at $70/share (Hiive) which could add another $100mn to the NAV ($1.1/share) Potential upside: If Ripple IPOs at $250/share, TFG’s stake could reach $1.0 billion or an extra $8.6/share of NAV.) This would be 61% of the current share price. 4. A Potential Playbook by TFG Management and Insiders. TL/DR: Sell Equitix and take the $1bn in cash to buy back shares of TFG while the Ripple asset is underpriced on the books of the TFG. Later after Ripple IPO, revalue the Ripple shares and mark up the NAV. Insiders own 40% of TFG shares, worth $1.25 billion at NAV but only $800 million at market prices. This misalignment creates urgency to: Monetize Equitix and tender for shares before Ripple’s value becomes visible. Avoid dilution from a Ripple IPO, which would spotlight TFG’s undervaluation. Scenario 1: No buyback. Share count at 89.9 million. Ripple @250/share. New NAV/share = $43. Scenario 2: $ 500mn buyback at $20. Share count at 64.8 million. Ripple @250/share. New NAV/share = $53. 5. Downside Protection Even if catalysts fail: TFG trades at 0.4x stated NAV with a 3% dividend yield. NAV has grown 10% annually despite Europe’s economic stagnation. Continued buybacks (likely given insiders’ stake) provide a floor.

Risks

1. Execution Risk on Equitix Sale M&A for infrastructure asset managers like Equitix could cool amid rising rates. The asset manager is already being marked at $900 million or 6.4% of AUM. Not as extreme as the GIP deal, but still high. TFG may reject bids below 1.5 billion GBP and then get caught in a bear market, derailing the whole buyback plan. 2. Ripple Valuation Uncertainty XRP valuation: XRP’s price at $2 implies a total valuation of $200 billion for the crypto currency, which seems ridiculous given its limited adoption as a bridging asset for FX transactions. A drop to $1.0/XRP (pre-Trump levels) would cut Ripple’s value by 50%. Ripple Valuation: The upside valuation to Ripple is underpinned by the holdings of 43 billion XRP, but as soon as the company tries to sell these XRP, the price could slip to 50cts. In reality, the XRP has to be monetised slowly and in line with real user adoption of XRP in FX transactions. 3. Management Misconduct History of self-dealing raises concerns that insiders may prioritize personal gains over minority shareholders. 4. PFIC Tax Complications U.S. investors face punitive PFIC tax treatment, deterring institutional ownership. 5. PE Industry Crash Private Equity funds, like TFG's infrastructure, real estate and private credit funds, are under pressure globally as investors need asset sales and liquidity. 6. Trying to be Too Clever and Left with a Bag of Assets below NAV The TFG catalysts could fail and you are left with a bag of assets below NAV and a management team nobody likes. If TFG fails to execute on the Equitix sale, because they are too stubborn on price, and meanwhile the market conditions worsen suddenly, which is happening, then they don’t have the cash to do the share buyback. Also, the Ripple share price could come under pressure and fall back to $30 if VC funds need liquidity or if the XRP price (which implies a valuation of $200 billion despite limited user adoption) falls to 50 cts.

📈 Price Targets

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