TPG Inc. Q2 FY2024 earnings call

Capital Raising - Strong momentum in capital raises across diversified product base. Raised $6.3 billion in Q2, over 70% ($4.5 billion) from credit strategies. Twin Brooks' fifth drawdown fund raised $3.9 billion, exceeding target. TCAP continues to raise capital steadily with $2.5 billion total AUM. Credit Solutions raised ~$2 billion including $1.1 billion for Credit Solutions 3 and additional closes for Essential Housing 3. Rise climate franchise expected to drive robust fundraising momentum, with first close for Rise Climate 2 expected and target of $10 billion across relevant funds.### Deployment - Deployed $7.6 billion in Q2, over $35 billion over last 12 months pro forma. TPG Capital had 9 investments with aggregate equity commitment of nearly $7 billion over last 12 months. Activity in Europe was a high priority, with TPG Capital announcing the €3.9 billion carve-out of Aareon. TPG Growth closed acquisition of Untitled Entertainment. Rise and Rise Climate funds deployed capital, with additional transactions post-quarter end. Real estate strategies saw increased investment activity since mid-2023, investing $1.2 billion in Q2, including office-to-residential conversions in NYC and investments in various European properties.### Market Backdrop - Market correction led to increased volatility, with expected interest rate cuts and geopolitical risks. But fundamentals remain reasonably strong, and TPG has $53 billion of long-dated capital available to invest.

In the second quarter, TPG produced a GAAP net loss attributable to TPG, Inc. of $14 million. After-tax distributable earnings were $207 million or $0.49 per share of Class A common stock. Fee-earning AUM was $137 billion, and total AUM was $229 billion. In credit, $4.5 billion of the $6.3 billion raised in the second quarter was from credit strategies. TPG invested $7.6 billion in the second quarter, with over $35 billion invested over the last 12 months on a pro forma basis including TPG AG. The credit business saw $4.5 billion deployed in the quarter, with Twin Brook having strong origination momentum, Credit Solutions raising approximately $2 billion including $1.1 billion for the first closing of Credit Solutions 3, and structured credit deploying $1.9 billion.

Fundraising - Expect credit fundraising to exceed $10 billion for the year, pacing ahead with $6.6 billion raised through June. Expect total private equity and infrastructure fundraising in 2024 to grow compared to $12.8 billion in 2023, driven by Rise climate and climate transition infrastructure strategies. Expect to hold a first close for Rise Climate Transition Infrastructure Fund before year-end.### Capital Raising Over 5 Years - Expect to raise approximately $40 billion from 2021 to end-2025 across new strategies, pro forma for TPG AG, including growing Rise Climate franchise, expanding into infrastructure, leveraging real estate footprint, scaling GP-led secondaries business, and broadening credit platform.

Market Volatility - Market correction led to increased volatility, with potential impact from imminent interest rate cuts and heightened geopolitical risks. It's not clear how this will impact the underlying economy.

Q: Hi, good morning, everyone. I want to start with credit. So at a high level, trend sound pretty good on both deployment and the fundraising side, but obviously, banking line was flat sequentially. Could help bridge sort of what were some of the offsets in the quarter? And then more importantly, talk a little bit about your growth outlook in credit with respect to management fees and fee-paying AUM over the next 12 months.

A: Sure. Alex, it’s Jack. I’ll start on that. On the quarter, the reason the fee paying AUM was relatively flat quarter-over-quarter is because, as you’d expect, the $4.5 billion of credit capital we raised during the quarter really, none of that was upon being raised. It turns into fee-paying AUM as we deploy it. So that’s why you saw AUM growth quarter-over-quarter, but really no FAUM growth. And that’s why, to my comments, the AUM subject to fee step-up increased so much quarter-over-quarter. So that’s how you – that’s how I would think through kind of that bridge. Now we do expect accelerated FAUM growth in credit as we work through the year next year and deploy the capital that we just raised in the first and second quarter, and we expect to continue raising in the back half of the year.

Q: Good morning, John, Jack. I have a modeling question on the fee-earning AUM quarterly roll for it. In credit, you raised $4.5 billion and you also invested $4.5 billion, but fee-earning AUM only grew by $200 million and the fee earning AUM inflow is just $300 million. So I know I just threw a lot of numbers out there, but my question is why didn’t fee-earning AUM in credit growth faster in the quarter, just given how big the fundraising and deployment numbers were? What am I missing?

A: Craig, the $4.5 billion of capital we raised during the quarter, really none of that shows up as fee-earning AUM as of the end of the quarter. It was raised, it’s dry powder ready to invest, but it doesn’t flow into fee-earning AUM until deployed, which will happen in subsequent quarters.

Q: Hey, good morning. Thank you for taking the question. Maybe just sticking with credit and the AG deal. You mentioned some overseas investors coming into the Twin Brook fund sounds like some maybe distribution synergies happening there. Maybe you could just elaborate a bit on some of the synergies you’ve realized so far from bringing Angelo Gordon into the franchise. And as you look out over the next 12, 24 months, maybe you could just update us on your latest thoughts around synergies that you’d expect to drive across the business as you look out from here. And I know one of the things you’re looking to do is to help the Ag credit business move up market a little bit. So maybe you could just update us on kind of where that initiative stands.

A: Yes. Thanks, Mike. The – on the fundraising side, I think that we have experienced a – what I think of as a fair amount of crossover between our LP bases. And as we talked about, as part of sort of the underlying thesis and growth drivers for the AG acquisition, we felt like that was a major opportunity for us in terms of being able to cross-sell into both historical pools of capital that haven’t participated with AG and also just the size and scale of some of those pools of capital. So that really is beginning to take shape. And as an example, if you look at the Twin Brook fund raise, there are a number of cases where we have been able to successfully by partnering together between our two fundraising groups, that’s an area where there were a number of examples where both some combination of sovereign wealth funds, large pensions and particularly international penetration. If you look at the footprint of TPG’s LP base and the existing footprint of AGs at the time of the acquisition, the global scale of TPG’s footprint was quite a bit larger. And so when you look at what we have been able to do and are continuing to do with in the Asia region, in the Middle East, in Europe, I think we’ve been very happy with the progress that we’re making in terms of both mandates that we’ve gotten as well as engagement that we continue to have across the credit platform. Same thing is true, by the way, and really across the entire platform from Twin Brook to Credit Solutions to structured credit. And so I expect what you’ll be hearing from us as we continue to form capital is you’ll be hearing similar things with respect to the continuing fundraising effort with respect to bringing in those traditional relationships on the TPG side, and bringing those to bear in the AG credit business. So we’re pretty optimistic with respect to that based on tangible evidence that we have so far as well as well as what we’re – where we’re currently engaged in terms of relationship dialogue. In a number of cases, as you would expect, given how credit is – how capital is formed on the credit side, in a number of cases, we’re working on multi-strategy SMAs with some large pools of capital. And then the other area where I think we’re pretty encouraged as well is extending the reach of our relationships in the channel with respect to the private wealth part of the market. I mentioned, for instance, Twin Brook, about to go up on its third major wirehouse platform for TCAP. And we have a number of launches that we’re expecting to do with the channel with our Credit Solutions business. as well as our structured credit business. So we feel pretty good about it. And I think you’ll continue to hear from us as we report out the progress that we expect to make – the other areas of synergies that get to your question that are quite tangible – for example, I mentioned our credit solutions business and the private opportunities that we’re prosecuting there, the level of engagement between the private equity side of the house and the credit solutions side of the house, after signing NDAs and working with sponsors is also quite significant and quite tangible. And the ability to use both credit expertise that we have on the Credit Solutions side. And our underlying understanding of many of these companies on the PE side because many of these companies, as you would expect, we’ve seen and the ability to both understand how to structure deals, but also ultimately what you’re lending against fundamentally in terms of loan to value is valuation of companies. So that – those skill sets coming together is quite tangible. One of the things that we are in the process of doing is we are actually launching a new strategy we called hybrid solutions, which essentially, think of that as a middle of the capital structure, more structured return type of opportunity – we’ve already established an anchor LP for the strategy. We’ve already done our first deal in the strategy. And just to give you an idea, that strategy is led by Ryan Mallet Credit Solutions, David Trio and Hall Raj from the private equity side. So that’s an example of forming a new opportunity basically through the combination of the two businesses.