Q2 2022 TPG Inc Earnings Call
Good morning, and welcome to the T. P. G 's second quarter 2022 earnings Conference calls.
All colors have been placed in a listen only mode and following management's prepared remarks, the call will be opened for your questions.
If you would like to ask a question at that time. Please press star one on your telephone keypad.
If you need to remove yourself from the queue press the pound key.
Any time, if you should need operator assistance press stars Euro.
Please be advised that today's call is being recorded.
These go to T. P. G I, our website to obtain be earnings materials.
I will now turn the call over to Gary Stein head of Investor Relations at TPG.
Thank you and Sir you may begin.
Great. Thanks, operator.
Welcome to our second quarter 2022 earnings call. Joining me. This morning are John Michael Reed, Chief Executive Officer, and Jack Wang Our Chief Financial Officer.
In addition, our executive Chairman and co founder, Jim Culture, and our President.
We are also here with us and will be available for Q&A for the Q&A portion of this morning's call.
Before we begin I'd like to remind you that this call may include forward looking statements do not guarantee future events or performance.
Please refer to Tpg's earnings release, and SEC filings for factors that could cause actual results to differ materially from these statements.
TPG undertakes no obligation to revise or update any forward looking statements, except as required by law.
Within our discussing in earnings release, we are presenting GAAP measures non-GAAP measures and pro forma GAAP and non-GAAP measures, reflecting the reorganization that was completed during 2021 and immediately prior to <unk> IPO.
We believe it's helpful for investors and analysts to understand this dark results through the lens of our go forward structure and please refer to Tpg's earnings release for details on the pro forma financial information.
We'll also be discussing certain non-GAAP measures on this call that management believes are relevant in assessing the financial performance of the business. These.
These non-GAAP measures are reconciled to the nearest GAAP figures and TPG its earnings release, which is available on the company's website.
Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund.
Looking briefly at our results for the second quarter, we reported a GAAP net loss of $10 million and after tax distributable earnings of $162 million or <unk> 46 per common share.
We also declared a dividend of 39 cents per share of class a common stock, which will be paid on September <unk> to holders of record as of August 19.
With that I'd like to turn the call over to John Michael Reed, Chief Executive Officer.
Thanks, Gary and good morning, everyone.
During our prepared remarks today I'll touch on our recent performance and discuss a few highlights across our business I will then turn the call over to Jack to provide more details on our financial results followed by Q&A.
We delivered strong financial results for the second quarter, despite a volatile global macro economic and geopolitical environment.
These results highlight the momentum of our franchise the strength of our portfolio.
And the inherent growth and earnings power of our model.
Our second quarter fee related revenues of 256 million grew 43% compared to the pro forma year ago quarter.
While our fee related earnings or FRE.
More than doubled to $102 million over the same period.
This FRE growth combined with the $60 million of performance related revenues in the quarter led to after tax distributable earnings of $162 million, which more than tripled compared to the pro forma year ago quarter.
Driven by the strong results, we announced a quarterly cash dividend of 39 cents a share.
Presenting 85% of Tpg's after tax distributable earnings.
As of June 30, we had 127 billion of total assets under management.
An increase of 17% year over year.
This growth was driven by significant fundraising activity across our business.
Led by first closings in the quarter for several of Tpg's flagship funds, including TPG capital partners.
Care partners and rise.
In aggregate, we raised $13 billion during the second quarter.
120% increase versus the year ago quarter.
Raised a record $31 billion over the last 12 months.
We're pleased with the strong support we have received from both our long standing and newer limited partners.
The success of our recently completed and ongoing fundraising campaigns is a testament to our excellent track record.
Strong LP relationships and best in class team.
In addition to our robust fundraising over the last quarter and 12 months, we invested $4 billion in 'twenty 1 billion, respectively, and we delivered realizations of more than $4 billion and 28 billion respectively.
In aggregate, our investment portfolio generated value creation of 12% over the last 12 months, despite a 2% value decline in the second quarter.
The global macro environment remains highly uncertain due to a confluence of factors, including inflationary pressures rising interest rates the ongoing war in Ukraine and supply chain constraints.
As long term patient investors, we have successfully navigated TPG toward a number of cycles of bouts of volatility over the last three decades and despite the existing backdrop, our business is performing well.
While we couldnt have predicted the specific timing or drivers of the current downturn, we have been preparing for the onset of a more challenging market for some time, we aggressively monetize our portfolio during an attractive valuation environment with aggregate realizations totaling one three times the amount of capital we invested over the last 12 months.
Yes.
Importantly at June 30, we had $39 billion of dry powder, the largest amount in the firm's history.
Representing 59% of our fee generating AUM.
With this large pool of dry powder.
Believe we are well positioned to deploy capital in this increasingly favorable investment environment we.
We expect to see more attractive investment opportunities across our core sectors and beams as sellers adapt to reset valuations and market stabilize in the coming quarters.
On the realization front, we recognized and leaned into the frothy market valuations over the last 18 to 24 months.
Now that the environment has changed we will still expect to selectively monetize investments in the coming quarters.
Our pace will likely moderate.
We have a strong relatively young portfolio of attractive companies and we have a bias to remain patient and continue investing in these companies to build long term value.
I would now like to walk you through some highlights across our business starting with our largest platform capital.
We had 62 billion and total AUM as of June 30.
During the quarter, our capital funds completed or announced several investments in companies, including Dr. <unk>, a leading European specialty Pharmaceuticals company based in Milan, and the pending take private of Quebeckers, leading U S animal health technology and distribution services platform.
Both of these transactions leverage our capabilities is one of the most active and experienced healthcare private equity investors while building on thematic areas. We have studied in diligence for many years.
During the quarter. We also completed the acquisition of an additional stake in source labs, a leading provider of automated software testing solutions.
This is a great example of the proprietary investment opportunities we create through the connectivity among our investment platforms. Our Tech Adjacencies Fund <unk> first made a minority investment source labs in 2019, and subsequently increased its position.
This relationship enabled our capital team to engage sauce labs and its shareholders on a proprietary basis.
Led to a majority of investment.
In the second quarter, we also help on CAH strategic acquisition of Ics, which enhanced its leadership position within the entertainment and sports industries.
We first invested in CAA back in 2010.
And last year, we moved it into a single asset continuation vehicle to maintain our majority ownership of this high quality business.
For the quarter, our capital funds generated total realizations were approximately $2 billion, including the partial sale and recapitalization of TPG Asia investment in Green Cross, Australia, Australia is largest pet care company.
Next our growth platform at 21 billion of total AUM at the end of the second quarter.
As discussed we have built our growth portfolio with a focus on sectors and themes like health care it.
Digital transformation and security and infrastructure, where secular rather than cyclical growth drives performance.
We are investing in well established companies with strong financial profiles and our investments are often through structured securities that provide some form of downside protection.
The growth platform had an active deployment quarter, including the completion of our investment in <unk>, a leading global provider of shareholder engagement and corporate governance services and.
In addition, consistent with our hands on approach and focus on bending the curve to drive transformational growth. We funded several strategic portfolio company acquisitions, including to say is take private of data to further scale is a leading provider of back office infrastructure software.
The <unk> acquisition of Imperial Western products to bolster its leadership position in organic waste management.
Asia Healthcare holdings acquisition of Dr. Agha walls, healthcare, India's largest provider of <unk> services.
And people to point those acquisition of Brookside are leading compliance services platform for freelancers in the U K.
During the quarter, we returned capital to our growth platform investors from several transactions, including partial monetization with freedom PE and Asia Healthcare Holdings.
We also announced the strategic sale of implantable provider group to ever let health and completed the IPO of campus Activewear in India.
Campus is India's number one sports athleisure footwear brand and its public offering achieved the second highest subscription ever for an Indian consumer IPO at the time of pricing.
Moving on the impact platform had total AUM of $15 billion as of June 30.
During the quarter, our impact funds deploy capital in a number of transactions such as intersect power, a leading integrated renewable energy platform.
Summit carbon solutions, which is developing one of the largest carbon capture and storage systems in North America.
Beta technologies, which is developing electric aircraft capable of vertical takeoff and landing and international Medical University, which operates medical colleges and Malaysia.
I'd also note the inflation reduction act is expected to stimulate substantial investment in climate related technologies and solutions, which should provide a tailwind to some of our existing rise advised climate portfolio companies and also create attractive investment opportunities going forward.
Our real estate platform, which ended the second quarter was $20 billion of total AUM at a substantial realization in the quarter. The sale of the remaining assets at icon, which was our warehouse and logistics development venture in the U K on the deployment side. The real estate platform continues to add new investments at a measured pace primarily across our student housing.
Rental housing and life science teams.
Before I turn the call over to Jack I would like to touch on our talent strategy, which is an integral component of Tpg's culture.
We remain focused on recruiting and retaining best in class talent.
We recently announced midyear promotions for more junior members of our investment team.
Six offices in five business units and nearly 50% of these promotes identify as diverse.
We also held our annual partner promotions in this year's process, which is rigorous and engaging as ever.
Our successful partner candidates represented four offices globally at five different business units and.
Since 2019, 40% of our new partners have identified is diverse.
During the quarter, our most senior leaders NOI posted our annual diversity equity and inclusion town Hall.
This firm wide event is an important time for us to come together as a global firm to provide updates on our strategy and progress and keep ourselves accountable as we continued to build our firm.
I'd also like to highlight that today, we published our annual environmental social and governance review, which is available on our website. This report underscores <unk> commitment to advancing ESG performance within the firm and across our broader ecosystem and communities.
Lastly.
I'm also pleased to note that we recently added Gunther bright as a new independent director to our board.
<unk> Distinguished leader, who has delivered exceptional results as an executive at American Express a former board member at Mcafee.
Our various nonprofit boards, we're confident that his breadth of experience and leadership talent will enhance our board.
Now I'd like to turn the call over to Jack So he can take you through our financial results.
Thanks, John and good morning, everyone I'm going to.
I'll briefly walk through our financial results and highlight some of the more significant points regarding our second quarter performance.
Our total assets under management.
At the end of the second quarter of 'twenty one.
27 billion as of June 30 of this year.
The key drivers of the 17% increase with a $31 billion of capital raised that John mentioned <unk>.
Combined with $15 billion of value creation from our underlying fund investments, partially offset by $28 billion of realizations that were returned to our fund investors during the same period.
Fee, earning AUM increased from 52 billion at June 30, 'twenty, one to <unk> 67 billion at June 30 'twenty to.
This 28% increase was driven primarily by raising nearly $17 billion in fee, earning capital across our platforms.
Most notably in real estate and impact.
Additionally, pro forma for the recent activation of our next flagship capital in healthcare partners funds, which ill discuss momentarily.
<unk>, earning AUM is now 73 billion, which is a 39% increase compared to the second quarter of 'twenty one.
At June 30, approximately 84% of our AUM and 77% of our fee, earning AUM was in either perpetual or long dated funds.
With duration at inception of 10 years or longer in addition to 80% of our fee, earning AUM and a remaining duration of five or more years at the end of the second quarter.
We had nearly $16 billion of AUM subject to fee, earning growth, including more than $13 billion not yet earning fees at the end of the second quarter.
Despite the challenging macroeconomic environment the fundamental performance of our portfolio companies remained strong with aggregate revenue and EBITDA growth well above market.
Which we believe is a result of our hands on approach and thematic sector based investing in areas with secular growth trends.
This strong performance, partially offset the declining multiple environment in the quarter, leading to a valuation decline of 2%.
Looking at our income statement, we recorded a GAAP net loss for the second quarter of $10 million.
Regarding our non-GAAP results, we reported fee related revenues for the second quarter of $256 million.
And FRE of $102 million.
Our FRE more than doubled versus the pro forma year ago quarter, driven by a combination of topline growth in management fees.
And the ongoing expansion of our FRE margin.
Our FRE margin was 40% for the second quarter up from 38% in the first quarter of this year.
As we've indicated previously we expect continued FRE margin expansion as we scale, our business and drive operating leverage with an FRE margin target of 45% by the end of next year.
Okay.
Our after tax distributable earnings were $162 million, which was more than three times, the pro forma year ago quarter.
Driven by the growth in FRE and by realized performance allocations of $60 million in the second quarter.
Turning to the non-GAAP balance sheet for TPG operating group as of June 30th which is reflective of our balance sheet light business model.
We are well capitalized with $585 million of cash and $450 million of long term debt.
In July we also upsized, our undrawn credit facility from $300 million to $700 million.
To provide us with additional financial flexibility.
We also had a net accrued performance allocation balance, which represents a 20% allocation to the television operating group.
$677 million. This decrease from 796 at the end of the first quarter.
Driven by a $60 million of realizations and a $60 million unrealized noncash decline in mark to market valuations.
The notable component of our performance allocation balance as of June 30th is related to the sale of wind River.
As we've discussed on previous calls this transaction is currently under regulatory review and we are now targeting a closing by year end.
I'd also like to note that as of June 30, 114 billion or 90% of our total AUM was eligible for four performance allocations.
On fundraising we delivered an exceptional quarter with $13 billion of capital raised at a record $31 billion raised over the last 12 months despite headwinds across the industry.
I'd like to provide you with a bit more detail and an update regarding additional fund raising post quarter end.
I mentioned on our last call that we expected to hold first closes for three funds around mid year, our flagship TPG capital Health care partners and raise funds.
In all three cases, we held rolling first closes that began at the end of the second quarter and finished after quarter end.
On TPG capital in healthcare partners, where we've articulated a combined target of $18 5 billion.
We closed on 8 billion during Q2 as you saw in the earnings release.
And another $2 7 billion in the past month, bringing.
Bringing the combined first close to $10 6 billion.
Okay.
On rise.
We've articulated a target of $3 billion, we closed on $1 3 billion during Q2 and another $300 million in the past month, bringing the total first close to $1 6 billion.
On the TPG Asia front as I mentioned on our last call. We expect to complete our first close this quarter Q3.
And we will have more to report on this during our next earnings call.
Our real estate platform, we raised $2 3 billion for our fourth opportunistic real estate funds in the second quarter. We have reached the hard cap for this fund and we expect we expect to complete fundraising this quarter with our internal capital commitments at.
At a total fund size of approximately $6 8 billion.
Yeah.
Finally, a comment on the timing of the activation of TPG nine in healthcare partners.
We had not activated these funds as of June 30, which is why the $8 billion does not show up in our fee, earning AUM members at quarter end.
Since then we finished investing TPG age and health care partners. One so we have now activated the new flagship funds as of mid July .
Okay.
While the remainder of our Thunder fundraising campaigns may be extended for reasons that have been well discussed across the industry. We are very pleased with our strong start and we look forward to updating you on our continued progress in future quarters.
Taking a step back we are proud of our strong second quarter results and the momentum we're generating across our business.
We believe our investment portfolios are performing well amidst the volatile market backdrop.
And we're working closely with our portfolio companies to build long term value.
In addition, we continue to expect strong growth in fee generating assets under management and fee related earnings as a result of our ongoing.
Rod based fundraising campaigns.
With that I'd now like to turn the call back over to the operator, So we can take your questions.
At this time, if you would like to ask a question. Please press star one on your Touchtone phone you.
You may remove yourself from the queue at any time that pressing the pound key.
Once again that is star one to ask a question.
And our first question will come from Craig Siegenthaler with Bank of America. Your line is open.
Hey, good morning, everyone.
Good morning.
So we wanted to start on fund raising and it was nice to see the 7 billion close or find nine and almost $2 billion for health care too in the quarter, especially given some of the emerging challenges, but I wanted to circle back to Jack's prepared commentary on extension I think was the word you used.
Do you think it will be significantly more difficult to raise the second half of these funds I think you're about eight of the 18 billion remaining.
In the second half of this year, just given that some of your limited partners. They may have hit their full year fund raising targets a little earlier this year given the denominator effect.
Yeah. Thanks for the question Craig look we've been talking for a few quarters now about the fundraising market.
Challenges and the fact that I think all fundraising campaigns across the industry will be more extended than usual and that I think remains the case for the reasons you articulating against that backdrop, we couldnt be happier and more proud of the.
The progress we made as of the end of the quarter and the subsequent closes I just referred to I.
I do think as we look out towards the completion of those campaigns that I wouldn't expect them to be complete by the end of the year I think all of them will extend into next year.
Thank you Jack and just for my follow up it's actually on the real estate business in March.
I was curious behind the dynamics of your negative two 3% Mark in real estate.
Within that portfolio.
Which segments were marked down the most which ones are maybe flat to up and I also wanted to just see how cap rates generally trended, which.
Which likely offset strong free cash flow growth.
Yes, Greg it's Sean.
First of all I would say that.
Our real estate portfolio and I think we've talked about this before is actually performing extremely well and the places that were exposed or places, where frankly I think we feel good about being exposed so as you know.
Our focus from a sector perspective, theres been life Sciences, industrial rental residential housing student housing data centers and.
And studio content real estate, and we have very little if any significant exposure to office or retail, which obviously are down much more significantly I think as a general matter.
Reasonably conservative in terms of our marking even though our operating performance is actually exceptionally good.
And.
One of the things that we do look at as we do look at across our entire business public market comps and if you look at reach in the market as an example.
Had a pretty tough ride.
In this market downdraft, just a couple of benchmarks for Ya <unk>.
Down 23% EQ are down 19%. These are the largest.
Industrial and apartment reach so when you think about sort of how we think about it.
Marking our book I think we're being reasonably conservative.
Conservative in doing so.
And I think that the areas where were marking in relation to that obviously industrial rental rental residential housing.
Places, where we're <unk>.
Taking into into account those benchmarks.
Relative to the rest of the portfolio, which are which.
As mark slightly stronger so.
I think it's.
It's fairly straightforward in terms of our approach to how we came through this quarter and our marks obviously cap rates are up a bit with rates overall.
The real estate security securitization markets are much slower than they were with loan to values that are down spread.
Spreads slightly wider et cetera.
Thank you.
Our next question will come from Alex <unk> with Goldman Sachs. Your line is open.
Hey, good morning, everybody as well so I was hoping maybe we could expand a little bit on the on the fundraising backdrop.
And just kind of look under the hood a little bit.
One of the things John you mentioned is the expansion of the LP base and I'm curious kind of how that evolved another year through the first slug of the fundraising how.
Does it differ from the predecessor funds either in terms of the composition of Lps, the number of Lps geographically or by customer type with just get like to get a little bit more color as we kind of try to get confidence in the remaining piece of this fundraising cycle for you guys.
Sure. Thanks, Alex This is Jack.
I would say consistent with I think my comments on the prior call, we're definitely seeing a bit of a mixed shift in the LP base first of all.
Given that the current dynamics in the fundraising market are affecting some segments of the market more than others.
I would say that the composition of our LP base is much more international.
This cycle than it was last cycle, if you compare the TPG nine in healthcare partners to for example, all the capital we've closed on to date.
<unk>.
35% or so is domestic.
Domestic U S capital.
In the same funds last time 68, <unk> hundred one it was about 47% so a mix shift towards more international capital.
And a mix shift with pensions, representing a bit lower percentage.
Areas like sovereign wealth increasing.
And then I would also say, we're definitely successfully expanding our LP base. During this broad based fundraising campaign. We've added I don't have exactly the amount of capital we've added from.
From new Lps, but it's a substantial portion of our of our of our fundraising process.
Alright, thank you.
Our next question will come from Ken Worthington with Jpmorgan. Your line is now open.
And thanks for taking the questions. So as we think about organic growth for TPG and filling in some of your product gaps.
How do you see sort of the spreads between the bid and the ask adjusting.
For potential deals given the more challenging market conditions that we've seen so public market valuations for all have come down a bunch to what extent if at all have private market valuations come down as well.
Are they holding up and then I guess ultimately what is your desire to kind of fill in what are the or two of the capability gaps that I think we talked about during the IPO process. As you look out over I don't know pick a time period 12 to 18 months. So so not immediately but over the.
Call it year, and a half or so.
Is that something that's still sort of a priority for you I guess is the question.
Ken just to clarify the first part of your question I think on the bid ask but youre, referring to within the Alt space not just generally with respect to <unk>.
Our portfolio company right, Yes, correct. This is you as a buyer or an investor you as a buyer for your personal M&A.
Yes.
<unk>.
First of all corporate.
Personal lines.
Yes.
Well look I think.
The first part of the question in terms of sort of the bid ask spread I think.
I would characterize as very.
Kind of bespoke or situational.
Very hard to kind of generalize because I think that we have naturally as we said during the IPO process, we're interested in continuing to expand our business.
And.
And as you know most of our growth historically has been to organically develop growth. We continue to believe that that'll be an important growth driver for us.
On the on the Nonorganic or the acquisition side I think that.
You would expect that we would be very targeted.
And focused on.
What we are adding what the characteristics of it are.
And I think there.
It's very.
Specific to the.
The potential.
Strategy firm people.
I really have a hard time generalizing when it comes to that in terms of the bid ask spread.
People want to get paid a lot for the business as they do.
Particularly where generally the asset class has had a tailwind over over the last number of years, but.
So I would say that.
Our judgement on as it continues to be quite situational, it's sort of one off in specific.
I would reiterate that we do have a desire to continue to be.
Forward leaning on filling in gaps in our business.
I think that.
In particular, I think we continue to have some dialogue with various strategies across the credit space.
We feel that generally in our ryzen impact business that.
Broadening our capabilities, there and a number of different categories, it's something where we might be able to accelerate that by either acquiring <unk> acquiring something or something like an aqua hire a team and a particular disc.
Discipline.
And.
So we're we will continue to be.
Engaged in the market.
Okay. Okay.
That's great. That's it for me. Thank you very much thank.
Thanks.
Our next question will come from Brian Bedell with Deutsche Bank. Your line is open.
Thanks, very much good morning folks maybe if you could just talk about the FRE margin stepped up nicely to the close to the 40% level.
Jack just your view on <unk>.
Given that we're activating these funds now in July whether you think youre at a level, where you can maintain that FRE margin.
At that 40% level in the second half of your obviously you mentioned getting to 45 at the end of 'twenty three.
Yes. Thanks for the question, Brian look I think I mean, you guys all have models and understand how our business works.
The fact that we accelerated the timing of our first closes on our large flagship funds is meaningful.
And that should continue to drive good FRE margin expansion.
Okay.
You can never time these things exactly in terms of how our continued investment in <unk>.
In people to grow our business.
Coincides relative to the growth of our capital base and the activation of new capital, but now that we've activated those funds that will provide good bolus to additional management fee growth in the back half of the year I think.
That will to answer your question allow us to maintain or grow the 40% FRE margin in the back half of the year.
Again toward our target as we complete these fundraisers.
Our next question will come from Glenn score with Evercore. Your line is open.
Sure.
Hi, Thanks very much.
So heard your comments loud and clear on the moderate pace of monetization maybe in the back half.
It makes complete sense in the market. We're looking at just curious if you could talk about.
How much and how long and I know Thats always a weird question, but usually you have some lag in lead time on when you ink deal. So.
Pace of moderate moderation in monetization and I guess, it's the same question on deployment I've never seen so much.
<unk> powder is a percentage that you own before.
I don't know if that pace and timing is any different because you're dealing with the same bid ask in the market, but may be having a lot of cash on hand might make deployment quicker than monetization. So two parter, but it's the same question.
Glen.
John maybe what we'll do is start with.
Modernizations and I think I'll ask Todd here talk a little bit about pace of monetization and what we're seeing there then we'll flip it over to deployment.
Yes first.
First of all thanks for.
The question.
We were we're very cycle aware and so during this last period as you know we were very active on that on the monetization front I think are there.
The relationship between monetization and new investments for us over the past year or two was was among the highest in the industry.
During that time period.
A substantial majority of what we what we did on the monetization front, we're not ipos, but where sales and many of those were two strategics and I think to your point. Some of these strategic sales do continue with peso. The dialogues that you have during those periods.
They may not be quite as active during this period on as many fronts, but there still is I think an X dialed back some of our companies in several of our portfolios and so during periods like this we see a moderation.
And I think it's quite possibly end up flipping to more of a net buyer.
We'll talk about the deployment pace.
In a moment.
But the but the opportunities are still there and the companies that we've built over many years, we feel like we've made them more strategic more growth.
And that's why we have such a high number of companies. They end up in St. Jude, Kansas and those continue to be opportunities.
And different types of economic cycles.
Moderation, yes, but the dialogues are ongoing in.
And frankly.
We continue to feel like there is this going to be opportunities in the quarters and years ahead on the monetization front.
Yes.
And Glenn I think on deployment.
Look I think where we're sitting and I'm going to want to ask Jim who is on the call as well to make a couple of comments here as well.
The deployment patient your observation about the level of dry powder and ours in particular is out is absolutely right.
A tremendous amount of dry powder, which we actually feel great about going into this cycle. We've talked about this sort of bid ask spread dynamic.
In past calls, we still see that playing out we clearly see for me. If you go through my comments in terms of where we actually have deployed capital we do see.
The adjustment process continuing and.
There is there is actually I think overall, a fair amount of activity and.
And we really like the.
The sectors and the themes, where we've been.
Focus for a while now we really like what they are looking like and and the opportunities that we're starting to see there.
There's a lot of focus in the market as you already know on take privates public to privates and there's a lot of talk about that I think that.
Some of that is getting done and some of that will get done.
They're not easy deals to get done, but I think they will get done.
Because obviously there has to be given the public market reset there is theres a number of clear opportunities there. So.
So we're engaged in some dialogue.
On deals like that.
I think that we.
We do start we are starting to see some some kind of resetting of expectations and kind of sponsor to sponsor related activity.
And and.
And then given sort of our.
Our relative strengths here in terms of for instance, our impact business and what I mentioned about the Newbuild et cetera climate technologies I'm going to turn that over to Jim to just make a comment on that.
The pending Bill this is Jim by the way depending bill is.
Probably should drive an interesting discussion on investment opportunities in the climate space.
Those of you who have followed it knows that it's unlike traditional attempts.
In climate mitigation traditional attempts have been adding tests taxes to emitters. This.
Bill is almost 100% incentives carat bill driven.
Driven to drive investment and obviously that serves us well to give you a sense for three things that were.
Focus on first of all in our existing portfolio, probably 60% to 70% of what we've deployed was deployed assuming these incentives weren't in place and it has very positive effect on that deployment, but more importantly.
Repeat which is someone who scores the bill basically.
This bill to drive three trillion dollars of investment in the climate space.
Personally I think of that as if that investment is going to happen you probably have to at least double your money. So that's a very substantial potential profit pool for investments and that should open the aperture of deals that will make sense for us given our high hurdle.
And lastly, the U S tends to drive technological advancements around the world. So driving changes in the U S market I think is going to increase our aperture globally.
So I think not.
Well talked about yet, but interesting is looking forward for deployment in the climate space that should have a very interesting effect.
Yes.
Last piece, Jack why don't you talk a little bit.
On real estate sure Glenn just to give you a little more color on the realization pipeline I think I mentioned on the last call that we had.
Third $25 million or so of realizations that were contractually committed but have not yet closed.
You saw in the second quarter that we do.
<unk> delivered $60 million of actual realizations and as we sit here today, we still have over $100 million of allocable performance allocations.
Signed but not yet closed.
Think john's comments, where beyond beyond that.
Our bias at this point is to be selective on monetization, we have given how aggressive.
We were at selling assets in the past 12 months to 18 months. We currently have a very young very interesting portfolio.
Of companies and our bias is to work with the management teams to build those build long term value in that portfolio unless we see.
Very attractive exit opportunities.
Thank you.
Our next question will come from Michael Cyprus with Morgan Stanley . Your line is open.
Hey, good morning, Thanks for taking the question maybe just following up on the pending climate Bill and the opportunity set that you mentioned I guess is there anything that you guys need to do in terms of expanding the team or the platform to capitalize on the opportunity set that you see from the pending Bill and maybe you could just elaborate a bit more on that.
Thank you.
Yeah, Michael it's Jim we feel good about the progress of building the existing team has.
John pointed out deployment in impact space has been strong this year.
So I'm not in any way concerned about team over time, I think there are opportunities for either organic or organic growth to allow us to expand the types of pools of capital we're deploying in this space.
So obviously our focus right now is on climate P/e, but there are clear adjacencies around that that we could either organically or inorganically growth too and I think the climate Bill will.
Accelerate lp's views of the.
Exposure they want to build in this area.
Thank you.
Our next question will come from Robert Lee with <unk>.
Your line is now open.
Great. Thanks, Good morning, Thanks for taking my questions.
The first question would be on kind of your business footprint, obviously, you have a large growing Asian.
Platform, but you didn't talk as much about your EMEA platform I know, it's something you've talked about investing in can you maybe just first update us on where that stands in your list.
Priorities to expand your footprint through Europe .
The EMEA region, and then maybe secondly, and I apologize. If you went through this earlier can you update us.
On your.
Just some expense guidance for the year I mean came in.
Comp in particular seemed like really well controlled but should we still expect that to accelerate at a meaningful pace over the back half of the year.
Sure.
It's Todd Thanks for the question, let me start just on the European front.
We have this is a this is a geography, we've been in really since the beginning of the firm.
It is important to us.
And we've made a lot of progress I think in.
In recent years I think as John mentioned, we just announced.
Large healthcare deal that you're in Wuxi, we have one of the co heads of the TPG capital Health care platform, who works out of London with a great team and so we're really building our pipeline in there and our presence there.
In real estate, which is another of our global strengths, we have a strong presence with the number of partners and senior team members, who have had a lot of success both on the investment in the <unk>.
Quiddity front.
And so Europe for US we are continuing to grow we have sort of lean, particularly in our strengths.
And.
And it also has become increasingly put in place for us from a fundraising perspective.
I can't remember how much trips.
And weekends and weeks I've spent over in Europe personally.
We had a dozen team members over for the Super returns conference.
Number of new relationships, we've been building across the platforms from a fundraising standpoint in Europe . So it's an important area for US we are putting a lot of energy against it we're spending a lot of time as a senior leadership team in Europe .
Trying to continue to grow the business and fundamentally when we lean into our strengths as a global platform to keep on a European presence.
Except for sure on the on the expense front, we're definitely continuing to invest in talent.
The growth of our business. So far this year, we've added over 125, new employees to the firm.
And that's been pretty broad based across <unk>.
Investment and services platforms.
To answer your question, we do we do continue to expect an increase in the comp and benefits expense line through next year.
The timing of that is always hard to predict based on what we find the right people for the right roles, but through next year I would expect continued growth in the.
Comp and benefits line.
Opex is up in the high <unk> as our business rebounds, as we get people back in the office as we're all travelling more and Thats.
I would expect continued growth in that line, but it is at a more moderate pace than the comp and benefits line.
Okay.
Thank you. Our next question will come from Arnold <unk> with BNP. Your line is open.
Yes. Good morning, Thanks for taking my question can I ask.
A question on the change in valuations I think took capital down two 4% over the quarter.
Put that off for me in terms of the different moving parts and the change in valuation multiples in EBITDA.
Danielle <unk>.
Makes sense. Thank you.
Sure.
I addressed this a little bit in my prepared remarks, but generally the way I would characterize the way valuations came out on the private equity side is we definitely have aggregate revenue and earnings growth across our portfolio that is exceeding the comparable companies as we look at that metric.
So as we looked at.
We on average took our valuation multiples down for the quarter, but that was almost offset by the growth in earnings.
Thank you.
Our next question comes from Finian O'shea with Wells Fargo. Your line is open.
Hi, everyone. Good morning.
Question on private credit.
Do you still have the.
Similar playbook from the onset or.
Do you consider starting internally.
Maybe bringing in a team for example, and building it out from there.
I alluded to this before in my comments, but.
We still we still do have.
Our focus on expanding the platform.
And.
Unclear.
At this point, we are looking we are evaluating a couple of different options, including as I said acquisition slash Aqua hire which I think would be sort of consistent with what you are talking about in terms of bringing in a team.
So.
We're.
We remain focused on it and.
At some point hopefully, we'll have more to say on it.
Thank you.
Our next question will come from Bruce <unk> with BMO capital. Your line is now open.
Great. Good morning, Thanks for taking my question I was hoping to get a little more detail around your fund raising pipeline for 2023.
You had the accelerated closings of some of the larger funds starting to come through this quarter and you mentioned that that spills over a little into next year and you have the Asia fund coming up as well, but if you could give us a sense of what new funds you expect to bring to market in 2023 that would be helpful. Thank you.
Sure well first of all the the current focus continues to be on completing the fundraising campaigns that we've talked about.
In scaling our existing businesses in addition to that.
And as I mentioned those campaigns TPG nine healthcare partners too.
Advised fund the Asia Fund, which we'll talk about our first close.
This quarter.
We'll probably continue to play out over the next nine to 12 months as we complete those campaigns.
In addition to that as we've talked about on prior calls we are continuing to focus on organic growth through new business creation and the two areas I'd point to that we're most focused on our secondaries and life Sciences and as we play out the back half of this year, we'll update you on probably initial closes occur.
Both of those platforms.
Which will also by the way, which will also extend into 'twenty three.
Thank you.
Our next question will come from Brian Mckenna with JMP Securities. Your line is open.
Great. Thanks, So I had a question on your Asia business I know you are in the market for your next flagship fund, but could you talk about some of the longer term growth opportunities in the region and how you see your lineup of products and strategies evolving here over time, and then how should we think about resource allocation as part of the business moving forward.
I think.
Yeah.
I mean, just important to reemphasize that the flagship fund obviously as the base of our business the core of our business and getting that fund raised.
And getting that fund raising completed is our frankly right now is our real focus.
I think that going forward there are a couple of other areas that we have thought about before.
That could be interesting.
I guess I would characterize those as real estate is one of them.
Which is an area that might be interesting for us.
Going forward Big asset class in the region obviously.
Credit is another area.
That.
Could also be interesting and I would say our strategy perhaps.
That mirrors, what we do here in our Tech Adjacencies fund.
But perhaps in a slightly broader context of industries and verticals and what I mean by that is essentially hybrid return type structures.
That.
It might be at a slightly different return cat inner slightly different return category than our private equity focus in the region might also be a place that we see opportunities. So once we get through our fund raise for our core Asia Fund.
We're going to be thinking about other potential opportunities and then your team point I think we have a very strong and stable team in the region and the capital business and technical business elsewhere, and so we feel like we're billing from really good basin.
More steady as she goes with some incremental hiring.
Selective additions but.
Starting from really good place.
Yeah, John I would add in that.
The people tend to focus on our flagship fund and perhaps missed some of the strength of our Asia franchise, given the impact and growth.
<unk> is done through our global funds.
I would note that we probably had the highest.
Profile climb.
Climate investment in Asia last year with our investment in our billion dollar investment in Tata Motors.
John mentioned, the IPO in India out of our growth platform in the most recent rise investment was a Malaysian.
Medical school, so we have a substantial footprint across several of our platforms to grow our product set there.
Thank you.
Our last question will come from Brian Bedell with Deutsche Bank. Your line is open.
Oh, great. Thanks, so much for taking my follow up just wanted to follow up on a question earlier about the.
And potentially inorganic expansion on the on the impact platform.
Just maybe a little bit more color on that in terms of what types of areas is it mostly infrastructure that you're thinking or.
Or some other types of areas that would <unk>.
Accelerate that platform and then also if you can comment just on retail.
In terms of their take up of some of the new funds, but both an impact in the rising price III and also just across the franchise.
Capital and health care partners.
Jim why don't you start with.
B.
That platform for impact in particularly I'll focus on climate for a moment.
Very clear to me that the 150 trillion dollar expected global investing in climate transition is going to spread across traditional asset classes.
And just as we saw in.
Technology that assets that started in private equity like data center and towers eventually moved into infrastructure at an accelerated pace. The same is going to happen here, it's already happening in renewables and it will happen in a number of other of the themes that we're playing so from our thematic approach.
There is clear opportunities in infrastructure.
And as the company as we create in private equity.
Mature there will be clear opportunities and crossover investing between the public and private markets.
And finally, if you look at the capital that is being set up.
For this transition a lot of it will be in the private credit markets and I think theres, an opportunity to address that entering on a dramatic basis as well as entering from a credit.
Perspective.
So this is early days and a very large.
And a very large area and we're making sure that we're considering all of the Adjacencies, while also being prudent.
Capital deployment pace.
And Brian This is Jack on retail and high net worth we definitely continue to see longer term high net worth.
There is a big area of expansion for US as you know it is relatively low as a percentage of our investor base today compared to some of our peers because our product set is really still focused.
On long term lockup funds that are really applicable to the highest end of the high net worth segment.
Do have active campaigns.
Land or already underway for all of our products in market today.
With different channel partners to access high net worth capital.
That'd be true and Jeannine health care partners to rise III, the Asia business, the secondaries business life Sciences, all of those we have planned multiple.
Engagements with high net worth channel partners.
Typically in a campaign like that you don't lead with retail you end up you have your initial closes with institutions. So the success we've had in raising capital across all of these funds is actually Ben.
Without much high net worth to date, because we're planning those high net worth campaigns to follow the successful institutional closes that we already had so that's kind of upside from today forward. It's definitely the case theres been a lot written about this that.
More weighted toward the lower end of the high net worth market.
That some of the capital has been raised in more.
And more liquid vehicles with redemption rights I think youre starting to see that the lower you go down the high net worth market.
The more risk off mentality, we're starting to see kick in.
And the high net worth market overall.
Is definitely backed off of there there.
Growth at this point, we see that as a near term issue longer term for us we still see a lot of opportunity to expand our capital base in the channel.
Thank you.
This does conclude the Q&A portion of today's call and I would like to turn it back over to Mr. Gary Stein for additional or closing remarks.
Great. Thanks, operator, thanks, everyone for joining us today, if you have any additional questions. Please follow up with me or Ebony otherwise, we'll look forward to speaking with you again next quarter.
Thanks, everyone. Thank you thanks.
Ladies and gentlemen, this does conclude today's TPG second quarter 2022 earnings call and webcast. You may disconnect. Your line at any time and have a wonderful day.
Yeah.
[music].
Yes.
[music].
Okay.
[music].
<unk>.
Okay.
[music].
Mhm.
[music].
Okay.
[music].
Mhm.
[music].