TPG Inc. Q1 2023 Earnings Call
We believe that the average of these two quarters were approximately $20 million to $25 million represents a normalized quarter for our transaction fees.
Noncore expenses.
Totaled approximately $11 million, primarily related to diligence legal and accounting work in connection with our acquisition of Angelo Gordon.
This resulted in a one time reduction in our distributable earnings for the quarter, which is reflected through our realized investment income and other line item.
Unusually low capital markets fees, plus the onetime M&A expenses.
Because our distributable earnings to be approximately $30 million lower than they would've otherwise been during the quarter.
That being said first quarter management fees of $248 million increased 22% compared to the year ago quarter and.
They were relatively unchanged from Q4 of 22.
This is due to the onetime step out of the prior capital Asia Fund that I just described.
Total fee related revenue was $265 million in Q1, a 10% increase year over year.
While transaction and monitoring fees were light in the quarter based on the robust transaction pipeline that John referenced we expect capital markets revenue to pick back up to more normalized levels over the balance of the year as our pace of deployment increases.
Fee related earnings totaled $99 million of the first quarter up 8% year over year.
LTM FRE of $461 million, notably grew 31% compared to the pro forma last 12 months ended Q1 'twenty two.
Our first quarter FRE margin was 37% was impacted by lower capital markets revenue as well as the Asia step down.
Given the inherent fluctuations in capital market activity quarter to quarter and the one time nature of the step down.
We believe that our run rate FRE margin is better represented by our margin over the last 12 months, which was 42%.
This is in line with our full year 2022 results in a 335 basis point improvement from the pro forma last 12 months ended Q1 'twenty two.
We continue to be very disciplined around cost management and are working toward our 45% FRE margin target, which.
Which we believe we remain on track to hit by year end for TPG on a standalone basis.
I'll touch more on the impact of the integration of Angelo Gordon to our FRE margin in a few minutes.
We ended the first quarter was $709 million in net accrued performance allocations, which is a 10% increase from the fourth quarter of 'twenty two.
After tax distributable earnings for the first quarter were $88 million or <unk> 24 per share of class, a common stock and $589 million over the last 12 months.
We announced a quarterly cash dividend of <unk> <unk> per share of class a common stock representing 85% of our after tax distributable earnings.
Moving on to an update on fundraising.
We raised $2 billion in the first quarter as John mentioned and $27 billion over the last 12 months.
Notably in the first quarter, we completed the final close of our highly successful campaign for <unk> to our technology Adjacency fund.
Raised an aggregate of $3 4 billion for <unk> to more than doubling the size of the inaugural inaugural fund. We believe the strength of Gpus Tpg's brand client relationships investment style and the turns continue to standout among alternative asset managers.
As John mentioned, we have strong ongoing engagements with both new and existing Lps.
However, we set our original flagship fund raising targets under different market conditions.
So expect each fund to grow compared to its predecessor.
But in aggregate they may not grow as much as we previously expected.
We've already been managing the business with this in mind as you can see from our cost discipline in the first quarter to.
To Dimensionalize. This for you I would note the following.
Across our flagship funds currently in market TPG, nine healthcare partners to Asia AIDS and Rice III.
Our original targets totaled $27 5 billion.
While it's too still too early to tell what the outcome of each fund raises will be we're currently managing the business, assuming we will raise an aggregate of approximately 23% to 24 billion.
Which would represent greater than 10% growth.
Over the aggregate predecessor funds.
This implies we would need to raise approximately an incremental $7 billion across these four funds based on our strong pipeline of LP engagement, we have confidence in our ability to achieve this outcome.
Finally, we continue to make good progress capitalizing our new strategies, including TPG next life Sciences, and check out our real estate credit fund as well as preparing to launch our first climate infrastructure fund.
We expect to have a further update on these organic initiatives in the coming quarters.
Given the significant fundraising headwinds I want to acknowledge the strong progress we've made in our campaigns and a considerable growth in our fee, earning AUM, we have a near record level of dry powder available to invest and growing pipelines.
An increasingly interesting opportunities across our platforms. So there's a lot to look forward to.
Now I'll turn the call back over to John to talk about the Arizona Gordon transaction in greater detail.
Thanks Jack.
Since our IPO early last year, we've consistently signals our desire to drive continued growth and diversification through both organic initiatives and strategic transactions.
We always seek to build long term shareholder value and there had been focused on scaling our existing platforms and providing a broader array of high quality investment solutions to our clients. We believe the Angelo Gordon transaction delivers on these objectives.
We've been seeking the platform that we believe will generate strong returns for our limited partners Angelo Gordon has done that historically as evidenced by their proven investment track record and a significant recent and significant recent AUM growth and we believe they are well positioned to continue delivering attractive risk adjusted returns going forward.
Assuming the TPG and Angela Gordon had been combined at the end of 2022, we would have had approximately 208 billion of total AUM.
And $128 billion of fee, earning AUM was approximately 800 employees located in 18 cities around the world.
We expect this transaction to be mid to high single digit accretive.
On an FRE and after tax per share basis in 2024, before any revenue or cost synergies.
The acquisition of Angelo Gordon with its scaled credit and real estate businesses is directly on target, where our strategic our strategic objectives to further diversify and unlock new avenues for growth and innovation and attractive and complementary asset classes.
Angela Gordon 55 billion credit platform brings significant momentum to TPG.
Widely recognized as a multi trillion dollar market opportunity and credit investing.
Business has grown AUM at a 15% CAGR from 2017 to 2022.
<unk> disclosed this diversified across four major scale strategies.
Along the credit spectrum, including corporate credit and special situations direct lending through their twinbrook business and structured credit.
Angelo Gordons credit platform is not concentrated within a single project product rather offers multiple compelling paths for growth as we look ahead.
Second Angelo Gordons $18 billion real estate platform has also demonstrated strong momentum with AUM growing at a 14% CAGR over the last five years, and it's very complementary to our existing fast growing platform.
The combination with Angelo Gordon will expand our current real estate presence in Europe over new geographies with their business in Asia broaden our product set to include strategies, such as net lease and enhance our global sourcing capabilities.
Combined we will have meaningful scale with $38 billion of collective real estate AUM.
As of the end of 2022.
We believe this transaction offers multiple ways to accelerate growth there are clear synergies with our core investment processes and deep combined sector knowledge. We also see numerous opportunities to expand our product set by offering joint new strategies to a much larger client that client base that has minimal overlap.
In addition to attractive growth opportunities this transaction significantly diversifies TPG.
Angela Gordon our strategies outside of private equity increase as a percentage of our total AUM by 30 percentage points from approximately 20% to our total AUM.
Our institutional client relationships will increase more than 60% from 550 to approximately 900 and we will have.
The ability to offer them a broad range of products.
<unk> 2007 total strategies.
From a cultural standpoint, we've been very focused and deliberate about identifying a firm with a culture and approach to doing business similar to ours.
First met with Angela.
We first met the Angelo Gordon team over a year ago and since then I've spent considerable amount of time building relationships and getting to know one another.
What stood out from the beginning was the closing of unique alignment of our two firms.
Since our first meetings in early 2020 to Angela Gordon distinct culture came through and was consistently reinforced in a regular interactions over the last year, the cultural and Angela Gordon is entrepreneurial collaborative nimble and respectful they approach the business with high ethical standards and a strong commitment to ownership and accountability.
Really enjoyed getting to know them, it's clear that Angelo Gordons culture is strong and highly complementary to everything we do at TPG.
We also share similar histories, TPG and Angela Gordon we're both founded <unk> 30 years ago and have evolved in similar ways transitioning from founder led businesses into leading next generation firms.
All firms places a strong emphasis on business building and innovation, which is evidenced by our significant growth each of US has experienced in recent years.
Between our two firms we've launched 13 new products over the last five years and we've already had extensive conversations about the many types of businesses and strategies, we can create together.
Angela Gordon partners, joining us at the firm for an average of 13 years and we admire the outstanding business they built imports.
Importantly, this transaction was structured as a great long term alignment between TPG and agile aboard non founding partners and Angela Gordon will receive approximately 85% of their consideration in equity with multiyear vesting of lockup provisions, which ensures alignment between our respective teams that are coming together as one firm as well as with our Lps and public.
Shareholders over the long term.
Finally, we both have a deep bench of extremely talented and dedicated employees. We believe the combination will create exciting new opportunities for our combined team going forward.
On slide seven of the Investor presentation, you'll see an overview of the favorable long term dynamics driving growth in credit investing.
The markets have been experience a multi decade trend of non bank lenders stepping in to fill the void created by the retrenchment of traditional lending sources at.
At the same time the continued scaling of private equity has increased demand for flexible and alternative financing solutions and following a prolonged period of low interest rates, which drove institutional investors search for yield alternative credit has become a core component of institutional portfolio allocations. As a result credit has been growing at a steady pace and this is projected to continue.
Well into the future.
Slide eight provides a high level overview of Angela Gordon pharmacy, founded nearly 35 years ago. Currently has more than 650 employees, including 245 investment professionals located in 12 offices around the World Angelo Gordon has built a scaled alternatives business with a broad spectrum of investment strategies across both credit and real estate based on their.
Strong investment track record and focus on innovation over the last five years, they have generated significant growth doubling AUM and fee AUM 73 billion and $50 billion respectively.
Slide nine highlights the broad spectrum of alternative solutions will be able to provide to our clients. Following the combination of TPG and Angelo Gordon as you can see in the chart on the left the combined entity will have a much broader suite of investment strategies across a number of asset classes and.
In addition, the right side shows transaction will substantially expand our offerings to target a wider range of risk and return profiles.
On slide 10, we highlight the strategic rationale and benefits of this transaction.
With a broader spectrum of investment strategies will be even more compelling partner and solutions provider for clients globally. Additionally, Additionally, we will be able to offer customized multi asset class solutions that include credit real estate and private equity.
Looking at the client basis of TPG and Angelo Gordon they are highly complementary.
It provides us with a substantial opportunity to expand our respective relationships across a broader range of platforms and strategies on the closing of this transaction. We expect to have more than 900, combined institutional LP relationships that will be well diversified by both geography and channel.
And there is minimal overlap between the two client basis only around 10% of our relationships are currently share.
The combined company will benefit from shared intellectual capital, including sector and investing expertise broader deal sourcing and the support of robust infrastructure. We expect this will drive enhanced opportunities for growth business expansion and product development.
With a broader base of clients and investment strategies, we believe the combined company will be well positioned to expand our distribution capabilities in high growth channels, such as insurance high net worth and retail.
We're incredibly excited to bring our businesses together.
I want to thank Josh and Adam and the broader teams are both TPG and Angela Gordon were put in countless hours over the last year to make this happen of course, there is still a tremendous amount of work in front of us to execute on what we've outlined here today.
Is there an extraordinary team effort and I know I speak for the entire leadership team of both organizations and thanking all of you for your partnership execution and continued focus I'll turn the call over to Josh and add them to make a few comments.
I am very excited to finally get the opportunity to discuss a transaction with you. All today, it's been a long year today marks a major milestone for Angelo Gordon It's truly a testament to the team in the business. We have built of our nearly 35 year history.
I'm very excited to be speaking with you. All this morning, I am going to briefly discuss why this is the opportune time for a combination with TPG TPG is the ideal partner for them.
Thank you, we'll now we're seeing a steady shift in the dynamics across our industry access to healthy capital is more competitive today than ever before.
<unk> is one of the larger strategic relationships with more established best in class managers, who offer a diverse set of products.
There is no doubt there is a clear competitive advantage of scale and diversification.
As a firm we've reached an inflection point, where we are now routinely competing with some of the largest.
Managers in the world on a daily basis, we have big ambitions as a firm talented professionals, who are focused on delivering for LP.
And strategic growth is an absolute imperative.
We have the brand the people and the solution set to continue to grow and drive performance of our clients, but at the same time, we've always had an eye towards strategic opportunities that would expand our capabilities and product offerings.
Importantly, our firm is not for sale, however, given what we want to accomplish and after our meeting with our new partners at TPG.
And is the opportunity and unique power of this combination.
We need that many decisions we made we would remain uncompromising.
Commitment to a firm cultural collaboration and investment philosophy built on fundamental research and downside protection and an unwavering focus on online.
We believe the combination with TPG reflects all of these commitments and also deliver significant opportunities for all of our employees manage on the call that my partner on flux.
Thanks, Josh good morning, everyone.
So we believe that this is a transaction that will strongly deliver benefits of scale diversification and opportunity for both firms TPG will bring expanded investment capabilities significant industry and domain expertise and our broad and deep base of Lps all of which we believe will help accelerate and expand the trajectory it's Angela.
Gordon.
Consistent with John's comments I want to reiterate that we are confident that the combination represents a strong strategic and cultural fit.
When the transaction closes TPG and Angelo Gordon will join to from a leading investment platform with a shared philosophy from culture investment excellence and delivering for clients and importantly, our firms are entirely aligned on achieving growth through performance.
Our investment teams will have the opportunity to leverage tpg's deep industry and sector expertise in areas, such as healthcare technology, Internet and digital media consumer and business services and the scale of the combined platform will enhance our access to capital unlocking new opportunities to expand our deal pipelines and driving.
Performance for our Lps.
With the power of our combined platform, we will be able to pursue new solutions for our clients across the risk and return spectrum by leveraging our individual and collective investment capabilities and approaches.
Ultimately this transaction is about growth and capitalizing on our collective momentum in order to do more together our priority is focusing on execution to realize the opportunities that youre confident exist, which ultimately will be a positive as Josh said for our people and our clients.
Josh and I spent a lot of time with John Jack Jim Todd any Lou and many others at TPG over the last year, it's been a great team effort that into this result today. We are very excited about this partnership and how our businesses fit together, we couldnt be more enthusiastic about joining together with them to drive growth and create significant long term.
<unk> value.
Jack will now walk through the transaction details and the financial benefits.
Thanks, Adam.
As you can tell we're all looking forward to working together as partners.
I will close out our prepared remarks by reviewing the financial impact of this transaction will.
We're acquiring Angela Gordon and our cash and equity transaction valued at approximately $2 7 billion.
Based on TPG share price as of Friday.
This includes approximately $970 million in cash and up to $62 5 million common units and all of us use of TPG, which represents approximately 16% of the equity of the combined company.
We believe the transactions that are well structured to ensure a clear alignment of interest Andrew.
Angela Gordon is active partners will generally receive 85% of the consideration in equity.
The founders of Angelo Gordon will receive 90% of their consideration in cash and 10% in equity.
The uninvested common units in our issues that Angela Gordon non founder partners are receiving will generally vest ratably over a five year period.
With a full locked up during the first year post closing.
Importantly, a portion of Angelo Gordons equity consideration will be distributed to its employees, creating broad based employee ownership. This is similar to the IPO award given to TPG employees or public ensuring everyone is shareholder and directly benefits from the growth of the business.
This transaction also includes post closing contingent consideration, which is valued at up to $400 million.
This earn out is based on Angela Gordon achieving certain fee related revenue milestones in 2026, and if earned they paid out in 2027.
In order to receive 100% of the earn out is all gone.
And we'll need to grow its annual FRP by 16% per annum through 2020, and TPG, we'll have flexibility to determine the cash and equity mix used to fund any earn out payment due.
Consistent with our business model the transactions new structures that 20% of performance allocations generated by Angelo Gordons funds will flow through to TPG operating group.
<unk> shareholders are seeking their customer proportion.
Upon closing Angelo Gordon will become a new significant investing platform within TPG and.
In terms of management Angelo Gordons co CEO is Josh Adam will become co managing partners of the platform reporting directly to John .
As expected the Angelo Gordons other executives and senior management will continue in their current roles upon the closing of the transaction.
Finally, our senior Angelo Gordon partner will also joined <unk> Board of directors.
Looking briefly at the pro forma financial impact as John mentioned, we expect this transaction to be mid to high single digit accretive to Tpg's FRE and after tax <unk> <unk> per share in 2024, and Thats before any revenue or couple of cost synergies that we may realize.
We will provide more specific financial disclosure around the time of close.
But in the meantime, I wanted to provide the following framework.
At the end of 2022, Angelo Gordons fee, earning AUM was $50 billion.
This AUM.
AUM has more than doubled over the past five years growing at a 17% CAGR.
The average fee rate for 2022 was approximately 85% to 90 basis points across all real estate and credit funds.
Additionally, I would note that several of their core credit products paid fees on drawn capital only.
Due to their strong recent fundraising momentum Angelo Gordon at AUM, not yet, earning fees of approximately $11 billion at the end of 2022.
As they invest this capital it will flow into AUM and begin paying management fees.
Next Angela Gordon had been pursuing an expansion of the FRE margin much like TPG.
Given the firm's recent growth and investment in their business there.
They're earlier in their execution in the process of realizing operating leverage and margin expansion.
We expect to Angelo Gordons FRE margin on a standalone basis in 2023 to be in the mid to high <unk>.
<unk> closing, we expect our combined FRE margin to blend down to the high thirties.
Creating an opportunity for us to resume our margin expansion.
Benefiting from operating leverage across a much larger base of fee related revenue as we integrate the scale of the businesses.
Finally on PRA as I mentioned, we're acquiring 20% of historical and go forward carried interest across it Gordon as firms and expect to flow this through to TPG shareholders.
At the end of 2022, Arizona Gordon had accrued unrealized carried interest of approximately $760 million. So the 20% allocable to TPG shareholders was approximately $150 million. This will be additive to the current TPG balance of $709 million.
In terms of funding the cash portion of the acquisition to close we expect to use our current cash balance and Undrawn revolver.
Upon completion of the transaction, our leverage will remain conservative and we will have ample liquidity and significant financial flexibility.
Lastly, the transaction is subject to customary closing conditions, including Hart, Scott Rodino International regulatory approvals and other client and third party consents. The transaction was unanimously approved by <unk> Board of directors and is expected to close in the fourth quarter of this year.
Before I turn the call back over to the operator, so we can take your questions I'd like to Echo John <unk>.
Josh and Adam's enthusiasm for this transaction and thank everyone at TPG and Angelo Gordon for helping us reach this milestone.
We look forward to building a great combined business together in the coming years.
Ashley.
To take questions.
Thank you and at this time, if you wish to ask a question. Please press star one on your telephone keypad.
Remove yourself from the queue by pressing star two.
Please limit yourself to one question and.
We will take our first question from Glenn Schorr with Evercore ISI. Please go ahead.
Hi, Thanks very much.
<unk>.
So I guess I'll go with.
Thank you for the FRE margin, but I'm getting head up by some people asking what was that sorry, what was the what multiple do you feel you are paying for this business you bought I understand all the synergies and then maybe with a 90% cash pants so to say.
<unk>, maybe talk about any lessons learned from the past experience with sixth Street and how.
How you went about this transaction and structuring it to keep both sides engaged thanks so much.
So it would be.
So.
Our dinner.
Yes, I mean, I think Glen the intent and providing the roadmap I did on the financial information was to give people enough enough data to kind of calculate what they believe FRE.
As for the business, we're not disclosing.
An acquisition multiple but.
Hopefully that framework helps.
And I would add that.
We feel like we paid a.
A fair value for the business and we feel good about the the buy in price.
But I think Theres, a couple of things as it relates to.
The structure of the transaction.
And I guess lessons learned.
Importantly.
Angelo Gordon is joining the firm.
As a.
Another platform of ours, you know, how we are structured with respect to the various platforms of the Florida firm and Angelo Gordon is coming into the firm.
As another significant thought for the firm.
Managed and run consistently with the rest of the platforms governance structure of the same.
Control structure the same in Asia.
You might recall.
When <unk> was part of the platform is really operating as kind of an independent entity.
And sort of the umbrella.
And so it's really from the from the very start is really being structured in a different way and we're all collectively ourselves and Angela Gordon are enthusiastic about doing that.
We also restructured the consideration in a way where.
I think as you heard that other than the the.
The two founders these state of John Angelo.
Michael Gordon the.
The rest of the team Thats coming onboard is coming onboard with about 85% approximately 85% of the consideration in equity.
Think that.
I won't speak for my two new partners here, who are here, but they can talk about their desire to own the stock and the desire of the rest of their keen to own stock. Thank you yes.
For the non founding partners is very critical in terms of the consideration mix servicing as much equity as it possibly could obviously alignment reason, but also we all want to contribute and participate alongside the combined growth that we expect that valve.
Platform. So we're equity as part of the consideration was absolutely critical to all of US and I would just add that the majority of the consideration is go into the non foundry partners. So.
The redeeming.
For gaming partner founders are a minority interest.
The minority portion of the consideration.
I appreciate it thanks.
And we will take our next question from Kenneth Worthington with Jpmorgan. Please go ahead.
Hi, This is Alex pricing on for Ken.
Thanks for taking my question and congrats on the transaction.
Mentioned, the 55 billion in AUM for Angel Boardings credit business can you give us any sort of rough breakout around the size of this perhaps CLO direct lending and structured credit businesses and then maybe indirect lending specifically agents given the expected big opportunity set there in the market more broadly can you talk about what portion of that is sponsor and non sponsor.
Thanks, so much.
Sure I'm happy to add to grab that so the $55 billion of credit that's broken down broadly, but I guess, we think about it as three pretty significant sectors about 'twenty, two and a half is going to be in corporate credit and multi strategy.
The two biggest components of that would be about $13 billion and our credit solutions business about $8 billion nonperforming loan CLO business next to that as you mentioned.
Lending business Twinbrook about $18 5 billion in terms of AUM and then lastly from our structured credit business about $14 2 billion out of your second question on the lending.
When broken and all of it.
It's 100% sponsor back so we are serving.
Our lower middle market generally sub $25 million EBITDA.
All will be sponsor backed opportunities.
And I would say it's Jack.
Agree with your comment that there's real significant opportunity in direct lending area.
Those of you who know the Twinbrook brand, it's an excellent excellent business focus very sharply on the lower middle market space as Josh mentioned.
Lending to companies with below 25 million of EBITDA, and we see a real opportunity to scale the business into into larger company London.
Super helpful. Thanks, a lot.
Thanks.
And we will take our next question from Craig.
<unk> with Bank of America. Please go ahead.
And Craig Siegenthaler, Good morning, John Jack Hope everyone's doing well and congrats on finding your credit manager.
Thank you.
So my first one is on your existing portfolio, especially in the capital business. We all know the economic backdrop is getting a little more challenged.
So not surprising to see that we're starting to see some defaults emerge across the private markets.
I Wonder if you can how you're thinking about it are you expecting to see a larger number of defaults.
If the economy deteriorates into the second half and as you construct your portfolios, we have 15 or 20 portfolio companies for fine how do you plan for defaults and funds and has a common to have one or two in our fund.
Which of course will be offset by by multiple stronger performing investments.
I think Todd is going to give you some color on that.
Thanks, Craig I think your point.
There are a lot of conflicting signs of the economy is certainly very well taken and we're spending a lot of time sort of looking not only at results, but leading indicators for our companies.
I would say that so far we feel quite good about the performance of our portfolio and you asked specifically about the private equity side, So I'll focus on that.
If you look across our private equity platform, So capital Asia growth and impact.
Our average LTM growth is sort of mid 20%.
And that's probably on the high side.
For the fact that most of our companies are scale companies, but I think it really speaks to the strategy that we have we're very sector focus we focus a lot of time just in the <unk>.
Forward looking way to try and figure out how to make sure we're in the right neighborhoods.
And then we spend a lot of time trying to develop some of the interesting proprietary opportunities that John went through earlier in the call.
So we are cautious about the overall environment in which these companies are operating but.
We feel like we've been pretty well served by virtue of where we sit.
The spaces, we're in the level of conviction, we built up in most cases over many years in studying the spaces and building relationships. The CEO just relatively back.
To your second question.
In the large scale investment areas that we focus on which is the which is the vast majority of what we do in private equity.
We do not think of it is we certainly have as a portfolio, but we focus on concentrating in companies in areas. We really have conviction about and we really did not focus on the idea of taking long shots that might end up defaulting, we really want all of our company to succeed that's not to say that in the in the in <unk>.
Retrospect that some will underperform underperform.
Because that's always the case in any portfolio that they will.
But we're not looking for two years or three.
Yes.
Homeruns to asset.
Some laggards, our focus is really trying to generate strong risk adjusted returns across the portfolio and companies and in spaces, where we have we have deep conviction in.
So far as John said, we had a nice despite the volatile market tick.
Pickup in valuation this quarter and that really reflects the fact that as I said earlier, we have very strong underlying growth in the portfolio even through two bumpy times.
I would just I would just add to your question that.
The reason why our two new partners, who are sitting here next to US is because in this cycle that we're going into whether or not we have a recession or not.
One thing Thats, obviously very different than the last.
Recess cycle that we went through is that.
Interest rates now are meaningfully higher term structure was meaningfully different than it was.
Back in the GSE.
When we had essentially near zero interest rates and we think refinancing.
Dresses were very different than the realities of that were very different. So we're in a different kind of environment right now and I think that environment creates a lot of opportunity I mean, we have to manage our portfolios on the private equity side like Todd described.
And we do that that should be that Thats Corp, that's core to our business but.
But we also foresee a tremendous amount of.
Of opportunity, whether that's triggered by default or whether that's just triggered by capital structure rebalancing of refinancing.
We expect to see a number of interesting.
We're seeing a number of additional opportunities across capital structures. So the.
Angela Gordon team, obviously is going to.
Create a really nice strategic fit.
As it relates to capitalizing on those opportunities.
John Todd Thank you.
Thank you.
And we will take our next question from Brian Bedell with Deutsche Bank. Please go ahead.
Great. Thanks, Good morning, and also congrats on the acquisition.
If I can ask maybe maybe if I could squeeze a two parter on here just quickly on the closing approvals for international if you could just touch on which markets and with regulators that would be.
And then as we.
We think about the FRE margin profile again.
This excludes the synergies like you said.
But how are you thinking about.
Aligning news.
<unk> margin.
Between the two I guess I guess, the AG platform versus versus TPG is there are there easy structural things to eliminate to bring that margin up or is it more of a longer term.
Project.
And Brian on the let.
Let me start with the FRE margin.
On the FRE margin as I mentioned.
Angelo Gordon has been expanded operating margin on a standalone basis would have seen continued operating leverage as the scale of each of the business as we talked about earlier and that journey. So they're in the high Twenty's today, we see it as a real opportunity.
<unk> seen our disciplined and expanding our FRE margin toward our own 45% target on a combined basis, we believe that over the coming years Theres. No reason, we shouldnt get to a higher number together than we would have by ourselves with a larger platform scaling over time.
We're not providing a specific target date for an FRE margin until we get a little bit further into the integration of the businesses, but we do see.
Real opportunity this is not a transaction that's.
That's premised on.
Immediate cost takeout, we see real opportunity from growing our businesses faster together will certainly find some costs, but its really premise more on on.
Faster growth and operating leverage.
Brad I think you are you can you respond to the regulatory question.
Yes, Im happy to John .
There are a number of foreign regulators from whom we will need to seek approval, we're not anticipating any difficulties or unusual problems with any of them.
The one that we expect will take the longest just based on how transactions are being processed around the world right now is.
Is the FCA in the UK.
But there are there are several others given the global nature of our business and Angelo Gordons business.
Okay great.
That's helpful.
<unk> and our general counsel.
Thank you.
Thanks, Brian .
And we will take our next question from Michael Cyprus with Morgan Stanley . Please go ahead.
Hey, good morning, congratulations on the deal and thanks for taking the question just with Josh and Adam on the line I was just curious if they wouldn't mind sharing their perspective on what they see is most differentiated with Angelo Gordon and the marketplace versus others and if they could maybe also elaborate on the approach to sourcing of investments that they take.
On the credit side. Thank you.
I'll start on the credit side.
Last question.
From a sourcing perspective, we've taken a very deliberate pivot from our brand over the past couple of years.
So there are certainly people newest as a sharp elbow distressed investor.
That's more of a partnership approach, where we are doing our best to actively.
Work alongside of companies with private equity sponsors of asset owners to solve their capital needs and what we've seen in particular over the past two to three years as an explosion in terms of origination as a result people want to come to us because they know we are trying to.
Work with them across all of our different business lines.
As John mentioned earlier from an opportunity set perspective, while we're not seeing much in the way of distress in our portfolio are frankly in markets, where we are seeing is a significant increase in terms of origination opportunity.
That are significantly greater than our.
And our capital base today and Thats one of the things. We're so excited about partnering with TPG is working with them working with their clients to create new solutions for all of the opportunity, we're seeing but I would just say the partnership approach they yielded massive massive improvements.
In terms of our sourcing facility, Yeah, let me just add to that when we.
First engaged with our new partners at Angela Gordon I think one of the things that we were focused on is that.
If you listened to Josh before described the distribution of strategies on the credit side across.
Angela Gordon, it's clear that day.
They've grown themselves into.
An approach where they are attacking the credit markets through multiple disciplines have direct lending business. They have the opportunistic business. They have structured credit business multiple multiple angles in terms of attacking the opportunity.
As we got more familiar with the platform in some respects it reminded us a little bit of our approach on the private equity side, where.
We've grown in a number of different strategies.
We never necessarily kind of maxed out on one particular fund or the size of one particular phone. If you remember when we took people through that at our IPO, but rather we had.
Grown our pools of capital laterally.
Our strategies.
Trying to take advantage of the ability to grow over time through multiple vehicles because.
Obviously, none of us know exactly where the flows are going to go or where the real opportunities are going to be and so it creates a nimbleness in terms of being able to raise capital and also attack the market opportunity and in the environment that we're in right now I think.
What I think was different about the Angelo Gordon platform relative to other platforms, we actually met with because we met with a number.
Is that.
It was it wasn't a model line business.
It wasn't just focusing on one aspect of the market, let's say like the direct lending opportunity. It was focused across the range of opportunities.
And over time.
As the platform pivoted.
As Josh just described what they did is they invested heavily in their business they went out and attractive.
A cross.
A cross section of new people and new talent.
Originally came from Blackstone and number of other people on the platform bid.
And <unk>.
So from that from the credit just on the just focusing on the credit side.
This pivot that Josh mentioned from sort of the distressed world into a kind of a multi strategy strategy world within credit.
It was something that was very attractive to us and its differentiation if you look at it.
Along the throughout the market and you say what are different credit managers doing.
Who has approached the market in this multi disciplined approach.
And who is.
And as a result of that who has some.
Kind of minimal scale level in terms of the size and scale.
<unk> kind of balanced in the platform. They are actually not that many managers that are actually successfully done that and they reinvested heavily in their business just like we did in approaching our IPO and so obviously that has margin consequence towards to Jack's point before.
But once you hit that point of being able to really scale the platform, which we think will be able to do on a combined basis.
We have a lot of confidence that we'll be able to.
Accelerate growth.
Great. Thank you.
Hi.
And we will take our next question from Finian O'shea with Wells Fargo Securities. Please go ahead.
Hi, everyone. Good morning, congratulations as well.
Can you touch on what.
Angela Gordon brings in terms of.
The retail channel for fund raising.
And then also Jackie mentioned loan.
Yes.
You would look to grow twinbrook from lower middle market orientation to large market.
How quickly can that happen is that immediate or sort of a multi year.
Your journey. Thank you.
Okay fair enough. Thanks.
What I'm talking about retail versus sort of just briefly talk about where you are now on the retail side of retail and intermediary distribution side, it's been a key area of focus for us.
We have <unk>.
<unk> retail exposure in a number of our open end fund and more recently, increasing in our closed end fund structures.
Actually one of the areas that I think from a <unk>.
Client five perspective that both ourselves and CPG highlighted a real need to lean in there.
You get more exposure to that channel and I think when we're working on that together very early on.
I mean on that topic, the combined brand between the two firms obviously.
Our ability to deliver product to our retail channel partners.
Is greatly enhanced by this transaction.
I think as you know we're already distributing our private equity.
Our products through the channel consistently essentially in every capital raise we do we have a channel partner, that's taking us to the market in that.
What we don't have is we don't have more yield oriented products currently.
We obviously know what.
What's been interesting to the market about floating rate interest rate exposure.
Through the loan business et cetera, So we feel like this will give us.
Create greater importance for us frankly, as a channel partner and so we're excited to expand that part of our platform.
I would say.
Since we have been working together for a year now trying to.
This partnership we've already been talking to each other about new products and new structures to create to be attracted to the channels. We expect to begin.
That work relatively quickly I would say more broadly on the fundraising side. This has been alluded to but when you think about the institutional mix Angelo Gordons current mix is almost 80% Americas across their businesses and a little over 20% International as you all know from the time, we spent together.
<unk> built a very significant LP presence in some of the bigger.
Areas internationally with growing.
AUM and we think theres real opportunity given the lack of overlap of our Lps to expand faster together on the institutional side as well as the retail side on your direct lending question.
As I mentioned Twinbrook is very focused on lower middle market. They become real differentiated in that area I think to accomplish a scaling of that business is going to be is going to take a long time, we're going to have to raise additional pools of capital focused on other segments of the market, but we strongly believe that Angelo Gordon's got the cloud infrastructure to support that build out.
Even on the basis of the business now by the way I mean, if you look at obviously the told anybody about what's going on in the regional Bank World.
And the contraction of credit that's continuing I mean, it's really this year. Unfortunately, it sort of.
It has shifted into another gear in terms of the contraction of credit the provision of credit from the traditional banking channels and and Thats going to be accentuated as a result of the regional banking crisis, that's going to be accentuated for the mid market the lower middle market. So there is just a very large opportunity period for it.
Established brand like twin book and the lending market. So we intend to be the beneficiaries of that.
Highlight that in terms of the responses to that more retail.
Bester basin Twinbrook, specifically, we've actually both to diversify our capital structure of that business. So.
We're actually well where it might be in the market for our traditional next series.
Sure.
Fund in the market, we're also raising bdcs and evergreen pools of capital specifically because of that.
And that's where channel is demanding access to ongoing.
Permanent capital vehicles that we have been met there was significant success online.
Tom.
We will take our next question from Bill Katz with Credit Suisse. Please go ahead.
Okay. Thank you very much for taking my question and congrats as well on the transaction.
Just coming back to the opportunity to grow the franchise I think in your supplement you talked about high net worth retail and insurance I was wondering if you maybe prioritize where you might see the growth first and then one for Jack just as you think about on the other side of the transaction.
Kind of leverage are you comfortable running the franchise that and how we can think about maybe negating some of the stock.
Dilution from the share issuance. Thank you.
Well, let me just touch on the opportunity.
With respect to additional growth and diversification of <unk>.
Capital sourcing.
We've talked about this before with everyone in terms of our franchise and our ability to penetrate retail and.
In insurance in particular, and I think that one of the reasons that we've been focused on.
Adding a series of new products and new capabilities is that.
In order to service the insurance market I think we clearly needed to build out our product capabilities.
In terms of return profiles and.
And shrunk and the structural profile of these products I mean, if you look at what's happened in the insurance market and obviously, having helping some of the insurance players.
Fund their liabilities.
It's a mix across an array of products from.
Kind of traditional fixed income to more structured private debt and fixed income.
To.
Some higher returning private equity opportunities so the ability to offer.
Cross section of those products.
And customized structured solutions for insurance partners is something that we are post this transaction.
We're in a much stronger position to do.
And even prior to this transaction we've been approached by a number of insurance players that view our debt.
<unk>.
As a attractive partner because of our reputation our history and our global brand.
So this is really kind of like unlocks from from a number of perspectives, our ability to do that on the retail side. I mean look we have we've had a product mix at PPG, that's been quite appropriate for what you would think of is high net worth but probably not mass affluent.
In the retail channel and so this simply this vicious transformative.
<unk> as it relates to our ability to service that channel.
Different type of product array and also the other thing that this does for us as well, which we're excited about is that the ability to do some to bring some of our capabilities.
Along with.
For instance, the debt and debt origination side of the business.
As an example in something like impact in climate.
Where there is a reasonable amount of interest and demand from retail channels and things like impactful this lending products as an example.
We are leading.
We're.
We think of ourselves as the leader as it relates to impact and our capabilities across that.
Market and so this gives us again, several other tools and we should grow into that market with a differentiated product.
And bill on your on your balance sheet question as you know at IPO, we set ourselves up with significant flexibility to accomplish something like this.
We had as.
As I mentioned at the end of the quarter and the end of the first quarter about six or over $600 million of cash on the balance sheet. This transaction will result in us using about $450 million of that cash to bring us down to a normalized cash level of 100 between 150 and 200 million for for flexibility will also be dipping into a river.
Oliver.
Some of them in a revolver. So we do believe that this transaction creates a step toward a more efficient balance sheet and creates a really efficient use of the capacity. We've created at IPO. After this we will still have pretty modest leverage to think about the the revolver plus our existing.
Balance sheet leverage it'll be relatively modest it kind of call. It one five times.
Leverage so we continue post this transaction to have significant flexibility, there's no intense near term to buy back stock to offset the dilution we want to increase our float not reduce our float.
In the near term and as we mentioned, we're only issuing about 16% of the pro forma.
Share base and overtime, we will think about how to continue to use our balance sheet to create growth.
Thank you.
And we will take our next question from Adam Beatty with UBS. Please go ahead.
Thank you and congratulations just wanted to ask about revenue synergies in particular in the historically strong areas for TPG private equity and growth oriented investing.
I appreciate the very small overlap with Angelo Gordons existing Lps and just wanted to get your thoughts around how you're thinking about maybe taking some wallet share there or what how.
How you would approach that that incremental opportunity and also given that you have some flagships still out in the market wondering if you are expecting any of the Angelo Gordon Lps to maybe participate in some of the fund raising this year. Thank you.
Yes.
Thanks for the question I.
I guess, yes, yes, and yes I mean.
I think that when we got together with.
With our new partners.
One of the things that.
Was was.
Really interesting and almost to some extent surprising.
Was that we have modest overlap in terms of our LP basis.
And I think that that.
<unk> presents a real interesting opportunity for us.
Two.
Both to introduce one another.
Two.
Important relationships that we both have and.
Before before we did this well before we announced this transaction I think you are probably well aware of that.
On the last I don't know how many earnings calls we've had now but.
Six of the last six earnings calls we've been asked about this strategy on all six in terms of what we were doing it.
Expand it to expand our product mix and expand and expand our product offerings.
And consistent with that we've probably been asked since we went public by most of our Lps.
How we were thinking about this part of the market and we take our LP partnerships incredibly seriously.
And.
One of the things that we have.
<unk> is a core objective is to be at.
Our strategic partner as we possibly can be with our LP with ARLP partners and that means holistically, providing kind of multiple products multiple return streams to our Lps.
If you're watching what's going on in our market obviously.
Generally there has been a concentration of capital formation.
From the larger.
<unk>.
Alternative asset management firms in the market, where we're providing.
We're engaged with our Lps along across multiple strategies strategic.
Relationships developing partnerships with Lps and so.
The inclusion of the Angela Gordon capabilities across credit real estate.
I think are really.
A great benefit to our ability to do that and we've already been asked by many of our LP partners.
We're looking forward to once you guys sort of solidify this partnership.
We're looking forward to.
Meaning your new partners and exploring opportunities so.
Because that's clearly a big opportunity for us.
Can tell you that our combined capital formation groups.
Which on.
On a combined basis.
Really powers up our capability there.
We already as you know, we're investing in our capital formation in our fundraising capabilities.
And an area of focus for us.
This more than doubles our size in the size of our team.
<unk> brings other disciplines that we didn't have another product knowledge that we didn't have necessarily within our within our core team.
So <unk>.
Expanse, our expands our capability to foreign capital in a meaningful way.
So.
Lots of opportunity kind of back and forth between our both of our respective franchises that we think will have a meaningful a meaningful impact on our ability to accelerate growth.
This is Jim culture, I would say we've already.
This morning been in contact with trillions of dollars of capital in our partner group to let them know about this and that was very well received.
And I would note that we have a history of successfully introducing our LP base to credit platforms in a way that has been highly accretive.
Joining Jim Thanks, very much I appreciate it.
Okay.
And we will take our next question from Brian Mcinnes JMP Securities. Please go ahead.
Thanks, Good morning, all and congrats on the deal. So it's clearly been a tough backdrop for fund raising specifically in private equity, but could you talk about fundraising trends and Angelo Gordon over the past year or so and then I'm assuming more parts of this business and raise capital on a more recurring basis given the mix of AUM. So how should we think about the cadence and consistency of fund raising.
On a pro forma basis at TPG longer term.
Sure I'll start.
On the credit side.
Actually had really really solid momentum over the past couple of years.
You have about 500, new Lps of the firm over the past five years as it relates to credit specifically corporate credit.
We successfully raised.
Vehicles.
Throughout 2022, both of which closed above our target return expectation.
We deployed a good amount of comparable we have significant dry powder there to be prepared to invest in what we think will probably be the next.
Probably the largest opportunity set now careers in the credit market going forward Twinbrook middle market lending as I mentioned earlier, we're in the market.
Now for our traditional series of funds announced also as mentioned, we're changing the capital structure of that business to also be raising more permanent capital.
Permanent capital Angela Gordon is 555 billion right now, it's something that our investors are demanding we expect it to be significantly greater as a proportion of our capital base going forward, but right now we have very solid momentum across our.
Middle market lending franchise, and then we're going to structured credit when people talk about private credit its interesting there talking a lot more about.
Corporate middle market lending, but structured credit.
Everything in our world that touches the consumer in all different forms and positive over the next 510 years it will be at least as big as what people refer to as the current private credit market at the most nascent stage right now we've been in that market for well over a decade. So we expect that we are just.
Scratching the surface and in particular what happened in March.
Banks are exiting this market are changing their posture in this market faster by today, we expect that to continue and we think we're going to be a significant leader in beneficiary. There. So we're just scratching the surface and sort of a structured and structured credit and specialty financed multi trillion dollar opportunity and again, we're one of the accused.
Been there for well over a decade.
Real estate side I would echo the sentiment.
Seeing very good support from investors are excited about this vintage for the real estate opportunity is where we're all seeing day to day in the news.
So.
Being able to comment specifically on funds that are in the market because we are actually in the market on all of our real estate products.
We're seeing strong response.
Brian I'd say more more.
More generally as John mentioned, one of the things we've really found attractive just structurally about Angelo Gordon is the number of different products. They have across both credit real estate, it's not a monitor a lot of mono line credit firms out there that have blown up one category and would come if we had gone in that direction with much more concentrated risk around the single fundraising cycle.
It Angelo Gordons case, they've got multiple well positioned strategies across most segments of credit and therefore are less reliant upon one single fund raising cycle and obviously on a combined basis that does a lot to diversify our own exposure to single fund fundraising cycles and then on the on the kind of you referred to the <unk>.
<unk> is on kind of more continuous nature of fundraising as Josh alluded to I think Angelo Gordons.
Relatively early and the establishment of the structures to enable that.
Kind of.
Constant fundraising, but that's one of the real growth opportunities for us together.
Got it Super helpful. Thank you.
Thanks.
And we will go next to Luke Nathan with BNP Paribas. Please go Bang.
Yes, good morning, and thanks for taking my question I should say on the fundraising targets.
So much more challenging environment I'm, just wondering if any.
Specifically, our funds are more challenged than the <unk>.
And then I think when I say impact.
No.
Sorry, we can't hear you coming through he was asking about quite muscle differentiated.
Among the flagships in terms of whats easier or harder to get raised I think that was the question.
Yes that is the question.
Yes.
Look I'd say relative to the difficult backdrop, among the flagships I talked about.
We're making similar progress across all of them all of them have good investment performance backing the fundraising campaigns and all of them.
Our continuing to see progress toward targets.
We just think across it so I wouldn't say one blowing out in one struggling and they are all doing well relative to a tough backdrop.
We think it's prudent to plan for slightly smaller fund sizes, as we think about our cost base.
And as I mentioned on the call.
Still expect in all cases, they were going to see growth versus the prior fund any and each in each business.
Thank you.
Thanks.
And this concludes the Q&A portion of today's call I would now like to turn the call back over to Gary Stein for additional or closing remarks.
Great. Thanks, operator, and thanks, everyone for joining us. This morning, please feel free to follow up with me or have any if you have any questions.
Thank you and this concludes today's TBD conference call and webcast. You may now disconnect. Your lines at this time and have a wonderful day.