Q2 2024 TPG Inc Earnings Call

Operator: Good morning, and welcome to TPG's second quarter 2024 earnings conference call. Currently, all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be opened up for your questions. If you would like to ask a question at that time, please press Star 1 on your telephone keypad. If you need to remove yourself from the queue, press Star 2. To answer as many questions as time permits, we ask that you please limit yourself to one question.

Speaker Change: Good morning, and welcome to the TPG's second quarter 2024 earnings conference call.

Speaker Change: Currently, all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be opened up for your questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 2.

Speaker Change: To get as many questions as time permits, we ask that you please limit yourself to one question.

Operator: At any time, should you need operator assistance, please press star zero. Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may now begin.

Speaker Change: At any time, should you need operator assistance, please press star zero. Please be advised that today's call is being recorded.

Gary Stein: Please go to TPG's IR website to obtain the earning materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may now begin.

Gary Stein: Thanks, Operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer, and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter, and our President, Todd Sisitsky, are also here and will be available for the Q&A portion of this morning's call.

Gary Stein: Thanks, Operator, and welcome everyone. Joining me this morning are John Winkelried, Chief Executive Officer, and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter, and our President, Todd Stasitzky, are also here and will be available for the Q&A portion of this morning's call.

Gary Stein: I'd like to remind you this call may include forward-looking statements that 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. In our discussion and earnings release, we're presenting gap and non-gap measures, and we believe certain non-gap measures that we discussed on this call are relevant in assessing the financial performance of the business.

Speaker Change: I'd like to remind you this call may include forward-looking statements that 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.

Speaker Change: TPG undertakes no obligation to revise or update any forward-looking statements except as required by law.

Speaker Change: Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business.

Gary Stein: These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the second quarter, we produced a gap net loss attributable to TPG, Inc. of $14 million and after tax distributable earnings of $207 million, or 49 cents per share of Class A common stock.

Speaker Change: These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase and interest in any TPG fund.

Speaker Change: Looking briefly at our results for the second quarter, we produced a gap net loss attributable to TPG Inc. of $14 million and after-tax distributable earnings of $207 million, or 49 cents per share of Class A common stock.

Gary Stein: We declared a dividend of 42 cents per share of Class A common stock, which will be paid on August 30th, 2024, to holders of record as of August 16th, 2024. I'll now turn the call over to Jon.

John: We declared a dividend of $0.42 per share of Class A common stock, which will be paid on August 30, 2024, to holders of record as of August 16, 2024. I'll now turn the call over to John.

Jon Winkelried: Thanks, Gary. Good morning, everyone.

Jon Winkelried: Our strong second quarter results highlight the significant momentum across our business as we continue to successfully scale and diversify. We finish the quarter with $229 billion of AUM and $137 billion of fee-earning AUM across more than 30 strategies in private equity, credit, and real estate. Over the course of last year, we drove a step function change in our growth profile and earnings power as a result of both organic and inorganic activity. Our firm is capitalizing on our expanded breadth, and in my comments today, I'll focus on two areas in particular. First...

John: Thanks, Gary. Good morning, everyone.

John: Our strong second quarter results highlight the significant momentum across our business as we continue to successfully scale and diversify.

John: We finish the quarter with $229 billion of AUM and $137 billion of fee-earning AUM across more than 30 strategies in private equity, credit, and real estate.

John: Over the course of last year, we drove a step function change in our growth profile and earnings power as a result of both organic and inorganic activity.

Jon Winkelried: The strong momentum in our capital raises across our diversified product base. And second, our active case deployment and the differentiated deal types we are sourcing across our platform. In addition to these two topics, before I hand the call over to Jack, I'll also touch on the significant market volatility that's been taking place over the last few trading days.

John: Our firm is capitalizing on our expanded breadth, and in my comments today, I'll focus on two areas in particular.

John: First.

John: the strong momentum and our capital raises across our diversified product base and Second our active pace of deployment and the differentiated deal types. We are sourcing across our platforms

John: In addition to these two topics, before I hand the call over to Jack, I'll also touch on a significant market volatility that's been taking place over the last few trading days.

Jon Winkelried: Beginning with fundraising, we raised $6.3 billion in the second quarter. Importantly, over 70% of this capital, or $4.5 billion, was raised across our credit strategy. During the quarter, we held a final close for Twin Brooks' fifth drawdown fund.

Jack: Beginning with fundraising, we raised 6.3 billion dollars in the second quarter. Importantly, over 70% of this capital, or 4.5 billion, was raised across our credit strategies.

Jack: During the quarter, we held a final close for Twin Brooks' fifth drawdown fund.

Jon Winkelried: In total, we raised $3.9 billion, which exceeded our original fund target and is 13% larger than its predecessor. This successful outcome was driven by Twinbrook's strong investment track record and differentiated focus on sponsor-backed, lower-middle market companies as investors seek to complement and diversify their exposure to the U.S. direct lending market. In addition to receiving strong support from existing clients, Twinbrook meaningfully expanded its investor base globally, particularly in Asia, and increased diversification towards sovereign wealth funds, as well as multinational insurance companies in Europe and Japan. This campaign is a strong indicator of the power of our platform and the cross-selling opportunity in front of us.

Jack: In total, we raised $3.9 billion, which exceeded our original fund target and is 13% larger than its predecessor.

Jack: This successful outcome was driven by Twinbrook's strong investment track record.

Jack: and differentiated focus on sponsor-backed lower middle market companies as investors seek to complement and diversify their exposure to the U.S. direct lending market.

Jack: In addition to receiving strong support from existing clients,

Jack: Twinbrook meaningfully expanded its investor base globally, particularly in Asia, and increased diversification towards sovereign wealth funds, as well as multinational insurance companies in Europe and Japan. This campaign is a strong indicator of the power of our platform and the cross-selling opportunity in front of us.

Jon Winkelried: We are also raising capital through other vehicles to accommodate investors across the broader Twinbrook platform as we continue to out-originate our capital base. This includes setting up new SMAs and strategic partnerships with our LPs, as well as through evergreen structures and our non-traded BDC, TCAP. TCAP continues to raise capital at a steady pace and ends the quarter with $2.5 billion in total AUM. Currently, DCAP is being distributed by two of the largest wire houses in the U.S., and we expect a third to be added by the end of this quarter.

Jack: We are also raising capital through other vehicles to accommodate investors across the broader Twinbrook platform as we continue to out-originate our capital base.

Jack: This includes standing up new SMAs and strategic partnerships with our LPs, as well as through evergreen structures and our non-traded BDC, TCAP.

Jack: TCAP continues to raise capital at a steady pace and ended the quarter with two and a half billion dollars of total AUM. Currently TCAP is being distributed by two of the largest wire houses in the U.S. and we expect a third to be added by the end of this quarter.

Jon Winkelried: Turning briefly to our Credit Solutions platform, during the quarter, we raised approximately $2 billion, including $1.1 billion for the first closing of Credit Solutions 3. We also held additional closes for Essential Housing 3, bringing the total capital raised for the fund to $1.3 billion at the end of the second quarter. Looking to the rest of the year, we expect our robust fundraising momentum to continue, led by our Rise Climate franchise. Last quarter, we stated that we expect our impact platform to achieve $35 billion of AUM within two years, and we believe that we're tracking ahead of schedule on that objective.

Jack: Turning briefly to our Credit Solutions platform, during the quarter we raised approximately two billion dollars, including 1.1 billion for the first closing of Credit Solutions 3. We also held additional closes for Essential Housing 3, bringing the total capital raised for the fund to 1.3 billion at the end of the second quarter.

Jack: Looking to the rest of the year, we expect our robust fundraising momentum to continue, led by our RISE climate franchise. Last quarter, we stated that we expect our impact platform to achieve $35 billion of AUM within two years, and we believe that we're tracking ahead of plan on that objective.

Jon Winkelried: In our climate private equity strategy, we're seeing strong support from both existing and new clients. We are holding a first close for Rise Climate 2 this quarter and expect to announce a strong start to that campaign on our next call. We continue to target an aggregate of $10 billion across this fund and the Global South Initiative, and we expect the majority of the capital to be raised in 2024. Additionally, we expect to hold a close before year-end for our first Rise Climate Transition Infrastructure Fund.

Jack: In our Climate Private Equity Strategy, we are seeing strong support from both existing and new clients.

Jack: We are holding a first close for Rise Climate 2 this quarter and expect to announce a strong start to that campaign on our next call.

Jack: We continue to target an aggregate of $10 billion across this fund and the Global South Initiative, and we expect the majority of the capital to be raised in 2024.

Jack: Additionally, we expect to hold a close before year-end for our first Rise Climate Transition Infrastructure Fund.

Jon Winkelried: In May, we announced a $1.5 billion strategic partnership with Hasana Investment Company, a substantial portion of which will anchor our infrastructure fund, and we are in active dialogue with other LPs to provide additional anchor capital. Our leadership position in climate investing is a powerful differentiator that enables us to organically expand to adjacent asset classes with significant growth potential, such as infrastructure. As you can see, our fundraising momentum continues to accelerate and is well diversified across our business. Similarly, our deployment pace remains robust.

Jack: In May, we announced a $1.5 billion strategic partnership with Hasana Investment Company, a substantial portion of which will anchor our infrastructure fund, and we are in active dialogue with other LPs to provide additional anchor capital.

Jack: Our leadership position in climate investing is a powerful differentiator that enables us to organically expand into adjacent asset classes with significant growth potential such as infrastructure.

Jack: As you can see, our fundraising momentum continues to ramp and is well diversified across our business.

Jon Winkelried: We invested $7.6 billion of capital in the second quarter and more than $35 billion over the last 12 months on a pro forma basis, including TPGAG. I'll spend a moment on TPG Capital to illustrate the interesting ways we are deploying capital through our proprietary and distinctive sourcing approach. Over the last 12 months, TPG Capital has announced or completed nine investments with an aggregate equity commitment of nearly $7 billion that resulted from longstanding C-level relationships within our core thematic areas.

Jack: Similarly, our deployment pace remains robust.

Jack: We invested $7.6 billion of capital in the second quarter and more than $35 billion over the last 12 months on a pro forma basis, including TPGAG.

Jack: I'll spend a moment on TPG Capital to illustrate the interesting ways we are deploying capital through our proprietary and distinctive sourcing approach.

TBC Capital: Over the last 12 months, TBC Capital has announced or completed nine investments with an aggregate equity commitment of nearly $7 billion that resulted from longstanding C-level relationships within our core thematic areas.

Jon Winkelried: More than half of this capital was invested in deals that were either a complex corporate carve out or created a partnership. TPG has a long and successful history of unlocking value and driving growth through these types of differentiated deals. I also want to highlight our activity in Europe, which is a high priority region for us. Our President, Todd Sisitsky, just returned after spending six weeks there working closely with our teams to further build on our strong investment momentum, client relationships, and franchise in the region.

TBC Capital: More than half of this capital was invested into deals that were either a complex corporate carve-out or creative partnership. TPG has a long and successful history of unlocking value and driving growth through these types of differentiated deals.

Speaker Change: I also want to highlight our activity in Europe, which is a high-priority region for us. Our president, Todd Cieszynski, just returned after spending six weeks there working closely with our teams to further build on our strong investment momentum, client relationships, and franchise in the region.

Jon Winkelried: Over the last few months, we have announced or closed several interesting transactions in Europe, and our pipeline remains strong. For example, in the second quarter, TPG Capital announced the 3.9 billion euro carve-out of Aerion, a leading provider of SaaS solutions for the European property industry, from Ariel Bank in Germany. This investment represents an attractive opportunity to accelerate Arion's growth as a standalone company in a resilient but fragmented market. Turning to TPG growth, in the quarter, we closed the proprietary acquisition of Untitled Entertainment, a leading Hollywood talent management firm.

Speaker Change: Over the last few months, we have announced or closed several interesting transactions in Europe, and our pipeline remains strong.

Speaker Change: For example, in the second quarter, TPG Capital announced the 3.9 billion euro carve-out of Aerion, a leading provider of SaaS solutions for the European property industry, from Ariel Bank in Germany.

Speaker Change: This investment represents an attractive opportunity to accelerate Ariane's growth as a stand-alone company in a resilient but fragmented market.

Speaker Change: Turning to TBG Growth.

Speaker Change: In the quarter, we closed the proprietary acquisition of Untitled Entertainment, a leading Hollywood talent management firm. Untitled will be part of a newly formed platform that will leverage our deep experience investing in media and entertainment to acquire and build a diversified global business focused on talent management and representation.

Jon Winkelried: Untitled will be part of a newly formed platform that will leverage our deep experience investing in media and entertainment to acquire and build a diversified global business focused on talent management and representation. Our Rise and Rise Climate Funds continue to deploy capital at a steady pace, given our differentiated position as the partner of choice in the impact space. Since quarter end, we have already signed or closed four additional transactions with an aggregate equity commitment of approximately $800 million. RISE recently led an investment of over $200 million into FoodSmart, a leading U.S. telenutrition provider and food benefits management platform. Additionally, Rise Climate agreed to acquire Olympus Terminals, a large-scale renewable fuels logistics provider in California.

Speaker Change: Our rise and rise climate funds continue to book to deploy capital at a steady pace given our differentiated position as the partner of choice in the impact space.

Speaker Change: Since quarter end, we have already signed or closed four additional transactions with an aggregate equity commitment of approximately $800 million.

Speaker Change: RISE recently led an investment of over $200 million into FoodSmart, a leading U.S. telenutrition provider and food benefits management platform.

Speaker Change: Additionally, Rise Climate agreed to acquire Olympus Terminals, a large-scale renewable fuels logistics provider in California. Olympus plays a critical role in the decarbonization value chain and represents our focus on investing in companies enabling the energy transition.

Jon Winkelried: Olympus plays a critical role in the decarbonization value chain and represents our focus on investing in companies enabling the energy transition. We have been anticipating substantial stress in the system to drive attractive investment opportunities, so we were purposely patient in our approach to capital deployment. Since mid-2023, we have seen a significant increase in investment activity, acquiring a number of distinctive, high-quality assets from sellers in need of liquidity, with combined dry powder of $14 billion across our real estate businesses.

Speaker Change: turning to our real estate strategies over the last few years.

Speaker Change: We had been anticipating substantial stress in the system to drive attractive investment opportunities, so we were purposely patient in our approach to capital deployment.

Speaker Change: Since mid-2023, we have seen a significant increase in investment activity, acquiring a number of distinctive, high-quality assets from sellers in need of liquidity.

Speaker Change: With combined drive power of 14 billion dollars across our real estate businesses We expect to lean into the growing number of interesting opportunities. We are sourcing in our core areas of focus

Jon Winkelried: We expect to lean into the growing number of interesting opportunities we are sourcing in our core areas of focus. We invested $1.2 billion in the quarter, and I'll share some brief highlights. Within TPG Real Estate, during the quarter, we completed investments in two office-to-residential conversions in New York City.

Speaker Change: We invested $1.2 billion in the quarter, and I'll share some brief highlights.

Speaker Change: Within TPG Real Estate, during the quarter, we completed investments in two office-to-residential conversions in New York City. In aggregate, we acquired the properties at a significant discount to their prior basis, and we're working with best-in-class partners to execute these conversions.

Jon Winkelried: In aggregate, we acquired the properties at a significant discount to their prior basis, and we're working with best-in-class partners to execute these conversions. TPG AG's European real estate business has also been capitalizing on this environment, including investing in a mixed-use property in Berlin, several Swedish logistics assets, and a home-building platform in the UK. Each transaction was off market and bilaterally negotiated with highly motivated sellers.

TVG AG: TVG AG's European real estate business has also been capitalizing on this environment including investing in a mixed-use property in Berlin, several Swedish logistics assets, and a home building platform in the UK.

TVG AG: Each transaction was off market and bilaterally negotiated with highly motivated sellers.

Jon Winkelried: Our TPG AG real estate sourcing model, which leverages hundreds of operating partner relationships across local markets, continues to demonstrate its unique value proposition. Finally, within credit, we deployed four and a half billion dollars across our strategies in the second quarter. Twinbrook, our direct lending business, continued its strong investment pace in the quarter, bringing total gross originations in the first half of the year to a record $4.8 billion. This exceeds its prior first-half gross origination record by more than $1 billion.

TVG AG: Our TBG AG real estate sourcing model, which leverages hundreds of operating partner relationships across local markets, continues to demonstrate its unique value proposition.

Speaker Change: Finally, within credit, we deployed $4.5 billion across our strategies in the second quarter.

Speaker Change: Twinbrook, our direct lending business, continued its strong investment pace in the quarter, bringing total gross originations in the first half of the year to a record $4.8 billion. This exceeds Twinbrook's prior first-half gross origination record by more than $1 billion.

Jon Winkelried: Twinbrook is a leader in lending to lower-middle-market private equity-backed companies, and 100% of Twinbrook's loans are senior-secured, first lien with financial covenants. Twinbrook has generated attractive net returns of 11% since inception with an annualized loss rate of only one basis point.

Speaker Change: Twinbrook is a leading a leader in lending to lower middle market private equity backed companies and a hundred percent of Twinbrook's loans are senior-secured first lien with financial covenants.

Speaker Change: Twinbrook has generated attractive net returns of 11% since inception with an annualized loss rate of only one basis point.

Jon Winkelried: During the second quarter, our Credit Solutions Platform deployed approximately $900 million of capital, primarily through our proprietary essential housing business. Notably, essential housing, which provides land financing to leading homebuilders, has seen substantial origination volume and closed on $1.8 billion of project value across 67 projects with nine home builders during the first two and a half months of the current fund's investment period. Within our credit solutions funds, given our flexible mandate, we continue to monetize our public positions and are currently evaluating the largest pipeline of private investment opportunities since the strategy was launched.

Speaker Change: During the second quarter, our Credit Solutions Platform deployed approximately $900 million of capital, primarily through our proprietary essential housing business.

Speaker Change: Notably, essential housing, which provides land financing to leading homebuilders, has seen substantial origination volume.

Speaker Change: We closed on $1.8 billion of project value across 67 projects with nine homebuilders during the first two and a half months of the current fund's investment period.

Speaker Change: Within our credit solutions funds, given our flexible mandate, we continue to monetize our public positions and are currently evaluating the largest pipeline of private investment opportunities since the strategy was launched.

Jon Winkelried: We are actively working to partner with a range of public and private companies with various needs for bespoke private capital solutions. Finally, we continue to see growing client demand for specialty private credit given the desire to diversify exposure away from corporate credit into more non-correlated risk. During the quarter, our structured credit platform deployed $1.9 billion across a diverse array of consumer, specialty, and mortgage finance transactions.

Speaker Change: We are actively working to partner with a range of public and private companies with various needs for bespoke private capital solutions.

Speaker Change: Finally, we continue to see growing client demand from specialty private credit.

Speaker Change: Given the desire to diversify exposure away from corporate credit into more non-correlated risk, during the quarter, our structured credit platform deployed $1.9 billion across a diverse array of consumer, specialty, and mortgage finance transactions.

Jon Winkelried: Most notably, our asset-based credit fund completed its first investment in Australia, demonstrating the global reach of this business. Overall, given the breadth of capabilities within our credit business, we are well positioned to continue to accelerate growth, as evidenced by our fundraising momentum, deployment pace, and investment pipeline. Each of these strategies is currently out-originating its capital base, so we see a significant opportunity to scale them through a combination of raising additional capital and driving further product innovation.

Speaker Change: Most notably, our asset-based credit fund completed its first investment in Australia, demonstrating the global reach of this business.

Speaker Change: Overall, given the breadth of capabilities within our credit business, we are well positioned to continue to accelerate growth as evidenced by our fundraising momentum, deployment pace, and investment pipelines.

Speaker Change: Each of these strategies is currently out originating its capital base, so we see a significant opportunity to scale them through a combination of raising additional capital and driving further product innovation.

Jon Winkelried: Continuing with this theme, innovation is the cornerstone of our ability to grow the firm. Looking at a five-year period from the beginning of 2021 to the end of 2025, we expect we will have raised approximately $40 billion during this timeframe across new strategies pro forma for TPGAG. This includes growing our RISE climate franchise and expanding into infrastructure; leveraging our real estate footprint across asset classes and geographies, including Japan; scaling our GP-led secondaries business and broadening our credit platform.

Speaker Change: Continuing with this theme, innovation is the cornerstone of our ability to grow the firm.

Speaker Change: Looking at a five year period, from the beginning of 2021 to the end of 2025, we expect we will have raised approximately $40 billion during this time frame across new strategies pro forma for TPGAG.

Speaker Change: This includes growing our RISE climate franchise and expanding into infrastructure.

Speaker Change: leveraging our real estate footprint across asset classes and geographies including Japan

Speaker Change: scaling our GP-led secondaries business and broadening our credit platform.

Jon Winkelried: Our proven ability to innovate is even more powerful across our well-diversified platform, which provides many new avenues for organic growth. Before I turn the call over to Jack, I'd like to comment briefly on the current market backdrop. Based on the market correction we've all witnessed over the last few days, it seems likely we've entered a new period of increased volatility, marked by more imminent interest rate cuts and heightened geopolitical risks.

Speaker Change: Our proven ability to innovate is even more powerful across our well-diversified platform which provides many new avenues for organic growth.

Speaker Change: Before I turn the call over to Jack, I'd like to comment briefly on the current market backdrop. Based on the market correction we've all witnessed over the last few days, it seems likely we've entered a new period of increased volatility, marked by more imminent interest rate cuts and heightened geopolitical risks.

Jon Winkelried: Although the markets have clearly become far more volatile since late last week, it's not yet clear how this may impact the underlying economy. We are fundamental investors, and from our perspective, the fundamentals we look at every day remain reasonably strong. We have experienced many market cycles during our careers, and we know periods of market dislocation create compelling investment opportunities. We've been preparing for an environment like this, and we are well-positioned with $53 billion of long-dated capital available to invest across our private equity, credit, and real estate platforms. Now I'll turn it over to Jack to review our financial results.

Jack: Although the markets have clearly become far more volatile since late last week, it's not yet clear how this may impact the underlying economy.

Jack: We are fundamental investors, and from our perspective, the fundamentals we look at every day remain reasonably strong.

Jack: We have experienced many market cycles during our careers, and we know periods of market dislocation create compelling investment opportunities.

Speaker Change: We've been preparing for the for an environment like this and we are well positioned with 53 billion dollars of long-dated capital Available to invest across our private equity credit and real estate platforms

Jack Weingart: Thank you, Jon, and thanks to all of you for joining us today. We ended the second quarter with $229 billion of total assets under management, up 65% year-over-year. This was driven by $75 billion of acquired AUM from Angela Gordon, 23 billion of capital raised, and 11 billion of value creation, partially offset by 17 billion of realizations over the last 12 months. Fee-earning AUM increased 74% year over year to $137 billion, and we ended the quarter with more than $53 billion of dry powder, representing 39% of fee-earning AUM.

Speaker Change: Now I'll turn it over to Jack to review our financial results.

Jack: Thank you, John, and thanks to all of you for joining us today.

Jack: We ended the second quarter with $229 billion of total assets under management, up 65% year-over-year. This was driven by $75 billion of acquired AUM from Angela Gordon.

Jack: $23 billion of capital raised and $11 billion of value creation, partially offset by $17 billion of realizations over the last 12 months.

Jack: Fee-earning AUM increased 74% year-over-year to $137 billion, and we ended the quarter with more than $53 billion of dry powder, representing 39% of fee-earning AUM.

Jack Weingart: We also had AUM subject to fee earning growth of $25 billion at the end of the quarter. This includes $16 billion of AUM not yet earning fees, which increased 17% sequentially as a result of the strong fundraising progress we made across our credit businesses this quarter. Our fee-related revenue in the second quarter was $459 million, up 61% year-over-year, primarily driven by the acquisition of Angelo Gorton. In addition to the contribution from TPGAG, on a standalone basis, TPG grew fee-related revenue 13% organically year over year.

Jack: We also had AUM subject to fee earning growth of $25 billion at the end of the quarter. This includes $16 billion of AUM not yet earning fees, which increased 17% sequentially as a result of the strong fundraising progress we made across our credit businesses this quarter.

Jack: Our fee-related revenue in the second quarter was $459 million, up 61% year-over-year, primarily driven by the acquisition of Andrew Lugworten. In addition to the contribution from TPGAG on a stand-alone basis, TPGAG grew its fee-related revenue 13% organically year-over-year.

Jack Weingart: Our Q2 FRR included management fees of $413 million and continued strong transaction fees of $34 million. Following a strong first half of the year, we expect capital markets revenue to be more muted in the third quarter due to deal-specific factors. As we look to the end of the year, we expect capital markets activity to accelerate into 2025, as our new investment pipeline remains strong, and we begin to see the benefits of integrating our broker-dealer capabilities into our credit platform. We reported fee-related earnings of $ 201 million for the second quarter, up 60% year-over-year.

Jack: Our Q2 FRR included management fees of $413 million and continued strong transaction fees of $34 million.

Jack: Following a strong first half of the year, we expect capital markets revenue to be more muted in the third quarter due to deal-specific factors.

Jack: As we look to the end of the year, we expect capital markets activity to accelerate into 2025, as our new investment pipeline remains strong and we begin to see the benefits of integrating our broker-dealer capabilities into our credit platform.

Jack: We reported fee-related earnings of $201 million for the second quarter, up 60% year-over-year.

Jack Weingart: Our FRA margin of 44% in the quarter was above trend as we benefited from incremental catch-up fees, strong transaction fees, and lower than expected cash compensation due in part to the timing of hiring. As we've indicated previously, we continue to expect our full-year FRE margin to exceed 40% in 2024 and expand in 2025 as we benefit from increased credit deployment and the activation of several new funds, most notably our second-rise climate. After-tax distributor earnings for the second quarter totaled $207 million, or $0.49 per share of Class A common stock.

Jack: Our FRA margin of 44% in the quarter was above trend as we benefited from incremental catch-up fees, strong transaction fees, and lower than expected cash compensation due in part to the timing of hiring.

Jack: As we've indicated previously, we continue to expect our full-year FRE margin to exceed 40% in 2024 and expand in 2025 as we benefit from increased credit deployment and the activation of several new funds, most notably our Second Rise Climate Fund.

Jack: After-tax distributor earnings for the second quarter totaled $207 million, or 49 cents per share of Class A common stock.

Jack Weingart: This included $26 million in realized performance allocations, which was largely driven by credit and real estate. Although exit activity remains muted for the industry and for TPG and has been slower to recover compared to deployment, we're actively evaluating monetization opportunities across all of our portfolio. Unknown Attendee Our realized investment income and other line item in the second quarter included $5 million of non-core expenses related to Angela Gordon, which declined from $8 million last quarter, as we continue to make progress on our integration workstream. We expect our integration expenses to remain at around this reduced level through the balance of the year.

Jack: This included $26 million of realized performance allocations, which was largely driven by credit and real estate.

Jack: Although exit activity remains muted for the industry and for TPG and has been slower to recover compared to deployment, we're actively evaluating monetization opportunities across all of our portfolios.

Jack: Our realized investment income and other line item in the second quarter included five million dollars of non-core expenses related to Angelo Gort, which declined from eight million last quarter as we continue to make progress on our integration work streams.

Jack: We expect our integration expenses to remain at around this reduced level through the balance of the year.

Jack Weingart: Turning to our non-GAAP balance sheet, TPG remains well capitalized with moderate leverage and ample liquidity. We ended the second quarter with $330 million of cash and cash equivalents and $1.2 billion of undrawn capacity on our revolver, providing us with significant flexibility to continue investing in growth. Our net accrued performance balance stepped up to $929 million at the end of the second quarter.

Jack: Turning to our non-GAAP balance sheet, TPG remains well capitalized with moderate leverage and ample liquidity.

Jack: We ended the second quarter with three hundred and thirty million dollars of cash and cash equivalents and 1.2 billion of undrawn capacity On our revolver providing us with significant flexibility to continue investing in growth

Jack: Our net accrued performance balance stepped up to $929 million at the end of the second quarter. Our performance eligible AUM totaled $198 billion, or 86% of our total AUM, of which $158 billion is currently generating performance fees.

Jack Weingart: Our performance-eligible AUM totaled $198 billion, or 86% of our total AUM, of which $158 billion is currently generating performance fees. Our investment portfolios continue to perform well with positive value creation across all of our platforms in the second quarter and over the last 12 months. Our private equity portfolio, which includes our capital growth and impact platforms, grew revenue by 18% over the last 12 months, and margins have remained stable as inflationary pressures have moderated. Our private equity strategy is characterized by deeply thematic, growth-oriented investing, where we believe we can infuse growth in our portfolio companies that will outpace any potential multiple compression.

Jack: Our investment portfolios continue to perform well with positive value creation across all of our platforms for the second quarter and over the last 12 months.

Jack: Our private equity portfolio, which includes our capital growth and impact platforms, grew revenue by 18% over the last 12 months, and margins have remained stable as inflationary pressures have moderated.

Jack: Our private equity strategy is characterized by deeply thematic, growth-oriented investing, where we believe we can inflect growth in our portfolio companies that will outpace any potential multiple compression.

Jack Weingart: This disciplined approach has resulted in significant strength and durability against a volatile macro backdrop over the last 24 to 36 months, and our PE portfolio appreciated approximately 2% in the second quarter and 7% over the last 12 months. Turning to credit, our portfolio appreciated approximately 3% in the quarter and 14% over the last 12 months. In middle market direct lending, all of our funds were at or above their target return as of quarter end.

Jack: This disciplined approach has resulted in significant strength and durability against a volatile macro backdrop over the last 24 to 36 months.

Jack: and our PE portfolio appreciated approximately 2% in the second quarter and 7% over the last 12 months.

Jack: Turning to credit, our portfolio appreciated approximately 3% in the quarter and 14% over the last 12 months.

Jack Weingart: Overall, our portfolio of more than 260 companies continues to perform well, with strong revenue growth and cash flow generation and no realized losses in the quarter. At the end of the quarter, our weighted average loan-to-value at close was 41%, which is consistent with historical levels.

Jack Weingart: In Credit Solutions, as spreads have tightened, the team has continued to aggressively monetize public positions across the portfolios and crystallize gains. We're now pivoting into private transactions where we believe there's a more attractive return profile, particularly on a risk-adjusted basis, given the significant downside protection in these customized financings. This purposeful approach has resulted in accelerated realization relative to deployment as private deals have a longer execution timeline. As Jon mentioned, we're currently evaluating the largest pipeline of private transactions ever for the strategy and expect deployment to increase in the back half of the year.

Jack Weingart: TPG's real estate portfolio appreciated approximately 1% in the second quarter and 2% over the last 12 months, and TPG AG's real estate portfolio appreciated 20 basis points in the second quarter and 70 basis points over the last 12 months. Focusing on TPG real estate for a moment, the positive value creation in the quarter is attributable to the quality of our portfolio construction in highly attractive sectors. This includes light industrial, student housing, and data centers, which continue to see strong secular demand, supply limitations, and rental rate growth.

Jack Weingart: Capitalization rates and discount rates remain flat to slightly down in our core thematic areas, as availability of debt and equity capital has increased this year, driving more transactions. As a result, we've been opportunistically monetizing high-quality assets across our light industrial, built-to-rent, and student housing portfolios. Turning to fundraising, we raised $6.3 billion during the second quarter, as Jon mentioned, with $4.5 billion of this capital raised in credit. Looking forward, consistent with our prior guidance on fundraising, we continue to expect credit fundraising to exceed $10 billion for the year, more than doubling the capital raised in 2023.

Jack Weingart: We've raised $6.6 billion for our credit strategies through June, so we're pacing ahead of this objective. In addition, we expect our total private equity and infrastructure fundraising in 2024 to grow compared to the $12.8 billion we raised in 2023, driven by the ongoing campaigns for growth and rising climate, as well as the launch of our climate transition infrastructure strategy. We've raised $3 billion in the first half of this year, which is consistent with our expectation that these campaigns will be weighted towards the back half of the year.

Jack: We've raised $3 billion in the first half of this year, which is consistent with our expectation that these campaigns will be weighted to the back half of the year. As John mentioned, we have significant momentum toward a strong first close for our New Rise Climate Fund, and expect to have more to report on our next call.

Jack Weingart: As Jon mentioned, we have significant momentum toward a strong first close for our new RISE Climate Fund and expect to have more to report on our next call. We held a final close in July for our Life Sciences Innovations Fund, bringing total capital raised to $580 million for the overall strategy, which includes a portion of commitments from the RISE Fund. We'll also hold a final close for our inaugural GP Solutions Fund in the third quarter, and we expect to hold a first close for our RISE Climate Transition Infrastructure Fund before year-end.

Speaker Change: We held a final close in July for our Life Sciences Innovations Fund, bringing total capital raised to $580 million for the overall strategy, which includes a portion of commitments from the RISE Fund.

Speaker Change: We'll also hold a final close for our inaugural GP Solutions Fund in the third quarter, and we expect to hold a first close for our Rise Climate Transition Infrastructure Fund before year end.

Jack Weingart: Wrapping up, we're very pleased with our strong second quarter results and the progress we continue to make driving growth and diversification across our business. Our investment portfolios are performing well. And we've been selectively pursuing monetization opportunities. And at the same time, we've been deploying capital at a steady pace. And with 53 billion of dry powder, we're well positioned with a robust pipeline of opportunities across our diverse platforms. We're continuing to experience strong momentum across our active fundraising campaigns in our private equity and credit business, and we're leveraging our culture of innovation to drive a variety of exciting growth initiatives that have the potential to build significant scale and long-term value.

Speaker Change: Wrapping up, we're very pleased with our strong second quarter results and the progress we continue to make driving growth and diversification across our business.

Speaker Change: Our investment portfolios are performing well, and we've been selectively pursuing monetization opportunities.

Speaker Change: At the same time, we've been deploying capital at a steady pace.

Speaker Change: And with $53 billion of dry powder, we're well positioned with a robust pipeline of opportunities across our diverse platforms.

Speaker Change: We're continuing to experience strong momentum across our active fundraising campaigns in our private equity and credit businesses.

Speaker Change: And we're leveraging our culture of innovation to drive a variety of exciting growth initiatives that have the potential to build significant scale and long-term value.

Operator: Now I'll turn the call back to the operator to take your questions. Thank you. And at this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two.

Speaker Change: Now I'll turn the call back to the operator to take your questions.

Operator: Thank you. And at this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two.

Speaker Change: Thank you, and at this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2.

Operator: Again, please limit yourself to one question. Our first question will come from Alex Blostein of Goldman Sachs. Please go ahead.

Speaker Change: Again, please limit yourself to one question.

Speaker Change: Our first question will come from Alex Blosstein with Goldman Sachs. Please go ahead.

Alex Blosstein: Hi, good morning everyone. Thanks for the question. I want to start with credit. So at a high level, trends sound pretty good on both deployment and a fundraising side, but obviously fee-paying UN was flat sequentially. Could you help bridge sort of what were some of the offsets?

Speaker Change: in the quarter, and then more importantly, talk a little bit about your growth outlook and credit with respect to management fees and fee-paying UM over the next 12 months. Thanks.

Jack Weingart: Sure. Hey, Alex, Jack, I'll start on that.

Speaker Change: Sure. Hey, Alex, Jack, I'll start on that. On the quarter, the reason the fee-paying AUM was relatively flat quarter over quarter

Speaker Change: is because, as you'd expect, the $4.5 billion of credit capital we raised during the quarter, really none of that was fee-paying upon being raised. It turns into fee-paying AUM as we deploy it.

Jack Weingart: On the quarter, the reason the fee-paying AUM was relatively flat quarter over quarter is because, as you'd expect, the $4.5 billion of credit capital we raised during the quarter, really none of that was fee-paying upon being raised. It turns into fee-paying AUM as we deploy it. So, that's why you saw AUM growth quarter over quarter, but really no FAUM growth. And that's why, in my comments, the AUM, subject to the fee step-up, increased so much quarter over quarter.

Speaker Change: So, that's why you saw AUM growth quarter over quarter, but really no FAUM growth. And that's why, to my comments,

Jack Weingart: So, that's how I would think through kind of that bridge. Now, we do expect accelerated FAUM growth and credit as we work through the year next year and deploy the capital that we just raised in the first and second quarters, and we expect to continue raising in the back half of the year.

Speaker Change: The AUM Subject to Fee Step-Up increased so much quarter-over-quarter.

Speaker Change: So that's how you, that's how I would think through.

Speaker Change: Now we do expect accelerated FAUM growth and credit as we work through the year next year and deploy the capital that we just raised in the first and second quarter, and we expect to continue raising in the back half of the year.

Jon Winkelried: And Alex, I guess the only thing I would add to that on the deployment outlook going forward is, as you heard in our comments, what we have going on at Twinbrook with our direct lending platform; we're on a record pace by a meaningful margin in terms of the uptick in activity in the lower middle market sponsor space. And when you look at the originations there, one interesting dynamic is that somewhere in the vicinity of around 40% of the origination volume there is essentially add-ons to the existing portfolio.

Speaker Change: And Alex, I guess the only thing I would add to that on the deployment outlook going forward is I think you heard in our comments

Speaker Change: what we have going on at Twinbrook in our direct lending platform.

Speaker Change: We're on a record pace by a meaningful margin in terms of the uptick in activity in the lower middle market sponsor space. And when you look at the originations there, one interesting dynamic to it is

Speaker Change: somewhere in the vicinity of around 40%.

Jon Winkelried: So the base portfolio that Jack had referred to in his comments continues to just generate, with add-on acquisitions, tuck-ins, et cetera, continues to just generate a substantial amount of inherent growth in the portfolio beyond the 60% of the growth that's basically new buyouts. On the credit solution side, which we've talked about a number of times, I mentioned in my comments that our essential housing business is very active. Jack mentioned in his comments that our team has actively been liquidating and selling most of our public book that we accumulated over the course of 2023 and maybe early 24, and given spread tightening and the contraction and, essentially, the compression and spreads, you can see what the value creation looks like in that book.

Speaker Change: of the origination volume there is essentially add-ons to the existing portfolio, so the base portfolio that Jack had referred to in his comments.

Jack: continues to just generate with add-on acquisitions.

Jack: Tuck-ins, etc. continues to just generate a substantial amount of inherent growth in the portfolio

Speaker Change: Beyond the 60% of the growth that's basically new buyouts on the credit solution side

Speaker Change: which we've talked about a number of times.

Speaker Change: I mentioned in my comments, obviously, that, you know, our essential housing business is very active.

Speaker Change: Jack mentioned in his comments that

Jack: You know, we, our team has actively...

Jack: have been liquidating and selling most of our public book that we accumulated over the course of 2023 and maybe early 24 and given spread tightening and the contraction and, you know, and the, and the, essentially the,

Jack: compression and spreads.

Jon Winkelried: But essentially, we spent a lot of time monetizing. We pivoted, as you would expect, given the nature of what's happening in terms of the refinancing challenges in the market for some of the highly levered companies. We pivoted to private opportunities.

Jack: You can see what the value creation looks like in that book, but essentially we spent a lot of time monetizing on the we pivoted as you would expect given the nature of what's happening in terms of

Jack: of the refinancing challenges in the market for some of the highly levered companies. We pivoted to private opportunities.

Jon Winkelried: And just to give you an idea of the flow of that, we're engaged with many sponsors around the market. We sort of measure that flow and backlog by sort of the number of NDAs that we have actually signed. And we have actually, so far this year, signed 160 NDAs. Just to give you an idea, that's like double our prior flow base.

Jack: And just to give you an idea of the flow of that.

Jack: We're engaged with many sponsors around the market. We sort of measure that flow and backlog by sort of the number of NDAs that we have actually signed. And we have actually, so far this year, signed 160 NDAs. Just to give you an idea, that's like double our prior.

Jon Winkelried: So we would – and naturally, those transactions are more bespoke, more structured, and take longer to get done. So – but we would expect that, you know, we'll have an uptick in deployment around those opportunities. And by the way, particularly with the increase in volatility in the market. And then lastly, on the structured credit side, I think we're seeing now, finally, with the potential for interest rates to come down, a number of transactions with risk transfer going on in the market among, you know, a variety of different banks who have been kind of waiting and pausing as it relates to the value within those portfolios and how they feel about interest rates.

Jack: flow base. So we would, and naturally those transactions are more bespoke, more structured, take longer to get done.

Jack: We would expect that we'll have an uptick in deployment around those opportunities, and by the way, particularly with the increase in volatility in the market.

Jack: And then lastly, on the structured credit side, I think we're seeing now, finally, with

Jack: the potential for interest rates to come down.

Jack: We are seeing a number of transactions with...

Jack: with risk transfer going on in the market among a variety of different banks who have been kind of waiting and pausing as it relates to the value within those portfolios.

Jack: and how they feel about interest rates. We are seeing, you know, a pickup in...

Jon Winkelried: We are seeing, you know, a pickup in partnerships with a number of financial institutions. I mentioned the Australia opportunity that we were able to do. But based upon capital formation versus the opportunity set to deploy, we're actually trying to pace ourselves a little bit as we, hopefully, will accelerate our capital formation process in the second part of the year for our structured credit business.

Jack: partnerships with a number of financial institutions. I mentioned the Australia opportunity that we were able to do so. But based upon capital formation

Jack: versus the opportunity set to deploy, we're actually trying to pace ourselves a little bit as we hopefully will accelerate our capital formation process in the second part of the year for our structured credit business.

Operator: Our next question will come from Craig Siegenthaler from Bank of America. Please go ahead.

Jack: Our next question will come from Craig Siegenthaler from Bank of America. Please go ahead.

Craig Siegenthaler: Good morning, Jon, and Jack. I hope everyone is doing well. We have a modeling question on the fee-earning AUM quarterly roll forward. In credit, you raised $4.5 billion, and you also invested $4.5 billion, but fee-earning AUM only grew by $200 million, and the fee-earning AUM inflow was just $300 million. So I knew I just threw a lot of numbers out there, but my question is, why didn't fee-earning AUM in credit grow faster in the quarter, just given how big the fundraising and deployment numbers were? What am I missing?

Craig Siegenthaler: Good morning, John, Jack, I hope everyone is doing well.

Craig Siegenthaler: We have a modeling question on this fee-earning AUM quarterly roll forward.

Speaker Change: In credit, you raised $4.5 billion.

Speaker Change: and you also invested $4.5 billion.

Craig Siegenthaler: But fee-earning AUM only grew by $200 million, and the fee-earning AUM inflow was just $300 million. So I knew I just threw a lot of numbers out there, but my question is, why didn't fee-earning AUM in credit grow faster in the quarter, just given how big the fundraising and deployment numbers were? What am I missing?

Jack Weingart: Well, Craig, the four and a half billion of capital we raised during the quarter essentially none of that shows up as fee-earning AUM as of the end of the quarter. It was raised, it's dry powder ready to invest, but it doesn't flow into fee-earning AUM until deployed, which will happen in subsequent quarters. Got it. But you also invested four and a half billion.

Speaker Change: Well, Craig, the four and a half billion of capital we raised during the quarter...

Speaker Change: Really, none of that shows up as fee-earning AUM.

Craig Siegenthaler: as of the end of the quarter. It was raised. It's dry powder ready to invest, but it doesn't flow into fee-earning AUM until deployed, which will happen in subsequent quarters.

Jack Weingart: Got it, but you also invested four and a half billion in prior capital. So wouldn't that have triggered fee increases?

Craig Siegenthaler: got it but you also invested four and a half billion of prior capital so wouldn't that have triggered fee increases

Speaker Change: I think that was one.

Jack Weingart: Right, I'm just looking for the number; it should, I think it was roughly offset by realizations during the quarter. Got it. Okay. We can follow up with you, and yeah, we can follow up afterwards.

Speaker Change: Bye.

Speaker Change: Right, I'm just looking for the number. It should, I think it was roughly offset by realizations during the quarter.

Jack Weingart: I was just curious because the fundraising number was so big, and the investing number was also so big. And between the two, I figured that would have driven a larger increase in Fearing AUM. It was basically all the capital we raised during the quarter was not fee earned, and our deployed capital was roughly offset by monetizations, and we can follow up and share those numbers with you.

Speaker Change: Got it. Okay.

Speaker Change: We can follow up with you and... Yeah, we can follow up afterwards. I was just, it was, I was really curious because the fundraising number was so big and the investing number was also so big and between the two I figured that would have drove a larger increase in Fearing AUM.

Speaker Change: It was basically all the capital we raised during the quarter was not fee earning, and our deployed capital was roughly offset by monetizations.

Speaker Change: Okay.

Speaker Change: and we can follow up and share those numbers with you.

Operator: Our next question comes from Michael Kripis with Morgan Stanley. Please go ahead.

Speaker Change: Our next question comes from Michael Kripis with Morgan Stanley. Please go ahead.

Operator: Hey, Greg. Thank you for taking the time to answer the question. Maybe just sticking with credit and the AG deal, you mentioned some overseas investors coming into the Twinbrook fund. Sounds like some, possibly, distribution synergies happening there. Maybe you could just elaborate a bit on some of the synergies you've realized so far from bringing Angelo Gordon into the franchise. And as you look out over the next, you know, 12, 24 months, maybe you could just update us on your latest thoughts around synergies that you'd expect to drive across the business as you look out from here.

Michael Kripis: Thank you for taking the question. Maybe just sticking with credit and the AG deal. You mentioned some overseas investors coming into

Michael Kripis: The Twinbrook Fund sounds like some maybe distribution synergies happening there. Maybe you could just elaborate a bit on some of the synergies you've realized so far from bringing Angela Gordon into the franchise.

Speaker Change: and as you look out over the next 12, 24 months, maybe you could just update us.

Speaker Change: on your latest thoughts around synergies that you'd expect to drive across the business as you look out from here. And I know one of the things you were looking to do was to help the AG credit business move up market a little bit. So maybe you could just update us on kind of where that initiative stands. Thank you.

Operator: And I know one of the things you were looking to do was to help the AG credit business move up the market a little bit. So maybe you could just update us on kind of where that initiative stands. Thank you.

Jon Winkelried: Unknown Speaker Yeah. Thanks, Mike. On the fundraising side, I think that we have experienced what I think of as a fair amount of crossover between our LP bases. And as we talked about, you know, as part of the underlying thesis and growth drivers for the AG acquisition, we felt like that was a major opportunity for us in terms of being able to cross sell into both historical pools of capital that haven't participated with AG and also just the size and scale of some of those pools of capital.

Speaker Change: [inaudible]

Mike: Thanks, Mike.

Speaker Change: the the on the fundraising side I think that we have

Speaker Change: experienced what I think of as a fair amount of crossover between our LP bases.

Speaker Change: and as we talked about, you know, as part of sort of the underlying thesis and growth drivers for the AG acquisition, we felt like

Speaker Change: That was a major opportunity for us, in terms of being able to cross sell into both historical pools of capital that haven't participated with AG, and also just the size and scale of some of those pools of capital.

Jon Winkelried: So that really is beginning to take shape. And, you know, as an example, if you look at the Twinbrook fundraise, there are a number of cases where we have been able to successfully partner together between, you know, our two fundraising groups. That's an area where there were a number of examples where both some combination of sovereign wealth funds, large pensions, and particularly international penetration. If you looked at the footprint of TPG's LP base and the existing footprint of AG at the time of the acquisition, the global scale of TPG's footprint was quite a bit larger.

Speaker Change: That really is...

Speaker Change: beginning to take shape. And, you know, as an example, if you look at the Twinbrook fundraise, there are a number of cases where we have been able to successfully, by partnering together between, you know, our two fundraising groups,

Speaker Change: that's an area where there were a number of examples where both some combination of sovereign wealth funds, large pensions, and particularly international penetration. If you looked at the footprint

Speaker Change: of TPG's LP base and the existing footprint of AEG's at the time of the acquisition.

Speaker Change: The global scale of TBG's footprint was quite a bit larger, and so when you look at what we have been able to do, and are continuing to do with

Jon Winkelried: And so, when you look at what we have been able to do, and are continuing to do, in the Asia region, in the Middle East, in Europe, I think we've been very happy with the progress that we are making in terms of both the mandates that we've got as well as the engagement that we continue to have across the credit platform. Same thing is true, by the way, and, you know, really across the entire platform from Twinbrook to Credit Solutions to Structured Credit.

Speaker Change: In the Asia region, in the Middle East, in Europe, I think we've been very happy with the progress that we're making in terms of both mandates that we've gotten as well as engagement that we continue to have across the credit platform.

Speaker Change: Same thing is true, by the way, and really across the entire platform, from Twinbrook to Credit Solutions to Structured Credit.

Jon Winkelried: And so I expect what you'll be hearing from us as we continue to form capital is you'll be hearing similar things with respect to the continuing fundraising effort with respect to bringing in those traditional relationships on the TPG side and bringing those to bear in the AG credit business. So we're pretty optimistic with respect to that, and based on the tangible evidence that we have so far, as well as..., as well as where we're currently engaged in terms of relationship dialogue.

Speaker Change: I expect what you'll be hearing from us, as we continue to form capital, is you'll be hearing similar things with respect to the continuing fundraising effort, with respect to bringing in

Speaker Change: [inaudible]

Speaker Change: as well as what we're, you know, where we're currently engaged in terms of

Jon Winkelried: In a number of cases, as you would expect, given how capital is formed on the credit side, in a number of cases, we're working on multi-strategy SMAs with some large pools of capital. And then the other area where I think we're pretty encouraged as well is extending the reach of our relationships in the channel with respect to the private wealth part of the market. I mentioned, for instance, Twinbrook was about to go up on its third major wire house platform for TCAP.

Speaker Change: Relationship Dialogue. In a number of cases, as you would expect given how credit is formed, how capital is formed on the credit side, in a number of cases we're working on multi-strategy SMAs with some large pools of capital.

Speaker Change: And then the other area where I think we're pretty encouraged as well is extending the reach of our relationships.

Speaker Change: in the channel with respect to the private wealth part of the market.

Speaker Change: I mentioned, for instance, Twinbrook.

Speaker Change: about to go up on its third

Speaker Change: major wire house platform for TCAP.

Speaker Change: and we have a number of

Jon Winkelried: And we have a number of launches that we're expecting to do with the channel, with our credit solutions business, as well as our structured credit business. So, you know, we feel pretty good about it. And I think you'll continue to hear from us as we report on the progress that we expect to make.

Speaker Change: launches that we're expecting to do with with the channel with

Speaker Change: with our Credit Solutions business as well as our Structured Credit business. So, you know, we feel pretty good about it.

Speaker Change: You know, I think you'll continue to hear from us as we report out the progress that we can that we expect to make The other areas of synergies that get to your question

Jon Winkelried: The other areas of synergies to your question that are quite tangible, for example, I mentioned our credit solutions business and, you know, the private opportunities that we're prosecuting there. The level of engagement between the private equity side of the house and the credit solutions side of the house, after signing NDAs and working with sponsors, is also quite significant and quite tangible. And the ability to use both the credit expertise that we have on the credit solutions side and our underlying understanding of many of these companies on the PE side. Because many of these companies, as you would expect, we've seen, and the ability to both understand how to structure deals, but also, ultimately, what you're lending against, fundamentally in terms of loan to value, is the valuation of companies. So those skill sets coming together are quite tangible.

Speaker Change: that are quite tangible.

Speaker Change: For example, I mentioned our credit solutions business.

Speaker Change: and the private opportunities that we're prosecuting there.

Speaker Change: The level of engagement between the private equity side of the House and the credit solutions side of the House after signing NDAs and working with sponsors is also quite significant and quite tangible.

Speaker Change: and the ability to use both credit expertise that we have on the credit solution side and our underlying understanding of many of these companies on the PE side, because many of these companies, as you would expect, we've seen, and the ability to...

Speaker Change: both understand how to structure deals, but also ultimately what you're lending against fundamentally in terms of loan-to-value is valuation of companies. So, those skill sets coming together is quite tangible. One of the things that we are in the process of doing is we are actually launching.

Jon Winkelried: One of the things that we are in the process of doing is we are actually launching a new strategy we call Hybrid Solutions, which essentially think of that as a middle of the capital structure, more structured return type of opportunity. We've already established an anchor LP for the strategy. We've already done our first deal in this strategy. And just to give you an idea, that strategy is led by Ryan Mullet from Credit Solutions, David Trujillo, and Nahal Raj from the private equity side. So that's an example of creating a new opportunity basically through that combination of the two businesses.

Speaker Change: a new strategy we call hybrid solutions, which essentially think of that as a

Speaker Change: middle of the capital structure

Speaker Change: more structured return type of opportunity.

Speaker Change: We've already established an anchor LP for the strategy. We've already done our first deal in the strategy.

Speaker Change: Just to give you an idea, that strategy is led by Ryan Mullet, Credit Solutions.

Jack: David Trujillo, and Nahal Raj from the private equity side. So that's an example of forming a new opportunity, basically, through the combination of the two businesses. Hey, Mike, it's Jack. Just a little more data for you on the Twinbrook fundraising migration. If you look at the last fund,

Jack Weingart: Hey, Mike. It's Jack.

Jack Weingart: Just a little more data for you on the Twinbrook fundraising migration. If you look at the last fund, Fund 4 versus Fund 5, which we just completed raising, the U.S. represented about 61 percent of the Fund 4 LP base, and this went down to 36 percent in Fund 5, replaced by significant growth in the Asia Pacific region, as Jon said, as well. And by type of investor, insurance companies represented only 6% of the LP base in Fund 4 and 29% in Fund 5. And sovereign wealth went from 1% to 17%.

Mike: Fund 4 versus Fund 5, which we just completed raising.

Speaker Change: The U.S. represented about 61% of the Fund 4 LP base, and this went down to 36% in Fund 5, replaced by significant growth in the Asia Pac region, as John said, as well as Europe and the Middle East.

Speaker Change: And by type of investor, insurance companies represented only 6%.

John: of the LP base in Fund 4 and 29% in Fund 5.

John: and Sovereign Wealth went from 1% to 17%. So I think those numbers give you a real sense.

Jack Weingart: So I think those numbers give you a real sense for the kind of synergy we're seeing on distribution. And by the way, obviously, the closed-end fund, MMDL5, is not the end of fundraising for Twinbrook. We have a number, not just TCAP in the High Net Worth channel, but we have a number of large SMAs we're in the process of raising that will sit alongside MMDL5 as additional sources of capital. As you can imagine, those SMAs are oriented toward our large historical client base as well.

John: For the kind of the synergy we're seeing on distribution

John: and by the way obviously the closed-end fund

John: MMDL 5

John: is not the end of fundraising for Twinbrook.

John: We have a number, not just TCAP in the High Net Worth channel, but we have a number of large SMAs we're in the process of raising that will sit alongside MMDL5 as additional sources of capital. As you can imagine, those SMAs are oriented toward our large historical client base as well.

Speaker Change: Great. Thank you so much for all the color. Appreciate it.

Operator: Great. Thank you so much for all the color. Appreciate it. Our next question will come from Ken Worthington with JP Morgan. Transcription by CastingWords, Late hiring and catch-up, and catch-up fees boosting margin this quarter. Were there any other unusual items impacting comp and

Operator: Our next question will come from Ken Worthington of JP Morgan.

Speaker Change: Our next question will come from Ken Worthington with J.P. Morgan.

Speaker Change: [inaudible]

Speaker Change: Blade Hiring and Ketchup

Speaker Change: and catch-up fees, boosting margin this quarter.

Ken Worthington: Were there any other unusual items impacting compensation and is the delayed hiring expected to be resolved?

Speaker Change: later this year.

Speaker Change: And then on margin as well, as we think about Angelo Gordon, I know the focus has been top-line growth.

Speaker Change: and things look great so far. Are there also efficiencies that you're bringing to the AG platform that has contributed to sort of the improving margins you're seeing at sort of TPG proper?

Jack Weingart: Sure. I think, Ken, you broke up a little bit in the beginning of your question, but I think I got the gist of it, on the margin profile, in particular, I think you were asking about the comp expense in Q2. I think last quarter we mentioned that our comp expense in Q1 was unusually high because of the elevated RSU-related expenses, and that'll be flowing through as a seasonal factor in Q1 each year. So stepping down from that number was not unexpected.

Speaker Change: Sure, I think Ken you broke up a little bit in the beginning your question but I think I got the gist of it.

Speaker Change: On the on the

Speaker Change: The margin profile, in particular, I think you were asking about the cop expense in

Speaker Change: Q2. I think last quarter we mentioned that our top expense in Q1 was unusually high because of the elevated RSU related expenses, and that'll be flung through as a

Speaker Change: Seasonal factor in Q1 each year, so stepping down off of that number was not unexpected.

Jack Weingart: The other piece of it that I referred to is that we are, as we've talked about, in the process of hiring to expand the business in all the ways that we've talked about, and much of that hiring did not kick in in Q2. To answer your question, we do expect that to kick in in Q3 and Q4, so I would expect that comp expense line to normalize in Q3 and Q4, on the cost synergy side.

Speaker Change: The other piece of it that I referred to is, we are, as we've talked about, in the process of hiring...

Speaker Change: to expand the business in all the ways that we've talked about. And much of that hiring did not kick in in Q2. To answer your question, we do expect that to kick in in Q3 and Q4. So I would expect that comp expense line to normalize in Q3 and Q4.

Jack Weingart: As we've always talked about, this was never a transaction premised on cost synergies. We're much more focused on what we just answered regarding revenue synergies, and we're very optimistic about that. That being said, of course, we're looking to operate a cost-efficient business. And I'd say at this point, we believe we've realized at least $30 million in cost synergies, and we intend to invest most of that back into things like expanding our product development and expanding our distribution capabilities. The only thing I just want to add to that is that, just in terms of

Speaker Change: on the cost-synergy side.

Speaker Change: As we've always talked about, this was never a transaction premised on cost synergies. We're much more focused on what we just answered on revenue synergies, and we're very optimistic about that. That being said, of course, we're looking to operate a cost-efficient business.

Speaker Change: business, and I'd say at this point we believe we've realized at least $30 million.

Speaker Change: of Cost Synergies, and we intend to invest most of that back into things like expanding our product development and expanding our distribution capabilities.

Jon Winkelried: I want to add to that in terms of integration and the functioning of the organization, we have executed a full integration of all of our service functions, all of our operational functions, etc. So that is basically completely done. And, and, you know, working very smoothly. So just in terms of the ability to benefit from scale, as we grow, we feel like the full integration and the capabilities of the two firms combined will support that as well.

Speaker Change: integration and the functioning of the organization.

Speaker Change: We have executed a full integration of all of our services functions, all of our operational functions, etc. So that is basically completely done.

Speaker Change: and, you know, working very smoothly.

Speaker Change: So just in terms of the ability to benefit from scale as we grow, you know, we feel like the full integration and the capabilities of the two firms combined will support that as well.

Speaker Change: Great, thank you very much.

Operator: Our next question will come from Glenn Schorr with Evercore.

Speaker Change: Thanks again.

Speaker Change: Our next question will come from Glenn Shore with Evercore. Please go ahead.

Operator: Hi, thanks very much. Hello. Unknown Speaker So I was hoping for a little color on Twinbrook.

Glenn Shore: Hi, thanks very much. Hello.

Glenn Shore: So I was hoping for a little color on Twinbrook. Your track record's great. You mentioned all scenes secured, firstly, in good covenants, almost no losses ever, so I don't feel bad asking the question of

Glenn Schorr: Your track record's great. You mentioned all things secured, firstly, and good covenants, with almost no losses ever. So I don't feel bad asking the question of some people think of a middle market player that that plays in a 24 million average EBITDA, more at risk with a client base that's more at risk in a decelerating economic backdrop. Maybe you could talk about the control aspect and why that hasn't actually been the case in the past.

Speaker Change: Some people think of a middle market player that...

Speaker Change: That plays in a 24 million average EBITDA more at risk in a client base that's more at risk in a decelerating economic backdrop.

Speaker Change: Maybe you could talk about the control aspect and why.

Jon Winkelried: Yeah, that's a good question, Glenn. Thank you for that.

Speaker Change: That hasn't actually been the case in the past.

Jon Winkelried: Well, first of all, I think that this is a timely question because I just got back from spending a few days in Chicago with our Twinbrook team and digging into sort of all aspects of what we're doing there. And it was a great opportunity to kind of, you know, just get deep in the portfolio. I think that you're right to say that, you know, if you had a general statement that smaller companies are riskier than larger companies, I think it is generally correct.

Speaker Change: Yeah, that's a good question, Glenn. Thank you for that. Well, first of all, I think that...

Speaker Change: It's a timely question because I just got back from a week ago from spending a few days in Chicago with our Twin Brook team and digging into sort of all aspects of what we're doing there. And it was a great opportunity to kind of, you know, just get deep in the portfolio. I think that I think you're right to say that, you know, if you if you if you had a.

Speaker Change: General a general statement that smaller companies are riskier than larger companies. I think is generally correct However, when you look at the way the business works at Twin Brook a couple of comments one is that?

Jon Winkelried: However, when you look at the way the business works at Twinbrook, a couple of comments. One is that the relationships that we have with the middle market sponsors that we are working with are deep and long-standing relationships. And so we have a very good understanding of how they look at value, how they manage their portfolios. And I think that that familiarity and that partnership orientation in terms of how we work with them is very much partnership-like.

Speaker Change: The relationship that we have with the middle market sponsors that we are working with

Speaker Change: are deep and long history relationships.

Speaker Change: how they manage their portfolios. And I think that that familiarity and that partnership orientation in terms of how we work with them is very much partnership-like.

Jon Winkelried: And I would say that obviously, being TPG and being on the other side of the lending equation as it relates to financing our own buyouts, I would say, generally, I would describe it as less transactional, if you will, because of the nature of how loans are structured, the covenant structures surrounding them, and the engagement process, particularly as a result of what I had mentioned before, in terms of the add-ons to portfolios over time, we Each time we go through that process, by the way, there's an interesting dynamic that goes on, which is that it allows for some level of re-underwriting of the portfolio, which we do.

Speaker Change: And I would say that, obviously, being TPG and being on the other side of the lending equation as it relates to financing our own buyouts, I would say generally...

Speaker Change: I'd describe it as less transactional, if you will.

Speaker Change: because of the nature of how loans are structured.

Speaker Change: the covenant structures surrounding them.

Speaker Change: and the engagement process, particularly as a result of what I had mentioned before in terms of the add-ons to portfolios over time, were serially engaged with these sponsors and serially engaged with the portfolio.

Speaker Change: Each time we go through that process, by the way, there's an interesting dynamic that goes on, which is it allows for some level of re-underwriting of the portfolio, which we do. It allows for...

Jon Winkelried: It allows for adjustments and tweaking of covenants, which we do because we do have financial covenants. And as you know, in the lending world, essentially, when you think about risk management, there are only really two ways to risk manage a loan. One is, you sell it, or the other way is basically you get back to the table with your borrowers, and you get back to the table with your sponsors.

Speaker Change: adjustments and tweaking of covenants which we do

Speaker Change: We do have financial covenants, and as you know, in the lending world, essentially, when you think about risk management.

Speaker Change: There's only really two ways to risk manage a loan. One is either you sell it, or the other way is basically you get back to the table with your borrowers.

Jon Winkelried: And as a result of covenant protections and the fact that we're usually almost always the admin agent and the sole lender, and that's changing a little bit as our companies are getting slightly larger, but we are in a position where we are seeing, you know, there are all kinds of early warning systems. So, for instance, when companies are drawing on the revolvers, if you look at a time series of how companies draw on the revolvers over time, it's correlated sometimes with stress or it's correlated with sometimes, you know, dips in margin. So, you know, we have an early warning system. We have a watch list. The team is very focused on the watch list. We have weekly meetings where we're reviewing the watch list.

Speaker Change: and you get back to the table with your sponsors.

Speaker Change: and as a result of covenant protections and the fact that we're usually

Speaker Change: Gary Stein, CFP®, Financial Planner & Investment Advisor

Speaker Change: There's all kinds of early warning systems. So, for instance, like when companies are drawing on the revolvers. If you look at a time series of how companies draw on the revolvers over time, it's correlated sometimes with stress, or it's correlated with sometimes dips in margin.

Speaker Change: So, you know, we have an early warning system. We have a watch list.

Jon Winkelried: We're reaching out to our sponsors and basically working on, in some cases, covenant modifications and, in some cases, restructuring loans. We are not one of the things that the other important thing to your point about relative levels of risk is that our companies are starting at lower levels of leverage. Our companies are generally starting at levels that are somewhere in the vicinity of around, you know, four and a half times leverage, whereas, you know, five times leverage, whereas larger buyouts are starting at higher levels of leverage. And we're also starting at what I would call higher coverage ratio levels as well. We're starting generally at around sort of three and a quarter times.

Speaker Change: We are not one of the things that the other important thing to your point about risk relative levels of risk is that

Speaker Change: Our companies are starting at lower levels of leverage. Our companies are starting generally in levels that are somewhere in the vicinity of around, you know, four and a half times leverage, you know, whereas, you know, five times leverage, whereas larger buyouts are starting at higher levels of leverage.

Speaker Change: and we're also starting at what I would call

Speaker Change: higher coverage ratio levels as well. We're starting generally at around sort of three and a quarter, three-and-a-half times.

Jon Winkelried: And when you look at what's happened to our portfolio, over the course of rising interest rates, we've gone from, you know, in some cases, as rates have gone up, and coverages have been compressed, which has happened across the entire market, lower middle market and upper middle market, our coverage ratios have compressed in some cases to like 1.9 times or two times, whereas for larger upper middle market or upper market sponsor deals, many coverage ratios compressed more So So, we're managing the business fundamentally in a somewhat different way. The metrics are different. The risk tolerances of people are different. The loan-to-values are inherently different.

Speaker Change: and when you look at what's happened.

Speaker Change: to our portfolio over the course of rising interest rates.

Speaker Change: We've gone from, you know, in some cases...

Speaker Change: as rates have gone up and coverages have been compressed, which has happened across the entire market, lower middle market and upper middle market.

Speaker Change: You know, our coverage ratios have compressed, in some cases, to like 1.9 times or 2 times, whereas for larger upper-middle market or upper-market sponsored deals, coverage ratios, many coverage ratios, have compressed more like to 1.1 times, 1 times, in some cases, slightly below that. So...

Speaker Change: So we're managing the business fundamentally in a somewhat different way. The metrics are different, the risk tolerances are different, the loan-to-values are inherently different.

Jon Winkelried: And as a result of that, that's what's really produced the lower loss ratio. So, we have a lot of confidence in the business. We believe the business continues to grow and expand. If you look at the opportunity set for us there, I think that one of the clear opportunities that we've talked about is what we sort of fondly refer to as graduating company opportunity where companies are going from $20 million or $25 million or $30 million of EBITDA, of our borrowers, those loans, which would be done outside the context of what is our traditional Twinbrook funds, those companies may come with single covenant deals, in some cases, maybe even a Cub-like deal as we get slightly higher.

Speaker Change: and as a result of that, that's what's really produced the lower loss ratio. So we have a lot of confidence in the business.

Speaker Change: We believe the business continues to grow and expand.

Speaker Change: If you look at the opportunity set for us there.

Speaker Change: I think that one of the clear opportunities that we've talked about is what we sort of, you know, fondly refer to as kind of graduating company opportunity, where companies are going from, you know, 20 or 25 or 30 million dollars of EBITDA

Speaker Change: The 40, 45, 50, 55 million dollars of EBITDA

Speaker Change: But we know these companies intimately well. We've banked them essentially for three, four, five years In some cases we've watched them grow. We've been part of that process

Speaker Change: And so we are working with some clients.

Speaker Change: to form some capital around that opportunity to grow with some of our borrowers.

Speaker Change: And likely, as we grow with some of our borrowers, those loans, which would be done outside the context of the loan.

Speaker Change: of what is our traditional Twinbrook.

Speaker Change: Funds.

Speaker Change: Those companies may come with single covenant deals, in some cases, maybe even a cub-like deal as we get slightly higher, but that won't be...

Jon Winkelried: But that won't be at the expense of the focus that we have at Twinbrook and what we're doing there, because we believe that business continues to have a lot of growth inherent in it and a lot of upside. And we feel like we're certainly one of the category killers in that part of the market.

Speaker Change: at the expense of the focus that we have at Twinbrook and what we're doing there because we believe that business continues to have a lot of growth inherent in it and a lot of upside and we feel like we're certainly one of the category killers in that part of the market.

Operator: That was great, Colin. Thank you. Our next question comes from Adam Beatty with UBS. Please go ahead. Thank you. Good morning. I want to ask you about real estate.

Operator: Our next question comes from Adam Beatty with UBS. Please go ahead. Thank you.

Speaker Change: That was great, Collin. Thank you.

Speaker Change: Our next question comes from Adam Beattie with UBS. Please go ahead.

Operator: It looks like a pretty balanced deployment in the quarter, and from the tone of Jon's

Jon Winkelried: Yeah, that's a good question. I think I will start with the back end of the question, which is complementarity.

Speaker Change: Yeah, it's a good question. Um, I think let me start with the the back end of the question which is the complementarity You know our businesses

Speaker Change: Both businesses have been around for quite a long time now and they've created sort of distinct

Jon Winkelried: You know, our businesses have both been around for quite a long time now, and they've created sort of distinct approaches to what they do on the real estate side. And just very quickly, just to remind people, you know, the TPG real estate franchise, what we call TREP is essentially an opportunistic, high-return strategy. We're investing right now in fund four, which is about a $7 billion fund. And we are targeting deploying capital in chunks that are sort of in the range of 100 million to 400 million. So we're targeting pretty large check sizes.

Speaker Change: deploying capital in chunks that are sort of in the range of $100 million to $400 million. So we're targeting pretty large check sizes.

Jon Winkelried: We have talked about our strategy there as kind of a private equity style, real estate investing strategy where we're essentially deploying and acquiring platforms funds are regional funds. We have a U.S.-based fund, a European fund, and an Asia fund, and now we also have a fund, a dedicated Japan value fund. And the AG franchise, the TPG AG real estate franchise, has been built over the course of, you know, a long history, 25 to 30 years in the business of working with operating partners.

Speaker Change: The TPGAG Real Estate Franchise, and by the way, we're investing out of a single fund.

Jon Winkelried: So a very deep, broad base of operating partner relationships, where we're partnering on deals, and as you would expect, in many cases, serially doing that over time, where we've worked with them on multiple deals. Our equity check, the equity deployment on the AG real estate side is more in the range of sort of 25 to $75 million. And we think of it as a kind of value-add real estate strategy where we're buying assets where we believe we can add value in partnership with our operating partners and ultimately, you know, create value with a portfolio that way.

Speaker Change: The equity deployment on the AG real estate side is more in the range of sort of 25 to 75 million dollars.

Speaker Change: And we think of it as a kind of a value-add real estate strategy where we're buying assets where we believe we can add value

Speaker Change: with the partnership with our operating partners and ultimately, you know, create value in the portfolio that way. So, those are two quite distinctive strategies in terms of how we're doing it.

Jon Winkelried: So, those are two quite distinctive strategies in terms of how we're doing it. And naturally, obviously, there are benefits of having a lot of feet on the street being, you know, participating in various regions of the country, regions of the world, understanding the markets, which is very important. Some, you know, level of local knowledge is very important when you look at this on a sector-by-sector basis. And so..., that's essentially what these two franchises look like.

Speaker Change: And naturally, obviously, there's benefits of being...

Speaker Change: have a lot of feet on the street, participating in various regions of the country, regions of the world, understanding the markets, which is very important, some level of local knowledge is very important when you look at this on a sector by sector basis.

Jon Winkelried: And there is, you know, some benefit from just the overall market knowledge that we glean as a result of being as broad and deep as we are. And, as I said before, having $14 billion of dry powder puts us in a position to be offensive in this market. As far as what we're doing in terms of, you know, deployment, and what we're doing on the deal front, I think you're right to say that basically we were probably more measured at the beginning of the sort of upward interest rate cycle.

Speaker Change: That's essentially what these two franchises look like, and there is some benefit from just the overall market knowledge that we glean as a result of being as broad and deep as we are. And as I said before, having $14 billion of dry powder puts us in a position of being offensive in this market.

Speaker Change: As far as what we're doing in terms of deployment and what we're doing on the deal front, I think you're right to say that basically we...

Speaker Change: We were probably more measured at the beginning of the sort of the upper interest, you know, the upward interest rate cycle. We were certainly more measured with the dislocation that was happening in real estate more broadly. And we expected that over time,

Jon Winkelried: We were certainly more measured with the dislocation that was happening in real estate more broadly, and we expected that, over time, as a result of some stress in the system, we would see interesting assets become available for sale. And that's exactly what happened.

Speaker Change: As a result of some stress in the system, we would see interesting assets be available for sale. And that's exactly what's happened. And so I would say in the back half of 23,

Jon Winkelried: And so I would say in the back half of 23, when some of that was actually beginning to happen, we started to accelerate our capital deployment across the business in the back half of 23. And when we look back at that vintage, and what we did in the back half of 23, we like those deals a lot based upon cap rates; we were able to acquire various assets on assets that were basically hard to get ahold of.

Speaker Change: When some of that was actually beginning to happen, we started to accelerate our capital deployment across the business on the back half of 23.

Speaker Change: And when we look back at that vintage and what we did in the back half of 23, we liked those deals a lot based upon cap rates we were able to acquire various assets on, assets that were basically hard to get a hold of. We liked that a lot.

Jon Winkelried: We like that a lot. We've continued to deploy into 24. I would say naturally, as a result of the expectation that rates are coming down and people naturally, you know, being naturally more sort of bullish on what may happen in real estate as a result of that.

Speaker Change: We've continued to deploy into 24, I would say naturally as a result of the expectation that rates are coming down, and people naturally, you know, being naturally more sort of bullish on

Jon Winkelried: I think that we've seen more of an acceleration of capital more broadly in the market into some of the real estate sectors that are perhaps a bit more defensive. And we're certainly still participating in that, but we're also trying to be very thematic and very careful about where we are deploying capital. And so, you know, areas like, for instance, in certain aspects of the industrial market, we continue to like and feel very strongly about them, and we continue to feel that they're quite defensive.

Speaker Change: What may happen in real estate as a result of that? I think that we've seen more of an acceleration of capital more broadly in the market into some of the real estate sectors that perhaps are a bit more defensive.

Speaker Change: And we're certainly still participating in that, but we're also trying to be very thematic and very careful about where we are deploying. And so, you know, the areas like, for instance,

Speaker Change: certain aspects of the industrial market we continue to like and feel very, and continue to feel that they're quite defensive.

Jon Winkelried: Student housing We continue to like and are deploying actively in student housing, where we feel we have real expertise. Certain markets and multifamily are areas where we're continuing to deploy, although it varies quite a bit regionally, depending upon new supply coming into the market. So we're quite cognizant of that. Specialized deals, like, for instance, carve-outs, like we just announced this carve-out of this manufacturing housing business in Canada, and a residential opportunity in the UK.

Speaker Change: Student Housing, we continue to like and are deploying actively in Student Housing, where we feel we have real expertise. Most certain markets on multifamily are areas where we're continuing to deploy, although it varies quite a bit regionally.

Speaker Change: depending upon new supply coming into the market, so we're quite cognizant of that.

Speaker Change: specialized deals like for instance carve-outs like we just announced this

Speaker Change: Carvel is a manufacturing housing business in Canada, a residential opportunity in the UK.

Jon Winkelried: Certain aspects of the market, like that, we continue to lean into. Other areas of the market, we're more cautious on. Obviously, we continue to be cautious on office. We still continue to see stress in that market. We're becoming more cautious on the hospitality side, where we see a slowdown in terms of demand and in terms of the ability to price. So we're leaning in where we'd like to, those sectors where we feel like we've got unique opportunities. So that's how we're feeling about the market right now. Excellent I appreciate both parts of the answer. Thank you, Jon. Our next question comes from Brian McKenna with Citizens JMP. Please go ahead. Okay, great. Thanks.

Speaker Change: Certain aspects of the market like that, we continue to lean into. Other areas of the market, we're more cautious on. Obviously, we continue to be cautious on office.

Speaker Change: We still continue to see stress in that market.

Speaker Change: We continue, we're cautious and we're becoming more cautious on the hospitality side where we see slowing there in terms of demand and in terms of the ability to price. So, you know, that's, we're leaning in where we'd like.

Speaker Change: Those sectors where we feel like we've got unique opportunities and

Speaker Change: So that's how we're feeling about the market right now.

Speaker Change: Excellent. Appreciate both parts of the answer. Thank you, John.

Operator: Our next question comes from Brian McKenna with Citizens JMP. Please go ahead. Okay, great. Thanks.

Operator: Great. Well, Brian, thank you for the question. It's Todd.

Speaker Change: Our next question comes from Brian McKenna with Citizens J&P. Please go ahead.

Brian McKenna: Okay, great. Thanks. So you've deployed a good amount of the capital that you raised for your latest flagship capital strategies and performance for all those vintages has been really strong out of the gates with net returns of at least 20%. So, you know, given the strong performance,

Speaker Change: And then that nearly 50% of the capital raised for these funds has been deployed. How should we think about the timing and the potential demand for the next round of capital funds?

Todd Sisitsky: You know, as you point out, we have, you know, in the flagship, the TPG Capital Fund, which focuses on the US and Europe, we've signed or completed 10, 10 investments. It is a really interesting portfolio, you know, to your point, actually, the majority, two-thirds, are some combination of corporate carve-out or structured partnerships with strategics, which has several of them very interesting risk-reward characteristics and protective downsides So we're really excited about the portfolio and have been excited about the pace. I'd say our pipeline continues to be robust as well.

Speaker Change: Brian, thank you for the question, it's Todd. You know, as you point out, we have in the flagship, the TPG Capital Fund, which focuses on the U.S. and Europe, we've signed or completed 10 investments.

Speaker Change: It is a really interesting portfolio, to your point actually, the majority, two-thirds, are some combination of corporate carve-out or structured partnerships with strategic.

Speaker Change: which have several of them very interesting risk-reward characteristics and protected downsides. So we're really excited about the portfolio.

Speaker Change: and have been excited about the pace. I'd say our pipeline continues to be robust as well. So to your very specific question, we're on track.

Todd Sisitsky: So to your very specific question, we're on track to deploy this fund in the three or four-year time period that we have been targeting internally and advertising to our LPs, and that would probably put us in the market to start our next fundraise. And again, this reflects, this relates to both TPG9 and TPG Healthcare Partners 2. So the successor funds of TPG10 and Healthcare Partners 3 in the first half of 2025.

Speaker Change: for deploying this fund in the three or four year time period that we have been targeting internally and advertising to our LPs.

Speaker Change: and that would probably put us in the market to start our next fundraise. And again, this relates to both TPG9 and TPG Healthcare Partners 2, so the successor funds of TPG10 and Healthcare Partners 3 in the first half of 2025.

Operator: Okay, great. Thanks, Todd. Our next question comes from Dan Fannon with Jeffreys. Please go ahead. Thanks. Good morning.

Operator: Our next question comes from Dan Fannon with Jeffreys. Please go ahead.

Todd: Okay, great. Thanks, Todd.

Speaker Change: Our next question comes from Dan Fannin with Jeffreys.

Speaker Change: Please go ahead.

Dan Fannin: Thanks, good morning. Jack, one more for you on margin. I understand the comments for this year, but as you think about the scaling of some of the funds you mentioned as well as the transaction fees, what is a reasonable expectation as you balance also investing for margin expansion as we think about next year versus where you've guided us to this year?

Jack Weingart: Yeah, thanks for the question, Dan. We haven't put out specific guidance other than to say that this year we expect to be kind of a baseline from which we will grow. And if you think about the levers of margin expansion in our business, it's really driven by operating leverage and revenue growth. And if you think about all the capital we're raising this year, much of which is not flowing into FAUM yet, particularly on the credit side, as we deploy that naturally, and obviously, we disclosed that in the earnings release as AUM not yet earning fees, which grew a lot, quarter over quarter, that you can see in our disclosure represents a significant amount of a kind of shadow FRR, if you will.

Jack: Yeah, thanks for the question, Dan. We haven't put out specific guidance other than to say...

Jack: that this year we expect to be kind of a baseline off of which we will grow and if you think about the levers of Margin expansion in our business. It's really driven by operating leverage and revenue growth

Jack: And if you think about all the capital we're raising this year, much of which is not flowing into FAUM yet, particularly on the credit side.

Jack: As we deploy that naturally and obviously we disclose that in the earnings release as AUM not yet earning fees

Speaker Change: which grew a lot, quarter over quarter. That, you can see in our disclosure, represents a significant amount of kind of shadow FRR, if you will.

Jack Weingart: On top of that, we have the large climate-related funds we're in the process of raising, which will pay fees on committed capital but not really start paying fees until closer to the end of the year this year. So, you'll see a full annualization of that fee income next year. So, those are the primary drivers of our, what I would say, resumption of FRE margin expansion next year. And we certainly believe that as we continue to scale all of our businesses, we'll get back to the original TPG target of 45%. And beyond that, we just haven't put a time on it yet.

Speaker Change: On top of that, we have the large climate-related funds we're in the process of raising, which will pay fees on committed capital, but not really activate until closer to the end of the year this year.

Speaker Change: So you'll see a full annualization of that fee income next year. So those are the primary drivers of our, what I would say, our resumption of FRE margin expansion next year. And we certainly believe that as we continue to scale all of our businesses.

Speaker Change: We'll get back to the original TPG target of 45% and beyond that. We just haven't put a time on that yet.

Operator: Our next question comes from Bill Katz with TD Cowan.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Bill Katz with TD Cowen.

Speaker Change: Please go ahead.

Bill Katz: Okay, thank you very much for squeezing me in. I'm just coming back to fee paying or fee earning AUM just in general.

Bill Katz: If I look at the last couple quarters, it's been relatively flat, about $137 million.

Speaker Change: And I certainly appreciate you have a couple of vectors of growth as we look out over the next 12 to 6 to 18 months. If you think that realization is going to pick up, can you walk me through the path of how fee-paying AUM grow from here? And then I think, John, you had mentioned in your prepared comments that

John: You plan on raising $40 billion of gross flows through the year in 2025. I was wondering if you could give me the pro forma number that you're comparing that up through June of this year. Thank you.

Operator: Hey, Bill, let me take the first part of that on the FAUM role going forward. The way I would think about that is the significant pickup that we expect in credit deployment will obviously flow from AUM into FAUM. The minute we activate these big new pools of capital on the climate side, that will then create a significant step up in FAUM. And that will be partially offset by realizations.

Speaker Change: Hey, Bill. Let me take the first part of that. On the FAUM role going forward, the way I would think about that is the significant pickup that we expect in credit deployment will obviously flow from AUM into FAUM.

Speaker Change: The minute we activate these big new pools of capital on the climate side, that will then create a significant step up.

Operator: But we certainly expect that the positive drivers will more than offset the realizations. And the reason we expect that for our growth next year is the net of all that will, in our minds, be expected to drive FAUM growth throughout the course of the year next year.

Speaker Change: in FAUM and that will be partially offset by realizations, but we certainly expect that the positive

Speaker Change: Gary Stein, Jack Weingart, Gary Stein

Speaker Change: be expected to drive FAUM growth throughout the course of the year next year.

Jack Weingart: On the latter part of your question, Bill, which we can follow up with you on just in terms of making sure that you understood the comment, but what I said in my prepared remarks was that looking at the five-year period beginning in 2021 to the end of 2025. We expect we will have raised approximately $40 billion during this timeframe across new strategies, pro forma for TPGAG, including a RISE climate franchise, expanding into infrastructure, leveraging our real estate footprint across asset classes and geographies, including Japan, scaling our GP-led secondary business, and broadening our credit platform. So we can follow up with you just in terms of understanding the components of that. The other thing to keep in mind is that Bill is on.

Speaker Change: On the latter part of your question, Bill, which we can follow up with you on just in terms of making sure that you understood the comment, but what I said in my prepared remarks was that looking at the five-year period beginning

Speaker Change: 2021 to the end of 2025 we expect we will have raised approximately 40 billion during this time frame across new strategies pro forma for TPGAG including a rise climate franchise

Speaker Change: expanding into infrastructure, leveraging our real estate footprint across asset classes and geographies including Japan, scaling our GP-led secondary business and broadening our credit platform.

Jon Winkelried: Unknown Speaker The other thing to keep in mind, Bill, is on unrealized gains. If we sell a position that we've created value around, it's earning fees based on actively invested capital in most cases. And if we're selling it, call it three times our money, the dropout from FAUM is a lot less than the nominal amount sold.

Speaker Change: So we can follow up with you, just in terms of understanding the components of that. The other thing to keep in mind, Bill, is on realizations.

Bill Katz: If we sell a position that we've created value around, it's earning fees based on actively invested capital in most cases. And if we're selling it at, call it, three times our money.

Bill Katz: Drop out

Operator: And our final question will come from Brian Bedell with Deutsche Bank. Please go ahead. Great. Thanks very much for squeezing me in.

Bill Katz: Thank you. Enter.

Bill Katz: And our final question will come from Brian Bedell with Deutsche Bank.

Operator: And also, maybe just to pivot back to the RISE Climate and climate infrastructure franchise. Obviously, you've developed a fantastic brand here over a long period of time. Can you talk about how you might be thinking about retail product development, whether there's an opportunity in this space, given it's not really well penetrated in this area on a retail basis across other alternative retailers? I think you mentioned, Jack, some of the cost savings that you'll be reinvesting in product development. Maybe you can talk about to what extent that might be on this platform. And also, I think you mentioned an infrastructure debt capability that you're looking into developing as well.

Brian Bedell: Thank you. Great.

Brian Bedell: Great. Thanks very much for squeezing me in and also, maybe just to pivot back to the Rise Climate and Climate Infrastructure franchise. Obviously, you've developed a fantastic brand here over a long period of time. Can you talk about how you might be thinking about retail product development, whether there's an opportunity in this space, given it's not really...

Brian Bedell: Well penetrated in this area on a retail basis, you know across other other all

Brian Bedell: I think you mentioned, Jack, that some of the cost savings that you'll be reinvesting in product development.

Speaker Change: Maybe if you can talk about, you know, to what extent that might be in this.

Speaker Change: on this platform, and also I think you mentioned an infrastructure debt capability that you're looking into developing as well, if you can comment on that.

Jon Winkelried: I'll make one quick comment and then maybe Jim, if he can connect in, can comment on it as well. But one comment is that we're actively working on the launch of our first semi-liquid private equity vehicle, which we're expecting to launch at the beginning of 2025. And that is going to, as you probably know, the semi-liquid private equity vehicles that exist in the market, obviously each of them is a bit bespoke depending on the franchise and the composition of the business at each firm that has the capability and the breadth of launching that.

Speaker Change: I'll make one quick comment and then maybe Jim, if he can connect in, can comment on it as well. But one comment is that, you know, we're

Speaker Change: actively working on the launch of our first

Speaker Change: semi-liquid private equity vehicle, which we're expecting to launch in the beginning of 2025.

Jim: and that is going to, as you probably know, the semi-liquid private equity vehicles that exist in the market, obviously each of them are a bit bespoke depending on the franchise and the composition of the business.

Jon Winkelried: As we put together our semi-liquid private equity vehicle, one of the distinct features that we have as a firm is the climate franchise, the impact and climate franchise that we have built over a number of years now. And that will be a piece of the offering and the componentry of the deals that we ultimately have within the semi-liquid private equity vehicle. It will essentially be a broad compilation of opportunities and deals across our private equity franchises, but including the climate. So we feel like that will continue to give us additional distinctiveness with respect to what the channel has an opportunity to participate in.

James Coulter: Yes. First of all, we do expect there to be retail demand for this product. And in fact, we're just launching the channel part of the regular wave fundraising for TPG Rise Climate. In fact, looking at my calendar, I'll be doing a series of one-on-one meetings across Texas, which is always interesting in a climate, but the fact that we're seeing demand there gives you a sense of the overall demand in the marketplace. So, I think there are substantial opportunities to expand the distribution of our climate-related platform products, but to Jon's point, I think, as a differentiator to our semi-liquid product, it will be very powerful.

Speaker Change: In fact, looking at my calendar, I'll be doing a series of one-on-one meetings across Texas, which is always interesting in climate, but the fact that we're seeing demand there gives you a sense of the overall demand in the marketplace.

Operator: Great. That's a great color. Thank you so much.

Gary Stein: And that will conclude the Q&A portion of today's call, and I would now like to turn the call back to Gary Stein for closing remarks.

Operator: Great. Thanks, Operator, and thanks everyone for joining us today. We look forward to speaking with you again next quarter. In the meantime, if you have any questions, please feel free to follow up with the IR team.

Speaker Change: Great, thanks operator and thanks everyone for joining us today. We look forward to speaking with you again next quarter. In the meantime, if you have any questions, please feel free to follow up with the IR team.

Operator: Thank you. Thank you.

Operator: And this concludes today's TPG Second Quarter 2024 Earnings Call-In Webcast. You may disconnect your line at this time, and have a wonderful day.

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