Q3 2024 TPG Inc Earnings Call
Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.
Speaker Change: Good morning, and welcome to the T. P. J 's third quarter 2024 earnings conference call.
Currently all colors have been placed in a listen only mode and following management's prepared remarks, the call will be opened for your questions.
Speaker Change: If you would like to ask a question at that time. Please press star one on your telephone keypad.
If you need to remove yourself from the queue Press star two.
To get to as many questions as time permits we ask that you. Please limit yourself to one question.
Speaker Change: At any time, if you should need operator assistance press Star zero.
Speaker Change: Please be advised that today's call is being recorded.
Please go to Tpg's IR website to obtain the earnings materials.
Speaker Change: I will now turn the call over to Gary Stein head of Investor Relations at T. P. G.
Speaker Change: You may begin.
Gary Stein: Great. Thanks, operator, and welcome everyone.
Gary Stein: Joining me. This morning are John Michael Reed, Chief Executive Officer, and Jack Wang Chief Financial Officer. In addition to our executive Chairman and co founder Jim Culture, and our President toxicity 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 <unk> earnings release, and SEC filings for factors that could cause actual results to differ materially from these statements.
Gary Stein: TPG undertakes no obligation to revise or update any forward looking statements, except as required by law.
Gary Stein: Within our discussion at earnings release, we're presenting GAAP and non-GAAP measures, we believe certain non-GAAP measures that we discussed 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 and Tpg's earnings release, which is available on our website.
Gary Stein: Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund.
Gary Stein: Looking briefly at our results for the third quarter, we reported GAAP net income attributable to the TPG, Inc of $9 million and after tax distributable earnings of $189 million or <unk> 45 per share of class a common stock.
Gary Stein: We declared a dividend <unk> 38 per share of class a common stock, which will be paid on December 2024 to holders of record as of November 14th 2024.
Gary Stein: I'll now turn the call over to John.
Speaker Change: Thanks, Gary Good morning, everyone.
John: It's been an incredibly busy quarter across the FERC.
John: Looking at our financial results and key business drivers.
John: You can see we have strong broad based momentum.
John: Our investment approach is continuing to drive robust deployment.
John: Our realizations are accelerating and our capital raising is benefiting from our increased scale and diversification.
John: Through the first three quarters of this year, we have deployed nearly $23 billion of capital.
John: Generated realizations of almost 16 billion.
John: And raised more than $21 billion across our strategies.
Gary Stein: Our strong track record and brand.
John: And the integrated business, we built across private equity credit and real estate are clearly resonating with our clients.
John: At the same time the environment in which we are operating has shifted in the broader market. We are seeing a meaningful pickup in activity fueled by the lower cost and greater availability of capital and easing concerns around the economic outlook.
John: Against this macro backdrop.
John: Where valuations are rising and equity markets are reaching new all time highs, we are maintaining our discipline and selectivity and deploying capital in our core sectors and themes.
John: We continue to pick our spots, where we believe we can drive outperformance and generate alpha.
John: In addition, the strong culture of collaboration we've established across TPG has enabled us to unlock proprietary opportunities and deliver deliver differentiated value for our clients.
John: As Youll recall, we were early to identify and execute on an increasingly attractive deployment environment last year.
Gary Stein: Our investment pace continues to be robust across each of our platforms.
John: We invested $8 $6 billion in the quarter and year to date through Q3, our deployment is up more than 30% compared to the same period last year on a pro forma basis.
John: We recently announced an interesting series of transactions involving our existing portfolio company Directv.
John: This is a great example of how we are able to uniquely solve the complex needs of our corporate partners by leveraging our full suite of solutions.
John: To briefly summarize.
John: Our capital business agreed to take full control of Directv as our corporate partner AT&T was looking to divest its remaining ownership stake to focus on its core business.
John: Simultaneously Directv agreed to acquire Echostar is video distribution business dish subject to the success of an exchange offer proposed to the dish bondholders that is currently pending.
John: Completed it would provide significant value to echostar by restructuring its balance sheet, and reducing its refinancing needs, allowing for greater strategic and operational flexibility as it looks to enhance its wireless network.
Gary Stein: As a critical component to this or credit solutions platform that at $2 5 billion dollar highly bespoke financing to address an imminent debt maturity at dish and provide the company with additional liquidity for growth and.
John: And lastly, our capital markets team serve as a ranger to the dish financing.
John: Drove the syndication and we'll also separately lead a dividend recap in connection with our full acquisition of Directv.
John: During the quarter, we announced two separate private equity investments and the private wealth sector, which we which is a space. We first began investing in nearly two decades ago.
John: Since that time as the private wealth landscape has evolved we have continued to follow the industry closely and refine our thematic work.
John: As a result, we identified the independent wealth Advisory channel is a primary beneficiary of secular growth trends within the sector.
John: Over the last 18 months, we studied and diligence the space to a shared cross platform team and evaluated a number of opportunities that culminated in two distinct and very interesting transactions TPG capital is investing in creative planning one of the fastest growing full suite financial planning, an independent wealth managers in the U S and <unk>.
John: <unk> growth is investing at home Roseburg, one of the southeast leading fee only independent wealth managers.
John: Within our impact platform rise climate announced one of the largest deals in Europe. So far this year with the $6 7 billion Euro acquisition of <unk> European market leader for home to carbonization through its digital sub metering services.
John: As rise climates largest transaction to date with an aggregate equity commitment of over $4 billion.
John: And it will be the first investment in our second rise climate bond.
John: <unk> is interesting for several reasons.
John: One.
John: It demonstrates the large scale investment opportunities available in climate, which we are able to source given our leadership position in this space.
John: Two we co underwrote this deal with GIC, which underscores our ability to provide interesting partnership opportunities to our strategic clients.
John: And three <unk> builds on our thematic focus of enabling homes in Europe to digitize and Decarbonize. It.
John: Those are investments in and Paul Europe's largest and fastest growing de carbonization platform for single family homes and <unk>, the leading provider of property management software for the European residential real estate industry.
John: Turning to credit.
John: This week marks the one year anniversary of our acquisition of Angelo Gordon and we're operating as one firm with the full force of our combined capabilities.
John: The integration has gone seamlessly and quickly as I could have imagined and our teams are operating as one and the combination is delivering clear commercial value.
John: We have invested $11 $5 billion year to date through the third quarter across our credit businesses, which is already well surpassed full year 2023 credit deployment on a pro forma basis.
John: We deployed $1 7 billion in credit solutions in the quarter, which is a notable step up from our pace in the first half of the year. This includes five private financing transactions within our credit solutions Fund one of which is part of the initial seed portfolio of our new hybrid solution strategy.
John: This also includes strong deployment within our differentiated essential housing strategy, which continues to grow its origination activity and expand the number of homebuilders in the program.
John: In middle market direct lending following a record first half of gross originations going broke had another robust quarter and deployed $1 $3 billion of capital.
John: The team anticipates, a strong fourth quarter, driven by a more active M&A environment.
John: And our structured credit business continues to benefit from the changes taking place within the banking sector and the overall market. Our team is focused on two areas in particular, one areas, where new origination is being impaired by banks pulling back in too.
John: Areas, where the securitization markets are still adjusting to changes or new dynamics, such as opportunities to unlock embedded home equity value.
John: Lastly in real estate, we invested a total of $1 4 billion in the third quarter and over $4 billion year to date across our equity and debt strategies.
John: Our global real estate franchise has been very active across asset classes and geographies as we've continued to capitalize on opportunities in our thematic areas.
John: TPG real estate, we closed the acquisition of Ireland's largest privately owned homebuilder, which has a 4600 unit landbank concentrated in the greater Dublin area.
John: We identified Dublin is one of the most attractive residential housing markets in Europe with compelling supply demand characteristics and a fast growing population on economy.
John: And our European TPG AG real estate business, we signed the acquisition of the Dutch residential portfolio with nearly 3000 single and multifamily units across approximately 90 sites.
John: This is TPG AG real estate largest transactions since the platform's inception, which we expect to close in the fourth quarter.
John: And the opportunity set for <unk>, a real estate credit strategy has remained attractive given the pullback in bank lending we closed three transactions in the third quarter, all with compelling risk adjusted returns.
John: On the realization front there has been a notable acceleration of activity in recent months across our portfolios.
John: Our realizations year to date through the third quarter of nearly $16 billion have already surpassed our total for the full year 2023 on a pro forma basis, we have signed additional monetization that.
John: That we expect will drive our performance related earnings over the next couple of quarters, which Jack will provide more details on.
John: Turning to fund raising we've also been very active across the firm.
John: Our capital raising has increased and become more broad based as a result of our diversification and scale.
John: We raised $10 4 billion in the quarter, bringing total capital raised this year through the third quarter to over 21 billion, which represents considerable progress against our 2020 for fundraising targets.
John: Share some highlights and Jack will provide an updated outlook in his remarks.
John: During the quarter, we held our first close for our rise climate private equity strategies, including the global South initiative.
John: We have raised approximately $6 billion in aggregate commitments for the funds and related vehicles, which includes capital that has been committed but we'll close at a later date.
John: This strong result represents 60% of the $10 billion target we set.
John: We also held a final close in the quarter for GP solutions or PGS, our GP led secondaries strategy focused on North America and Europe.
John: We raised $1 86 billion for our inaugural fund, which is 25% greater than our target and we believe this is the largest first time GP led secondaries fund ever raised.
John: We've committed approximately 50% of the fun across eight investments so far with each performing ahead of our underwriting case.
John: We expect to be back in the market in the middle of 2025 with our next campaign.
John: We were early to identify a structural shift in the market with respect to how GPS are delivering liquidity.
John: And built this strategy specifically to address the growing need for this type of capital.
John: Over time, we believe <unk> solutions can scale similarly to our other well established private equity strategies with attractive operating leverage.
John: In the third quarter, we held an additional close for our sixth growth fund we have now surpassed the halfway mark for this campaign raising more than $2 1 billion toward our $4 billion target.
John: We also continue to steadily raised capital and our credit platform.
John: In total we raised nearly $3 billion in the third quarter and $9 $5 billion year to date, we've raised an incremental $780 million in the quarter for credit solutions, three and the balance of the capital was raised spread across middle market direct lending structured credit CLO.
John: And finally, we are off to a very strong start with our inaugural rise climate transition infrastructure fund.
John: Since quarter end prior to the funds formal launch.
John: We received aggregate commitments from three significant anchor clients totaling $2 billion.
John: Which we have closed on $1 3 billion.
John: In addition to US on an investment company. These anchor clients include an Asian sovereign wealth fund and a large.
John: U S public pension, which highlights that meaningful global demand for this strategy.
John: We've also made substantial progress on several of the revenue synergies we identified in connection with the Angelo Gordon acquisition.
John: We launched our hybrid solution strategy earlier, this year, which we stood up as a collaboration between our private equity and credit solutions team to capture attractive middle of the capital structure opportunities that sit between the two existing strategies since quarter end, we held the first close for the fund and the strategy is off to a great start.
John: Before investments already signed or closed.
John: And I want to circle back to the Directv dish transaction.
John: I mentioned earlier, which collectively provide the best example to date of the kind of synergies we can achieve given the seamless integration of our core franchise strength in private equity credit solutions and capital markets.
John: In many respects this represents the best of TPG.
John: Cross platform collaboration.
John: Thematic approach.
John: <unk> expertise and focus on providing highly creative and customized solutions.
John: These are critical capabilities that allow us to access opportunities others cannot.
John: To wrap up to wrap up.
John: We've held annual meetings across many of our strategies over the last six weeks, which has driven significant engagement and dialogue with our clients around the world.
John: It's clear our client share our vision for how we are building our franchise and the value of the integration we are continuing to develop between our investment platforms and strategies.
John: Most importantly investment performance is fundamental to everything we do our clients recognize and appreciate the strong returns we continue to deliver and the consistency of this performance across our strategies.
Speaker Change: Now I'll turn it over to Jack to review our financial results.
Jack Wang: Thanks, John and thank you all for joining US today as you heard from John momentum continues to be strong across the firm are.
Jack Wang: Our financial performance reflects our increased breadth and expanded capabilities as we continue to successfully execute our growth strategy.
Jack Wang: I'll begin with a discussion of our financial results for the quarter before moving into our outlook for next year as well as an update on our on our fundraising expectations.
Jack Wang: We ended the third quarter was 239 billion of total assets under management up 76% year over year.
John: This was driven by $75 billion of acquired AUM $30 billion of capital raised an $18 billion of value creation, partially offset by 19 billion of realizations over the last 12 months.
John: Fee, earning AUM increased 80% year over year, and we ended the quarter with more than $58 billion of dry powder.
John: Which represents 41% of fee, earning AUM.
John: AUM subject to fee, earning growth was 26 billion at the end of the quarter, which included $17 billion of AUM, not yet, earning fees and represents a revenue opportunity of approximately $144 million on an annualized basis.
John: Our fee related revenue in the third quarter was $460 million up 43% year over year.
John: As expected management fees were relatively flat versus last quarter due to a decrease in catch up fees. While we saw continued strong transaction fees of $43 million.
John: We have discussed previously the revenue synergy opportunity of integrating our broker dealer capabilities into our credit platform and.
John: And we began to see the benefits this quarter.
Speaker Change: As John mentioned, we announced the Directv and dish transactions in September which included a highly bespoke financing led by our credit solutions team.
To address the near term maturity for dish.
Speaker Change: This is the first transaction within our credit platform, where TPG is broker dealer served as a ranger and it demonstrates how our cross firm collaboration can drive meaningful incremental value.
Speaker Change: While capital markets revenue will vary quarter to quarter, we continue to expect long term growth in this business as we expand our capabilities across platforms and regions, including in our credit platform.
Speaker Change: We reported fee related earnings of $191 million for the quarter up 22% year over year, our FRE margin of 41% in the quarter benefited from strong transaction fees I, just mentioned and we expect a similar margin in the fourth quarter.
Speaker Change: This would result in our full year 2024, FRE margin exceeding 40% consistent with our previous guidance.
Speaker Change: After tax distributable earnings for the third quarter totaled $189 million or <unk> 45 per share of class a common stock.
Speaker Change: Which included $32 million of realized performance allocations.
Speaker Change: During the quarter, we selectively drove monetization across our portfolios, including selling down a portion of our remaining ownership in Viking.
Speaker Change: $1 $1 billion marketed follow on offering after a successful IPO earlier this year in.
John: <unk> strong share price performance.
Speaker Change: And the full sale of clear results out of our growth and <unk> portfolios.
Speaker Change: As we think about our financial performance this year and our outlook for next year, we feel great about the opportunities ahead of us.
Speaker Change: This year, we've been working hard to put the building blocks in place for our next phase of growth <unk>.
Speaker Change: Including completing the integration of Angelo Gordon.
Speaker Change: Scaling the capital base of our credit platforms, raising our next series of climate and other private equity funds and investing in organic growth in areas such as transmission infrastructure.
Speaker Change: Real estate credit and secondaries among others.
Speaker Change: Most of these building blocks will begin driving meaningful fee related revenue next year.
Speaker Change: With this in mind.
Speaker Change: I would note the following.
Speaker Change: On management fees in the fourth quarter, we expect the revenue growth from new fee, earning AUM to be offset by a reduction in capital and catch up fees. In addition to fee step downs for our capital funds and our rise climate fund.
Speaker Change: We then expect to see significant growth.
Speaker Change: Flowing through beginning in 2025, driven by the building blocks I just discussed.
Speaker Change: As we as we progress through the year, our management fees should benefit from the full year impact of our new climate funds additional broad based fund raising and increased credit deployment.
Speaker Change: As I mentioned earlier, we expect continued strength in capital markets revenue driven by both healthy transaction volumes and the broadening and deepening of our team.
Speaker Change: Given the growth drivers I highlighted we expect a general increase next year in our compensation and benefits expense as we continued to invest in our teams to drive this growth.
Speaker Change: Including our distribution capabilities.
Speaker Change: We also expect to see a seasonal step up for the quarter in Q1, driven by expenses associated with our annual RSC vesting.
Speaker Change: As a result, our FRE margins should expand in the back half of next year as we realize additional operating leverage and we expect to exit 2025, with an FRE margin approaching the mid forty's.
Speaker Change: Moving below FRE to performance related earnings based only on our current pipeline of signed monetization that have not yet closed.
Speaker Change: We expect to generate realized performance revenue of approximately $100 million.
Speaker Change: For public shareholders over the next couple of quarters.
Speaker Change: And as long as the market environment remains accommodating we believe we will continue to see increased monetization activity in 2025.
Speaker Change: Lastly, I want to point out that we expect to incur additional noncore expenses.
Speaker Change: Extra with two integration related matters.
Speaker Change: First we expect to incur approximately $25 million of spend related to the consolidation and integration of our it platforms.
Speaker Change: Once in place we expect this unified platform to generate technology and process savings that will be accretive to FRE.
Speaker Change: And second we recently signed a lease for 300000 square feet of space and the spiral building in Hudson yards.
Speaker Change: It's a strategic priority for us to bring together, our New York based employees into one consolidated office space.
Speaker Change: To drive even further collaboration among our teams.
Speaker Change: The new space will also provide us with important additional room to grow as we continue to expand our business.
Speaker Change: This will result in overlapping lease expense during the transition, which will which we will recognize roughly evenly in 2025 and 2026. We currently expect associated non core expenses of approximately $40 million to $50 million per year.
Speaker Change: In advance of taking occupancy of the new building in late 2026.
Speaker Change: Like other noncore items. These will be included in our realized investment income and other line item.
Speaker Change: Turning to our portfolio, we have continued to drive strong investment performance with positive value creation across all our platforms for the third quarter and over the last 12 months.
Speaker Change: In private equity the fundamentals across our portfolios remains strong.
Speaker Change: And we continue to see robust growth that is outpacing the broader market.
Speaker Change: The portfolio of companies within our capital growth and impact platforms grew revenue by approximately 18% over the last 12 months with expanding EBITDA margins.
Speaker Change: Our PE portfolio in aggregate I appreciated over 2% in the third quarter and 10% over the last 12 months.
Speaker Change: In credit our portfolio appreciated over 3% during the quarter and approximately 14% over the last 12 months.
In middle market direct lending all of our funds remained at or above their target return ranges as of quarter end.
Speaker Change: During the quarter, we closed on more than 35, new platform financings, which brings the portfolio to more than 270 companies.
Speaker Change: Our portfolio continues to perform well.
Speaker Change: And leverage and loan to value metrics remained within target ranges and historical norms.
Speaker Change: Our credit solutions platform also had a strong quarter, our credit solutions funds generated net returns ranging from 3% to four 5% during the quarter.
Speaker Change: And from four 5% to 8% year to date through September.
Speaker Change: We remain very active with continued market demand for creative flexible and bespoke capital.
Speaker Change: From a range of diversified public private and sponsor backed companies.
Speaker Change: In addition, our second essential housing fund generated a net return of three 5% during the third quarter and nine 6% year to date through September.
Speaker Change: And lastly, our structured credit strategies continue to perform well our first private asset backed credit fund.
Speaker Change: Net IRR since inception was above its target range at nearly 14% at the end of the third quarter.
Speaker Change: TPG is real estate portfolio appreciated approximately 2% in the third quarter and 5% over the last 12 months and TPG AG real estate portfolio appreciated 1% in the third quarter and 2% over the last 12 months.
Speaker Change: As a result of the continued strength of our portfolio.
Speaker Change: Our net accrued performance balance stepped up to $975 million at the end of the third quarter driven.
Speaker Change: Driven by $78 million of value creation, offset by the $32 million of realized gains I mentioned earlier.
Speaker Change: Our performance eligible AUM totaled 205 billion or 86% of our total AUM.
Speaker Change: Of which $161 billion is currently generating performance fees.
Speaker Change: Turning to fund raising we raised more than $10 billion during the quarter.
Speaker Change: Driven by strong first closes across our climate private equity strategies. The final close for our inaugural GP Solutions Fund and continued broad based credit fundraising.
Speaker Change: We've raised $9 5 billion in credit through the third quarter, which is nearing the $10 billion target we had set for the year.
Speaker Change: Given the additional progress we've made across our campaign. So far this quarter. We believe we now have line of sight to raising more than 12 billion across our credit strategies for the full year in 2024.
Speaker Change: Additionally, we've raised $9 4 billion year to date through Q3 across our private equity strategies and we continue to expect our total private equity and infrastructure fund raising in 2024.
Speaker Change: To exceed the $12 8 billion, we raised in 2023.
Speaker Change: This will include the $1 3 billion in closed anchor commitments from three strategic clients for our inaugural rise climate transition infrastructure fund that John discussed and additional progress in our climate private equity campaigns.
Speaker Change: Finally, we remain we remain on track to launch our semi liquid private equity vehicle, which we call TPG private equity opportunities or T pop early next year.
Speaker Change: Private wealth continues to be a strategic priority for us.
Speaker Change: And as we expand our presence in the channel we believe it will become a meaningful contributor to our capital raising.
Speaker Change: Overall, our fundraising momentum is quite strong despite continuing market headwinds.
Speaker Change: Next year, we expect to be in the market with approximately 25 different products spanning most of our platforms.
Speaker Change: We expect aggregate capital raising to increase significantly next year driven by the following.
Speaker Change: Number one continued scaling of our credit platforms, where we're seeing increasing engagement from our largest LP relationships.
Speaker Change: Two additional closes for our climate private equity and infrastructure campaigns.
Speaker Change: Three the completion of our TPG growth campaign.
Speaker Change: Or initial closes for our next flagship buyout funds TPG capital and health care partners.
Speaker Change: Five initial closes for our next generation funds in TTS, our GP led secondaries platform T. Ted R Tech adjacency strategy and rise our broad based impact PE fund.
Speaker Change: And six increasing penetration of the high net worth market generally.
Speaker Change: Building, new products like keep up and investing in our distribution team.
Speaker Change: As you can see this broad based momentum across the firm driven by our expanded and integrated suite of strategies and the culture of collaboration that we've established throughout the firm.
Speaker Change: The pace of activity across the key drivers of our business fundraising deployment and realizations continues to accelerate and we look forward to driving additional value for all of our stakeholders.
Speaker Change: Now I will turn the call back over to the operator to take your questions.
Speaker Change: Okay.
Speaker Change: At this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself from the queue by pressing star two.
Speaker Change: Please limit yourself to one question.
Speaker Change: We will go first to Alex Blaustein with Goldman Sachs. Please go ahead.
Alex Blaustein: Hey, good morning, guys. Thank you for the question so.
Alex Blaustein: So maybe just starting with management fees Hey, good morning.
Speaker Change: So just starting with management fees I heard your guidance for Q4, obviously theres a couple of things that are happening with the catch ups and the step down in the funds.
Speaker Change: But as you look out into 2025 and Jack at the end of their you've kind of mentioned a whole host of different funds that you guys are going to be launching in fundraising for how do you think about the management fee growth outlook into 2025 now when will you guys know about the business so far.
Speaker Change: Yes, it's a good question, Alex I tried to give a little bit of a picture for that in my comments that.
Speaker Change: This year was really set and the building blocks in place for next year, and we do expect Cigna.
Speaker Change: Significant management fee growth next year, driven by those building blocks, we're not we're not providing specific FRE growth guidance, but we do expect significant growth kicking in really in Q1. After we have the step downs that I referred to in Q4.
Speaker Change: Alright. Thanks.
Speaker Change: Okay.
Speaker Change: We will go next to Glenn Schorr with Evercore. Please go ahead.
Speaker Change: Thank you. Thank you.
Glenn Schorr: Sorry, if this is kind of the same question in a different way.
Glenn Schorr: So lots of growth drivers in that so I wanted to see if you could provide bigger than a breadbox type of guidance on what you think.
Speaker Change: <unk> 25 for the next two or three years of FRE growth.
Speaker Change: It could be in the range of it and with that I'm. Just curious on the expenses that you called out two noncore expenses, they seem kind of regular cost of doing business. So if you could help us.
Speaker Change: I think through the why and the impact on FRE. Thanks, so much.
Speaker Change: Yes, I think.
Speaker Change: On the latter question the noncore expenses.
Speaker Change: I don't think they are really ordinary course business.
Speaker Change: Terms of kind of recurring expenses every year. This move for us into Hudson yards is a really important strategic move for us both to consolidate the office space and neither of our current office space is the legacy AG space or legacy TPG space.
Speaker Change: Had enough room for us to combine our teams and also to create additional room for for growth in the business.
Speaker Change: So that we can say that to be a onetime move into this new important space.
Speaker Change: And then the investment in a unified <unk> platform is really related to bringing both businesses together onto one platform and again, we do expect that to generate FRE benefits as it as it ends up being implemented.
Speaker Change: And the other question was longer term FRE growth I think if you yes, if you assume.
Speaker Change: A significant pickup in FRE growth next year, which should continue because again one of those one of those building blocks as we mentioned on last call. The launch of TPG Tan and health care partners III, our big flagship buyout fund that will be in the market through 2006 as well.
Speaker Change: To see the benefit of that fund scaling and catch up fees kicking in as we raise the rest of that so you should expect reasonable FRE growth next year and thereafter, and if you layer on top of that the FRE margin guidance I gave.
Speaker Change: Broaching mid Forty's by the end of next year with more upside beyond that I think you've got a reasonably strong picture of FRE growth.
Speaker Change: Okay.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Speaker Change: We'll go next to Craig Siegenthaler with Bank of America.
Craig Siegenthaler: Thanks, Good morning, everyone. So I have an AUM reconciliation question. So if I look at the AUM roll forward I see credit inflows were very strong at $2 9 billion, but in the fee, earning AUM roll forward. They were only $180 million now I know the credit business is very.
Speaker Change: Sensitive deployments. The credits appointments were also very strong at $3 9 billion. So my question is why is the fee, earning EUM inflow.
Speaker Change: In the quarter, so small relative to the womens flow and also the actual credit deployment.
Speaker Change: Yes, so the AUM role.
Speaker Change: Greg is.
Speaker Change: And actually in credit.
Speaker Change: It's more like a $1 billion increase.
Speaker Change: The number that you that you talked that you talked about.
Speaker Change: But it's always complicated to do the FAA AUM rolling credit there's lots of puts and takes the way I would summarize it is.
Speaker Change: Obviously capital raising flows into AUM as we deploy it but if you look at invested capital of $3 9 billion during the quarter, which was healthy.
Speaker Change: Minus real realizations in credit of $1 9 billion, you get kind of net.
Speaker Change: Increase of $2 billion.
Speaker Change: Now within that $2 billion.
Speaker Change: Out of $1 billion was not immediately.
Speaker Change: Management fee, earning about $500 million of it was TPG managed co investment for Lps.
Speaker Change: Thats.
Speaker Change: Obviously very strategically important for us, it's what our Lps want to see it tends to feed into future fund commitments and we earned capital markets fees in connection with the placement of some of that.
Speaker Change: Co investment and then the remainder call it 400 million or so was leverage driven deployment and we in some of our funds. We don't earn fees on leverage we earned on that asset.
Speaker Change: Asset value.
Speaker Change: But net net we do we do we do believe we will continue to see increased deployment in credit throughout the course of the year next year and continue to drive.
Speaker Change: Good AUM growth from that business.
Speaker Change: Jack So I guess in the fee, earning AUM roll forward you focus on both the net change in investment activity and the fee, earning capital raised although that isn't exactly related to what we're seeing.
Speaker Change: <unk> is that right.
Speaker Change: While the net change in investment activity captures what I talked about right we deploy.
Speaker Change: $3 9 billion.
Speaker Change: So most capital raised in credit.
Speaker Change: <unk> immediately flow in.
Speaker Change: To AUM it flows in as you deployed so we focus more on deploy when we think about AUM rolling credit we focus more on deployed capital minus realizations and then those other puts and takes that I talked about but just and just to add that capital raise I think is very important because I think as we've been talking about since.
Speaker Change: We acquired Angelo Gordon.
Speaker Change: It's been important for us in terms of.
Speaker Change: Out originating our capital base I think it's been important for us to build those pools of capital that give us the dry powder to allow us to engage in the transactions that we are able to source in the market.
Speaker Change: And as Jack said that builds on the flow and cadence of.
Speaker Change: The investment activity and then.
Speaker Change: Builds on itself in terms of our ability to.
Speaker Change: Go out and raise additional capital because of the size of the opportunities that we're seeing and where we're seeing that real time now across the whole credit platform. So.
Speaker Change: There is a very important relationship between capital raise that may not yet be fee paying then deploying that capital.
Speaker Change: Satisfying co invest interest from our Lps, and then going out and then.
Speaker Change: Continuing with continuing to raise additional.
Commitments from from from the market in order to get to to steadily size up the capital base.
Speaker Change: Great. Thank you that is the question Greg when you see the $2 9 billion of capital raised in the AUM role just not in the FAA umbrella because most of it doesn't burn fees right away.
Speaker Change: No that makes total sense. Thank you guys.
Speaker Change: Thanks.
Speaker Change: We will go next to Ken Worthington with Jpmorgan. Please go ahead.
Ken Worthington: Hi, good morning.
Ken Worthington: On the dish transaction can you talk about the impact of the transaction.
Ken Worthington: On fee related revenue.
Speaker Change: Next quarter in coming quarters, and I know this is a clearly unusual very bespoke transaction, but you have now the capabilities with Angelo Gordon you've demonstrated the expertise.
Speaker Change: We are in an improving sort of market for transactions and deals what is sort of reasonable to expect in terms of more similar type of deals looking forward could you would you is it reasonable to expect like one type of this type transaction a year.
Speaker Change: Outside the realm of reason what are your thoughts there.
Speaker Change: Yes, let me start on that.
Speaker Change: Ken and Jon will give you more kind of qualitative outlook of additional transactions. It was obviously highly unusual to bring together.
Speaker Change: All of these transactions involving an existing portfolio company of ours.
Speaker Change: But it's not unusual to see complicated transactions like this requires bespoke capital and we see a very large pipeline of that on the <unk> impact.
Speaker Change: The deal actually closed the dish loan closed on September 30, so with that go with that led to was the only fr impact in Q3 was the capital markets fees associated with us acting as agents on that loan.
Speaker Change: It also means that that deployed credit capital drove no management fees from the credit business in Q3, but will drive management fees in Q4 since it was deployed in the last day of the quarter. So we do see a pickup in management fees from the credit business in part driven by that credit solutions deployment late in.
Speaker Change: In the quarter in Q3.
Speaker Change: On the broader question.
Speaker Change: With respect to kind of flow of these types of opportunities.
Speaker Change: This currently these types of deals.
Speaker Change: The sort of bespoke financing opportunities represent the bulk of our pipeline in terms of where we're focused.
Speaker Change: Backdrop.
Speaker Change: I think as you as you are aware.
Speaker Change: Is that from a valuation perspective in the market, we're probably at the tightest spreads that we've seen in high yield and leverage loans since the GMC.
Speaker Change: I think high yield spreads are now at like $3 25.
And the gap in the differential between.
Speaker Change: Triple C and double and double B is probably as tight as it's been since the GSE.
Speaker Change: So we are very focused on these types of opportunities that we're creating across our credit solutions business and from also a private equity franchise, but just to give you an idea I mean.
Speaker Change: We sort of track this based on sort of opportunity flow that we're seeing which is essentially at an all time high for us.
Speaker Change: We signed many NDA as with our sponsors and companies in terms of working through sort of bespoke transactions.
Speaker Change: Just just to put some numbers on it we've deployed about $2 $5 billion over the last three months and nine different deals and to put it.
Speaker Change: The Directv dish deal in perspective.
Speaker Change: That of the of that amount of capital about $750 million of it.
Speaker Change: Is what we kept internally in our own pools of capital of the $2 5 billion dish deal.
Speaker Change: And the remainder of it we syndicated out to some combination of Lps that were interested in joining us in that transaction and a couple of other funds.
Speaker Change: We're also brought into the deal.
Speaker Change: So if you look at what's happening there is a significant pipeline.
Speaker Change: Sponsors are in a position right now as you know where it's harder to monetize.
Speaker Change: Many capital structures are somewhat over levered as a result of coming through the.
Speaker Change: The pre interest rate.
Speaker Change: Increasing period.
Speaker Change: And.
Speaker Change: And I think that we're in an environment, where we expect to continue to see these kinds of opportunities.
Speaker Change: We don't I mean, maybe what I the way I should describe it is we don't think this is a six month or nine month opportunity. We see this as a three to four year opportunity in front of us.
Speaker Change: That's quite substantial so.
Speaker Change: I think this will continue to be a core part of our focus.
Speaker Change: From the from the.
Speaker Change: On the credit on the credit side of the house and I guess the last thing I would say is that it's translating over into this hybrid opportunity that we are raising capital for right now because some some of the.
Speaker Change: <unk> are leading to kind of top of the capital structure senior secured low LTV types of opportunities and some of the opportunities are more middle middle of the capital structure.
Speaker Change: Hi, Anthony it's Todd Yeah, So one thing that.
Speaker Change: Just one thing I'd add on that.
Speaker Change: At the highest level, which is this relative to most of the in place that are encountered is in place. It celebrates these types of collaborations.
Speaker Change: More than most you hear that as John described the Directv deal.
Speaker Change: And so we also spend a lot of time.
Speaker Change: <unk> credit solutions in the credit platform on the private equity side really trying to think about based on the seam work that we're doing the sectors that we spend our time and what are the types of things that should happen not necessarily what's for sale, but what might be interesting and a lot of those involve thinking across the capital structure. So.
Speaker Change: It's very hard to predict how often these things come up because again youre trying to.
Speaker Change: Kitchen create ideas.
Speaker Change: Not necessarily actionable, what we think are really interesting.
Speaker Change: I think this is really this is an environment.
Speaker Change: And it's even more exciting in the context of now.
Speaker Change: The combined.
Speaker Change: TPG and legacy AG businesses in which we're spending a lot of time this is <unk>.
Speaker Change: Investor teams, just thinking about what we what we can do together.
Speaker Change: Great. Thanks for all the color.
Speaker Change: We'll go next to Michael Cyprus with Morgan Stanley. Please go ahead.
Michael Cyprus: Hi, good morning, Thanks for taking the question I was hoping you could elaborate a bit on your initiatives to expand our reach in the private wealth channel, maybe where does the twinbrook offering stand today just in terms of placements on the platforms. How do you see that evolving over the next 12 months and then you alluded to the new private equity product coming into the retail private wealth channels, hoping you can elaborate on that as well as other.
Speaker Change: Our potential products you may have in the pipeline to bring out to the marketplace and maybe talk about a bit how these products you expect them to differentiate from others that are already in the marketplace.
Speaker Change: Yeah, Hey, Michael I'll start on that and others may have comments as well.
Speaker Change: Okay.
Speaker Change: Our efforts to expand in private wealth involve basically two primary factors, one of which is new product creation and the others expanding distribution and an expanding distribution on it we probably hired.
Speaker Change: If it doesn't do a dozen people in the past few months as we continue to build out that team.
Speaker Change: So we are actively investing in building out the feet on the street to enhance distribution and then equally importantly, creating new products that people want to buy in the channel. The first obviously you referred to T cap and that continues to go well we have.
Speaker Change: Continuing flows into that product that really feeds as you know into twin broke in particular.
Speaker Change: So the next product we intend to launch is the one I mentioned, which is T pop the private equity.
Semi liquid vehicle and we continue to get very strong positive feedback from our channel partners about that product.
Speaker Change: Can see pretty clearly that our private equity returns have been differentiated in the industry.
And all the channel partners already aware of that because we've been placing one fund at a time as a co mingled fund with the channel partners and their clients have had good experience with us in that regard now we're doing is taking that differentiated return investing strategy, all those strategies and putting them together into a into the <unk>.
Speaker Change: Product that they want to buy.
Speaker Change: Or much much of the channel wants to buy so we'll be launching that in Q1, we have been seeding that business overtime and we expect to have a really nicely diversified ceded portfolio in place to launch by Q1.
Speaker Change: Beyond that there are several additional products that we are considering as next steps one would be potentially working with our climate funds to offer a more dedicated climate driven investment product to the channel.
Speaker Change: There would be a more broad based.
Speaker Change: Yield oriented strategy tapping into more of our investing platform and credit than just twinbrook and.
Speaker Change: One of the things beyond that so basically investing in distribution and investing in new product development.
Speaker Change: Yes, I would just add that.
Speaker Change: This remains a very very important focus for us.
Speaker Change: Engagement that we're having with the.
Speaker Change: The major channel partners has been very substantial.
Speaker Change: The good news is that I think there is a high level of demand for.
Speaker Change: Products from the TPG franchise in the channel.
Speaker Change: And we are regularly participating and being invited.
Speaker Change: To the various events with advisors.
Speaker Change: From the various platform since we last spoke.
Speaker Change: Michael.
Speaker Change: We're at a.
Speaker Change: Our Morgan Stanley event, we were out of a.
Speaker Change: Merrill Lynch event.
Speaker Change: Todd.
Speaker Change: Dissipated in.
Speaker Change: A broader industry conference.
Speaker Change: A private wealth advisors so.
Speaker Change: This is very top of mind for us and continuing to build our brand into the channel where we feel like we have a brand that we have a global brand and its differentiated with respect to our products and our capabilities. So this will be a growing.
Speaker Change: We're confident that our penetration into the channel will continue to grow and obviously products like pop that are sort of purpose built for that channel will give us the ability to continue to expand our breadth.
Speaker Change: Great. Thanks, so much.
Speaker Change: Okay.
Speaker Change: We'll go next to Brennan Hawken with UBS. Please go ahead.
Brennan Hawken: Hi, good morning, Thanks for taking my question.
Brennan Hawken: So just wanted to confirm.
Brennan Hawken: When we think about the near term is it right that fourth quarter would be a seasonally larger one for fee related performance revenues and then.
Brennan Hawken: John Tactically could you remind us of the rate sensitivity.
Brennan Hawken: FRP.
Brennan Hawken: Base rates.
Brennan Hawken: The.
Speaker Change: Fourth quarter is always a seasonal increase in FRP or so that's correct.
Brennan Hawken: I don't see a lot of rate sensitivity to that.
Brennan Hawken: That number obviously.
Brennan Hawken: Obviously there is some.
Speaker Change: Flowing through the <unk>.
Speaker Change: Primarily toward the primarily the Twinbrook business.
Speaker Change: It is it is accurate to think of that as being a seasonally high quarter for in the fourth quarter.
Speaker Change: Okay.
Speaker Change: The second one.
Speaker Change: Sure.
Speaker Change: Sorry go ahead go ahead.
Speaker Change: I was just going to ask wouldn't expect a lot.
Speaker Change: I wouldn't I wouldn't expect a lot of rate sensitivity based upon where we see kind of base rates having settled to as.
Speaker Change: As impacting that number.
Speaker Change: Now if we have a more substantial further moves in rates.
Speaker Change: We will see but.
Speaker Change: I think based upon the Twinbrook business and how our loans are priced.
Speaker Change: Okay.
Speaker Change: That.
Speaker Change: I wouldn't expect to see a lot of some I wouldn't expect to see that as a big impact in the fourth quarter. So you should expect some pick up in Q4, and obviously about half of that goes against FRP our compensation expense.
Speaker Change: But still an increase in kind of that.
Speaker Change: FRE effectively coming through that line item.
Speaker Change: Got it to be clear I wasn't.
Speaker Change: I'd, probably werent at a poorly the fourth quarter question was around the seasonality.
Speaker Change: The rate sensitivity it wasn't really purely around the 50 basis points point of like thinking about next year and if we continue to see rates coming down how should we be modeling out the puts and takes there.
Speaker Change: Yes, I wouldn't model much sensitivity there.
Speaker Change: Hey, Thanks for taking my questions.
Speaker Change: Thanks.
Speaker Change: We'll go next to Kyle Voigt with <unk>. Please go ahead.
Kyle Voigt: Hi, good morning.
Kyle Voigt: Just a question on your insurance strategy <unk> been evaluating the best path for their ore and the potential for strategic partnerships. Just wondering if you can update on your thoughts on control versus capital light insurance partnerships and when you're evaluating potential insurance partners can you just remind us some of the most important aspects of those.
Speaker Change: Potential partnerships for TPG, whether that's a certain size partner or a specific underlying growth characteristics that you're looking for.
Speaker Change: Yes, sure I mean, I think first of all I think the insurance strategy here is multi pronged because it's not only about the strategic transaction one of the things that we've done.
Speaker Change: Very proactively since.
Speaker Change: We actually closed the Angelo Gordon transaction as we have.
Speaker Change: A.
Speaker Change: A.
Speaker Change: Collaboration.
Speaker Change: Yes.
Speaker Change: The coverage of the insurance industry.
Speaker Change: And trying to continue to expand our relationships more broadly.
Speaker Change: As a result of being able to service the insurance company needs on the asset side more holistically and we've seen good progress on that.
Speaker Change: You look across commitments that we've gotten.
Speaker Change: Two <unk>.
Speaker Change: Our structured credit business as well as our Twinbrook franchise.
Speaker Change: We continue to expand those partnerships with insurance companies.
Speaker Change: <unk>.
Speaker Change: If you would it would be as you would expect which is primarily sort of <unk>.
Speaker Change: Life and annuity.
Speaker Change: Businesses as well as well as by the way more broadly even kind of the P&C part of the world. So those are those relationships continue to expand and where we.
Speaker Change: We're feeling very good about the momentum that we have there and we're going to continue to build that on the on the strategic side.
Speaker Change: We've talked about this a lot we continue to be.
Speaker Change: Interested and focused on.
Speaker Change: How to find the right strategic relationship.
Speaker Change: I would say that we're very mindful of a couple of things one is the <unk>.
Speaker Change: Quality of the platform that we engage with the key.
Speaker Change: The key underlying kind of fundamental thesis is that the quality of the platform its ability to grow, particularly its ability to grow organically given.
Speaker Change: How expensive is.
Speaker Change: How expensive it's become to do things like.
Speaker Change: Kind of.
Speaker Change: Block acquisitions in the market.
Speaker Change: <unk> gotten a lot more competitive so organic growth capability I think is really important the strength of the underlying platform their position in the market.
Speaker Change: How they are positioned with respect to <unk>.
Speaker Change: Growing their book of business.
Speaker Change: As opposed to just competing on price and so that the quality of the platform is really important and that's been very front and center for us as we've looked at a number of opportunities.
Speaker Change: The other thing I would say too is size the size dynamic in how we go about structuring a transaction is also front and center for us because we're mindful of the fact that.
Speaker Change: We.
Speaker Change: Feel like our positioning as a firm in terms of being very FRE centric and growing our fee based revenues over time continues to be.
Speaker Change: What we think will be our major source of growth.
Speaker Change: But on the other hand, I think that having some type of strategic relationship which.
Speaker Change: It will give us long data or perpetual capital and also allow us to continue to leverage our credit franchise.
Speaker Change: And give us a capital base on which we can continue to explore add ons to our product capability on the credit side, because we have the.
Speaker Change: We have we have an important source of capital.
Speaker Change: Parts of the credit spectrum will go.
Speaker Change: <unk> is really important to us as well so.
Speaker Change: We're thinking about it from that perspective.
Speaker Change: I think anything we do will be very mindful of how a transaction changes the shape of our company from the from the perspective of.
Speaker Change: How much of our balance sheet, we use.
Speaker Change: I can't tell you exactly what that will be it will be dependent on the merits of the transaction but.
Speaker Change: We are very we're very.
Speaker Change: In tuned too I think.
Speaker Change: How we believe it's important for us to continue to grow in the future and the characteristic of the of where that growth is being driven from.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: We'll go next.
Speaker Change: Next to Mike Brown with Wells Fargo Securities. Please go ahead.
Mike Brown: Great. Good morning, Thanks for taking my question.
Speaker Change: The FRE margin is expected to exit that mid 40% in 2025.
Speaker Change: So it sounds like you'll be approaching kind of that 45% margin that you guided to in the past.
Speaker Change: When you think about 2026 and beyond I assume that kind of mid 40% not your end game.
Speaker Change: Certainly not.
Speaker Change: The full potential of the platform. So when you think about that FRE margin longer term, how should we think about that annual margin expansion for call. It 2026 and beyond thank you.
Speaker Change: Yes, you're definitely right, Mike 40% to 45% was never meant to be a long term target was meant to be a stop along the way as we scaled.
Speaker Change: The scale of the AG credit businesses and got back to the margin expansion, we were accomplishing on a standalone basis for TPG.
Speaker Change: So what I said on the call is we expect to be approaching the mid <unk> by the end of next year I would expect further scaling in 2026 and 27 and eventually we should be getting to 50 and above 50, but I'm not putting a timeframe on that at this point.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: This concludes the Q&A portion of today's call I would now like to turn the call back over to Gary Stein for closing remarks.
Gary Stein: Great. Thank you all for joining us. This morning, we look forward to speaking with you again next quarter and in the meantime, please reach out to the Investor Relations team. If you have any questions.
Speaker Change: Thanks, everyone. Thank you.
Speaker Change: This concludes today's Tpg's third quarter 2024 earnings call and webcast.
Speaker Change: May disconnect. Your line at this time and have a wonderful day.
Speaker Change: Yes.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Uh-huh.
Speaker Change: [music].
Speaker Change: Uh-huh.
Speaker Change: Hum.
Speaker Change: Oh.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Uh-huh.