Five takeaways from TPG’s IPO registration

The soon-to-IPO firm has raised $49bn, 45% of its total AUM, since 2018.

TPG, the world’s eighth-biggest private equity firm according to the PEI 300, has formally launched its registration process to go public in what would culminate in its eponymous ticker trading on the NASDAQ.

The firm filed an initial prospectus with the US Securities and Exchange Commission to list publicly on Thursday. JPMorgan, Goldman Sachs, Morgan Stanley and TPG Capital BD are acting as joint lead book-running managers for the proposed offering that sports a syndicate of 23 underwriters.

When private firms publicly offer shares, the corresponding documents can offer insight into the workings of the company. Here are five takeaways from the firm’s registration statement:

Growth in the numbers

Like many private fund sponsors, assets under management have been on the rise for TPG. Since 2016, AUM have grown 81 percent to $109.1 billion as of 30 September, according to the initial prospectus filing.

Horizontal strategy expansion is a factor in the AUM growth. Over $15 billion of the $49 billion raised since 2018— 45 percent of the total current AUM was raised in the last three years— came from one of five new products. This includes TPG Tech Adjacencies, which makes minority investments in tech and has closed $3.8 billion across two fund cycles as of 30 September; TPG Healthcare Partners, which invests alongside other TPG platforms and has raised $2.7 billion; and TPG Rise Climate, an impact fund, which has closed $6 billion.

As AUM climbs a mountain of strong fundraising and record returns, the Fort Worth-headquartered firm has seen strong revenue growth as well, it disclosed in the investment offering documents. Over the last three years, total revenues increased 288 percent to $5.4 billion, and fee-related revenue increased 55 percent to $827 million.

In terms of fee generation, the new strategies already look promising: Impact and Market Solutions fee-related revenue is growing at a compound annual growth rate of 34 and 75 percent, respectively, over the last three years.

Use of proceeds

The prospectus details the offering of class A shares, including use of proceeds. While the actual estimates for the net proceeds are absent in the filing, the firm will use them for one of two general reasons, the documents say.

First, the firm will purchase shares from existing owners of the TPG Operating Group, “none of whom is an active TPG partner or Founder”, consolidating ownership at the new price. The second reason can largely be filed under capital expenditure. Beyond the costs of the issuance and ensuing reorganisation, proceeds will go towards funding the growth of existing business and/or expanding into complementary lines of business or geographic markets.

While the firm “continuously” evaluates such opportunities, it has no present plans for any material acquisitions, the document stresses.

Presence in attractive sectors

The technology and healthcare sectors account for 61 percent of TPG invested capital since the start of 2018. “Early specialization” in these sectors positions the firm to capitalise on “powerful secular tailwinds”, which it expects to continue to accelerate in the years ahead.

Similarly, impact funds have benefited from strong momentum in recent years, as US ESG-focused AUM has grown by $5.1 trillion between 2018 and 2020, according to the US SIF Report. With $13 billion in assets under management, TPG’s impact strategy is one of the largest in private markets.

In Asia, TPG planted a flag in 1994 and has since grown total AUM to $22 billion. Activities in the region include the acquisition of a majority acquisition in Asia-Pacific secondaries investor NewQuest Capital Partners.

Secondaries

Speaking of NewQuest, since 2018, when TPG first acquired a minority stake in the firm, the platform scaled to $2.4 billion as of 30 September from approximately $900 million. Earlier this year, the firm acquired a majority stake in the Asia-focused secondaries shop.

The prospectus implies similar partnerships or transactions might happen in the future. TPG launched a US and European secondaries business in 2020 on the back of that initial NewQuest partnership.

Big firms continue to snap up secondaries shops, with the latest being Ares Management’s reported interest in Spring Bridge Partners after its $1.08 billion purchase of Landmark Partners in June.

Performance Watch

According to the initial prospectus, over the last decade TPG returned 20 percent or better in four of its five multi-strategy platforms: Capital, Growth, Impact and Real Estate. Performance data is not provided in the prospectus for the last, Market Solutions.

The Capital platform, which houses buyouts, healthcare, Asia and continuation vehicle private market products, has the most AUM of any platform with $52.6 billion, and sports a 15 percent net IRR since inception, improving to 21 percent in the last decade.

The Growth platform, which includes the growth, digital, and minority positions funds, has done 16 percent net IRR since inception, and 20 percent net IRR over the past decade. The Impact and Real Estate strategies have both returned 20 percent net IRR since inception, being less than a decade old.