The Oregon Investment Council committed a total of $950 million to two TPG funds, according to documents from the council’s board meeting last week.
Oregon invested $700 million in an “interim buyout fund”, TPG Capital Partners Strategic Account, which is expected to raise between $1.6 billion and $2 billion and will serve as a bridge fund between the expiration of TPG’s sixth fund and the activation of TPG’s seventh fund.
“Fund VI is coming to the end of its investment period, and raising Fund VII would presumably be easier with additional time for Fund VI results to crystalize,” Oregon wrote in its meeting documents.
The interim fund will follow the same investment strategy of TPG’s prior funds, making control investments of between $250 million and $600 million in companies with enterprise values of between $300 million and $3 billion. Most investments will be made in North America.
The fund allows TPG to continue investing after its $19 billion Fund VI has been deployed. Fund VI received a one year fund extension last August to end its investment period in February 2015. At the time of the extension, one limited partner in the fund said there was between $3 billion and $4 billion of remaining capital in the vehicle, Private Equity International reported.
TPG needed at least two thirds of the LPs to approve the fund extension, which dictated that TPG will offset the management fee with 100 percent of any transaction fees on deals done during the extension period. Fund VI’s original transaction fee offset was 65 percent.
While TPG’s first four flagship funds were “highly successful”, according to Oregon documents, the more than $15 billion Fund V that began investing in 2006 “into the peak of the asset bubble” has been plagued by troubled investments. Two portfolio companies from the fund that were particularly challenged include Energy Future Holdings, which suffered from the collapse of US natural gas prices, and hotel and casino company Harrah’s which was negatively impacted by a multi-year decline in the gaming industry, according to Oregon documents.
“Fund V performance has been challenged, and while it will return capital and earn a modestly positive return, it will most likely not deliver returns consistent with our expectations for private equity investments”, Oregon said in meeting documents. The documents state that Fund V was generating a net internal rate of return of 0.4 percent, as of 30 September, 2013.
Oregon has committed to all six of TPG’s prior funds.
As part of Oregon’s Opportunities Portfolio, the investment council committed $250 million to TPG Special Situations Partners Adjacent Opportunities, a fund managed by TPG’s Special Situations team. The fund was created to provide the group with flexible capital to opportunities that exist outside Opportunities Partners Funds and its Specialty Lending fund mandates, according to a January memo from investment manager TorreyCove Capital Partners to Oregon.
Those strategies would consume approximately 50 percent of the fund’s investment capital and would include medical royalties, residential and commercial real estate, infrastructure special situations and structured European whole loans. The remainder of the vehicle would be co-invested alongside TPG’s Opportunities Partners and Specialty Lending funds or in other opportunities sourced from the TPG platform.
The Adjacent Partners Fund has an open-ended structure with a 36-month initial commitment. An Oregon memo describes management and incentive fees as being below market averages, though the fund also has a lower preferred return.
Oregon has a target allocation to private equity of 20 percent and an actual allocation of 21.3 percent, as of 31 December 2013.
Sam Sutton contributed to this report.