Sixth Street’s second growth effort will balance equity and debt

The strategy will seek up to $4.25bn between the main fund and a sidecar with a slightly modified mandate, according to documents from New Mexico SIC.

Sixth Street, the San Francisco-headquartered TPG spin-out known for creative debt solutions, is seeking more than $4 billion in flexible capital between two vehicles for its latest growth strategy.

The firm, with $52 billion in assets under management, is looking to raise up to $3.5 billion for its second growth strategy, Sixth Street Growth Partners II, and an additional $750 million for Sixth Street Partners II Sidecar, according to documents for the New Mexico State Investment Council‘s 26 October meeting.

The main fund will invest in both growth equity and venture debt, oftentimes seeking to do so in the same transaction, according to a source with knowledge of the strategy.

Because of the maturation in growth equity, there has been “more sophistication” in how companies fund their businesses, the source said. Increasingly there is appetite for stapled solutions and other types of flexible capital to avoid diluting founders’ equity.

Depending on “cycle and company considerations”, the strategy may focus on downside protection and contractual returns or on strong base case returns with increased emphasis on upside capture, New Mexico SIC’s staff wrote in the recommendation memorandum.

The sidecar will have a slightly different profile, focusing on smaller, earlier-stage companies, according to the New Mexico document. The sidecar offers discounted fees and targets a modestly higher return.

The final close is expected to occur in December, according to the documents.

Bloomberg first reported the strategy was seeking more than $3 billion in August.

The term sheet included with the New Mexico documents shows the target for the main fund as being $3 billion. Sixth Street will charge 1.5 percent on invested capital, with 20 percent carried interest over an 8 percent hurdle and a 100 percent catch-up.

The New Mexico wealth fund’s staff recommends committing $75 million dollars to the main fund and $25 million to the sidecar. The commitments would sit in the “distressed and other” sub-allocation of the private credit portfolio, though the memo noted the increased equity exposure.

The first dedicated growth vehicle launched in 2018 with $2.2 billion. Since 2013, the strategy has committed $5.9 billion in 55 transactions across all vehicles as of 10 August.

Sixth Street employed 170 investment professionals as of June. The firm is headquartered in San Francisco with offices in Boston, Dallas, Hong Kong, Houston, London, Melbourne, Luxembourg and New York.

Sixth Street declined to comment for this story.