Stapled deal helps $4.6bn TPG Asia VII over the line

TPG has held the final close on its latest Asia-dedicated fund, after two years of fundraising, a rebuild of its management team and with the help of a stapled secondaries transaction.

The private equity giant received capital commitments of more than $4.6 billion for TPG Asia VII, exceeding its original target of between $4 billion and $4.5 billion, according to a statement.

It is understood that the approximately $1 billion secondaries deal TPG sealed in December with a Lexington Partners-led consortium helped the firm to raise capital to achieve a final close for TPG Asia VII. Partners Group, Adams Street Partners and HQ Capital were part of the consortium, as reported by sister title Secondaries Investor.

In July TPG explored liquidity options that would allow investors to cash out of its 2008-vintage, $3.8 billion TPG Asia Partners V and 2013-vintage, $3.3 billion TPG Asia Partners VI, Secondaries Investor reported at that time.

It is unclear which LPs sold their stakes in the deal or how much primary capital the secondaries buyers committed to Fund VII.

As of 30 June 2018, Fund V generated a 6.6 percent net internal rate of return and 1.4x investment multiple, according to investor documents from California Public Employees’ Retirement System. Fund VI delivered an 8.3 percent net internal rate of return and 1.2x multiple, New Mexico State Investment Council data showed.

TPG’s seventh vehicle is among Asia’s largest funds, which includes $9.3 billion KKR Asian Fund III, $6.55 billion Carlyle Asia Partners V and $4 billion Bain Asia Capital IV.

For TPG, capital raising was not as quick as its peers as the firm needed to re-assemble its Asia team and platform while fundraising.

“High turnover in its Asia platform… and volatile performance across its six predecessor funds” were key concerns identified by pension advisor Pavilion during its risk analysis of TPG Asia VII, according to minutes from New Mexico State Investment Council‘s January 2017 meeting.

TPG hired country heads in recent years to rebuild its platform. Former CHAMP director Joel Thickins was named head of Australia in March 2016; Sanghoon Lee, former head of Morgan Stanley Korea, was appointed in August that year to lead its investment activities in the east Asian country; and ex-chairman of Asia Pacific for Warburg Partners Chang Sun was named head of its China business in September 2017.

TPG ramped up growth investments in India and South-East Asia and re-entered Korea in 2017 after shutting its office there in 2008. The firm is also set to tap Asia’s growing secondaries market, picking up a minority stake in Hong Kong-based direct secondaries specialist NewQuest Capital Partners in June. Last month the firm partnered with CICC Capital, the private equity arm of China International Capital Corporation, and set up a dollar/Chinese yuan dual-currency structure for cross-border investments.

Fund VII is about 40 percent larger than its $3.3 billion predecessor and backed by existing LPs such as US public pensions, foundations and fund of funds managers.

Employees Retirement System of Texas and NM SIC each committed $100 million to the fund, Teacher Retirement System of Texas, $150 million; and University of Washington, $30 million, according to PEI data.

Consistent with prior funds, capital raised for TPG’s latest vehicle will target control and minority stake investments as well as turnaround situations in mid to large-sized businesses in the Asia-Pacific region. Financial services, consumer/retail, healthcare and TMT/new economy are its core sectors.

More than 40 percent of capital raised for Fund VII has already been invested across 12 companies including Australian pet care company Greencross, Healthscope’s Asian Pathology business and Du Xiaoman, the financial services platform spun out from Baidu, TPG said in the statement.

TPG has about $103 billion of assets under management and a presence in Asia Pacific across six countries. The firm is also on the road gathering capital for its second impact fund, which is targeting up to $3.5 billion.