The shrinkage of the mega-funds continues. TPG has followed an unprecedented move by fellow mega-buyout firm Permira earlier this month to help cash-starved investors, according to a source with knowledge of the situation.
In a letter sent to LPs yesterday, the firm said it would allow them to reduce their commitments by as much as 10 percent, or up to $2 billion, the source said. The Wall Street Journal first reported the move by TPG. The WSJ report did not specify if the offer pertains to investors across all of the firm’s various funds or for just those LPs in its global buyout fund.
TPG declined to comment. This year alone the firm has closed three multi-billion funds totalling roughly $30 billion.
The firm closed its sixth buyout fund on $19.8 billion and attracted large commitments from a host of heavy-hitting institutional investors. The New York State Common Retirement Fund approved a $300 million commitment to the fund; The California Public Employees’ Retirement System committed nearly $1 billion; the Pennsylvania State Employees’ Retirement System earmarked up to $400 million; and China’s State Administration of Foreign Exchange reportedly committed $2.5 billion.
TPG also held a final close this year for its Asian buyout fund on roughly $4 billion, as well as its distressed credit/financial services fund on approximately $6 billion.
The firm reportedly told investors yesterday that “in the current highly challenging environment the global market declines have placed significant stress on many of our limited partners”.
In addition to allowing LPs to reduce commitments, TPG also said it will cut its annual management fees by one-tenth, regardless of whether the LPs cut commitments. It also promised not to call more than 30 percent of LPs’ commitments in 2009 unless the action is approved by TPG’s advisory committee.
The unprecedented move follows that of fellow mega-firm Permira earlier this month. Permira allowed its investors to cap at 60 percent their original commitment to the firm’s fourth buyout fund, closed on €11.1 billion in 2006. Eighteen LPs took up the offer, reducing the fund size to €9.6 billion. In order to compensate for some of the commitment reductions, however, LPs with appetite for more exposure have been invited to increase their commitment, with the incentive of paying no management fees on any new commitments to the fund.