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Home , The Carlyle Group, TPG Capital

November 2015

A Report by UNITE HERE Contact: Alyssa Giachino, 310-795-5537 [email protected]

TPG Capital, a slipping giant peers have outpaced TPG in fundraising and growth

TPG Capital used to dominate fundraising. But TPG has slipped, and its struggle to reach the target for its latest flagship fund may not bode well for the firm’s future plans for growth.

TPG earned the top slot on the Private Equity Investors 300 list of private equity fundraising, raking in the most commitments in each of the previous five-year cycles for 2011, 2012 and 2013.1 But for 2014 TPG slipped to 5th place, falling behind , KKR, and .2

TPG’s latest buyout fund, which has been described as “make or break”3 for the firm, has lingered in market without meeting its target, which was reduced to $8 billion4 from $10 billion.5

TPG Partners VII’s pace of fundraising has lagged peers like Apollo and Blackstone.

As TPG ponders joining the public markets, its publicly traded peers Blackstone and Apollo have experienced strong growth in total in recent years while TPG’s growth has been slower.

Slower Pace for TPG Partners VII

TPG has been soft marketing TPG Partners VII for quite some time. Dow Jones’sLBO Wire published a story about TPG Partners VII in November of 2012, citing plans to start formally marketing the fund in 2013 with a $12 billion target.6 PEI listed it among the largest funds in market as of June 2013, targeting $12 billion.7

But TPG delayed active fundraising, instead securing commitments for a $2 billion bridge fund in early 2014. The fund served as an interim vehicle following TPG’s troubled fund VI, working under the premise that “raising Fund VII would presumably be easier with additional time for Fund VI results to crystalize.”8

TPG Partners VI’s performance has lagged the benchmark and is ranked in the 3rd quartile by Preqin. Likewise, TPG Partners V has underperformed, also landing in the 3rd quartile according to Preqin.9

CC photo by Bruce Fingerhood

1 Funds V and VI also have lagged peers in realizing investments. TPG Partners VI (2008 vintage) had an RVPI of 88.2% as of 4Q14 according to Preqin,10 compared to an average of 68% according to Cambridge Associates.11 TPG Partners V (2006 vintage) had an RVPI of 75.8% as of 4Q15, compared to the Cambridge Associates average of 54%.12

In other words, TPGs two predecessor buyout funds still have billions in investments remaining to be realized.

TPG didn’t tap the bridge fund; all of the capital was rolled into TPG Partners VII in 2015.13

In March of 2015, TPG had reportedly secured $6.5 billion commitments to Fund VII.14 By the end of June, TPG reportedly attracted an additional $750 million,15 bringing the total commitments to $7.25 billion.

Measuring TPG’s pace of commitments compared to its peers illustrates the firm’s challenges.

If the starting line for measuring Fund VII’s marketing period begins with the bridge fund in January 2014, during the 18-month period through the first half of 2015, TPG drew an average of $400 million in commitments per month.

A more generous measurement of TPG’s marketing period could start after the bridge fund, around August 2014.16 Including the rollover $2 billion bridge fund, an August 2014 launch would put Fund VII in market for 11 months through 1H 2015, which would represent an average of $660 million raised per month.

By comparison, Apollo brought its current buyout fund to final close in January 2014, the same time TPG started its bridge fund. Over a period of seven months, Apollo secured $18.5 billion in commitments,17 a pace of $2.6 billion per month.

Blackstone raised its current buyout fund concurrently with TPG’s Fund VII, attracting Average monthly commitments $17 billion by May 2015 after 9 months in (in millions) 18 market, a pace of $1.9 billion per month. $2,643 $3,000 $2,500 $1,889 As TPG Partners VII has worked to approach $2,000 its target, global private equity fundraising $1,500 $659 has slowed down significantly. PE fundraising $1,000 peaked in Q4 2014, while Fund VII was in $500 $- market, and has slowed in each of the three 19 TPG Partners Apollo Blackstone quarters of 2015, according to Preqin. The VII Investment Capital third quarter of 2015 saw the fewest fund closes Fund VIII Partners VII since 2006, Preqin reported.20

2 While its buyout fundraising has languished, TPG has recently raised other specialty vehicles, including its third opportunities fund and a new real estate fund.21

TPG Partners VII had not yet filed a Form D, as of November 6, 2015.

However, the fund has started to make investments. According to Preqin, around 20 transactions are attributed to the bridge fund and Partners VII representing the deployment of at least $12 billion.22

The fund’s objective is to focus on TPG’s historic “sweet spot” of deals sized from $300 million to $3 billion, with $250 million to $600 million in equity contributed by TPG to acquire a controlling stake.23 Preqin’s data suggests some of Fund VII’s transactions have already exceeded those targets slightly.

Among the larger deals is the $4 billion buyout of in April 2015, in which TPG Partners VII contributed $879 in equity along with Leonard Green & Partners.24

Preqin attributes the $3.5 billion acquisition of the education software firm Ellucian to TPG Partners VII.25 Fund VII also acquired real estate brokerage Cushman & Wakefield for $2 billion.26

TPG Partners VII participated in the buyout of Cirque de Soleil, an estimated $1.5 billion buyout in which TPG took a 60% stake, equal to around $90 million.27

Questions

•• How does the slow fundraising of TPG Partners VII influence investors’ view of TPG? •• Are investors confident TPG can overcome the weak performance for funds V and VI? •• Will TPG be able to maintain its discipline and avoid the larger buyout deals that eroded the performance of funds V and VI? •• How will TPG allocate its resources between unwinding investments from fund V and VI while also deploying fund VII? •• Why has TPG waited so long to file a Form D for fund VII? How is TPG deploying capital for deals without filing with the SEC?

TPG growth dwarfed by Blackstone and Apollo

Blackstone, a heavyweight in global private equity, has $334 billion in assets under management.28 Blackstone has doubled its AUM since 2011, when it reported $166 billion in AUM.29 Apollo had $74 billion in assets in 2011,30 which grew by 125% to $167 billion in AUM in 2015.31

During the same period, TPG’s AUM grew by 54% from $48 billion in 201132 to $74 billion in AUM in 2015.33

3 AUM Growth 2011 to 2015 (in billions)

$400 $334 $300 $166 $167 Blackstone $200 $74 Apollo $100 $74 $48 TPG $- 2011 2015

Growth potential for TPG?

Most of the large alternative asset firms have opted to join the public markets as part of their growth strategy, namely Blackstone, Apollo, KKR and Carlyle Group. TPG has been considering the move for years, but remains privately held.

At the end of October, TPG announced it had appointed Jon Winkelried, a former Goldman Sachs executive, as co-CEO to help lead the firm through its next chapter. Winkelried will share the title with TPG co-founder Jim Coulter, while co-founder will remain chairman.

Reuters columnist Jeffrey Goldfarb characterized the move as TPG “trying to sprinkle a little vintage Goldman Sachs fairy dust around the place.” However, Goldfarb said, “Winkelried isn’t an obvious choice to be part of a long-term succession plan” in part because he “left Goldman in 2009 under something of a cloud.”34

TPG denied that Winkelried’s appointment is related to an imminent IPO, but noted the move, “comes as TPG continues to push beyond corporate and transform itself into a diversified asset manager in the mold of rivalsBlackstone Group LP and Carlyle Group L P.” 35

In other settings, TPG executives have signaled an IPO is likely. In late 2014, Bonderman said TPG was in “contemplative mode” regarding a public offering, and in October the firm’s CIO, Jonathan Coslet, said he “wouldn’t be surprised” if the firm were public within three years, Bloomberg reported.36

The move echoes similar executive appointments made by TPG’s peers around their respective public offerings. Blackstone, Apollo and Carlyle all brought in executives from outside firms near the time of their IPOs.37

4 Questions

•• If TPG decides not to enter the public markets, how will it access sufficient capital for competitive growth? •• How do TPG Partners VII’s fundraising challenges impact TPG’s plans for an IPO? •• What affect does 3Q15 market volatility have on the timing of TPG’s public offering? •• If TPG opts to enter the public markets, how will TPG executives split their focus between unwinding legacy funds, deploying new funds and preparing for an IPO?

5 Endnotes

1 http://gvcepe.com/site/wp-content/uploads/2012/07/PEI_300.pdf and https://www.privateequityinternational. com/uploadedFiles/Private_Equity_International/Data/Quarterly_Reports/PE%20Q2%20report%202013.pdf 2 https://www.privateequityinternational.com/uploadedFiles/Private_Equity_International/PEI/Non-Pagebuilder/ Aliased/News_And_Analysis/2014/May/News/PEI%20300%202014.pdf 3 Reuters, “TPG closes in on $10 bln target for global buyout fund – source,” March 2, 2015 4 CalSTRS, PE semi-annual performance as of March 31, 2015 5 Fortune, “TPG Capital nears first close on giant new fund,” Dec. 18, 2014 6 LBO Wire, “TPG could see as much as $12B for seventh global buyout fund,” Nov. 6, 2012 7 https://www.privateequityinternational.com/uploadedFiles/Private_Equity_International/PEI/Non-Pagebuilder/ Aliased/News_And_Analysis/2014/May/News/PEI%20300%202014.pdf 8 Oregon Investment Council, public meeting materials, January 29, 2014 9 Preqin data accessed June 2015, performance as of 4Q14. 10 Preqin data accessed June 2015, performance as of 4Q14. 11 Cambridge Associates, US Private Equity Index Q4 2014 12 Cambridge Associates, US Private Equity Index Q4 2014 13 Washington State Investment Board meeting minutes, Feb. 19, 2015 14 PE Hub, “TPG reaches $6.5 bln for Fund VII’s first close,” March 2, 2015 15 Pensions & Investments, Q2 2015 searches and hires overview report, July 16, 2015 16 Bloomberg, “TPG Lures Investors to $10 Billion Fund With Discounts,” Aug. 19, 2014

17 Apollo Investment Fund VIII, SEC Form D, filed Jan 17, 2014 18 Fortune, Blackstone closed $17 billion May 2015 in 9 months, May 8, 2014 and Blackstone Capital Partners VII, SEC Form D, filed Oct. 23, 2015 19 Preqin “Q3 2015 Sees Fewest Private Equity Funds Closed Since Start of 2006,” Oct. 1, 2015 20 Preqin “Q3 2015 Sees Fewest Private Equity Funds Closed Since Start of 2006,” Oct. 1, 2015 21 FORBES, “Former Goldman Sachs Partner Winkelried Joins PE Giant TPG Capital As Co-CEO,” Oct. 28, 2015 22 Preqin accessed 10/30/15 23 Oregon Investment Council, public meeting materials, January 29, 2014 24 Life Time Fitness SEC preliminary proxy statement, April 3, 2015 25 Ellucian Press Release, “TPG Capital and Leonard Green Partners Agree to Acquire Majority Stake in Ellucian,” August 14, 2015 26 Crains New York “TPG completes $2B acquisition of brokerage Cushman & Wakefield,” Sept. 2, 2015 27 Global News, “Ottawa approves sale to group headed by U.S. private equity firm,” June 30, 2015 28 https://www.blackstone.com/businesses/aam as of Sept. 30, 2015 29 Blackstone Group, SEC 10-K, filed Feb. 28, 2012 30 Apollo Global Management, SEC 10-K, filed March 9, 2012 31 http://www.agm.com/AboutUs/Overview.aspx as of June 30, 2015 32 http://www.businesswire.com/news/home/20110307006062/en/TPG-Capital-Leonard-Green-Partners-Com- plete-Acquisition 33 https://tpg.com 34 Reuters Opinion, Jeffrey Goldfarb, “TPG reaches for some vintage Goldman fairy dust,” Oct. 29, 2015 35 Wall Street Journal, “TPG Names Former Goldman Executive Jon Winkelried as Co-CEO,” Oct. 28, 2015 36 Bloomberg, “TPG appoints Ex-Goldman Sachs Executive Winkelried as co-CEO,” Oct. 28, 2015 37 Bloomberg, “TPG appoints Ex-Goldman Sachs Executive Winkelried as co-CEO,” Oct. 28, 2015

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