TPG Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results. TPG is a global alternative asset manager operating across Capital, Growth, Impact, Real Estate and Market Solutions.
Financial performance and operating metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $160.4 million | $561.1 million | $1,406.8 million | $1,563.6 million |
| Fees and other revenue | $366.1 million | $333.5 million | $1,004.7 million | $896.5 million |
| Capital allocation-based income (loss) | ($205.8) million | $227.6 million | $402.1 million | $667.1 million |
| Net income (loss), consolidated | ($94.7) million | $53.2 million | ($19.0) million | ($46.5) million |
| Net income attributable to TPG Inc. | $14.7 million | $37.4 million | $66.9 million | $68.8 million |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $1,232.6 million | $788.6 million |
| Fee-Related Earnings (non-GAAP) | $156.1 million | $121.2 million | $380.8 million | $315.0 million |
| Distributable Earnings (non-GAAP) | $206.6 million | $121.5 million | $412.5 million | $508.7 million |
| After-tax Distributable Earnings (non-GAAP) | $195.6 million | $112.8 million | $379.7 million | $473.7 million |
Q3 diluted loss per Class A share was $0.09, despite basic earnings of $0.14 per share; for the first nine months, diluted loss per share was $0.08 versus basic earnings of $0.73. The filing’s two-class and exchange-unit calculations affect these figures. Dividends declared were $0.22 per Class A share in Q3.
At September 30, cash and cash equivalents were $1.224 billion, investments $5.308 billion, total assets $7.383 billion, total liabilities $4.344 billion and total equity $3.039 billion. Debt obligations were $443.8 million, comprising a $198.3 million senior unsecured term loan and $245.5 million of secured securitization borrowings. The company reported $2.605 billion of total liquidity, including available credit facilities; $13.3 million of cash was restricted. Operating cash flow for nine months rose year over year, while financing used $1.105 billion, primarily for dividends, distributions and SPAC redemptions. Cash, cash equivalents and restricted cash ended the period at $1.238 billion.
TPG reported AUM of $136.1 billion and fee-earning AUM (FAUM) of $78.9 billion. Nine-month capital raised was $6.9 billion, compared with $26.4 billion in 2022; realizations were $8.7 billion versus $11.4 billion. Fee-related revenues were $872.5 million for nine months, up 12%; Fee-Related Earnings were $380.8 million. The implied FRE margin on fee-related revenues was approximately 43.6% for the nine-month period, based on the reported non-GAAP figures.
Changes versus the prior comparable period
- Q3 total revenue fell 71%, principally because capital allocation-based results swung from $227.6 million of income to a $205.8 million loss. Unrealized performance allocation losses were $449.1 million, partly offset by $249.0 million of realized performance allocation gains.
- Q3 fees and other revenue increased 10%, including 10% growth in management fees. Management fee growth reflected newer funds becoming fee-paying, while certain older funds experienced fee-base step-downs. Q3 transaction, monitoring and other fees increased, largely due to Market Solutions capital-markets activity.
- For nine months, total revenue declined 10% as capital allocation-based income fell 40%. Management fees increased 17%, while transaction, monitoring and other fees declined 24%. Consolidated net loss narrowed, but net income attributable to TPG Inc. was slightly lower year over year.
- Higher interest income helped investment income and non-GAAP net interest results, but GAAP interest expense rose 57% for nine months, primarily due to higher borrowing rates. General and administrative expense increased 13% for nine months, including higher professional fees and travel costs.
- FAUM increased from $77.9 billion at year-end 2022 to $78.9 billion, while total AUM increased from $135.0 billion to $136.1 billion. Available capital fell to $38.2 billion from $43.0 billion at December 31, 2022.
Outlook, material events and risks
- Management said available liquidity and operating cash generation should be sufficient for projected needs for at least 12 months, including expenses, debt service, growth initiatives and dividends. No quantified earnings or revenue guidance was provided.
- TPG completed its Angelo Gordon acquisition on November 1, 2023, after quarter-end. Consideration included approximately $728 million cash, 53.0 million Common Units, 8.4 million RSUs, up to $150 million in deferred cash payments and an earnout of up to $400 million tied to 2026 fee-related revenue targets. Purchase accounting remained in progress.
- On October 30, 2023, TPG drew $470 million on its revolving credit facility to partially fund the acquisition. The September 30 debt and liquidity figures therefore do not reflect that subsequent borrowing.
- In September, TPG increased its unsecured revolving facility from $700 million to $1.2 billion and extended maturity to September 2028; it also extended its $200 million term loan maturity to March 2026. The term loan has quarterly leverage and fee-generating AUM covenants.
- Management described tighter financial conditions, elevated interest rates, weaker public markets and a roughly flat TPG portfolio in Q3, with public holdings down and private holdings slightly up. It identified fundraising, investment performance, deal sourcing, competition and investor preferences as important business drivers.
- Risks include acquisition integration and realization of expected benefits, market and valuation volatility, dependence on fund performance and fundraising, and possible clawbacks. Recorded clawback under current unrealized values was $60.4 million net of tax; potential clawback if remaining investments became worthless was $1.772 billion, which management considered remote.
- TPG disclosed ongoing Hellas-related litigation and an SEC document request concerning retention and use of business communications. The company reported no pending proceeding expected to have a material impact, but noted that an adverse outcome could affect results in a particular period.
Investor facts to verify
- How Q3 unrealized performance allocation losses, fund-level performance and subsequent realizations affect future performance allocations and compensation.
- The acquired Angelo Gordon business’s final purchase accounting, integration costs, funding and performance against earnout targets; also consider the $470 million post-quarter revolver draw.
- The composition and availability of reported liquidity, and compliance with credit-facility covenants after acquisition financing.
- The quality and realizability of private investment valuations and accrued performance allocations, alongside the reported AUM, FAUM and available-capital trends.
- The interpretation of basic versus diluted per-share results, TPG Inc.’s minority economic ownership of the Operating Group, and the implications of non-controlling interests.
- Potential legal, regulatory and clawback exposures, and whether the stated 12-month liquidity assessment remains appropriate after the acquisition.