TPG Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. TPG is a global alternative asset manager operating across Capital, Growth, Impact, Real Estate and Market Solutions. The company reported approximately $138.6 billion of AUM and $78.6 billion of fee-earning AUM at quarter-end. TPG Inc. owned approximately 26% of the TPG Operating Group; consolidated results include substantial non-controlling interests.
Financial results and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $603.3m | $(108.3)m | $1,246.4m | $1,002.4m |
| Net income (loss), consolidated | $40.0m | $(262.5)m | $75.7m | $(99.7)m |
| Net income attributable to TPG Inc. | $27.2m | $(9.9)m | $52.3m | $31.4m |
| Class A EPS, basic / diluted | $0.32 / $0.02 | $(0.15) / $(0.37) | $0.59 / $0.01 | $0.37 / $(0.25) |
| Fee-Related Earnings (non-GAAP) | $125.4m | $101.8m | $224.7m | $193.8m |
| Distributable Earnings (non-GAAP) | $108.9m | $171.7m | $205.9m | $387.2m |
| After-tax Distributable Earnings (non-GAAP) | $96.2m | $161.9m | $184.1m | $360.9m |
- Q2 fees and other revenue rose 13% to $327.1m, led by higher management fees. Capital allocation-based income was $276.2m versus a loss of $398.2m a year earlier, mainly reflecting a reversal from unrealized performance-allocation losses to gains. The prior-year comparison also included reversals of related compensation expense; therefore, the large GAAP revenue and profit swings do not represent fee revenue alone.
- For the first half, total revenue rose 24%; management fees increased, while transaction, monitoring and other fees declined 59% in the company’s reported fee detail, reflecting lower capital-markets activity and fewer incentive fees. Realized performance allocations were $11.7m versus $182.4m in the prior-year period, despite higher unrealized gains.
- FRE margin, calculated as FRE divided by fee-related revenues, was approximately 43.9% in Q2 versus 39.8% a year earlier, and 40.8% for the first half versus 39.0%. These are analyst calculations from company-reported non-GAAP figures.
- Operating cash flow was $540.3m for the first half, down from $704.3m, including $360.7m of proceeds from investments versus $1,014.5m a year earlier. Investing cash use was $5.0m; financing cash use was $749.3m, including distributions and the YTPG redemption. Cash, cash equivalents and restricted cash ended at $906.7m.
- At June 30, cash and cash equivalents were $893.6m, with $13.2m restricted. Reported total liquidity was $1.774bn, including $880m of capacity under the senior unsecured and subordinated facilities and $150m under a 364-day facility. Debt obligations were $444.9m: approximately $199.5m on the senior unsecured term loan and $245.4m of secured borrowings. Revolving facilities had no outstanding balance at quarter-end.
- AUM increased from $135.0bn at year-end 2022, supported by $3.5bn of capital raised and 6% portfolio appreciation, partly offset by $3.6bn of realizations. Available capital was $40.6bn. The May 2023 dividend was $0.20 per Class A share; a $0.22 dividend was declared in August, payable after quarter-end.
Material developments, outlook and risks
- Angelo Gordon acquisition: In May, TPG agreed to acquire the credit- and real-estate-focused manager for estimated closing consideration of $970m in cash and up to 62.5m TPG Operating Group units, subject to adjustments. A further earnout of up to $400m may be payable based on 2026 fee-related revenue targets. The transaction remained subject to regulatory approvals, consents, retention and other closing conditions; completion and expected benefits were not assured. TPG incurred $15.3m of transaction-related costs in Q2.
- Liquidity outlook: Management said existing cash, operating cash generation and available credit were sufficient for projected needs for at least the next 12 months. The filing gives no numerical earnings or revenue guidance. Dividends remain at the board’s discretion.
- Market and business risks: Results and fundraising depend on fund performance, realizations, investment valuations and capital deployment. Performance allocations can reverse with fair-value changes; management noted market uncertainty, elevated inflation and rates, and regulatory uncertainty, including SEC rulemaking affecting private fund advisers.
- Contingencies: Estimated clawback was $58.3m, net of tax, if fund investments were liquidated at then-current unrealized values; potential clawback would be $1.73bn if all remaining investments became worthless, which management views as remote. Unfunded investment commitments were $278.1m. TPG reported ongoing Hellas-related litigation and said it had received an SEC document request concerning business-related electronic communications; it had recorded no liability for pending legal proceedings and did not expect a material impact, while acknowledging outcomes are uncertain.
- Unusual presentation: Consolidated GAAP results include fund and SPAC activity, significant non-controlling interests, and noncash performance-allocation and compensation accruals. The unusually large gap between basic and diluted EPS reflects the assumed exchange of Operating Group units and related allocations; per-share figures should be read with the EPS reconciliation and ownership structure.
Important facts for investors to verify
- Angelo Gordon closing status, final consideration, financing, integration costs, partner retention and realization of anticipated benefits.
- How much accrued performance-allocation income is unrealized, its sensitivity to valuations, and the related compensation and potential clawback exposure.
- Whether AUM fundraising, fee-earning AUM and management-fee growth can offset slower realizations and lower transaction-related fees.
- Availability and terms of credit facilities, the December 2024 term-loan maturity, and the distinction between reported consolidated cash and funds available to TPG Inc.
- Reconciliation of GAAP results and EPS to non-GAAP FRE and Distributable Earnings, including the effect of non-controlling interests and noncash items.
- Developments in the SEC inquiry, Hellas litigation, acquisition approvals and any changes to regulatory or other contingencies.