TPG Inc. 2021 Form 10-K Summary
Business context and reporting period
TPG is a global alternative asset manager operating across Capital, Growth, Impact, Real Estate and Market Solutions. Historical financial statements are presented for TPG Group Holdings (SBS), L.P., the accounting predecessor. The fiscal year ended December 31, 2021 predates TPG’s January 2022 reorganization and initial public offering, so historical results are not directly representative of the post-IPO public company.
- AUM was $113.6 billion at December 31, 2021, up from $89.5 billion in 2020.
- FAUM was $60.1 billion, up from $50.7 billion.
- Capital raised was $20.5 billion and capital invested was $21.6 billion.
- Employees totaled 1,013 across 12 offices in eight countries.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $4,976.4 million | $2,114.8 million | 135% |
| Fees and other revenue | $977.9 million | $883.4 million | 11% |
| Capital allocation-based income | $4,000.0 million | $1,231.5 million | 225% |
| Net income | $4,656.0 million | $1,438.9 million | 223% |
| Net income attributable to controlling interests | $2,025.8 million | $927.6 million | 118% |
| Net cash provided by operating activities | $1,474.8 million | $95.4 million | Substantial increase |
| Fee-related earnings | $178.6 million | $101.5 million | 76% |
| Distributable earnings | $1,249.2 million | $450.8 million | 177% |
| After-tax distributable earnings | $1,239.9 million | $441.5 million | 181% |
GAAP net income attributable to controlling interests represented approximately 40.7% of total revenue. Fee-related earnings margin was approximately 20.6% of fee-related revenue. These margins are affected by substantial performance allocations, investment valuation changes, non-controlling interests and predecessor-company accounting.
Performance allocations were $3,792.9 million, including $1,956.2 million realized and $1,836.7 million unrealized. Portfolio appreciation was 38% in 2021 versus 18% in 2020. The filing reports an immediate hypothetical 10% decline in investment values would reduce performance allocations by approximately $1,149.2 million and investment income by approximately $57.7 million.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $972.7 million; total liquidity was approximately $1.30 billion, including $300.0 million of revolving capacity and $30.0 million of subordinated capacity.
- Total assets were $9.0 billion and total liabilities were $1.7 billion, excluding $1.0 billion of redeemable SPAC equity.
- Debt obligations were $444.4 million, including $200.0 million outstanding under a senior unsecured term loan and $245.0 million of secured borrowings.
- The senior unsecured term loan bears interest at LIBOR plus 1.00% and matures in December 2024. Secured borrowings mature in 2038 and carry fixed rates of 5.33% and 4.75%.
- Remaining unfunded commitments to funds and other investments were approximately $339.9 million.
- Operating cash flow was $1.47 billion, while financing activities used $1.32 billion, primarily reflecting distributions, debt repayment and SPAC-related activity.
- Contractual obligations totaled $1.33 billion, including $450.0 million of debt principal, $326.7 million of estimated debt interest, $212.6 million of operating leases and $339.9 million of capital commitments.
Material changes versus prior comparable period
- Revenue growth was driven primarily by performance allocations, which increased 215%, and capital interest income, which increased 636%.
- Management fees increased 5% to $732.0 million on the GAAP basis, supported by Growth V, Rise Climate and NewQuest, partly offset by the former affiliate’s deconsolidation and lower Growth IV fees.
- Transaction, monitoring and other fees increased 69% to $91.3 million, primarily due to higher capital markets activity.
- Capital raised increased from $7.0 billion to $20.5 billion, driven by Rise Climate, Growth V, TTAD II, AAF and TAC+.
- Realizations increased from $10.7 billion to $25.4 billion, while capital invested increased from $9.9 billion to $21.6 billion.
- TPG acquired control of NewQuest in July 2021. The transaction generated a $95.0 million pretax remeasurement gain and added approximately $44.3 million of revenue from the acquisition date through year-end.
- Two SPAC business combinations contributed approximately $232.5 million of gains on deconsolidation, while SPAC warrant and forward-purchase liabilities produced a $211.8 million unrealized gain versus a $239.3 million loss in 2020.
- The December 31, 2021 reorganization transferred certain performance allocation and investment entitlements, cash and other assets to RemainCo and deconsolidated certain previously consolidated TPG funds.
IPO, outlook, commentary and risks
TPG completed its IPO in January 2022 at $29.50 per share. TPG received approximately $793.4 million from the initial offering and approximately $49.8 million from the underwriters’ overallotment. Approximately $380.1 million was used to purchase existing Common Units and approximately $435.0 million was used to acquire newly issued Common Units. Following the IPO, TPG owned approximately 25.6% to 26% of the TPG Operating Group, with the remaining economic interest held by non-controlling owners.
Management expects growth from committed but undeployed capital, new products, continued fundraising, operating leverage, strategic partnerships and acquisitions. Available capital was $28.4 billion, representing potential future deployment and fee growth. The company stated that existing liquidity, operating cash flow, credit capacity and IPO proceeds were sufficient for projected operating and debt-service needs for at least the following 12 months.
- Results are highly dependent on realized and unrealized fund performance, market valuations, fundraising, deployment and exit activity.
- Performance allocations and cash flow are volatile and may reverse; the company recorded a $58.3 million clawback liability based on current values. The potential clawback was approximately $1.50 billion if all remaining investments were deemed worthless.
- Key-person departures, competition for talent, fund-investor removal rights and difficulty raising successor funds could reduce AUM and fee revenue.
- Higher interest rates, weaker credit markets, leverage at portfolio companies, LIBOR transition risk, foreign exchange movements and market volatility could impair investment values and liquidity.
- COVID-19, supply-chain disruption, inflation, geopolitical developments, China-related regulation, cybersecurity incidents and data privacy requirements remain material risks.
- TPG is a controlled company. Class B shares carry ten votes per share before the governance “Sunset,” and GP LLC controlled approximately 97% of combined voting power as of March 25, 2022.
- The Tax Receivable Agreement requires payment of 85% of certain realized or deemed cash tax benefits to pre-IPO owners and may require substantial or accelerated payments, including upon certain changes in control.
- The company is subject to extensive regulation and potential changes affecting private funds, fees, expenses, ESG disclosures, carried interest, derivatives and foreign investment.
Most important facts an investor should verify
- Reconcile historical predecessor results with post-IPO pro forma results: pro forma 2021 net income attributable to TPG Inc. was $231.3 million, pro forma basic EPS was $2.91 and diluted EPS was $1.80.
- Assess the sustainability of 2021 performance allocations, particularly the $1.84 billion unrealized component and the sensitivity to valuation declines.
- Review post-reorganization economics, including RemainCo’s 10% to 15% entitlement to certain future performance allocations and the allocation of 65% to 70% of specified performance allocations to partners and professionals.
- Evaluate distributable earnings and fee-related earnings against GAAP results, including all adjustments for unrealized items, non-controlling interests, compensation and reorganization effects.
- Confirm debt maturities, variable-rate exposure, covenants, available revolver capacity and the ability to fund $339.9 million of commitments.
- Quantify potential Tax Receivable Agreement payments, clawback exposure and other guarantees, including approximately $715.0 million of guaranteed obligations.
- Review governance, dilution and liquidity implications of 229.7 million Common Units exchangeable for Class A common stock, lock-up expirations and controlled-company voting rights.
- Consider the subjectivity of Level III valuations, fund performance methodologies and the difference between historical fund returns and expected shareholder returns.