TPG Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The unaudited results are affected by TPG’s January 2022 reorganization and IPO; the company cautions that interim results may not indicate full-year results. Prior-year results reflect the predecessor structure and are not fully comparable.
Business context
TPG is a global alternative asset manager operating across Capital, Growth, Impact, Real Estate and Market Solutions. It reported $126.7 billion of AUM and $67.1 billion of fee-earning AUM (FAUM) at June 30, 2022. After the reorganization and IPO, TPG Inc. is a holding company whose principal asset is its interest in the TPG Operating Group; TPG Inc. reported approximately 25.6% ownership of its Common Units at quarter-end.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Fees and other revenue | $290.0m | $195.1m | $563.0m | $405.2m |
| Capital allocation-based income (loss) | $(398.2)m | $1,986.0m | $439.5m | $2,980.6m |
| Total GAAP revenue | $(108.3)m | $2,181.1m | $1,002.4m | $3,385.8m |
| GAAP net income (loss) | $(262.5)m | $2,140.4m | $(99.7)m | $3,301.8m |
| Net income (loss) attributable to TPG Inc. after IPO | $(9.9)m | Not presented | $31.4m | Not presented |
| Fee-related earnings (non-GAAP) | $101.8m | $9.2m | $193.8m | $42.8m |
| Distributable earnings (non-GAAP) | $171.7m | $201.1m | $387.2m | $303.8m |
| Operating cash flow | Quarterly value not clearly provided in the filing text | — | $704.3m | $(65.0)m |
Q2 basic and diluted EPS were $(0.15) and $(0.37), respectively; six-month basic and diluted EPS were $0.37 and $(0.25). The differing basic and diluted results reflect the filing’s treatment of exchangeable Operating Group units and loss-period dilution. Non-GAAP measures are company-defined and should be read with GAAP results.
- Management fees increased 40% in Q2 and 37% for the first half, mainly from Rise Climate, TREP IV, Growth V and NewQuest. Q2 fee-related revenue was $255.9m; fee-related earnings were $101.8m, about a 40% margin. First-half fee-related revenue was $496.4m; fee-related earnings were $193.8m, about a 39% margin.
- Performance allocations swung to a $387.5m Q2 loss from $1.893bn income a year earlier. First-half performance allocations were $412.5m versus $2.839bn. TPG cited a 2% portfolio decline in Q2 and 4% appreciation for the first half, compared with 18% and 31% appreciation in the prior-year periods.
- Investment-activity losses were $99.4m in Q2 and $92.8m for the first half, mainly related to Vacasa and Nerdy (NRDY). The filing also reports $5.8m of Q2 and $8.5m of first-half gains from Public SPAC derivative remeasurement, substantially below prior-year gains.
- Cash and cash equivalents were $1.178bn; cash, cash equivalents and restricted cash totaled $1.191bn. TPG reported total liquidity of $1.508bn, including $300m available under a revolving facility and $30m under a subordinated facility.
- Debt obligations were about $444m net carrying value: $200m senior unsecured term loan and $245m net secured securitization borrowings. The term loan matures in December 2024; secured notes mature in 2038 and are repayable only from specified securitized assets. The filing reports covenant compliance on secured borrowings.
- At June 30, total assets were $8.587bn and total liabilities were $4.522bn. Accrued performance allocation compensation was $3.412bn, a significant post-IPO liability.
Changes, outlook and risks
- Compared with the exceptionally strong prior-year periods, GAAP revenue and earnings fell sharply as portfolio marks and performance allocations weakened. Fee revenue grew, but the quarter’s negative capital allocation-based revenue drove total GAAP revenue below zero.
- AUM rose from $113.6bn at December 31, 2021 to $126.7bn at June 30, 2022, supported by $18.2bn of first-half capital raised. FAUM increased to $67.1bn. Available capital was $39.4bn; performance allocation-generating AUM was $76.4bn.
- Management said available liquidity was sufficient for projected operating and debt-service needs for at least the next 12 months. No quantitative earnings or fundraising guidance was provided. In July 2022, after quarter-end, TPG amended its term loan for SOFR and expanded its revolving facility from $300m to $700m, extending maturity to July 2027.
- Management highlighted inflation, rising interest rates, tighter financial conditions, wider credit spreads, declining public-market valuations, geopolitical uncertainty and lingering supply-chain effects. These conditions may affect portfolio values, investment realizations, fundraising, deployment and performance fees.
- Performance allocation valuations are sensitive to fair-value estimates and can reverse materially. At June 30, the estimated clawback if investments were liquidated at current unrealized values was $58.3m net of tax, for which a reserve was recorded; the pre-tax potential clawback if all remaining investments became worthless was $2.010bn, a scenario management considers remote. TPG had $369.7m of unfunded investment commitments.
- The filing describes ongoing Hellas-related litigation and other proceedings; TPG said it had not recorded a liability for pending legal matters and did not expect a material impact, while cautioning that outcomes remain uncertain. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- How fund valuation changes, realized exits and clawback exposure evolve, particularly given the large quarter-to-quarter swing in performance allocations.
- Whether fee growth and fundraising convert into durable FAUM and fee-related earnings as new funds become fee-paying and markets remain volatile.
- The company’s post-IPO compensation structure, including equity-based compensation and performance allocation compensation, and its effects on earnings and distributions.
- Liquidity availability and borrowing terms after the July facility amendments, including borrower, guarantees, covenants and SOFR-related costs.
- The implications of TPG Inc.’s minority economic ownership, non-controlling interests, tax receivable agreement and the reorganization’s effect on comparability with prior periods.
- Whether the declared $0.39 quarterly dividend payable September 2, 2022 is sustainable; the filing does not provide dividend guidance.