TPG Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. TPG is a global alternative asset manager across private equity, growth, impact, real estate and market-solutions strategies. The quarter includes the January 2022 corporate reorganization and IPO, making comparisons with 2021—when TPG was a private partnership and consolidated certain funds—materially affected by changes in ownership, tax status, consolidation and expense presentation.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Total revenue | $1,110.7 million | $1,204.7 million | Down 8% |
| Fees and other | $273.0 million | $210.2 million | Up 30%; management fees rose 33% |
| Capital allocation-based income | $837.7 million | $994.6 million | Down 16%; includes performance allocations and capital interests |
| Net income | $162.8 million | $1,161.3 million | Down substantially; periods are not directly comparable |
| Net income attributable to TPG Inc. after IPO | $41.3 million | Not applicable | Q1 2022 basic/diluted EPS: $0.52/$0.11 |
| Fee-related earnings (non-GAAP) | $92.0 million | $33.6 million | Up; calculated FRE margin was approximately 38% versus 17% |
| Distributable earnings (non-GAAP) | $215.5 million | $102.7 million | Up; after-tax DE was $199.0 million versus $99.4 million |
| Cash flow from operations | $713.6 million | $240.8 million | Primarily reflected $662.5 million of investment proceeds, versus $168.2 million |
- Assets under management: $120.4 billion at quarter-end, up from $95.2 billion a year earlier. Fee-earning AUM was $64.2 billion versus $51.1 billion.
- Fundraising and activity: Capital raised was $5.4 billion, capital invested $4.4 billion and realizations $4.8 billion in the quarter. Management reported 7% realized and unrealized portfolio appreciation, compared with 11% in Q1 2021.
- Cash and liquidity: Cash and cash equivalents were $1,454.6 million at March 31; total reported liquidity was $1,784.6 million, including $300 million available under a revolving facility and $30 million under a subordinated facility. The liquidity figure excludes $13.1 million of restricted cash. Some consolidated-entity and SPAC cash is restricted or unavailable for general corporate needs; management identified $583.2 million as attributable to the Operating Group and securitization vehicles.
- Debt: Debt obligations totaled approximately $444.0 million: $200 million principal under a senior unsecured term loan maturing December 2024, and $250 million principal of securitization notes, reported net of issuance costs. The securitization notes are repayable only from specified collateral and cash flows. TPG reported compliance with their covenants.
- Balance sheet: Total assets were $9.66 billion and total liabilities $5.24 billion. Liabilities include $4.07 billion of accrued performance allocation compensation, reflecting post-IPO accounting and compensation treatment; this is not ordinary funded debt.
Material changes and unusual items
- The January reorganization and IPO changed TPG’s corporate and tax structure and reduced TPG Inc.’s ownership of the Operating Group to approximately 26% by February 9. IPO proceeds to TPG were approximately $770.9 million, with an additional $49.8 million from the underwriters’ option; proceeds were partly used to acquire Operating Group units.
- Performance allocations declined 15% year over year, to $800.0 million, primarily because portfolio appreciation was lower. Realized performance allocations rose to $585.7 million from $133.6 million, while unrealized performance allocations fell to $214.3 million from $812.5 million.
- Q1 2022 expenses included $523.1 million of performance allocation compensation and $185.9 million of equity-based compensation, with no corresponding amounts in Q1 2021. The filing attributes this mainly to post-IPO treatment and awards. General, administrative and other expense rose 92%, including a $20.6 million insurance policy purchased in connection with the IPO and higher professional and operating costs.
- Management fees increased with newer fund activity, including Rise Climate and TREP IV, and the NewQuest acquisition. TPG completed the acquisition of NewQuest’s remaining 33.3% interest in January, issuing equity subject to service vesting.
- Net investment gains fell to $6.6 million from $72.4 million. The prior period included entities and investments that were deconsolidated or transferred to RemainCo. Public SPAC warrant and forward-purchase derivative gains were $2.7 million versus $87.6 million in Q1 2021.
Outlook, risks and contingencies
- Management said current liquidity, operating cash generation and available borrowing capacity should meet projected operating and debt-service needs for at least the next 12 months. The filing gives no specific earnings or revenue guidance.
- Management highlighted first-quarter volatility, inflation, tightening monetary policy, supply-chain and labor pressures, and the conflict in Europe. Results and fundraising remain sensitive to market valuations, investment performance, realizations, capital raising and deployment, and competition for talent and investor capital. COVID-19-related disruptions remain a risk.
- Clawback exposure was $58.3 million net of tax if fund investments were liquidated at current unrealized values, for which a reserve was recorded. A remote, severe-case estimate—if all remaining investments became worthless—was $1.82 billion pretax.
- TPG reported $330.1 million of unfunded investment commitments and $698.2 million of maximum obligations under guarantees; outstanding debt related to those guarantees was $358.6 million. It also disclosed $207.6 million of unfunded commitments by investors to consolidated SPACs.
- TPG said it had no pending legal proceeding expected to materially affect its financial statements, but noted ongoing litigation relating to the historical Hellas investment and cautioned that outcomes are unpredictable. The company’s tax receivable agreement generally requires payment of 85% of applicable tax savings actually realized or deemed realized.
- The board declared a $0.44-per-share Class A quarterly dividend on May 10, payable June 3, 2022. Management reported disclosure controls effective at March 31 and no material change in internal control over financial reporting.
Important facts for investors to verify
- Assess Q1 results using the filing’s pro forma and non-GAAP reconciliations: the IPO, reorganization, non-controlling interests, fund deconsolidations and newly recognized compensation make reported GAAP year-over-year comparisons unusually difficult.
- Review the composition, realizability and sensitivity of performance allocations, including the sharp shift from unrealized to realized allocations and the potential clawback obligations.
- Confirm how much reported cash and borrowing capacity is available to TPG Inc. for general use, given restricted cash, SPAC trust assets and the distinction between TPG Inc. and the Operating Group.
- Track fundraising, fee-earning AUM, portfolio valuations and realizations as markets respond to higher rates, inflation and geopolitical uncertainty; private-asset valuations involve judgment and may differ from eventual proceeds.
- Review the cost and dilution implications of equity awards, the Operating Group’s non-controlling interests, the tax receivable agreement and future dividend capacity.