TPG Inc. — Q1 2023 Form 10-Q
Business context and period. TPG is a global alternative asset manager operating across private equity, growth, impact, real estate and market-solutions strategies. This unaudited report covers the three months ended March 31, 2023, compared with the prior-year quarter. TPG reported approximately $137.1 billion of AUM and $78.8 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 performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $643.1 million | $1,110.7 million |
| Fees and other revenue | $311.5 million | $273.0 million |
| Capital allocation-based income | $331.7 million | $837.7 million |
| Net income | $35.7 million | $162.8 million |
| Net income attributable to TPG Inc. | $25.1 million | $41.3 million |
| Basic / diluted Class A EPS | $0.27 / $(0.01) | $0.52 / $0.11 |
| Operating cash flow | $35.8 million | $713.6 million |
| Fee-related earnings (non-GAAP) | $99.3 million | $92.0 million |
| Distributable earnings (non-GAAP) | $97.0 million | $215.5 million |
| After-tax distributable earnings (non-GAAP) | $87.8 million | $199.0 million |
Fees and other increased 14%, led by a 22% rise in management fees as newer funds began earning fees; lower transaction and monitoring activity partly offset the increase. Total revenue fell 42%, principally because performance allocations declined 61% to $315.7 million. Realized performance allocations were $152.8 million versus $585.7 million, while unrealized gains were $162.9 million versus $214.3 million. TPG said its portfolio appreciated approximately 3% during the quarter.
Total expenses were $620.1 million, down from $942.5 million, mainly reflecting lower performance-allocation compensation. Income before tax was $47.8 million; income tax expense was $12.1 million, with a 25.3% effective tax rate. Fee-related earnings rose 8%; calculated against fee-related revenue of $265.5 million, FRE was approximately 37% of fee-related revenue. The company cautions that its non-GAAP measures are not substitutes for GAAP results and may not be comparable with other managers.
Cash and cash equivalents were $931.9 million at March 31, down from $1,107.5 million at year-end; restricted cash was $13.3 million. Management reported total liquidity of $1.66 billion, including $700 million of undrawn revolving capacity and $30 million of subordinated-facility capacity. Debt obligations were $444.7 million: a $199.4 million senior unsecured term loan and $245.3 million of securitization borrowings. The $700 million revolver and $30 million subordinated facility had no borrowings outstanding at quarter-end. Management said current liquidity was sufficient for projected needs for at least 12 months.
Operating cash flow declined sharply from the prior year, when it included substantially higher investment proceeds. Financing used $210.3 million, primarily for dividends and distributions; investing used $0.9 million. A $0.50-per-share dividend was paid in March. In May, the board declared a $0.20-per-share dividend payable in June.
Material changes and outlook
- AUM increased from $135.0 billion at year-end to $137.1 billion. Capital raised was $2.0 billion, below $5.4 billion a year earlier; realizations were $2.3 billion versus $4.8 billion.
- FAUM rose from $77.9 billion to $78.8 billion, supported by fee activation and fundraising. Annualized weighted-average management fees were 1.27% of FAUM.
- Market conditions included banking-sector uncertainty, persistent inflation and continued Federal Reserve rate increases. Management cited the importance of fundraising, investment returns, deployment opportunities, product demand and retaining talent. The filing gives no specific full-year financial guidance.
- On May 15, after quarter-end, TPG announced an agreement to acquire Angelo, Gordon & Co. and affiliated entities. Stated consideration includes $970 million cash, up to approximately 62.5 million TPG Operating Group units and matching Class B shares, and a potential earnout of up to $400 million tied to 2026 fee-related revenue targets. The deal requires regulatory approvals and customary conditions; timing, purchase-price adjustments, integration costs and realization of benefits are uncertain.
- On April 17, TPG Pace Beneficial II redeemed its public shares after failing to complete a business combination and began winding up. Its trust assets were restricted to the SPAC’s purposes and should not be treated as general corporate liquidity. A new $150 million, 364-day revolving facility was entered into by a subsidiary on April 14, with a TPG equity commitment.
Risks, contingencies and unusual items
- Performance-allocation revenue depends on fund valuations and cumulative performance and can reverse. At quarter-end, the estimated clawback if all remaining investments were worthless was $1.86 billion, a scenario management viewed as remote; the estimated clawback at current unrealized values was $58.3 million net of tax, for which a reserve was recorded.
- TPG reported $339.3 million of unfunded investment commitments. It also disclosed guarantees and other contingent obligations; securitization debt is repayable only from specified underlying collections and restricted cash.
- Private investment valuations rely partly on estimates and unobservable inputs; realized values may differ materially. TPG reported no material change in market risk and said it was in compliance with secured-borrowing covenants.
- The company is cooperating with an SEC document request concerning business-related electronic communications. It described ongoing Hellas-related litigation and other proceedings, said it had not accrued a material legal liability, and cautioned that adverse outcomes remain possible.
- The company recorded $11.0 million of non-core expenses related to the proposed Angelo Gordon transaction, one-time compensation arrangements and other items. The quarter’s basic and diluted EPS differ notably because of the partnership-unit exchange and non-controlling-interest accounting.
Important facts for investors to verify
- Review the Angelo Gordon agreement, financing and expected dilution, regulatory conditions, earnout terms and integration risks.
- Assess the sustainability and cash conversion of fees and FRE separately from volatile performance allocations and non-GAAP distributable earnings.
- Reconcile reported cash and liquidity to amounts restricted to SPACs, securitization vehicles and other entities, and track the new subsidiary facility and equity commitment.
- Monitor fund valuations, realization activity, clawback exposure and the assumptions underlying reported AUM and fund-performance metrics.
- Check subsequent filings for developments in the SEC inquiry, Hellas litigation, SPAC wind-down and dividend declarations.