Good morning, and welcome to the TPG's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I'll now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin.

Great. Thanks, operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. In addition, our President, Todd Sisitsky, is also here and will be available for the Q&A portion of this morning's call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures. We believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the first quarter, we reported GAAP net income attributable to TPG, Inc., of $16 million and after-tax distributable earnings of $181 million or $0.49 per share of Class A common stock. We declared a dividend of $0.41 per share of Class A common stock, which will be paid on June 3 to holders of record as of May 20. With that, I'll turn the call over to Jon.

Thanks, Gary. Good morning, everyone. TPG entered 2024 with significant momentum as a result of the step function change in scale, diversification and earnings power we experienced last year. This was driven by 3 primary factors: One, our successful fundraises for existing TPG strategies with vintage over vintage growth for our funds in TPG Capital, healthcare partners, Asia and Rise. Since going public, we have completed 6 successor fund raises in our private equity and real estate strategies and increased fund sizes by 27% on average. I'm pleased with the strong results our teams achieved, particularly in the face of a difficult fundraising environment. Two, our continued ability to innovate and grow organically into new areas, such as GP-led secondaries and real estate credit. And three, most notably, our acquisition of Angelo Gordon where we expanded into credit investing at scale and doubled the size of our real estate platform. To frame the breadth of our transformation at the end of the first quarter compared to a year ago, we grew our team over 60% to approximately 1,800 professionals. Our number of strategies increased from 18 to 30. Our fee-paying AUM grew 74% from $79 billion to $137 billion, and importantly, we are now more diversified with scaled platforms across private equity, credit and real estate. The latter 2 asset classes currently represent 44% of our total AUM. I'd like to take a moment to highlight our business in Asia, where we are celebrating our 30th anniversary. Since we first started investing in Asia in 1994, we've built a multi-strategy franchise with dedicated buyout, secondaries and real estate funds. We also actively invest in the region through our global growth and impact funds, and we've been particularly focused on markets such as India, which is one of the fastest-growing economies…

Thanks, Jon, and thank you all for joining us today. We ended the first quarter with $224 billion of total assets under management, up 63% year-over-year. This was driven by $75 billion of acquired AUM from Angelo Gordon, $18 billion of capital raised and $7 billion of value creation, partially offset by $13 billion of realizations over the last 12 months. Fee earning AUM increased 74% year-over-year to $137 billion, and we ended the quarter with more than $51 billion of dry powder, representing 37% of fee earning AUM. We also had AUM subject to fee earning growth of $25 billion at the end of the quarter, of which $14 billion was not yet earning fees. Our fee-related revenue in the first quarter was $451 million, up 70% year-over-year, primarily driven by the acquisition of Angelo Gordon. It's important to point out, though, that in addition to the growth attributed to AG, TPG on a stand-alone basis grew fee-related revenue 20% organically year-over-year. Our Q1 FRR included management fees of $403 million and transaction fees of $34 million. The first quarter is typically seasonally light for new deal closings, but our transaction fees were strong due in part to a number of opportunistic refinancings for our existing portfolio companies, taking advantage of improving credit market conditions. Looking forward, we expect to drive further growth in transaction fees as we expand our capital markets team and integrate our broker-dealer capabilities into the TPG AG platform. We reported fee-related earnings of $182 million for the first quarter, up 84% year-over-year. And our FRE margin was 40%. As we noted on our last call, our normalized margin has blended down through the inclusion of TPG AG, and we now have an opportunity to drive profitable growth through margin expansion. Although our FRE margin…

[Operator Instructions] We'll take our first question from Craig Siegenthaler with Bank of America.

So our question is a big picture one on the investing side of the businesses. And we're focusing on the 3 large legacy TPG businesses, capital impacting growth. So if you strip out Angelo Gordon, the contribution was 55% of deployments, investing activity was somewhat muted in the capital business. So how are your investment pipelines tracking in the legacy TPG businesses? Are you expecting a significant ramp in capital and growth deployments later this year? And we track a lot of the activity. I think Classic Collisions and Olympus Terminals were the only recent announcements that could close in 2Q. I think Olympus was an impact investment too.

Thanks, Craig. I'm going to let Todd start on that.

Yes. I'll start that. Craig, thanks for the question. I don't want to repeat too much of what Jon said, but just from a framing standpoint relative to the legacy businesses, we actually felt very good about the deployment pace and probably as a forward indicator, the pipeline over the past almost a year now. I think we were earlier than some in terms of saying that we're seeing a significant pickup. And as Jon has mentioned, our legacy TPG deployment pace sort of more than doubled in the second half of '23 versus the first half of '23. When I look at the pipelines across our businesses, particularly on the legacy side, I continue to feel like the deployment pace is going to be strong going forward. From a qualitative standpoint, I think there are 2 reasons for that. There are sort of 2 drivers. One is more the macro where in private equity, you see bid-ask spreads narrowing, There's, I think, more of a knee for creative capital solutions that apply certainly to PE Credit Solutions and TTAD and other businesses need for liquidity and recapitalizations in real estate and elsewhere. I also feel like the stuff -- the second driver is more related to our particular approach to private equity, which is that our pipeline and our portfolios have a large number of often proprietary carve-outs structured relationships with strategics. It's really across growth capital Asia real estate and that side of the business has been -- is a little less cyclical, I think, than maybe the first side of the business is why I think we saw the pace increase as much as we did. On your specific comment about TPG Capital, that's our largest pool of capital as a firm. And we just finished fundraising…

Craig, the only thing I would add, and then we can move on is that just having come back from 2 days down at Milken and seeing a lot of our LPs, a lot of clients. The -- to Todd's point, we feel like our pipeline just deal flow around our firm is generally really strong. I think that one of the interesting, I think, questions going on in the market right now is the importance of -- and I think we're very focused on this is the importance of selectivity. And we definitely see an uptick in terms of overall kind of deal flow. I think the questions also relate to pricing in a number of cases as well because with financing having gotten much more fluid and available. And we're -- relative to last year, I think we see an increase in sponsor-to-sponsor level activity given the pressures on sponsors to try to return capital. And I think also again, as Todd said, we felt we were a little earlier in terms of some deal activity in the third and fourth quarters of last year. We liked the prices a lot, and we like our deal flow a lot I think that we're now seeing signs of, in some cases, what look like people sort of jumping over one another a little bit in terms of pricing and valuation. So I think there's some -- I think just continuing to keep our eyes on being selective and being focused on performance is something that's front and center for us.

Our next question comes from Ken Worthington with JPMorgan.

I was hoping to get more color on your prepared remarks on the integration of Angelo Gordon. You mentioned cross marketing is well underway. What sort of reception are you getting given you have a number of Angelo Gordon funds in market this year. And as you think bigger picture about Angelo Gordon and next steps for growth, what are the priorities, say, over the next 12 months and then over the next 3 years as you build out the business?

Good question. I mean, I think that if you were a fly on the wall inside of this organization, you wouldn't be able to miss the level of focus and intensity around the engagement between kind of TPG AG. And as I say that, too, I just think that the other sort of -- the other dynamic that I guess I would point to is that the integration of our 2 firms has gone extremely well. And again, every day, I think we don't think of ourselves as 2 firms. We think ourselves as 1 firm. And we've spent a lot of time using resources across both organizations to systematically deploy into our LP bases. And so all of us that do this very routinely in terms of meeting with our most significant relationships around the world are organizing and deploying together to make sure that it's clear that we are on firm now and that the strategies that are represented under the -- what was the AG umbrella are core parts of our strategy here as a firm. So if you were with me on my trip to the Middle East 2 weeks ago, you wouldn't be able to differentiate between me talking about our private equity strategies or our real estate strategies or our credit strategies. In other words, it's a core part of what we're talking about. And I think that as we do that, we're also having many, many meetings and discussions like down at Milken over the last 2 days. Most of our meetings were some combination of our private equity team and our credit teams together because one of the things that we feel is a differentiated part of our business now and our model is that we have the ability just like we've…

Ken, it's Jack. I would just add, you asked kind of what we're focused on going forward. As I think about it, it's scaling the existing TPG AG credit businesses, which we've talked about. It's innovating new products together and penetrating new channels together, including insurance. It opens up the -- obviously, the addition of the TPG AG credit businesses opens up the insurance channel like we've never had access to before, we're very focused on that. On scaling their existing businesses, as I mentioned in my comments, we are making very good progress with TPG's historically larger LPs in introducing the credit platforms to them. Jon talked about the ship to Middle East, the meetings at book and the fact is that we just launched most of those campaigns this year. And creating a new LP relationship in a new asset class is a multi-meeting cycle. So we're halfway through those meetings with some of our largest LPs. As I mentioned in my remarks, we will be sharing more about that in the coming quarters as we complete that multi-meeting cycle and bring in new clients to that platform.

Our next question comes from Alex Blostein with Goldman Sachs.

So one of the key elements of growth strategy for the firm has been expansion into wealth. You highlighted a couple of things on this as well. But can you speak a little more to the sort of product development you expect to have over the next kind of 12 to 18 months when it comes to the wealth channel, both in terms of maybe the semi-liquid products and any other sources of capital raising you see there?

Sure. Thanks, Alex. I'll start on that, it's Jack. Look, we're very focused, as we've been saying, on expanding our presence in the wealth platform, and that's got multiple dimensions to it. Where internally, we're significantly building our own resources in that area, building out our distribution team focused on wealth. On the new product side, we definitely see significant movement of client demand into permanent capital open-ended structures. We've obviously got TCAP, the direct lending vehicle in the market. We've got a couple of other vehicles already focused on that. We don't yet have a private equity semi-liquid product, but we're actively working on that. and expect to launch it early next year at the latest. And we expect that to be -- as you know, our performance across our private equity products around the world has been differentiated. And I would just say that all of our conversations with our partners on the bank channel side, they are very eager to have a differentiated TPG semiliquid private equity product in their channel. So we intend to keep pursuing that and other ways to access, which obviously is where client demand is slowing. It's also beneficial to us to have more stable and growing sources of capital that don't rely upon starting from scratch each fundraising cycle.

Our next question comes from Michael Cyprys with Morgan Stanley.

Just hoping to circle back to credit for a moment. I understand you have all -- I believe all your credit strategies and the market capital raising this year. I think you reiterated your expectations to raise over $10 billion in credit. But question, how should we think about the growth profile of the credit business on a multiyear basis? Would you anticipate any sort of slowdown in '25 or '26 as some of those strategies won't be in the market raising or do you think you can maintain or even grow that $10 billion pace on a multiyear basis? Just curious how you're thinking about that and what some of the biggest contributors might be within credit?

Mike. Well, I think with respect to sort of the long-term growth profile, I think that -- and this is something that we talked about just after having completed the acquisition. If you look at the platforms within the credit business, all of them continue to outsource and out-originate the underlying capital base. So we have a factory and a team and a capability that's been built that I think I would describe as undercapitalized and that's obviously a clear opportunity for us. So the focus on raising over $10 billion of capital this year is the beginning of rightsizing the capital base associated with that business. I think that we have many opportunities as we digging into the business, if you look across our platform, and we have -- and you look at, for instance, our direct lending business, our Credit Solutions business and our structured credit business, I think we're in the right neighborhood in all 3 of those businesses in terms of what's coming and what's happening just in terms of the flows. If you look at our direct lending business, where we're currently focused on the lower middle market. We had our largest sourcing and origination quarter in the history of the business. And so the ability to continue to scale that business within the lower middle market and our differentiated position there is, I think, provides continued upside in growth within that platform. I mean just to give you an idea, right, we had new loan deployment in the first quarter of $1.7 billion. Just to give you a relative framework, the previous high quarter -- the previous high watermark for another quarter was the first quarter of 2021, where we originated $1 billion. So with the level of activity stepping up add-ons to the…

Our next question comes from Dan Fannon with Jefferies.

Jack, I wanted to follow up on your comments around transaction fees and maybe separate the near-term based upon activity levels and then the longer-term opportunity as you get the benefit fully from Angelo Gordon. And then also maybe if there was a split between the revenue contribution of the 2 businesses in this quarter to maybe get a sense of how that's tracking?

Sure. Let me start with the last question because it kind of frames the rest of it. The transaction fees in Q1 were almost entirely associated with legacy TPG businesses. Think about almost nothing coming from AG because that requires a little bit of work. We're in the process of integrating the broker-dealer into their businesses, requires a little bit of new hires. It requires a little bit of work on their fund documents to allow for more capital markets business. So that will be a growth driver going forward. The baseline in Q1 was a little higher than we indicated on our last call, we thought it would be because we didn't see a big enough new deal closing pipeline to get to the kind of levels we got to. As I mentioned in my remarks, that ended up being amplified by some opportunistic refinancing as credit spreads tightened, and we're able to improve the capital structures of many of our private equity portfolio companies. As I think about it, the current quarter represents a decent kind of average run rate for TPG's existing business in capital markets. We've -- we're expanding our -- and then from there, the growth will come from a couple of things. Number one, expanding that capability across more of TPG's business, as we grow in climate, as we grow in climate infrastructure. There are a lot of ancillary capital markets needs around those businesses and we intend to build a capital markets business to service those needs more broadly than just our private equity focus today. And then secondly, the AG opportunity, which I think you should expect to kick in really late this year and into next year as we keep doing the work that I outlined. So that -- those 2 elements on top of the current quarter, of course, you're going to see fluctuations quarter-to-quarter. But as you think about kind of the baseline for that business, over the coming couple of years, those 2 opportunities will create kind of 2 steps up in the average opportunity in that business.

Our next question comes from Brian McKenna with Citizens JMP.

So a follow-up on AG Credit. How should we think about the change to fundraising and how that flows through into fee earning AUM? I'm assuming this will be more driven by deployment activity, but is there a way to think about the ramp of fee earning AUM inflows throughout 2024 for the segment, specifically? And then I know there can be some noise quarter-to-quarter on fee rates, but are the first quarter fee rates for AG Credit and AG real estate, good starting points for 2Q and beyond?

I'll start on that, I guess. I think the way I think about kind of the credit business flowing into FAUM is, first and foremost, deployment because almost all of the capital in that business pays fees on deployed capital only. I think all the fundraising you see us talking about in doing this year, the more than $10 billion is really setting us up for the second leg of growth next year. Most of the funds we're raising this year, some will be deployed this year, but it's hard to -- in your modeling, it's hard to draw a direct connection between this year's fundraising and 2024 FAUM and FRR, that's more driven by deployment pace in the near term. And I think on the average fee rate question, there's nothing abnormal in the first quarter there. As we talked about at the analysts, I guess the only thing I'd say is that there are obviously 3 or 4 different -- very different businesses within AG Credit, and the average fee rate will be driven more by the deployment mix across those businesses than it will be by some kind of macro factor.

Our next question comes from Adam Beatty with UBS.

I want to follow up on the wealth management channel, focusing on your existing product set and your existing distribution relationships. I know there's a lot more to come on both those dimensions. But just trying to get a sense of among your distribution partners in wealth right now, how many of the products, Jon mentioned several products, out there targeting wealth. How many of those are on a given platform, what's kind of the average or what have you. What I'm trying to get at is maybe the near term, maybe next 12 months opportunity where you have a distribution relationship in wealth, you already have 1 or 2 products on there, but maybe not all of them. So how you could maybe roll more of those into those relationships in the near term.

I think, as I mentioned in my comments, I think that what we have progressively over the last several years, it's not -- this is not a new phenomenon this year continue to be disciplined about establishing distribution arrangements and wealth arrangements for essentially every strategy we bring to market through various partners of ours. And of course, as you would imagine, we have multiple relationships and multiple partners, which we highly value. And that those products, in some cases, are being distributed through, in some cases, one partner. And in some cases, a particular strategy is being distributed actually through multiple partners depending on the sequencing of when we're launching and then frankly, the calendar schedule that our partners have as well in terms of kind of queuing up various strategies. And those are for sort of the traditional fund structures that we've historically brought to market. And we're continuing to do that, and we've ramped that over last year and now into this year. So to the extent that you see products of ours that are in the market that we're fundraising for, there will be a private well strategy around essentially all of them. We are, as we said before, and obviously, all of the important partners in the market are partners of ours as a result of our brand and our performance and the relationship that we've established with those partners over time through multiple interactions at different levels of these organizations. And I spend time, Jack spends time, Todd's spends time, Jim spends time with meeting with these partners, both in terms of the strategic relationship at the top of the house as well as on the key people that are driving those distribution relationships into private wealth and marketing our brand, marketing our strategies,…

Our final question comes from Bill Katz with TD Cowen.

So maybe a question on your longer-term FRE margins sort of heard the affirmation of sort of getting to that 40% plus margin for this year. But as you think about the step function of the scaling of the credit platform, the scaling of your capital solutions footprint. I was just sort of wondering, as we look beyond '24 into '25, maybe '26, how do you sort of see the profile of the company? Can you realign with some of the bigger peers? Or is there a different sort of glide path from here?

Yes. Good question, Bill. We have not provided any longer-term FRE margin guidance other than to say that we do believe we'll be expanding back to 45% and eventually higher, which was our initial TPG target margin. As you think about our margin profile and the reason we reiterated 40% for this year, think about a lot of the FRR contributors and the fundraising activity we have this year, our current assumption is that the biggest fundraises we're in the market with right now that have fees on committed capital, that being across all the climate strategies, we're assuming those probably turn on in the third and fourth quarter of this year, that means that FRR from those businesses doesn't really pick up meaningfully until I call it the fourth quarter. We could be wrong about that. We could accelerate the activation earlier, but that's our assumption. But during the course of the year, the investment we're making in raising those funds, which will become more and more visible in the coming quarters, will set us up for more meaningful FRR growth next year as you get the annualized benefit of that plus accelerated credit deployment. So as we're thinking about the FRE margin trajectory, we do believe that the guidance toward exceeding 40% this year is the right guidance. And then we'll begin to see an acceleration of FRE margin expansion next year as some of those FRR drivers kick in next year. And there's no reason we shouldn't get back to 45% and eventually higher than that as we keep scaling our business.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks.

Great. Thank you. Thank you all for joining us today. We look forward to speaking to you again next quarter. And in the meantime, if you have any questions, feel free to follow up with the IR team.

Thanks, everyone.

This concludes today's TPG's First Quarter 2024 Earnings Call and webcast. You may disconnect your line at this time, and have a wonderful day.