Good morning and welcome to the TPG Second 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 will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may now begin.

Thanks, operator and welcome everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter; and our President, Todd Sisitsky, are 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, and 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 second quarter we produced a GAAP net loss attributable to TPG, Inc. of $14 million and after-tax distributable earnings of $207 million or $0.49 per share of Class A common stock. We declared a dividend of $0.42 per share of Class A common stock which will be paid on August 30, 2024, to holders of record as of August 16, 2024. I’ll now turn the call over to Jon.

Thanks, Gary. Good morning, everyone. Our strong second quarter results highlight the significant momentum across our business as we continue to successfully scale and diversify. We finished the quarter with $229 billion and $137 billion of fee-earning AUM across more than 30 strategies in private equity, credit and real estate. Over the course of last year, we drove a step function change in our growth profile and earnings power as a result of both organic and inorganic activity. Our firm is capitalizing on our expanded breadth. And in my comments today, I’ll focus on two areas in particular. First, the strong momentum in our capital raises across our diversified product base; and second, our active pace of deployment and the differentiated deal types we are sourcing across our platforms. In addition to these two topics before I hand the call over to Jack, I’ll also touch on the significant market volatility that’s been taking place over the last few trading days. Beginning with fund phone raising, we raised $6.3 billion in the second quarter. Importantly, over 70% of this capital or $4.5 billion was raised across our credit strategies. During the quarter, we held the final close for Twin Brooks’ fifth drawdown fund. In total, we raised $3.9 billion, which exceeded our original fund target and is 13% larger than its predecessor. This successful outcome was driven by Twin Brooks’ strong investment track record and differentiated focus on sponsor-backed lower middle market companies as investors seek to complement and diversify their exposure to the U.S. direct lending market. In addition to receiving strong support from existing clients, Twin Brook meaningfully expanded its investor base globally, particularly in Asia, and increased diversification towards sovereign wealth funds as well as multinational insurance companies in Europe and Japan. This campaign is a strong…

Thank you, John, and thanks to all of you for joining us today. We ended the second quarter with $229 billion of total assets under management, up 65% year-over-year. This was driven by $75 billion of acquired AUM from Angelo Gordon, $23 billion of capital raised and $11 billion of value creation, partially offset by $17 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 $53 billion of dry powder, representing 39% of fee-earning AUM. We also had AUM subject to fee-earning growth of $25 billion at the end of the quarter. This includes $16 billion of AUM not yet earning fees, which increased 17% sequentially and as a result of the strong fundraising progress we made across our credit businesses this quarter. Our fee-related revenue in the second quarter was $459 million, up 61% year-over-year, primarily driven by the acquisition of Angelo Gordon. In addition to the contribution from TPG AG on a stand-alone basis, TPG grew fee-related revenue 13% organically year-over-year. Our Q2 FRR included management fees of $413 million and continued strong transaction fees of $34 million. Following a strong first half of the year, we expect capital markets revenue to be more muted in the third quarter due to deal-specific factors. As we look to the end of the year, we expect capital markets activity to accelerate into 2025 and as our new investment pipeline remains strong, and we begin to see the benefits of integrating our broker-dealer capabilities into our credit platform. We reported fee-related earnings of $201 million for the second quarter, up 60% year-over-year. Our FRE margin of 44% in the quarter was above trend as we benefited from incremental catch-up fees, strong transaction fees and lower-than-expected cash…

Thank you. [Operator Instructions] Our first question will come from Alex Blostein with Goldman Sachs. Please go ahead.

Hi, good morning, everyone. Thanks for the question. I want to start with credit. So at a high level, trend sound pretty good on both deployment and the fundraising side, but obviously, banking line was flat sequentially. Could help bridge sort of what were some of the offsets in the quarter? And then more importantly, talk a little bit about your growth outlook in credit with respect to management fees and fee-paying AUM over the next 12 months. Thanks.

Sure. Alex, it’s Jack. I’ll start on that. On the quarter, the reason the fee paying AUM was relatively flat quarter-over-quarter is because, as you’d expect, the $4.5 billion of credit capital we raised during the quarter really, none of that was upon being raised. It turns into fee-paying AUM as we deploy it. So that’s why you saw AUM growth quarter-over-quarter, but really no FAUM growth. And that’s why, to my comments, the AUM subject to fee step-up increased so much quarter-over-quarter. So that’s how you – that’s how I would think through kind of that bridge. Now we do expect accelerated FAUM growth in credit as we work through the year next year and deploy the capital that we just raised in the first and second quarter, and we expect to continue raising in the back half of the year.

And Alex, I guess the only thing I would add to that on the deployment outlook going forward is, I think you heard in our comments, what we have going on at Twin Brook and our direct lending platform. We’re on a record pace by a meaningful margin in terms of the uptick in activity in the lower middle market sponsor space. And when you look at the originations there, one interesting dynamic to it is somewhere in the vicinity of around 40% of the origination volume there is essentially add-ons to the existing portfolio. So the base portfolio that Jack had referred to in his comments, continues to just generate with add-on acquisitions, tuck-ins, etcetera, continues to just generate a substantial amount of inherent growth in the portfolio beyond the 60% of the growth that’s basically new buyouts. On the Credit Solutions side, which we’ve talked about a number of times, I mentioned in my comments, obviously, that our essential housing business is very active. Jack mentioned in his comments that we – our team has actively been liquidating and selling most of our public book that we accumulated over the course of 2023 and maybe early ‘24 and given spread tightening and the contraction and essentially the compression in spreads. You can see what the value creation looks like in that book. But essentially, we spent a lot of time monetizing the – we pivoted, as you would expect, given the nature of what’s happening in terms of the refinancing challenges in the market for some of the highly levered companies, we pivot to private opportunities. And just to give you an idea of the flow of that, we kind of look at – we’re engaged with many sponsors around the market we sort of measure that flow…

Our next question will come from Craig Siegenthaler from Bank of America. Please go ahead.

Good morning, John, Jack. I hope everyone is doing well. We have a modeling question on the fee-earning AUM quarterly roll for it. In credit, you raised $4.5 billion and you also invested $4.5 billion, but fee-earning AUM only grew by $200 million and the fee earning AUM inflow is just $300 million. So I know I just threw a lot of numbers out there, but my question is why didn’t fee-earning AUM in credit growth faster in the quarter, just given how big the fundraising and deployment numbers were? What am I missing?

Craig, the $4.5 billion of capital we raised during the quarter, really none of that shows up as fee-earning AUM as of the end of the quarter. It was raised, it’s dry powder ready to invest, but it doesn’t flow into fee-earning AUM until deployed, which will happen in subsequent quarters.

Got it. But you also invested $4.5 billion of prior capital. So wouldn’t that have triggered fee increases.

Right. I’m just looking for the number. That should – I think it was definitely offset by realizations during the quarter.

Got it.

We can follow up with you and...

Yes, we can follow up there. I was just – I was really curious because the fundraising number was so big and the investing number was also so big. And between the two, I figured that would have drove a larger increase in fee-earning AUM.

It was – basically, all the capital we raised during the quarter was not fee earning and our deployed capital was roughly offset by monetizations. We can follow-up and share those numbers with you.

Our next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Hey, good morning. Thank you for taking the question. Maybe just sticking with credit and the AG deal. You mentioned some overseas investors coming into the Twin Brook fund sounds like some maybe distribution synergies happening there. Maybe you could just elaborate a bit on some of the synergies you’ve realized so far from bringing Angelo Gordon into the franchise. And as you look out over the next 12, 24 months, maybe you could just update us on your latest thoughts around synergies that you’d expect to drive across the business as you look out from here. And I know one of the things you’re looking to do is to help the Ag credit business move up market a little bit. So maybe you could just update us on kind of where that initiative stands. Thank you.

Yes. Thanks, Mike. The – on the fundraising side, I think that we have experienced a – what I think of as a fair amount of crossover between our LP bases. And as we talked about, as part of sort of the underlying thesis and growth drivers for the AG acquisition, we felt like that was a major opportunity for us in terms of being able to cross-sell into both historical pools of capital that haven’t participated with AG and also just the size and scale of some of those pools of capital. So that really is beginning to take shape. And as an example, if you look at the Twin Brook fund raise, there are a number of cases where we have been able to successfully by partnering together between our two fundraising groups, that’s an area where there were a number of examples where both some combination of sovereign wealth funds, large pensions and particularly international penetration. If you look at the footprint of TPG’s LP base and the existing footprint of AGs at the time of the acquisition, the global scale of TPG’s footprint was quite a bit larger. And so when you look at what we have been able to do and are continuing to do with in the Asia region, in the Middle East, in Europe, I think we’ve been very happy with the progress that we’re making in terms of both mandates that we’ve gotten as well as engagement that we continue to have across the credit platform. Same thing is true, by the way, and really across the entire platform from Twin Brook to Credit Solutions to structured credit. And so I expect what you’ll be hearing from us as we continue to form capital is you’ll be hearing similar things with respect…

Hey, Mike, it’s Jack. Just a little more data for you on the Twin Brook fundraising migration, if you look at the last fund, Fund IV versus Fund V, which we just completed raising. The U.S. represented about 61% of Fund IV LP base, and this went down to 36% in Fund V replaced by significant growth in the Asia Pac as John said, as well as Europe and the Middle East. And by type of investor, insurance companies represented only 6% and of the LP base in Fund IV and 29% in Fund V. And sovereign wealth went from 1% to 17%. So I think those numbers give you a real sense for the kind of the synergy we’re seeing on distribution. And by the way, obviously, the closed-end fund MDL5 is not the end of fundraising for Twin Brook. We have a number – not just TCAP in the high net worth channel, but we have a number of large SMAs. We’re in the process of raising that will sit alongside MD as additional sources of capital, as you can imagine, those SMAs are oriented toward our large historical client base as well.

Great. Thank you so much for all the color. Appreciate it.

Our next question will come from Ken Worthington with JPMorgan.

[indiscernible] late hiring and catch up fees boosting margin this quarter. Were there any unusual other unusual items impacting compensation? And is the delayed hiring expected to be resolved later this year. And then on margin as well, as we think about Angelo Gordon, I know the focus has been top line growth and things look great so far. Are there also efficiencies that you’re bringing to the AG platform that has contributed to sort of the improving margins you’re seeing at sort of TPT proper?

Sure. I think, Ken, you broke up a little bit at the beginning of your question, but I think I got the gist of it. On the margin profile, in particular, I think you were asking about the comp expense in Q2. I think last quarter, we mentioned that our comp expense in Q1 was unusually high because of the elevated RSU-related expenses, and that will be flowing through as a seasonal factor in Q1 each year. So stepping down off of that number was not unexpected. The other piece of it that I referred to is we are, as we’ve talked about in the process of hiring to expand the business in all the ways that we’ve talked about. And much of that hiring did not kick in – to answer your question, we do expect that to kick in, in Q3 and Q4. So I would expect that comp expense line to normalize in Q3 and Q4. On the cost synergy side, as we’ve always talked about, this is not – this was never a transaction premised on cost synergies. We’re much more focused on what we just answered on revenue synergies, and we’re very optimistic about that. That being said, of course, we’re looking to operate a cost-efficient business. And I’d say at this point, we believe we’ve realized at least $30 million of cost synergies, and we intend to invest most of that back into things like expanding our product development and expanding our distribution capabilities.

The only thing I just want to add to that is that just in terms of integration and the functioning of the organization, we have executed a full integration of all of our services functions, all of our operational functions, etcetera. So that is basically completely done and working very smoothly. So just in terms of the ability to benefit from scale as we grow. We feel like the full integration and the capabilities of the two firms combined will support that as well.

Great. Thank you very much.

Thanks, Ken.

Our next question will come from Glenn Schorr with Evercore. Please go ahead.

Hi, thanks very much. Hello. So I was hoping for a little color on Twin Brook. Your track record is great. You mentioned all senior secured first lien, good covenants, almost no loss as ever. So I don’t feel bad asking a question of some people think of a middle-market player that plays in a $24 million average EBITDA more at risk in a client base that’s more at risk in a decelerating economic backdrop. Maybe you could talk about the control aspect and why that hasn’t actually been the case in the past.

Yes. That’s a good question, Glenn. Thank you for that. Well, first of all, I think that it’s a timely question because I just got back a week ago from spending a few days in Chicago with our Twin Brook team and digging into sort of all aspects of what we’re doing there. And it was a great opportunity to kind of just get deep in the portfolio. I think that – I think you’re right to say that if you had a general statement that smaller companies are riskier than larger companies, I think it’s generally correct. However, when you look at the way the business works at Twin Brook, a couple of comments. One is that the relationship that we have with the middle market sponsors that we are working with our deep and long history relationships. And so we have a very good understanding for how they look at value, how they manage their portfolios. And I think that, that familiarity and that partnership orientation in terms of how we work with them, is very much partnership like. And I would say that, obviously, being TPG and being on the other side of the lending equation, as it relates to financing our own buyouts. I would say, generally, I would describe it as less transactional, if you will, because of the nature of how loans are structured, the covenant structures surrounding them and the engagement process, particularly for – particularly as a result of what I had mentioned before in terms of the add-ons to portfolios over time. We are serially engaged with these sponsors and serially engaged with the portfolio. Each time we go through that process, by the way, there is an interesting dynamic that goes on, which is, it allows for some level of…

That’s great color. Thank you.

Our next question comes from Adam Beatty with UBS. Please go ahead.

Thank you and good morning. I want to ask about real estate. It looks like pretty balanced deployment in the quarter. And from the tone of Jon’s comments, it seems like maybe you are leaning in a little bit, my words, but I appreciate your take on kind of the opportunity set there, how you are managing risk given some lingering uncertainty? And also, if you could, maybe a few words on the complementarity of the TPG AG real estate capability with the legacy TPG capability. Thanks.

Yes, that’s a good question. I think – let me start with the back end of the question, which is the complementarity. Our businesses – both businesses have been around for quite a long time now, and they have created sort of distinct approaches to what they do on the real estate side. And just very quickly, just to remind people, the TPG Real Estate franchise, what we call TREF is essentially an opportunistic high-return strategy. We are investing right now at a Fund IV, which is about a $7 billion fund. And we are targeting deploying capital in chunks that are sort of in the range of $100 million to $400 million. So, we are targeting pretty large set sizes. We have talked about our strategy there as kind of a private equity style real estate investing strategy, where we are essentially deploying and acquiring platforms and most often, doing it where essentially the operating capability is embedded in the platform itself as opposed to investing with a third-party operating partner, not exclusively, but in most cases, we are doing that. The TPG AG real estate franchise – and by the way, we are investing out of a single fund, and we are investing in the U.S. and Europe in that on the TPG side. The TPG AG funds, our regional funds, we have a U.S.-based fund, a European fund and an Asia fund and now have also a fund dedicated Japan value fund. And the AG franchise – the TBG AG Real Estate franchise has been built over the course of a long history, 25 years to 30 years in the business of working with operating partners. So, a very deep broad base of operating partner relationships where we are partnering on deals. And as you would expect,…

Excellent. Appreciate both parts of the answer. Thank you, Jon.

Our next question comes from Brian McKenna with Citizens JMP. Please go ahead.

Okay. Great. Thanks. So, you have deployed a good amount of the capital that you raised for your latest flagship capital strategies and performance for all those vintages has been really strong out of the gates with net returns of at least 20%. So, given the strong performance and then that nearly 50% of the capital raised for these funds has been deployed, how should we think about the timing and the potential demand for the next round of capital funds?

Great. Well, Brian, thank you for the question. It’s Todd. As you pointed out, we have in the flagship, the TPG Capital fund, which focuses on the U.S. and Europe, we have signed or completed 10 investments. It is a really interesting portfolio to your point, actually, I think the majority, two-thirds are some combination corporate carve-out or structured partnerships with strategic which have some – several of them have some very interesting risk-reward characteristics and protective downside. So, we are really excited about the portfolio and have been excited about the pace. I would say our pipeline continues to be robust as well. So, to your very specific question, we are on track for deploying this fund in the 3-year or 4-year time period that we have been targeting internally and advertising to our LPs, and that would probably put us in the market to start our next fund raise. And again, this reflects – this relates to both TPG 9 and TPG Healthcare Partners II, so the successor funds of TPG 10and Healthcare Partners III in the first half of 2025.

Okay. Great. Thanks.

Our next question comes from Dan Fannon with Jefferies. Please go ahead.

Thanks. Good morning. Jack, one more for you on margin, I understand the comments for this year. But as you think about the scaling of some of the funds you mentioned as well as the transaction fees, what is a reasonable expectation as you balance also investing for margin expansion as we think about next year versus where you have guided us to this year?

Yes. Thanks for the question, Dan. We haven’t put out specific guidance other than to say that this year we expect to be kind of a baseline off of which we will grow. And if you think about the levers of margin expansion in our business, it’s really driven by operating leverage and revenue growth. And if you think about all the capital we are raising this year, much of which is not flowing into FAUM yet, particularly on the credit side. As we deploy that naturally, and obviously, we disclosed that in the earnings release as AUM not yet earning fees, which grew a lot quarter-over-quarter. That you can see in our disclosure, represents a significant amount of kind of shadow FRR, if you will. On top of that, we have the large climate-related funds. We are in the process of raising which will pay fees on committed capital. But not really activate until closer to the end of the year this year. So, you will see a full annualization of that fee income next year. So, those are the primary drivers of our, what I would say, our resumption of FRE margin expansion next year. And we certainly believe that as we continue to scale-up all of our businesses, we will get back to the original TPG target of 45%. And beyond that, we just haven’t put a time on that yet.

Got it. Thank you.

Our next question comes from Bill Katz with TD Cowen. Please go ahead.

Hey. Thank you very much for squeezing me in. Just coming back to fee paying or fee earning AUM just in general, if I look at the last couple of quarters, it’s been relatively flat, about $137 billion. So, I appreciate you have a couple of vectors of growth as we look out over the next 12 months to – 6 months to 18 months. If you think that realization is going to pick up, can you walk me through the path of how fee-paying AUM grow from here? And then I think, Jon, you had mentioned in your prepared comments that you plan on raising $40 billion of gross flows through the year-end ‘25. I was wondering if you could give me the pro forma number that you are comparing that up through June of this year. Thank you.

Hey Bill. Let me take the first part of that. On the FAUM role going forward, the way I would think about that is the significant pickup that we expect in credit deployment will obviously flow from AUM into FAUM. The minute we activate these big new pools of capital on the climate side, that will then create a significant step-up in FAUM. And that will be partially offset by realizations, but we certainly expect that be positive drivers will more than offset the realizations. And the reason we expect FRR growth next year is the net of all that will, in our minds, be expected to drive FAUM growth throughout the course of the year, next year.

On the latter part of your question, Bill, which we can follow-up with you on just in terms of making sure that you understood the comment. But what I said in my prepared remarks is that looking at the 5-year period beginning 2021 to the end of 2025, we expect we will have raised approximately $40 billion during this timeframe across new strategies, pro forma for TPG AG, including our Rise Climate franchise expanding into infrastructure, leveraging our real estate footprint across asset classes and geographies, including Japan, scaling our GP-led secondaries business and broadening our credit platform. So, we can follow-up with you just in terms of understanding the components of that.

The other thing to keep in mind, Bill, is on realizations. If we sell a position that we have created value around, it’s earning fees based on actively invested capital in those cases. And if we are selling it at, call it at, call, 3x our money, the dropout from FAUM is a lot less than the nominal amount sold.

Thank you.

And our final question will come from Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks very much for squeezing me in. Also maybe just to go back – tip back to the right climate and climate infrastructure franchise. Obviously, developed a fantastic brand here over a long period of time. Can you talk about how you might be thinking about retail product development, whether there is an opportunity in this space, given it’s not really well penetrated in this area on a retail basis across other alts. I think you mentioned, Jack, that some of the cost savings that you will be reinvesting in product development, maybe if you can talk about to what extent that might be in this – on this platform? And also, I think you mentioned an infrastructure debt, capability that you are looking into developing as well, if you can comment on that?

I just – I will make one quick comment and then maybe Jim, if he can connect in, can comment on it as well. But one comment is that we are actively working on the launch of our first semiliquid private equity vehicle, which we are expecting to launch in the beginning of 2025. And that is going to – as you probably know, the semiliquid private equity vehicles that exist in the market. Obviously, our – each of them are a bit bespoke, depending on the franchise and the composition of business at each firm that has the capability and the breadth of launching that. As we put together our semiliquid private equity vehicle, one of the distinct features, obviously, that we have as a firm is the climate franchise, the impact and climate franchise that we have built over a number of years now, and that will be a piece of the offering and the componentry of the deals that we ultimately have within the semiliquid private equity vehicle. It will essentially be a broad compilation of opportunities and deals across our private equity franchises, but including climate. So, we feel like that will continue to give us additional distinctiveness with respect to what the channel has an opportunity to participate in, Jim?

Yes. Hi. First of all, we do expect there to be retail demand for this product. And in fact, we are just launching the channel part of the regular way fundraising for TPG Rise climate. In fact, looking at my calendar, I will be doing a series of one-on-one meetings across Texas, which is always interesting in climate, but the fact that we are seeing demand there gives you a sense of the overall demand in the marketplace. So, I think there are substantial opportunities to expand the distribution of our climate-related platform products. But to Jon’s point, I think as a differentiator to our semiliquid product, it will be very powerful.

Great. That’s great color. Thank you so much.

And this will conclude the Q&A portion of today’s call. And I would now like to turn the call back to Gary Stein for closing remarks.

Great. Thanks operator and thanks everyone for joining us today. We look forward to speaking with you again next quarter. In the meantime, if you have any questions, please feel free to follow up with the IR team.

And this concludes today’s TPG second quarter 2024 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.