TPG Raises $10.5 Billion for First Buyout Fund Since 2008 Crisis

  • Firm rapidly grew credit, real estate, growth units since 2008
  • `So much better' as investor after mega-LBO busts: CEO Coulter

TPG Capital's Coulter on Investments, Private Equity

The last time TPG raised a leveraged-buyout fund, in 2008, financial markets were just beginning to unravel.

Now, after several big losses during the crisis, the firm is reemerging with a fund half the size at $10.5 billion, a new senior leadership structure and a bevy of investment teams chasing a broad array of deals. 

Jim Coulter, TPG’s co-founder and co-chief executive officer, likes it that way.

Jim Coulter

Photographer: Andrew Harrer/Bloomberg

“It’s not about the size of what we do, it’s about how we do it,” Coulter said in a wide-ranging interview in New York, where he was meeting investors in TPG’s growth-equity business, which has invested in the likes of Uber Technologies Inc., Airbnb Inc. and Spotify Ltd. While many private equity CEOs are New York-based, TPG’s main offices are in San Francisco and Fort Worth, Texas.

Between the financial crisis and today, billionaire co-founders Coulter, 56, and David Bonderman quietly transformed the private equity firm into a diversified manager of alternative asset classes -- “an important shift,” said Coulter, for large firms trying to cater to institutions that want to invest with fewer managers. Like Blackstone Group LP -- the biggest of such firms -- TPG built credit, real estate and hedge-fund businesses both internally and by poaching dealmakers from top firms and investment banks.

TPG in October tapped Jon Winkelried, a former longtime Goldman Sachs Group Inc. partner, as co-CEO to oversee the expansion. Bonderman, 73, had moved into the role of chairman in 2014.

Credit, Growth

Today the firm’s credit unit, TPG Special Situations Partners, manages $19 billion, or more than a quarter of TPG’s $70 billion. The real estate business, which invests in both equity and debt, oversees $7 billion. Its hedge fund, TPG Public Equity, has $1 billion.

“We’ve added pretty deliberately so that everything feels organic,” said managing partner Todd Sisitsky, 44, who last year was named head of private equity in North America and Europe.

One of the most active -- and, to Coulter, exciting -- units has been TPG Growth, started in 2007 and now managing $7 billion. In addition to backing ride-hailing service Uber and room-rental website Airbnb, the group, led by Bill McGlashan, has struck deals for telecommunication towers in Myanmar, hospital groups in Sri Lanka and a private-schools operator in Morocco, among other small and mid-sized companies across continents.

“There’s a slightly different style to what we do,” said Coulter, citing as other examples TPG’s investments in music-streaming service Spotify and talent-management company Creative Artists Agency, as well its creation of film and television studio STX Entertainment.

Track Record

Still, for most alternative-asset managers, private equity deals largely move the needle for firm-wide profits and losses. After piling billions into three money-losing mega-deals during the buyout boom of 2006 to 2008 -- Texas utility Energy Future Holdings Corp., casino operator Caesars Entertainment Corp. and savings bank Washington Mutual Inc. -- TPG told investors it’s returning to its private equity roots.

That means raising the bar for considering deals over $10 billion, leaning on big clients rather than other buyout firms for transactions requiring large equity checks, tapping Silicon Valley relationships for deals competitors might miss and sharing more ideas among its various deal teams.

“We bear the responsibility of those deals -- they’re in our track record,” Coulter said of the boom-era buyouts. “I am so much better as an investor for the large deals in the financial crisis. And what we’ve done from 2009 forward, which is more than $40 billion invested, reflects that.”

TPG’s recently invested funds -- a $19.8 billion pool raised in 2008 and a $15.4 billion vehicle in 2006 -- have rebounded in the past two years on profitable deals such as Par Pharmaceutical Holdings Inc., Vertafore Inc., Petco Animal Supplies Inc. and Lynda.com Inc. The 2008 fund was producing a 12 percent annualized return as of Nov. 30, ranking it in the second quartile of that year’s pools, according to data compiled by Bloomberg. The 2006 fund had a 5.2 percent return, ranked third-quartile.

Going forward, TPG also plans to put its longstanding and growing operations group to work in more deals, Coulter said. In November it named Steve Ellis head of the unit, which was formed in 1997 and today has about 60 people. Ellis previously ran mobile-technology company Asurion LLC and led global consulting firm Bain & Co.

High Prices

With its new fund, TPG’s seventh for buyouts, the firm will be up against recently raised pools of money at every rival. Last year, Blackstone got $18 billion and Warburg Pincus collected $12 billion for private equity deals. Apollo Global Management LLC gathered $18.4 billion the previous year. And KKR & Co. is preparing to close its latest fund this year with as much as $13 billion, executive Scott Nuttall said on an earnings call last month.

Meanwhile the industry is contending with record-high multiples of cash flow being paid for companies in the past two years. That’s why, Coulter said, TPG plans to deploy about $2.5 billion from the fund a year, which over a traditional four-year drawdown period will amount to the money it raised.

“Market conditions today don’t suggest that now’s a time to radically increase that pace,” he said. “Given the pricing in the marketplace, if we had a $20 billion fund I don’t know what we’d do with it.”

Another thing Coulter isn’t sure about -- still -- is TPG’s plans to follow its largest peers with an initial public offering.

“There may come a time when it makes sense, both for the markets and where we are as a firm,” he said. “This isn’t that moment.”

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