TPG Inc.

Good morning and welcome to the TPG's third quarter 2022 earnings conference call. Currently all callers have been placed in a listen-only mode and following management's prepared remarks, the call will be opened up for your questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 2. To get as many questions as time permits, we ask that you please limit yourself to one question. At any time, if you should need operator assistance, press star zero. 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 begin.

Great. Thanks, operator. Welcome to our third quarter 2022 earnings call. Joining me this morning are John Winkle-Reed, Chief Executive Officer, and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter, and our President, Todd Susitsky, are also here with us and will be available for the Q&A portion of this morning's call. Before we begin, 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 on earnings release, we are presenting GAAP measures, non-GAAP measures, and pro forma GAAP and non-GAAP measures, reflecting the reorganization that was completed during 2021 and immediately prior to TPG's IPO. We believe it is helpful for investors and analysts to understand the historic results through the lens of our go-forward structure, and please refer to TPG's earnings release for details on the pro forma financial information. We will also be discussing certain non-GAAP measures on this call that management believes 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 the company's website. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the third quarter, we reported gap net income of $37 million and after-tax distributable earnings of $113 million, or $0.30 per common share. We also declared a dividend of $0.26 per common share of Class A common stock, which will be paid on December 2nd to holders of record as of November 21st. I'd now like to turn the call over to John Winkle-Reed, Chief Executive Officer.

Thanks, Gary, and good morning, everyone. We're excited to share our strong third quarter results today. For the quarter, we generated strong sequential growth in fee-earning AUM, fee-related earnings, and value creation across our portfolio. Jack and I will take you into further detail for the quarter, but before we do that, I'd like to share some thoughts this morning on the market we're operating in and our position as a firm. Investors have heard a lot during this earnings season about the macroeconomic and geopolitical environment. It's a complex time in the markets generally, However, periods of market dislocation like this create opportunities, so I'd like to focus on what this means for TPG. We've been preparing our business for this type of environment for some time. Investors can see this in our results, including the substantial realization cycle we began several years ago, our record dry powder, and the innovative investment strategies we have developed. Despite a challenging market backdrop, our current portfolio, which has been built around our core thematic areas, continues to perform well. Our prudent use of leverage to support the growth orientation of these companies has made our portfolio less sensitive to the effects of rapid interest rate increases. And while we are not immune to inflationary pressures and labor costs, we manage a portfolio which has been constructed by targeting businesses with high intellectual property and strong secular growth in sectors such as healthcare, technology, and climate. We are disciplined, patient investors, and careful stewards of the long-dated capital we manage. We focus on investing in leading businesses at attractive valuations and finding creative solutions for companies in need of capital. We have a long and successful history of stepping forward in complicated moments like this to drive returns, and we believe we are set up to do so in this environment. There is significant opportunity in our pipeline, and we believe TPG is well positioned to continue to execute. There are a few points I'd like to highlight in our results. Our financial performance in the third quarter reflects the durability and strength of our FRE-centric business model. TPG generated significant quarter-over-quarter growth in management fees, operating margins, and FRE. This is a direct result of the stable growth of our fee-earning assets under management as we continue to scale our business. Our third quarter fee-related revenues of $282 million grew 10% sequentially. Fee-related revenues for the last 12 months exceeded $1 billion for the first time in TPG's history. and approximately 90% of these revenues were from stable and growing management fees. FRE in the third quarter of $121 million grew 19% compared to the second quarter. Our total AUM was $135 billion at quarter end, which increased 24% year over year. This step-up was driven by strong fundraising activity across our business, including a first closing in the quarter for TBG's flagship Capital Asia Fund, and the completion of the first closes for several other flagship funds, including TPG Capital Partners, Healthcare Partners, and Rise. In aggregate, we raised more than $8 billion during the third quarter and $29 billion over the last 12 months. We're very pleased with the success of our ongoing campaigns, particularly amid the well-discussed headwinds GPs are facing in the fundraising market. Given the success of our ongoing fundraising campaigns, we had a record $46 billion of capital available for investment at the end of the third quarter. This is up 18% sequentially and represents 57% of our fee-generating AUM. We believe our fundraising progress and record drive power leaves us well-positioned to play offense and drive returns. Over the last few years, we capitalized on the attractive valuation environment and aggressively sold assets. We have deliberately moderated our pace of realizations given the market dislocation, and we've been positioning our portfolio companies for continued growth, generating value creation of 2% for the quarter and 13% for the last 12 months. This strong relative performance reflects the high-quality, resilient portfolio we have constructed around our long-term sector-based themes. We've been anticipating a downturn for some time and have been consistently building multiple compression into our financial models. Our focus has been on investing in industries with durable secular trends that can continue to drive growth through the cycles. Although our investment pace slowed in the third quarter consistent with the broader market activity, we're seeing increasingly interesting opportunities to invest in high-quality companies. We're currently in an adjustment period where sellers' valuation expectations are resetting lower and transaction levels may remain softer for a while longer. We will continue to be patient and highly selective. We are starting to see valuation expectations begin to align, and we believe we're in a strong position to deploy capital given our significant pool of dry powder. With that in mind, I'll highlight some recent investments we've made across our business, starting with the healthcare sector, where we are one of the world's largest and most active private equity investors. Shortly after the third quarter, we completed several healthcare investments with a combined enterprise value of more than $9 billion, with TPG investing approximately $3.5 billion of equity. Notably, our in-house capital markets team had a lead arranger role in raising all $5 billion of the debt for these transactions at attractive terms in a difficult financing environment. We believe our capital markets capabilities continue to provide us with a significant competitive advantage and enable us to access financing even during periods of extreme volatility when banks are largely sitting on the sidelines. Leveraging our carve-out expertise, our capital funds acquired Claims Extend, which is a leading claims editing software platform that was divested from the merger of United and Change Healthcare. We also completed the take private of Covetris, a leading animal health distribution and technology platform, and the acquisition of Doc Generici, an Italian specialty pharmaceuticals company. Our Capital Asia Fund just completed the acquisition of Inova Pharmaceuticals, a leading independent consumer healthcare company in the Asia Pacific region. Inova is the inaugural investment from TPG Capital Asia 8 and highlights the strengths of our Pan-Asian platform, with the transaction representing a cross-border underwrite across our Australia and Southeast Asia teams. We're seeing significant momentum and opportunities across other parts of our business, including our impact and growth platforms, where we have built and scaled several innovative funds. In climate, the combination of the recent Inflation Reduction Act, energy prices, and growing concerns around energy security have substantially increased investment into the sector. Since its inception just over a year ago, our RISE Climate Fund has already deployed $2.2 billion and currently has a robust pipeline. During the quarter, Rise Climate invested in Monolith Materials, which is a global leader in clean hydrogen and carbon black. And just after the quarter end, Rise announced a follow-on investment in FormEnergy, which is developing and commercializing next-generation battery technology. Second, I want to highlight our Tech Adjacencies Fund, which we created to provide bespoke solutions for the tech marketplace. With IPO expectations delayed and prices resetting meaningfully, we are seeing significant opportunities to deploy the $2.6 billion of new capital we have already closed on for this fund. We have a couple of significant transactions that we hope to be closing shortly. I'd like to also touch on real estate. Rising financing costs as a result of government interest rate policy are leading to valuation adjustments and market dislocation, and as a result, deployment has moderated considerably. However, our fourth opportunistic fund just closed on $6.8 billion of new capital, over 80% larger than our prior fund. So we believe we are well positioned to take advantage of opportunities as markets adjust. Furthermore, our team's focus on select themes primarily driven by long-term secular demand drivers has resulted in less than 5% of the total remaining invested equity across all of our vehicles to be invested in the office and retail sectors. both of which are also experiencing considerable headwinds. Despite the challenging backdrop over the last six weeks, we've been able to monetize several real estate investments in the US and Europe at attractive prices. Before I hand the call over to Jack, there are two additional items I'd like to highlight regarding the broader TPG ecosystem. First, we were pleased to announce that TPG Rise was recently named to Fortune's 2022 Change the World list. This annual list acknowledges companies that have had a positive social impact through activities that are part of their core business strategy. We're proud to be included alongside a number of inspiring companies such as PayPal, Walmart, NVIDIA, GoFundMe, and DeepMind. Importantly, we are the first global private equity firm ever to be recognized for this prestigious honor. Second, we recently hosted our annual meeting for our capital funds. This was our first in-person conference with our capital limited partners since 2019, many of whom are invested in multiple strategies across the firm. We shared our most compelling investment themes, reviewed the status of our portfolio, and highlighted the deep bench of talent across our capital platform. We also had senior team members in attendance from all of our other product areas and had an opportunity to engage with our LPs on those strategies as well. We're proud of the trust they placed in us and look forward to our continued partnership. I'd now like to hand the call over to Jack so he can take you through our financial results.