TPG Inc.

Good morning and welcome to TPG's fourth quarter and full year 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, 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, Toby. Welcome, everyone. 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 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 and earnings release, we're 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's helpful for investors and analysts to understand the historic results through our go-forward structure, and please refer to TPG's earnings release for details on the pro forma financial information. We'll also be discussing certain non-GAAP measures on this call that we believe 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 fourth quarter, we reported gap net income attributable to TPG Inc. of $24 million and after-tax distributable earnings of $227 million, or 59 cents per share of Class A common stock. We also declared a dividend of 50 cents per share of Class A common stock, which will be paid on March 10th, told as of record, as of February 27th. With that, I'd like to turn the call over to John. Thanks, Gary.

This morning, we're looking forward to discussing our results now that we've completed our first full year as a public company. Since our IPO early last year, we've navigated markets with more disruption and volatility than we've seen in over a decade. There's been pressure from persistent inflation, rising rates, and geopolitical conflicts. This macro environment has led to challenges in our industry marked by tougher fundraising, a slower deal environment, tighter financing conditions, and declining valuations. Against this backdrop, TPG has demonstrated resilience and growth. We not only delivered but surpassed what we set out to accomplish in our first year as a public company, and we finished 2022 with another strong quarter. We deliberately chose to go public as we were launching several flagship fundraisers, so TPG's public shareholders could share in our accelerated growth. Despite difficult industry-wide fundraising dynamics, we raised $30 billion of capital in 2022, a 47% increase over the prior year. Global private equity fundraising declined 19% in 2022, but we believe we gained share as LPs continue to consolidate their GP relationships among their best performing managers, including TPG. We held early first closes across all our flagship funds in the market, including TPG Capital, Healthcare Partners, Capital Asia, and Rise. Although this is one of the most challenging fundraising environments we've seen, we are very pleased with the quality of engagement and continued support from both our longstanding and new limited partners. However, as we look ahead, we are not immune to the fundraising challenges our industry is facing, which will continue to drive uncertainty as campaigns are completed among alternative asset managers. As a result of our fundraising momentum in 2022, we finished the year with $43 billion of dry powder, which is up 51% from the prior year and represents 55% of our fee-earning AUM. Total AUM was $135 billion at year-end, a 19% increase year-over-year, driven by strong fundraising and value creation of 8% across our platforms, partially offset by $16 billion of realizations as we selectively monetize investments and attract evaluations. Looking to our financial results, we delivered strong performance in 2022. Fee-related revenues for the full year were $1.1 billion and grew 24% from the pro forma prior year. Full-year FRE of $450 million grew 39% from pro forma 2021 and represents a 42% FRE margin. We believe our strong results through such a volatile year demonstrate the durability of our franchise. During our IPO, we highlighted the importance of organic growth and innovation as a cornerstone of TPG's long-term success. Over the past year, we have expanded into new strategies where we believe we have differentiated angles and compelling growth opportunities. Within our market solutions platform, we launched and completed first closes for two GP-led secondary funds, TPG-GP Solutions and TPG New Quest. As I alluded to on our last earnings call, in December, we closed a $500 million anchor commitment to to the inaugural TPG Next Fund from CalPERS, one of the world's leading institutional investors. As a reminder, TPG Next was created to seed and stake the next generation of diverse-led firms in alternative asset management. We believe there is a significant market opportunity and are committed to backing and supporting underrepresented managers in our industry. As a result of fundraising and new products, we have continued to grow and diversify our LP base. In 2022, we added approximately 60 new institutional relationships, and more than 55 existing LPs have broadened their commitments to TPG by investing in new fund strategies with us. In aggregate, these new and expanded relationships committed more than $6 billion of capital to TPG in 2022. In addition, we have made meaningful progress in strategically expanding our presence in the high net worth channel, placing five different funds across eight different channel partners. Looking ahead to the rest of 2023 and beyond, the markets are at a crossroads. Fed action has pushed yields higher and equity multiples lower, driving investors to exercise caution as they see equilibrium in valuations. Despite some recent recovery in the equity and leveraged finance markets, investment pace among alternative asset managers, including TPG, has remained muted. Buyers and sellers seem to be taking another pause as they wait to see how a number of macro drivers play out, such as interest rates, inflation, and a possible recession. With significant dry powder, long-dated capital, and a deep sector focus, we believe TPG is well-positioned to capitalize on this market dislocation. While we expect near-term deployment to remain relatively light, we are building a pipeline of interesting opportunities through our long-term, theme-driven sourcing approach. Despite the general slowdown in deal activity for the industry over the last few quarters, we still saw pockets of opportunity for deployment and realizations across our diverse set of platforms and fund strategies. We deployed $5.7 billion and $16.6 billion in the fourth quarter and full year 2022, respectively. I'll walk through a few highlights. In the fourth quarter, we completed five healthcare deals across our capital platform, reinforcing the strength of our differentiated franchise. This includes the acquisitions of Doc Generici in Europe and Inova Pharmaceuticals in Asia Pacific. The take private of Covectris, the carve out of Claims Xtend, and a follow-on investment in Monogram Health. In our growth fund, we completed the carve out of MedQuest Associates, a leading owner, operator, and manager of diagnostic imaging facilities in partnership with Novant Health, a preeminent not-for-profit health system. This deal is a great example of TPG's long history of building unique partnerships with high-quality companies, nonprofits, and academic institutions to create proprietary transactions. Given the capital constraints in today's market, we are seeing a growing interest in creative partnership opportunities, and our pipeline is continuing to build. The market dislocation has also been particularly interesting for our Tech Adjacencies Fund, which we established to provide flexible capital solutions for leading companies in the technology industry. We believe the recent tech slowdown has created the most attractive investing environment for TTAD since its launch in 2018. TTAD recently closed two structured investments, one in a leading vertical SaaS and integrated payments company, and a second in a leading provider of cybersecurity solutions. The current challenging backdrop for growth-stage technology companies has made the strategic value of CTAD's differentiated capital mandate even more relevant. Our RISE platform is at the forefront of the impact space, and our inaugural RISE Climate Fund remains ahead on its pace of deployment. The increasing focus on energy security and deglobalization, along with the Inflation Reduction Act in the U.S. and the new Net Zero Industry Act in Europe, have fundamentally enhanced the investment opportunity. We are seeing an increased demand for capital to address energy transition and climate needs around the world. As an example, in December, TPG Rise Climate committed to invest in NPAL, one of the largest and fastest-growing residential decarbonization platforms in Europe. To give you a sense of its momentum, NPAL has grown its customer base and revenues on average threefold each year since its founding in 2017, and is profitable. And finally, in our secondaries platform, our inaugural TPG GP Solutions Fund completed its second investment during the quarter. And in Asia, TPG NuQuest co-led the creation of a unique continuation vehicle for a leading Singapore-based alternative asset manager. We believe our secondaries business is well positioned for growth. GP-led capital is an increasingly valuable source of liquidity and validation given the slowdown of PE exits particularly for high-quality sponsors, high-quality assets, and sponsors' portfolios. On realizations, we've been intentionally patient and remain focused on driving growth within our portfolios where we are relatively early in our average hold period, following our significant monetization activity over the last few years. We realized $4.2 billion and $15.5 billion in the fourth quarter and full year 2022, respectively. This includes completing our previously announced sale of Wind River to Aptiv in December, which Jack will talk more about. Several monetizations of our public equity positions in regions outside of the U.S. Looking at our capital Asia and growth funds, we successfully IPO'd and partially monetized four of our Indian portfolio companies in a 12-month period. Landmark Cars, Five Star Business Finance, Campus Activewear, and NICA are In November, we fully monetized our stake in Nike at attractive prices, generating favorable returns despite the volatile equity market backdrop. These IPOs and realizations underscored TPG's leading franchise in India and the broader APAC region, as well as our equity capital markets execution capabilities. Just last week, Nextracker, which is in our RISE portfolio, completed its $734 million IPO. the largest and one of the first U.S. IPOs this year. Nextracker is a leading provider of solar tracking solutions and highlights the benefit of our theme-based investing. The IPO execution and offering was highly successful with the order but well oversubscribed and the stock trading up 27% on its first day. In real estate, during the quarter, we sold a portfolio of student housing properties, and last month we made a sizable realization in one of our U.S. life sciences and innovation-focused platforms. a sector that continues to experience strong tailwinds. Given our purposeful portfolio construction within durable sectors and themes, we've been able to selectively monetize investments despite a material slowdown in many parts of the real estate market. Looking forward to 2023, we remain focused on the same growth and diversification objectives we discussed with you previously. Our priorities continue to be, one, completing our flagship and other fundraising campaigns, Two, continuing our strong track record of organic growth. We've always been innovators, and we intend to expand into adjacent strategies where we believe we have unique competitive advantages, such as building climate infrastructure and real estate credit, and continuing to scale our GP-led secondaries effort. Three, inorganic growth remains an important priority for TPG. We are at a tracking scale today, but we see significant white space in areas that are natural extensions for us, to drive growth and diversification. For example, we remain actively focused on expanding into corporate credit and continue to evaluate a range of opportunities in this space. Before I conclude my remarks, I want to mention our global partner meeting, which we hosted earlier this week in San Francisco. We covered a range of important topics, including investment strategy, fundraising, culture, and growth drivers for the firm. Our partners are laser-focused on continuing to deliver excellent performance for our investors while also building and growing a market-leading, innovative franchise. I'll now turn the call over to Jack and take you through our financial results.