TPG Inc.

Good morning and welcome to the TPG's second quarter 2025 earnings conference call. Currently, all callers have been placed in a listen-only mode, and following management's prepared remarks, the call will be open 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 two. To get to 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, please 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. And welcome, everyone. Joining me this morning are John Winkle-Reid, Chief Executive Officer, and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter, and our President, Todd Szczycki, 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 and interest in any TPG fund. Looking briefly at our results for the second quarter, we reported gap net income attributable to TPG Inc. of $15 million and after-tax distributable earnings of $268 million, or 69 cents per share of Class A common stock. We declared a dividend of 59 cents per share of Class A common stock, which will be paid on September 2nd, 2025 to holders of record as of August 18th, 2025. I'll now turn the call over to John.

Thanks, Gary. Good morning, everyone. Before we begin, we want to acknowledge the senseless act of violence that occurred at 345 Park Avenue last week. Our thoughts and prayers go out to those impacted by this tragedy and we stand in solidarity with our friends at Blackstone, Ridden Management, the New York Police Department, the NFL, and KPMG during this difficult time. To the first responders who acted swiftly and courageously, thank you. Moving to earnings, TPG delivered outstanding results in the second quarter, reflecting the strength and durability of our franchise. Our after-tax distributable earnings for the quarter increased 30% compared to last year, driven by our strong operating metrics. On a year-over-year basis, our second quarter fundraising grew nearly 80% to $11.3 billion, and deployment grew 36% to $10.4 billion, and realizations grew more than 20% to $6.5 billion. After quarter end, we completed our acquisition of Peppertree, and the integration process is well underway. We're excited to welcome our Pepperdry colleagues to TPG and to introduce our clients to this compelling digital infrastructure strategy. This morning, I'll discuss our momentum across fundraising, deployment, and realizations before turning the call over to Jack to cover our financial results. On the capital formation front, we have the second highest fundraising quarter in our history. On our last call, I highlighted the strength of our credit fundraising pipeline and then we were at an inflection point in our client dialogues. In the second quarter, we converted that momentum into $11.3 billion of capital raised, of which $5.4 billion was from our credit platform. Importantly, our second quarter numbers do not include any commitments for our flagship buyout funds, TPG Capital 10 and Healthcare Partners 3. We're seeing an acceleration of fundraising into the third quarter, and are increasingly confident that we will raise significantly more capital in 2025 than last year. I'll share some updates across our campaigns. In private equity, during the quarter we completed fundraising for TPG Growth 6, exceeding our $4 billion target to raise a total of $4.8 billion for the fund and affiliated vehicles. This represents a 35% increase over Growth 5, which is consistent with our track record of driving fund over fund growth across our strategies. In addition to continued support from existing clients, we meaningfully expanded our investor base outside of North America, particularly in the Middle East, Asia, and Latin America. Additionally, we are seeing strong early support for our second GP Solutions Fund, which we expect to be significantly larger than its predecessor. As a reminder, TGS is our GP-led secondary strategy focused on North America and Europe, and it's experiencing significant demand as GPs look for creative ways to drive liquidity for their strongest performing assets. We recently launched the TGS2 campaign and closed on $1.3 billion in the quarter. This early momentum is driven by the strong deployment and performance in our inaugural fund, which is now fully committed across 14 investments. In May, we also launched TPOP, our new perpetually offered private equity product, on two of the largest wire houses in the U.S. The initial feedback has been very positive, and we raised approximately $430 million across our first two closes in June and July. The GBG brand is resonating in the channel, and we are establishing a strong following, with more than 560 individual financial advisors participating in these closes. This is a great foundation to build upon as we scale TPOP and launch additional products over time. In credit, the second quarter was a record fundraising quarter with $5.4 billion of total capital raised across our strategies. In credit solutions, we closed an additional $1.4 billion of capital for our third flagship fund, bringing the total raise to date to $4 billion. Our market leadership and the opportunistic credit space further enhanced by our strong cross-firm collaboration continues to resonate with clients and our fundraising pipeline remains robust in middle market direct lending we held a first close of 1.4 billion for our sixth drawdown fund during the quarter due to twinbrook's leadership position in the lower middle market and a continued steady pace of originations we launched fundraising for our next vintage fund just seven months after the final close of its predecessor Twinbrook's differentiated portfolio, disciplined underwriting, and stable returns continue to resonate with both existing and new clients, resulting in a very strong initial close. And in structured credit, we raised $1.4 billion across our ABC drawdown and evergreen funds, as well as a number of SMAs. Demand for structured credit is high and continues to grow as clients are generally underweight and looking to diversify their exposure beyond corporate credit. additionally we continue to expand our product set into key areas such as private investment grade asset-backed securities in aggregate we are seeing significant broad-based momentum in credit fundraising and we expect 2025 to be a breakout year i also want to highlight the meaningful progress we've made in the insurance channel insurance contributed nearly 30 percent of the credit capital we raised in the second quarter primarily through our structured credit and credit solution strategies Our scaled and diversified credit platform has enabled us to deepen relationships with our existing insurance partners while also establishing new ones. As we continue to organically grow our insurance client base and commitments, we are also actively evaluating broader strategic partnerships and inorganic opportunities within the channel. While I'm very pleased with our capital formation during the second quarter, I'm even more enthusiastic as I look ahead. For TPC Capital 10 and Healthcare Partners 3, we're in the midst of a rolling first close where we expect to receive total commitments of approximately $9 billion. This strong result during a challenging private equity fundraising environment is a testament to the trust we've built with our clients through our distinct investment approach and excellent performance. While clients remain cautious and highly selective amidst ongoing macro uncertainty and muted distributions, Our market leadership and differentiated value proposition in private equity have driven strong absolute and relative fundraising results. Moving on to deployment, we had a robust quarter with more than $10 billion of capital invested, which increased 36% year over year. In TPG Capital, we announced the $2.2 billion take private of Avid Exchange, a leading provider of AP automation software and payment solutions in partnership with Corpay. This is another example of a creative win-win corporate partnership that offers significant downside protection. And after the quarter end, we close the carve-out of Sabre Corporation's hospitality solutions business, a leading technology solutions provider to the hospitality industry. Given our focus on vertical market software and the travel and leisure space, we are excited to drive transformational growth in the newly separated business. In Rise Climate, we recently announced a number of investments across Europe and Asia representing over $10 billion of total enterprise value. This includes Sysic Group, a pioneer in sustainable agriculture, Aurora Energy Research, a UK-based provider of data and analytics for the global energy markets, and Tecum, a leading digital first provider of sub-metering solutions. In credit, we deployed $4.3 billion of capital across our strategies in the second quarter. In structured credit, we continue to be a market leader in residential mortgage securitizations as one of the few managers who are vertically integrated in a space. We placed five issuances in the quarter across home equity, non-qualified mortgage, and agency-eligible collateral types to bring year-to-date securitizations to eight. Twinbrook generated $1.2 billion of gross originations in the second quarter. Add-ons made up nearly half of the activity in the quarter, demonstrating the power of Twinbrook's incumbency within its existing portfolio. And in credit solutions, we continue to see a growing pipeline of companies looking for solutions capital at scale. In July, we completed a $1 billion asset-backed term loan facility for Altice USA in partnership with Goldman Sachs. This is a first-of-its-kind transaction in infrastructure-backed financing secured by Altice's Bronx and Brooklyn network assets. We also recently anchored an innovative multibillion-dollar debt financing for XAI, which is one of the world's leading AI companies. We believe this represents one of the first large-scale credit solutions to be provided in the AI space, where we expect demand for creative financings to grow significantly given the immense funding requirements. Both of these financings are great examples of our ability to deliver customized, scaled solutions to address the complex capital needs of corporates. Similar to the DISH transaction last year, they reflect our culture of cross-firm collaboration. Our credit solutions, private equity, and real estate teams work together seamlessly to execute these highly bespoke solutions within our core thematic areas. We continue to take a patient and disciplined approach to capitalize on the dislocation within the asset class. Over the last two years, we have acquired a number of high quality assets that are typically unavailable from sellers facing liquidity pressure. These investments are performed well with strong operating fundamentals, driving LTM value creation for our TPG real estate of 14%. As we look ahead, we expect to see a growing pipeline of attractive investment opportunities. Shortly after quarter end, TREP completed the acquisition of two adjacent high-quality office towers located on a full block of Park Avenue South. This is a top submarket in New York City where favorable supply-demand dynamics have led to a significant improvement in office fundamentals. As a result of strong fundraising, we ended the quarter with record dry powder of $63 billion, representing 43% of fee-earning AUM. Our investment pipelines remain very active, and we expect our deployment pace to accelerate in the back half of this year. Finally, we continue to successfully execute unimportant exits and liquidity events, driving $6.5 billion of realizations during the quarter across a number of our platforms. We realized nearly $2 billion of total proceeds from public market sales during the quarter. This included fully exiting from Viking Cruises, Top Top Technologies, and Service Titan, and selling down our positions in Lifetime Fitness and SciLife Sciences. TPG Growth also completed the full company sales of QCentrix and Crunch Fitness. We've generated $2.3 billion of liquidity in TPG Growth year-to-date, including signed but not yet closed transactions, putting us on track to reach one of our highest years for realizations for this strategy. And this week, we announced our first exit from TPG Capital 9 with the sale of Elite, which we carved out of Thomson Reuters two years ago. This investment marks a strong early outcome for the fund and is a great example of our ability to drive meaningful top-line growth through disciplined operational transformation. Looking across the firm, we continue to experience strong momentum in scaling our business and deepening and broadening our client relationships. In private equity, despite persistent headwinds in the fundraising environment, we continue to differentiate ourselves with strong investment performance and DPI. We believe we are being positively selected by clients and continue to gain market share, driving fund-over-fund growth across both our existing and newer strategies. In credit, we've reached an important inflection point in establishing our credit franchise with our institutional clients. We are now in the process of significantly expanding the capital base across each of our credit businesses, including partnering with our clients to develop and seed new strategies. In private wealth, TPOP and TCAP have provided us with a strong foundation to build our presence in the channel, where we believe our differentiated brand and track record are resonating with advisors and their clients. We continue to build out our sales team, infrastructure, servicing capabilities, and suite of products given the long-term growth opportunity in wealth. Lastly, as the largest pools of capital globally continue to consolidate their relationships with fewer GPs, we are actively engaged in a number of cross-platform strategic partnership discussions. These partnerships position us to grow with our largest clients across multiple strategies and asset classes while also increasing the duration and continuity of our capital base. We're entering the back half of the year with significant strength across each of our platforms and look forward to continuing to deliver outstanding results for our clients and shareholders. I'll turn the call over to Jack to discuss our financial results. Thank you, John, and thanks to all of you for joining us today. As many of you know, last year we focused on putting the building blocks in place to support our next leg of growth. These included One, scaling our credit businesses through a successful fundraising year, expecting that this capital would flow into fee-paying AUM as we invest it this year and in the future. Two, preparing for the launch of our next series of private equity funds. And three, continuing to innovate, building new products and businesses, including GP Solutions, Climate Infrastructure, and TPOP that we expect to scale into greater profitability over time. Through these levers, we expected to begin a new wave of growth this year. Our strong second quarter results highlight our early success in executing this growth strategy, and we expect our momentum to accelerate from here. We ended the second quarter with $261 billion of total assets under management, up 14% year-over-year. This was driven by $36 billion of capital raised and $21 billion of value creation, partly offset by $23 billion of realizations over the last 12 months. Fee-earning AUM increased 7% year-over-year to reach $146 billion as of June 30th. These figures do not include TPG Pepper Tree, which closed on July 1st and added approximately $8 billion of AUM and over $4 billion of fee-paying AUM. AUM subject to fee earning growth was $30 billion at the end of the quarter, which included $23 billion of AUM not yet earning fees, and represents a revenue opportunity of nearly $200 million on an annualized basis. This shadow FAUM has been scaling with our credit businesses, and as John indicated, our deployment pace has begun to accelerate. At the end of the quarter, our net accrued performance balance remained at $1 billion, as strong value creation and realizations largely offset each other during the quarter. Our fee-related revenue in the second quarter increased to $495 million and included $43 million of catch-up fees, primarily associated with a strong final close of TPG Growth 6. We reported quarterly fee-related earnings of $220 million, Our FRA margin of 44% in the second quarter benefited from the catch-up fees as well as a step-down in cash compensation expense from the seasonally elevated first quarter. After-tax distributable earnings for the second quarter increased 30% year-over-year to $268 million, or 69 cents per share of Class A common stock, which included $87 million of realized performance allocations. As John noted, our strong pace of monetizations has been a significant point of differentiation for us, which continues to benefit our fundraising discussions with clients. Looking at the back half of the year, we expect to drive additional realizations, particularly as the broader market backdrop continues to improve. As a result of our strong quarter, we declared a record dividend of 59 cents per share. Looking at our non-GAAP balance sheet, during the quarter, we further enhanced our liquidity by upsizing our revolving credit facility from $1.2 billion to $1.75 billion. We've drawn on our revolver to fund several growth initiatives, including seeding TPOP's investment portfolio, as well as funding the cash portion of the Peppertree acquisition in July. Proforma for the Peppertree funding, the outstanding balance on our revolver is $570 million, and our available liquidity is more than $1.3 billion. Turning to our portfolio, we continue to drive positive value creation across all our platforms for the second quarter and over the last 12 months. In private equity, the fundamentals across our portfolios remain strong, and we continue to see robust growth that is outpacing the broader market. The portfolio companies within our capital growth and impact platforms grew revenue and EBITDA by approximately 16% and 23% respectively over the last 12 months. Our private equity portfolio in aggregate appreciated 2% in the quarter and 11% over the last 12 months. In credit, our portfolio appreciated 2% in the quarter and 12% over the last 12 months. In middle market direct lending, all our funds remain at or above their target return ranges as of quarter end. Within our portfolio, our average interest coverage ratio has remained stable at approximately two times, and our annualized loss ratio is approximately two basis points. Our structured credit strategies also continue to perform well. Our first private asset-based credit fund's net IRR since inception was above its target range at 13% at the end of the second quarter. TPG's real estate portfolio appreciated approximately 3% in the second quarter and 14% over the last 12 months. We continue to see strong performance and value creation in our data center, industrial, and residential investments. In addition, TPG AG's real estate portfolio appreciated by 20 basis points in the second quarter and nearly 3% over the last 12 months. Turning to fundraising, we raised over $11 billion during the second quarter. As John noted, this was the second highest fundraising quarter in the firm's history and the highest fundraising quarter ever for our credit platform. As a result of our strong fundraising momentum, we remain very confident that we'll raise significantly more capital this year than last year. Looking at the remainder of the year, we'll be in the market with approximately 25 different products across most of our platforms. The biggest contributors to our fundraising in the back half of the year include the following. One, the rolling first close for our next flagship buyout funds, TPG Capital and Healthcare Partners. As John mentioned, we expect to receive total commitments of approximately $9 billion during our rolling first close in the third quarter. Two, continued strong capital raising across all of our credit strategies in drawdown funds, perpetual vehicles, and SMAs. Three, formal first closes for our second GP Solutions Fund and our third Tech Adjacencies Fund, as well as additional closes for TICA, our new Asia growth buyout strategy. We continue to make strong progress with TICA and have already raised more than half our target. And four, increasing our penetration within private wealth and insurance. On the topic of private wealth, I'd like to provide a bit more information on our strong progress in this important business. As John mentioned, TPOP is off to a great start, raising approximately $430 million in June and July alone. And we expect strong continued expansion with our two initial launch partners. We also have several additional partners lined up domestically and internationally over the next several quarters, including expanding into the RIA channel. On the credit side, Twinbrook's non-traded BDC, TCAP, had its highest organic fundraising quarter yet in the second quarter, with more than $200 million of inflows. TCAP is now actively distributed on three major wirehouses, and we expect further expansion in the near future. Across our private wealth business more broadly, we continue to grow our distribution network. We're now partnered with over 30 firms globally, which has increased more than fourfold just since the AG acquisition. We're also focused on expanding our suite of evergreen offerings across asset classes, having created a strong foundation with TPOP and TCAP. We're actively working on additional products across credit and real assets. Private wealth is a high-priority growth area for the firm, and we continue to invest in broadening our capabilities to serve the growing needs of financial advisors and their clients. I'd like to provide a few important points regarding our near-term financial outlook. Beginning with the third quarter, our results will include the financial contribution from TPG Peppertree within our market solutions platform. As we noted when we announced this transaction, we expect TPG Peppertree to be immediately accretive and after-tax DE per share. Following the completion of our direct TV investment, TPG Capital 9 is now fully invested and reserved, and we already activated TPG Capital 10 in early July. We expect catch-up fees to step down in Q3 and then pick back up throughout next year as we hold subsequent closes in our capital and climate campaigns. Following the step-down in compensation expense in the second quarter, we expect this line item to begin trending back up starting in the third quarter. We continue to invest in our teams in strategic growth areas, such as private wealth and climate infrastructure. Although we expect our FRA margin to decline modestly in the third quarter, consistent with our prior guidance, we continue to expect to exit the year with an FRA margin in the mid-40s. And finally, we expect our effective corporate tax rate to remain in the mid to high single digits through the remainder of the year. Before I wrap up, I'd like to highlight the significant progress we've made in enhancing the liquidity in our stock since our IPO. Two recent events have contributed to this meaningfully. First, in May, David Bonneman's estate sold 21 million shares of TPG stock in order to satisfy certain obligations, including estate tax payments. And second, in connection with the closing of the Pepper Tree transaction last month, we issued and registered 2.9 million Class A shares as partial consideration. These shares, which were not owned by employees of Pepper Tree, have already been fully liquidated in the public market. This supply was well received in the market, broadening our shareholder base and allowing many of our largest existing shareholders to further build their positions. Primarily as a result of these two events, the percentage of TPG operating group equity owned by TPG Inc. Class A shareholders has increased from 22% to approximately 40% in just 18 months. Taking a step back, we are very pleased with our strong second quarter results and the progress we continue to make driving growth and diversification across our business. We're experiencing substantial momentum as the pace of activity across the key drivers of our business, fundraising, deployment, and realizations continues to accelerate. And we look forward to creating additional value for all of our stakeholders. Now I'll turn the call back to the operator to take your questions.