TPG ekes out private equity portfolio gains in slow Q3

TPG Inc. generated a profit and clocked a modest rise in the value of its investments against what CEO Jon Winkelried termed a "challenging market backdrop" that slowed the firm's new investments, realizations and fundraising.

"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," Winkelried said.

The firm reported $37.4 million in net income for the quarter, or 9 cents per diluted share, reversing course from the $9.9 million loss registered in the second quarter. TPG said the value of its investments appreciated 2% over the course of the third quarter, another U-turn for the firm. In the second quarter, TPG reported a 2% loss on the value of its investments.

TPG, which went public in January in a $1 billion IPO, reported assets under management of $135 billion across all of its funds, which include a variety of private equity, real estate and credit strategies. The figure was up 24% year over year.

Investors committed $8.2 billion to TPG in the third quarter, including $6.2 billion to its private equity strategies, bringing the firm's year-to-date fundraising total to $26.4 billion.

Slow quarter

TPG had $46 billion in uncommitted capital at the quarter's end, a record amount of dry powder for the firm.

Still, quarterly fundraising lagged TPG's second-quarter total of $12.7 billion. Investments and realizations paced slower in the third quarter too.

Winkelried in August on TPG's second-quarter earnings call described an "increasingly favorable investment environment," raising expectations that the firm would soon put more of its dry powder to use. But TPG deployed just $2.5 billion over the three months ended Sept. 30, making the third quarter the firm's slowest of the year for new investment activity.

"We're currently in an adjustment period where sellers' valuation expectations are resetting lower, and transaction levels may remain softer for a while longer," Winkelried said on the firm's third-quarter earnings call. "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."

Climate investing outlook

James Coulter, TPG's executive chairman, described a particularly bright outlook for the clean energy-focused TPG Rise Climate LP fund following the passage in the U.S. earlier this year of the Inflation Reduction Act. The act earmarks $369 billion for investment in clean energy and for projects to slow climate change.

"Within our own portfolio, that dramatically changes the positive, the expected cash flows from things we've already invested in. So, it's really good news for what we have in the ground. And it also dramatically opens up the amount of projects and companies that will pass our very strict underwriting standards," Coulter said.