Good morning, and welcome to the TPG's Third Quarter 2024 Earnings Conference Call. Currently, all callers have been placed on listen-only mode. And following management’s prepared remarks, the call will be open for your questions. [Operator Instructions] 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 Joh Wicklereed, Chief Executive Officer; and Jack Weingardt, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Colter; and our President, Todd Sisitsky, 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 an interest in any TPG fund. Looking briefly at our results for the third quarter, we reported GAAP net income attributable to TPG Inc. of $9 million and after-tax distributable earnings of $189 million or $0.45 per share of Class A common stock. We declared a dividend of $0.38 per share of Class A common stock, which will be paid on December 2, 2024, for holders of record as of November 14, 2024. I'll now turn the call over to Jon.

Thanks, Gary. Good morning, everyone. It's been an incredibly busy quarter across the firm. Looking at our financial results and key business drivers, you can see we have strong broad-based momentum. Our investment approach is continuing to drive robust deployment. Our realizations are accelerating, and our capital raising is benefiting from our increased scale and diversification. Through the first three quarters of this year, we have deployed nearly $23 billion of capital, generated realizations of almost $16 billion and raised more than $21 billion across our strategies. Our strong track record in brand and the integrated business we've built across private equity, credit, and real estate are clearly resonating with our clients. At the same time, the environment in which we are operating has shifted. In the broader market, we are seeing a meaningful pickup in activity fueled by the lower cost and greater availability of capital and easing concerns around the economic outlook. Against this macro backdrop, where valuations are rising and equity markets are reaching new all-time highs. We are maintaining our discipline and selectivity in deploying capital in our core sectors and themes. We continue to pick our spots, where we believe we can drive outperformance and generate alpha. In addition, the strong culture of collaboration we've established across TPG has enabled us to unlock proprietary opportunities and deliver differentiated value for our clients. As you'll recall, we were early to identify and execute on an increasingly attractive deployment environment last year. Our investment pace continues to be robust across each of our platforms. We invested $8.6 billion in the quarter, and year-to-date through Q3, our deployment is up more than 30% compared to the same period last year on a pro forma basis. We've recently announced an interesting series of transactions involving our existing portfolio company,…

Thanks, Jon, and thank you all for joining us today. As you heard from Jon, momentum continues to be strong across the firm. Our financial performance reflects our increased breadth and expanded capabilities as we continue to successfully execute our growth strategy. I'll begin with a discussion of our financial results for the quarter before moving into our outlook for next year as well as an update on our fundraising expectations. We ended the third quarter with $239 billion of total assets under management, up 76% year-over-year. This was driven by $75 billion of acquired AUM, $30 billion of capital raised and $18 billion of value creation, partially offset by $19 billion of realizations over the last 12 months. Fee-earning AUM increased 80% year-over-year, and we ended the quarter with more than $58 billion of dry powder, which represents 41% of fee-earning AUM. AUM subject to fee earning growth was $26 billion at the end of the quarter, which included $17 billion of AUM not yet earning fees and represents a revenue opportunity of approximately $144 million on an annualized basis. Our fee-related revenue in the third quarter was $460 million, up 43% year-over-year. As expected, management fees were relatively flat versus last quarter due to a decrease in catch-up fees, while we saw continued strong transaction fees of $43 million. We've discussed previously the revenue synergy opportunity of integrating our broker-dealer capabilities into our credit platform, and we began to see the benefits this quarter. As Jon mentioned, we announced the DIRECTV and DISH transactions in September, which included a highly bespoke financing led by our Credit Solutions team to address the near-term maturity for DISH. This is the first transaction within our credit platform where TPG's broker-dealer served as a ranger, and it demonstrates how our cross-firm collaboration…

[Operator Instructions] We'll go first to Alex Blostein with Goldman Sachs. Please go ahead.

So maybe just starting with management fees -- just starting with management fees, I heard your guidance for Q4. Obviously, there's a couple of things that are happening with the catch-ups and the step down in the funds. But as you look out into 2025 and Jack, at the end of there, you kind of mentioned a host of different funds that you guys are going to be launching in fundraising for. How do you think about management fee growth outlook into 2025? No one will you guys know about the business so far?

Yes. That's a good question, Alex. I mean I tried to give a little bit of picture for that with my comments that this year was really setting the building blocks in place for next year, and we do expect significant management fee growth next year, driven by those building blocks. We're not providing specific FRR growth guidance, but we do expect significant growth kicking in really in Q1 after we have the step downs that I referred to in Q4.

We'll go next to Glenn Schorr with Evercore. Please go ahead.

And sorry, if this is kind of the same question in a different way. So, lots of growth drivers in there. So, I wanted to see if you could provide bigger than a [indiscernible] type of guidance on what you think the 2025 over the next two or three years of FRE growth could be in the range up? And with that, I'm just curious on the expenses on, you called out two noncore expenses. They seem kind of regular cost of doing business. So, if you could help us think through the why and the impact on FRE.

Yes. I think on the latter question, the noncore expenses, I don't think they're really ordinary course business in terms of kind of recurring expenses every year. This move for us into Hudson Yards is a really important strategic move for us, both to consolidate the office space and neither of our current office spaces, the legacy AG space or legacy TPG space had enough room for us to combine our teams and also to create additional room for growth in the business. So, that we consider that to be a onetime move into this new important space. And then the investment in the unified IT platform is really related to bringing both businesses together onto one platform. Again, we do expect that to generate FRE benefits as it ends up being implemented. And the other question was longer term. FRE growth I think Yes, if you assume a significant pickup in FRR growth next year, which should continue because again, one of those one of those building blocks is, as we mentioned on the last call, the launch of TPG 10 and Healthcare Partners III, our big flagship buyout fund. That will be in the market through '26 as well. So, you'll start to see the benefit of that fund scaling and catch-up fees kicking in as we raise the rest of that. So, you should expect reasonable FRR growth next year and the year after. And if you layer on top of that, the FRE margin guidance I gave approaching mid-40s by the end of next year with more upside beyond that. I think you get a reasonably strong picture of FRE growth.

We'll go next to Craig Siegenthaler with Bank of America. Please go ahead.

So, I have an AUM reconciliation question. So, if I look at the AUM roll for it, I see credit inflows were very strong at $2.9 billion, but in the steering AUM roll forward, they were only $100 million. Now, I know the credit business is very sensitive to deployments, but credit deployments were also very strong at $3.9 billion. So, my question is, why is this fee earning AUM inflow in the quarter so small relative to the AUM inflow and also the actual credit deployments?

Yes. So, the FAUM role, Craig, is -- and actually, in credit, it's more like $1 billion increase versus the number you talked about. But it's always complicated to do the FAUM rolling credit. There's lots of puts and takes. The way I would summarize it is we obviously capital raising flows into FAUM as we deploy it. But if you look at invested capital of $3.9 billion during the quarter, which was healthy, minus realizations in credit of $1.9 billion, you get kind of net increase of $2 billion. Now within that $2 billion, about $1 billion was not immediately management fee earnings. About $500 million of it was TPG managed co-investment for LPs. Now that's obviously, very strategically important for us. It's what our LPs want to see. It tends to feed into future fund commitments, and we earned capital markets fees in connection with the placement of some of that co-investment. And then the remainder, call it, $400 million or so was leverage-driven deployment, and we -- in some of our funds, we don't earn fees on leverage, we earned on net asset value. But net-net, we do believe we'll continue to see increased deployment in credit throughout the course of the year next year and continue to drive good FAUM growth in that business.

Jack. So, I guess in the earning rollforward, you focus on both the net change in investment activity and the earning capital raised, although that isn't exactly related to what we're seeing in the AUM roll forward. Is that right?

Well, the net change in investment activity captures what I talked about, right. We deployed $3.9 billion. So, most capital raised in credit doesn't immediately flow in to AUM. It flows in as you deploy it. So, we focus more on -- when we think about FAUM rolling credit, we focus more on deployed capital minus realizations. And then, those other points and takes that I talked about.

And just to add, that capital raise, I think, is very important because I think as we've been talking about since we acquired Angelo Gordon. It's been important for us in terms of out originating our capital base. I think it's been important for us to build those pools of capital that give us the dry powder to allow us to engage in the transactions that we are able to source in the market. And as Jack said, that builds on the flow and cadence of the investment activity and then builds on itself in terms of our ability to go out and raise additional capital because of the size of the opportunities that we're seeing. And we're seeing that real time now across the whole credit platform. So, there is a very important relationship between capital raise that may not yet be fee paying and deploying that capital, satisfying co-invest interest from our LPs and then going out and then continuing to raise additional commitments from the market in order to steadily size up the capital base. That answer the question, Craig? When you see the $2.9 billion of capital raised in the AUM role, it just not in the FAUM role because most of it doesn't burn fees right away.

We'll go next to Ken Worthington with JPMorgan. Please go ahead.

On the DISH transaction, can you talk about the impact of the transaction on fee-related revenue sort of next quarter and coming quarters. And I know this is a clearly unusual, very bespoke transaction. But you have now the capabilities with Angelo Gordon. You've demonstrated the expertise we're an improving sort of market for transactions and deals. What is sort of reasonable to expect in terms of more similar type of deals looking forward? Could you -- would you -- is it reasonable to expect like one type of this type transaction a year? Is that outside the realm of reason? What are your thoughts there?

Yes. Let me start on that, and Jon will give you more kind of qualitative outlook of additional transactions. It was obviously highly unusual to bring together all these transactions involving an existing portfolio company of ours, but it's not unusual to see complicated transactions like this requiring bespoke capital, and we see a very large pipeline of that. On the FRR impact, the deal actually closed, the DISH loan closed on September 30. So, what that led to was the only FR impact in Q3 was the capital markets fees associated with us acting as agent on that loan. It also means that, that deployed credit capital drove no management fees from the credit business in Q3, but will drive management fees in Q4 since it was supported in the last day of the quarter. So, we do see a pickup in management fees from the credit business, in part driven by that Credit Solutions deployment late in the quarter in Q3.

On the broader question with respect to kind of flow of these types of opportunities. Currently, these types of deals -- these sort of bespoke financing opportunities represent the bulk of our pipeline in terms of where we're focused. The backdrop, I think, as you're aware, is that from a kind of valuation perspective in the market, we're probably at the tightest spreads that we've seen in high yield and leveraged loans since the GFC. I think high-yield spreads are now at like 3.25 and the gap and the differential between CCC and BB is probably as tight as it's been since the GFC. So, we are very focused on these types of opportunities that we're creating across our credit solutions business and from also our private equity franchise. But just to give you an idea, I mean, we sort of track this based on sort of opportunity flow that we're seeing, which is essentially at an all-time high for us. We signed many NDAs with sponsors and companies in terms of working through sort of bespoke transactions. And just to put some numbers on it, we've deployed about $2.5 billion over the last three months in nine different deals and to put the DIRECTV DISH deal in perspective, that of the -- of that amount of capital, about $750 million of it is what we kept internally in our own pools of capital of the $2.5 billion DISH deal. And the remainder of it, we syndicated out to some combination of LPs that we're interested in joining us in that transaction and a couple of other funds that were also brought into the deal. So, if you look at what's happening, there's a significant pipeline. Sponsors are in a position right now, as you know, where it's harder to monetize. Many capital structures are somewhat over levered as a result of coming through the pre-interest rate increasing period. And I think that we're in an environment where we expect to continue to see these kinds of opportunities. We don't -- I mean maybe the way I should describe it is we don't think this is a six-month or nine-month opportunity. We see this as a three- to four-year opportunity in front of us. That's quite substantial. So, I think this will continue to be a core part of our focus from the on the credit side of the house. And I guess the last thing I would say is that it's translating over into this hybrid opportunity that we are raising capital for right now because some of the opportunities are leading to kind of top of the capital structure, senior secured low LTV types of opportunities and some of the opportunities are more middle of the capital structure.

Just one thing I'd add at the highest level, which is that this relative to the most place of encounter is the place to celebrate these type of collaborations more than most, you hear that, as Jon described, the DIRECTV deal. And so, we also spend a lot of time both in credit solutions in the credit platform on the private equity side, really trying to think about based on the theme work that we're doing, the sectors that we spend our time and what are the type of things that should happen, not necessarily what's for sale, but what might be interesting. And a lot of those involve thinking across the capital structure. So, it's very hard to predict how often these things come up because, again, you're trying to pitch and create ideas that are not necessarily action what we think are really interesting. But I think this is a really -- this is an environment, and we -- and it's even more exciting in the context of now the combined TPG and legacy AG businesses in which we're spending a lot of time as invest their teams just thinking about what we can do together.

We'll go next to Michael Cyprus with Morgan Stanley. Please go ahead.

I was hoping you could elaborate a bit on your initiatives to expand reach in the private wealth channel maybe where does the Twin Brook offering stand today just in terms of placements on the platform? How do you see that evolving over the next 12 months? And then you alluded to the new private equity product coming into the retail private wealth channel. So, if you could elaborate on that as well as other potential products you may have in the pipeline to bring out to the marketplace? And maybe talk about a bit how these products you expect it to differentiate from others that are already in the marketplace?

Mike, I'll start that and others may have comments as well. Look, it's -- our efforts to expand in private wealth involved, basically two primary factors, one of which is new product creation and the other is expanding distribution. And on expanding distribution that we probably hired, I don't know, half a dozen or a dozen people in the past few months as we continue to build out that team. So, we're actively investing in building out the feet on the street to enhance distribution, and then equally importantly, creating new products that people want to buy in the channel. The first, obviously, you refer to TCAP and that continues to go well. We have continuing flows into that product. That really feeds, as you know, into Twin Brook in particular. So, the next product we intend to launch is the one I mentioned, which is TPOP, the private equity semi-liquid vehicle. And we continue to get very strong positive feedback from our channel partners about that product, you can see pretty clearly that our private equity returns have been differentiated in the industry. And all the channel partners are already aware of that because we've been placing one fund at a time as a commingled fund with the channel partners and their clients have had good experience with us in that regard. Now what we're doing is taking that differentiated return investing all those strategies and putting them together into the product that they want to buy or much of the channel wants to buy. So, we'll be launching that in Q1. We have been seeding that business over time, and we expect to have a really nicely diversified ceded portfolio in place to launch by Q1. Beyond that, there are several additional products that we are considering as next steps. One would be potentially working with our climate funds to offer a more dedicated climate-driven investment product to the channel. Another would be a more broad-based yield-oriented strategy, tapping into more of our investing platform in credit than just Twin Brook and a few other things beyond that. So basically, investing in distribution and investing in new product development.

Yes, I would just add that this remains a very, very important focus for us. The engagement that we're having with the major channel partners has been very substantial. The good news is that I think there is a high level of demand for products from the TPG franchise in the channel, and we're really participating and being invited to the various events with advisers from the various platforms. Since we last spoke, Michael, we're at a Morgan Stanley event. We were out of a Merrill Lynch event. Todd participated in a broader industry conference of private wealth advisers. So, this is very top of mind for us and continuing to build our brand into the channel where we feel like we have a brand that we have a global brand and it's differentiated with respect to our products and our capabilities. So, this will be a growing -- we're confident that our penetration into the channel will continue to grow. And obviously, products like TPOP that are sort of purpose-built for that channel give us the ability to continue to expand our breadth.

We'll go next to Brennan Hawken with UBS. Please go ahead.

Just wanted to confirm when we think about the near term, is it right that fourth quarter would be a seasonally larger one for fee-related performance revenues? And then on tactically, could you remind us of the rate sensitivity in those FRPRs base rates?

The fourth quarter is always a seasonal increase in FRPR. So that's correct. I don't see a lot of rate sensitivity to that number. Obviously, there's some flowing through the -- primarily the Twin book business, but it is accurate to think of that as being a seasonally high quarter for -- in the fourth quarter.

Okay. And I mean go ahead. Go ahead.

I wouldn't expect a lot of rate sensitivity based upon where we see kind of base rates having settled to as impacting that number. Now if we have more substantial further moves in rates, we'll see. But I think based upon the Twin Brook business and how our loans are priced, I think that I wouldn't expect to see a lot of some -- I wouldn't expect to see that as a big impact in the fourth quarter.

So, you should expect some pickup in Q4. And obviously, about half of that goes against FRPR compensation expense, but still an increase in kind of net FRE effectively coming through that line item.

Yes. Got it. To be clear, I wasn't -- I didn't -- I probably worried it poorly. The fourth quarter question was around the seasonality. The rate sensitivity wasn't really truly around the 50 basis points more or like thinking about next year. And if we continue to see rates coming down, how should we be modeling out the puts and takes there?

Yes, I wouldn't model much sense to be there.

We'll go next to Kyle Boyd with KBW. Please go ahead.

Maybe just a question on your insurance strategy you've been evaluating the best path forward there or and potential for strategic partnerships. Just wondering if you could update on your thoughts on control versus capital-light insurance partnerships. And when you're evaluating potential insurance partners, can you just remind us some of the most important aspects of those potential partnerships to TPG, whether that's a certain size partner or a specific underlying growth characteristics that you're looking for?

Yes, sure. I mean I think, first of all, I think the insurance strategy here is multipronged because it's not only about a strategic transaction. One of the things that we've done very proactively since -- we actually closed the Angelo Gordon transaction as we have a collaboration in the coverage of the insurance industry and trying to continue to expand our relationships more broadly as a result of being able to service the insurance company needs on the asset side more holistically, and we've seen good progress on that. If you look across commitments that we've gotten to both our structured credit business as well as our Twin Book franchise. We continue to expand those partnerships with insurance companies and it would be, as you would expect, which is primarily sort of life and annuity businesses as well as, by the way, more broadly even kind of the P&C part of the world. So those relationships continue to expand, and we're feeling very good about the momentum that we have there, and we're going to continue to build that. On the strategic side, we talked about this a lot. We continue to be interested and focused on how to find the right strategic relationship. And I would say that we're very mindful of a couple of things. One is the quality of the platform that we engage with. The key underlying kind of fundamental thesis is that the quality of the platform, its ability to grow, particularly its ability to grow organically, given how expensive it is, how expensive it's become to do things like kind of block acquisitions in the market, which has gotten a lot more competitive. So organic growth capability, I think, is really important. The strength of the underlying platform, their position in the market…

We'll go next to Mike Brown with Wells Fargo Securities. Please go ahead.

The FRE margin, it's expected to exit at the mid-40s and in 2025. So, it sounds like you'll be approaching kind of that 45% margin that you've guided to in the past. So, when you think about 2026 and beyond, I assume that kind of mid-40s is not your end game or certainly not the full potential of the platform. So, when you think about that FRE margin longer term, how should we think about that annual margin expansion for, call it, 2026 and beyond?

Yes, you're definitely right, Mike. 45% was never meant to be a long-term target. It was meant to be a stop along the way as we got scale of the AG credit businesses and got back to the margin expansion, we were accomplishing on a stand-alone basis for TPG. So, what I said on the call is we expect to be approaching the mid-40s by the end of next year. I would expect further scaling in 2026 and '27. And eventually, we should be getting to 50% and above 50%, but I'm not putting a time frame on that at this point.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks.

Great. Thank you all for joining us this morning. We look forward to speaking with you again next quarter. And in the meantime, please reach out to the Investor Relations team if you have any questions.

Thanks, everyone.

Thank you.

This concludes today's TPG's third quarter 2024 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.