Thu. Jan 20th, 2022

It comes as no surprise that TPG Inc today is only worth a fraction of one-time arch-enemy Blackstone. The US private equity group on Tuesday unveiled the initial price range for its upcoming drive. This implies a market capitalization of only more than $ 9 billion.

Blackstone’s equity value, on the other hand, is $ 150 billion. Much of it can be attributed to the gulf in assets, which the House of Schwarzman zealously amassed. It now manages about $ 730 billion, almost seven times more than TPG, which was founded in 1992 by David Bonderman and Jim Coulter.

The type of assets also matters. Nascent-listed private equity manager Blue Owl highlights this point best. It was announced last year by a Spac merger. Today, Blue Owl has a market capitalization of $ 20 billion on assets of less than $ 100 billion.

Unlike TPG, it does not participate in leveraged buyouts. Rather, it buys interests in other alternative capital managers and makes direct loans to LBOs. Blue Owl’s fees are steady and avoid the boom and bust cycles that define traditional buyout firms.

TPG’s historical competitors – Blackstone, Apollo, Carlyle and KKR – have switched to sowing areas of investment in the decade they have been listed. They have maximized the predictable management fees that public market investors crave. TPG acknowledges that 80 percent of its assets can still be attributed to conventional private equity.

Ironically, it’s a great moment for that métier. The gross internal rate of return on TPG’s 2019 $ 11 billion fund exceeds 100 percent, although net IRR drops to 55 percent after fees. According to the prospectus, realized performance fees of nearly $ 750 million in the first nine months of 2021, driven by a hot stock market, were six times the figure for the same period in 2020.

Cash earnings show how volatile a pure-play buy-out business can be. TPG’s 2021 ratio of “distributable” cash earnings to management fees was seven times. At Blackstone, that ratio was less than twice.

TPG has a good record of 30 years of buying and selling companies for big profits. However, this will not be enough to ensure high demand from investors.

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