TPG(TPG) - 2023 Q4 - Annual Report

PART I Item 1. Business TPG is a global alternative asset manager with $221.6 billion AUM, specializing in diverse strategies and emphasizing ESG integration - TPG is a leading global alternative asset manager with $221.6 billion in AUM as of December 31, 2023, specializing in complex asset classes like private equity, credit, real estate, and public market strategies[24] - The firm's AUM grew 160.7% from $85.0 billion in 2019 to $221.6 billion by December 31, 2023, supported by successful innovation, strong investment performance, and strategic inorganic growth, including the acquisition of Angelo Gordon[25][26] - TPG operates six multi-strategy investment platforms: Capital, Growth, Impact, TPG Angelo Gordon (acquired Nov 1, 2023), Real Estate, and Market Solutions[26] - TPG has a longstanding practice of integrating material ESG factors into its investment process, adopting its first ESG policy in 2012 and becoming a signatory to UN Principles for Responsible Investment in 2013[83] - As of December 31, 2023, TPG employed approximately 1,850 full-time employees, including over 650 investment and operations professionals, across 16 countries[25][92] Assets Under Management (AUM) Growth (2019-2023) | Year | AUM ($ in Billions) | | :--- | :------------------:| | 2019 | 85 | | 2020 | 90 | | 2021 | 114 | | 2022 | 135 | | 2023 | 222 | Overview Platforms Organizational Structure Environmental, Social and Governance ("ESG") Human Capital Resources Corporate Social Responsibility Investment Process Structure and Operation of Our Funds Incentive Arrangements and Fee Structure Competition Legal and Compliance Website and Availability of SEC Filings Item 1A. Risk Factors TPG faces risks from key personnel dependence, fund performance, Angelo Gordon integration, operational issues, conflicts of interest, and regulatory challenges - Dependence on senior leadership and key investment professionals is a critical risk; loss of their services or investor confidence could materially harm operations and AUM[154][155][156] - Poor fund performance can lead to a decline in revenue, potential clawback obligations, and negatively impact the ability to raise capital for future funds[160][161][162] - The acquisition of Angelo Gordon introduces integration risks, potential for increased costs, diversion of management time, and new financial/regulatory risks related to credit and real estate investments[176][177][179] - Operational risks, including reliance on information systems and technology, and cybersecurity threats, could disrupt business, lead to financial losses, and harm reputation[237][242][243] - Conflicts of interest may arise from investment allocations, fee structures, shared investments, and relationships with partners/advisors, potentially damaging reputation and business performance[256][257][280] - The company's holding company structure makes it dependent on distributions from the TPG Operating Group to pay taxes, Tax Receivable Agreement obligations, and dividends[341] - Extensive and increasing regulation in the U.S. and internationally (e.g., SEC, AIFMD, ESG disclosures) creates potential for significant liabilities, penalties, and increased compliance costs[424][427][428] - The investment management business is intensely competitive, with factors like fund performance, fees, and ability to attract talent driving competition, potentially impacting TPG's profitability[403][407] Risks Related to Our Business Risks Related to Our Organizational Structure Risks Related to Our Indebtedness Risks Related to Our Industry Risks Related to Taxation Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[487] Item 1C. Cybersecurity TPG manages cybersecurity risks through established frameworks and committees, with no material incidents reported as of the report date - TPG employs processes to identify, assess, and manage material cybersecurity risks, utilizing frameworks like NIST Cybersecurity Framework and CIS Critical Security Controls[487] - Cybersecurity governance involves an Enterprise Risk Committee (ERC) led by the CEO and an Operational Risk Committee (ORC), with the Chief Information Security Officer (CISO) reporting to the ORC and Audit Committee[489][490][491] - As of December 31, 2023, the company is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition[492] Risk Management and Strategy Governance Item 2. Properties TPG's principal offices are leased in Fort Worth, Texas, with additional leased offices in 16 countries, owning no real property - TPG's principal executive offices are in Fort Worth, Texas, and it leases office space in 16 countries globally[493] - The company does not own any real property, relying solely on leased facilities[493] Item 3. Legal Proceedings TPG is engaged in various legal and regulatory proceedings, including defending TIM Hellas lawsuits and cooperating with an SEC inquiry, with no expected material financial impact - TPG is involved in legal proceedings and regulatory inquiries, but currently expects no material impact on its consolidated financial statements[494] - The company is actively defending lawsuits related to a 2005-2007 investment in TIM Hellas, with most New York cases dismissed or pared back, and a Luxembourg case decided in its favor (on appeal)[1175][1176][1177][1178] - TPG is cooperating with an SEC document request concerning business-related electronic communications, part of an industry-wide review[1180] Item 4. Mine Safety Disclosures This item is not applicable to TPG Inc - Mine Safety Disclosures are not applicable to the registrant[495] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TPG Inc.'s Class A common stock trades on Nasdaq, with 77 record holders, and the company targets a quarterly dividend of at least 85% of distributable earnings - TPG Inc.'s Class A common stock is listed on the Nasdaq Global Select Market under the symbol 'TPG'[497] - As of February 20, 2024, there were 77 holders of record for the common stock[497] - The company's current intention is to pay a quarterly dividend representing at least 85% of TPG Inc.'s share of distributable earnings (DE) attributable to the TPG Operating Group, subject to board discretion[498][499] - In connection with the Angelo Gordon acquisition on November 1, 2023, TPG issued 53.0 million Common Units and 53.0 million shares of Class B common stock, which are subject to transfer restrictions and customary registration rights[503] Dividend Policy Recent Sales of Unregistered Securities Issuer Purchases of Equity Securities Item 6. [Removed and Reserved] This item has been removed and reserved in the Form 10-K Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This MD&A analyzes TPG's financial condition, operations, and key trends, including the Angelo Gordon acquisition's impact on AUM, revenues, expenses, and non-GAAP measures - TPG's AUM increased from $135.0 billion as of December 31, 2022, to $221.6 billion as of December 31, 2023, primarily due to the $75.3 billion from the Angelo Gordon acquisition[729] - Management fees increased by $268.1 million (29%) in 2023 compared to 2022, driven by new fund activations (TPG IX, Asia VIII, THP II, Rise III) and the Angelo Gordon acquisition[546] - Performance allocations increased by $88.1 million (12%) in 2023, reaching $808.2 million, primarily from TPG VIII, THP I, Growth IV, Growth V, Rise Climate, and Rise II, and $127.3 million from TPG Angelo Gordon Credit[550][558] - Net cash provided by operating activities decreased from $1,375.9 million in 2022 to $720.5 million in 2023, mainly due to lower performance allocation and co-investment proceeds[805] - Total liquidity as of December 31, 2023, was $1,544.2 million, comprising $665.2 million in cash and cash equivalents, and $699.0 million and $30.0 million in available borrowing capacity under the Senior Unsecured Revolving Credit Facility and Subordinated Credit Facility, respectively, plus $150.0 million from a 364-day revolving credit facility[776] Consolidated Revenues (2021-2023) | Revenue Type | 2023 ($ in thousands) | 2022 ($ in thousands) | 2021 ($ in thousands) | | :---------------------------- | :-------------------- | :-------------------- | :-------------------- | | Fees and other | 1,534,626 | 1,246,635 | 977,904 | | Capital allocation-based income | 855,285 | 756,252 | 3,998,483 | | Total revenues | 2,389,911 | 2,002,887 | 4,976,387 | Consolidated Expenses (2021-2023) | Expense Type | 2023 ($ in thousands) | 2022 ($ in thousands) | 2021 ($ in thousands) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash-based compensation & benefits | 547,377 | 473,696 | 579,698 | | Equity-based compensation | 654,922 | 627,714 | — | | Performance allocation compensation | 591,676 | 416,556 | — | | Total compensation & benefits | 1,793,975 | 1,517,966 | 579,698 | | General, administrative & other | 482,574 | 368,915 | 278,590 | | Depreciation & amortization | 47,673 | 32,990 | 21,223 | | Interest expense | 38,528 | 21,612 | 16,291 | | Expenses of consolidated TPG Funds & Public SPACs | 1,053 | 3,316 | 20,764 | | Total expenses | 2,363,803 | 1,944,799 | 916,566 | Fee-Related Earnings (FRE) and Distributable Earnings (DE) (2021-2023) | Metric | 2023 ($ in thousands) | 2022 ($ in thousands) | 2021 ($ in thousands) | | :------------------------ | :-------------------- | :-------------------- | :-------------------- | | Fee-Related Revenues | 1,337,254 | 1,086,007 | 867,078 | | Fee-Related Expenses | 730,923 | 632,157 | 688,527 | | Fee-Related Earnings | 606,331 | 453,850 | 178,551 | | Distributable Earnings| 627,929 | 759,886 | 1,249,171 | | After-Tax DE | 585,306 | 700,263 | 1,239,863 | Business Overview Trends Affecting our Business Organization Acquisition of Angelo Gordon Operating Segments Basis of Accounting Key Financial Measures Key Components of our Results of Operations Unaudited Condensed Consolidated Statements of Financial Condition (U.S. GAAP basis) Non-GAAP Financial Measures Unaudited Non-GAAP Balance Sheet Measures Reconciliation to U.S. GAAP Measures SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND OTHER DATA Operating Metrics Liquidity and Capital Resources Critical Accounting Estimates Recent Accounting Developments Item 7A. Quantitative and Qualitative Disclosures About Market Risk TPG's market risk is driven by investment fair value, market conditions, and currency fluctuations, impacting fees and investment income, with interest rate risk on variable debt - TPG's market risk exposure is primarily linked to the fair value movements of its funds' underlying investments, affecting management fees, performance allocations, and net investment gains[835] - A hypothetical 10% decline in the fair value of investments would decrease performance allocations by $1,900.6 million (or $335.9 million net of compensation) and investment income by $91.7 million[838][839] - A 10% strengthening of the USD against foreign currencies would decrease performance allocations by $446.3 million (or $59.9 million net of compensation) and net gains from investments by $22.5 million[840] - Interest rate risk from variable-rate debt obligations could increase annual interest expense by approximately $2.9 million for every one percentage point increase in interest rates[841] Effect on Management Fees Effect on Performance Allocations Effect on Investment Income Exchange Rate Risk Interest Rate Risk Credit Risk Item 8. Financial Statements and Supplementary Data This item provides TPG's audited consolidated financial statements, auditor's report, and notes, detailing financial condition, operations, and the Angelo Gordon acquisition's impact - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on TPG Inc.'s financial statements and the effectiveness of its internal control over financial reporting as of December 31, 2023[848][849] - The audit of internal control over financial reporting excluded the recently acquired Angelo Gordon, which constituted 19.2% of total assets and 9.8% of total revenues as of and for the year ended December 31, 2023[850][1241] - The Angelo Gordon acquisition on November 1, 2023, resulted in the recognition of $547.5 million in identifiable intangible assets and $205.9 million in goodwill[1026][1025] - Total intangible assets increased from $136.2 million in 2022 to $649.5 million in 2023, primarily due to the Angelo Gordon acquisition[1063] - Equity-based compensation expense was $654.9 million in 2023, up from $627.7 million in 2022, reflecting grants related to the IPO and Angelo Gordon acquisition[874][1194] Consolidated Statements of Financial Condition (December 31, 2023 vs. 2022) | Item | 2023 ($ in thousands) | 2022 ($ in thousands) | | :------------------------------------ | :-------------------- | :-------------------- | | Cash and cash equivalents | 665,188 | 1,107,484 | | Investments | 6,724,112 | 5,329,868 | | Intangible assets | 649,508 | 136,187 | | Goodwill | 436,079 | 230,194 | | Total assets | 9,369,672 | 7,941,738 | | Debt obligations | 945,052 | 444,566 | | Accrued performance allocation compensation | 4,096,052 | 3,269,889 | | Total liabilities | 6,008,538 | 4,202,232 | | Total equity | 3,361,134 | 3,085,871 | Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition Consolidated Statements of Operations Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures TPG Inc. reports no changes in or disagreements with its accountants on accounting and financial disclosures - There are no changes in or disagreements with accountants on accounting and financial disclosures[1234] Item 9A. Controls and Procedures TPG's management deemed disclosure controls and internal control over financial reporting effective as of December 31, 2023, excluding the Angelo Gordon acquisition - TPG's disclosure controls and procedures were evaluated and deemed effective as of December 31, 2023[1237] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, and determined it was effective[1242] - The assessment of internal control over financial reporting excluded the recently acquired TPG Angelo Gordon, which represented 19.2% of total assets and 9.8% of total revenues[1241] - There have been no material changes in internal control over financial reporting during the fiscal quarter ended December 31, 2023[1244] Item 9B. Other Information TPG directors and officers may use Rule 10b5-1 trading plans, with independent director Deborah Messemer adopting one for 10,479 Class A common shares - Directors and officers may use Rule 10b5-1 plans for stock transactions[1246] Rule 10b5-1 Plan Adoption (Deborah Messemer) | Name | Title | Type of Trading Arrangement | Security | Date of Action | Duration of Trading Arrangement | Aggregate Number of Securities Covered | | :-------------- | :---------------- | :-------------------------- | :--------------- | :--------------- | :--------------------------------- | :------------------------------------- | | Deborah Messemer| Independent Director | Rule 10b5-1 | Class A common stock | November 17, 2023| February 28, 2024 to July 31, 2024 | 10,479 shares of Class A common stock | Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to TPG Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[1247] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on TPG's directors, executive officers, and corporate governance, including the code of conduct, is incorporated by reference from the 2024 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[1249] - TPG has a code of conduct and ethics applicable to all directors, employees, and officers, available on its website[1250] - Corporate governance guidelines, in accordance with Nasdaq rules, are also available on the company's website[1252] Item 11. Executive Compensation Executive officer and director compensation details are incorporated by reference from TPG's 2024 Proxy Statement - Information on executive officer and director compensation is incorporated by reference from the 2024 Proxy Statement[1253] Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Security ownership information for beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2024 Proxy Statement - Information on security ownership of certain beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2024 Proxy Statement[1254] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from TPG's 2024 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement[1255] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from TPG's 2024 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement[1256] PART IV Item 15. Exhibits, Financial Statement Schedules This item lists all exhibits and financial statement schedules, with financial statements referenced from Item 8 and schedules omitted, providing a comprehensive exhibit list - Financial statements are filed as part of this annual report, as detailed in Item 8[1260] - All financial statement schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or notes[1261] - A list of exhibits, including the Transaction Agreement for Angelo Gordon, various credit agreements, and equity incentive plans, is provided[1262][1263][1264][1266] Item 16. Form 10-K Summary This item is not applicable to TPG Inc - Form 10-K Summary is not applicable[1267] Signatures The report is signed by Jon Winkelried, CEO and Director, along with other key personnel, as of February 23, 2024 - The report is signed by Jon Winkelried, Chief Executive Officer and Director, and other key personnel including founding partners and principal officers[1270][1271] - The signing date for the report is February 23, 2024[1270][1271]