Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. Note that taking your photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, good afternoon, everyone, and thanks for sticking with us here on day two of the Morgan Stanley Financials Conference. I'm Mike Cyphers, equity analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. Welcome to our fireside chat with TPG. We're excited to have with us here today Todd Sisitsky, the President of TPG. As many of you know, TPG is a leading global alternative asset manager with over $250 billion of assets under management. Todd, thank you for joining us today, making the trip out here.
Thank you for having me.
Great. Look, you've been President of TPG since its inception and have co-led the healthcare investing practice. Can you talk a bit about how your role has evolved over the years, how you're allocating your time today? As you reflect on the journey of TPG over the years, what lessons learned stand out as you've built a $250 billion leading alternative asset manager with global footprint?
Absolutely. Again, thank you for having me. I'm excited to be here. I have been at TPG now, I'm in my 23rd year. So I've been there 22 years, longer than the furniture. Really, really have grown up at the firm and grown up, as you said, on the private equity side. The only continuous job I've had that entire period is investing in healthcare. But the role has evolved quite a bit over time. I became President of the firm right ahead of our IPO. I was the first President. Even that role has evolved. In context of my firm-wide responsibilities, I've co-run the managing committee and the partnership committee. I've been involved in leading some of our really important initiatives, including the Angelo Gordon acquisition, which I led with our CEO.
I'm focused on some of the areas that we're trying to really develop strategic growth plans, including places like Europe and then some of the businesses that are growing nicely, like our secondaries business where I support the team. I've had a number of firm-wide responsibilities, but maintained a lot of focus on investing. I think actually when I was asked to be President, one of the primary reasons was not just my historical experience as an investor and hopefully credibility as an investor, but also my ongoing passion for investing. Ultimately, the job as President and all of our jobs is just focusing on investing excellence. I would say one thing that is interesting about TPG, I think it's been a real positive, is that nobody retires into middle management. We're all on the front lines. That's part of how we think about ourselves.
It's how we evaluate one another. That has certainly persisted for me. I can tell you also that my credibility as an investor allows me to do things as President that I think, to your question about reflections on what has been the core part of our DNA, but I'm able to sort of continue to push these things that I think are already strengths of the firm. One is this continued and singular focus on performance and making sure that you are distinguishing yourself in every asset class in which you're involved, focusing on the areas where you have competitive advantage, always thinking about your strategy and pushing strategy in the same way that you're pushing your investments, the portfolio companies that you invest in, to think about their strategy.
I think that that's the only thing that gives you a right to grow as an asset manager is really what you're delivering for your partners. The second thing that I think is even perhaps more distinctive to us is this focus on collaboration. That's been really an exciting part of TPG. We've had some of our greatest success in the seams between sector teams, in the collaboration between businesses. As we've added Angelo Gordon, as we've added our credit business and expanded our real estate business, we've found some incredible opportunities to essentially unlock investments that would otherwise not be available to us in other business units by working together. The DirecTV DISH transactions, there were actually a series of opportunities there, were a great example of that. That, as an investor, as a deal guy, that gets me really excited.
I think of a big part of my responsibility as trying to continue to encourage and support that type of collaboration because I think it's distinctive and has created some of our most important practice areas and investments. To continue to grow from that base. Finally, it's a very distinctive culture. There's a lot of support. It's a very flat organization. Our investment committee dialogues are open to every professional, and everyone's encouraged to participate. It's an entrepreneurial place. We focus on things that we think are really interesting as opportunities. We stick to our lanes where we have competitive advantage. Those cultural dynamics are also important to reinforce. I would tell you from a cultural perspective, more things have stayed similar than have changed over my two-plus decades at the firm.
Wow. Maybe shifting gears over to the broader macro environment through the lens of your portfolio companies, curious to get your take on the state of the global economy, health of the consumer, path of inflation here, just given some of the uncertainty and volatility, and how your portfolio companies are performing today.
It has certainly been a remarkable couple of quarters for all of us. I think even some of the statistics, I think it was the worst ever start, 75 days to a year. Then it was the strongest rebound after a 20% drop since World War II, at least. It is a pretty dramatic moment in some respects. I would say that as long-term investors, we are not as caught up in the day-to-day, but certainly that macro environment is very important to us. I would also say that during moments like this, we are always focused on our portfolio, but to your question about performance, we are particularly focused on trailing results, on forward indicators, on operating metrics. We stay very, very close to the portfolio. That is sort of the nature of our investing style across all of our asset classes.
I can tell you, not that I'm not perpetually focused and anxious. That's sort of my nature for even beyond my job. I've been really pleased and encouraged by the performance and the persistence of growth that we've seen in our portfolio. If you focus on the private equity side for a moment, I think we reported at the first quarter earnings call that our revenue growth across all of private equity was about 18%, which was relative to, I think, 5% for the S&P. Actually, the EBITDA growth was stronger at 24% relative to, I think, 10%. We've qualitatively continued to see that strength.
I think that strength is a reflection of both the macro resilience in the economy, which we're seeing across geographies, and which I think reflects the starting point of a pretty good macro environment and economy going into some of the turbulence we've seen more recently. I think it also reflects our strategy. We try to be very focused on areas that are secularly growing. We outlawed FOMO a long time ago. We don't worry about how other people are seeking to make their money. We are looking for areas of secular growth and areas in which we can bring what is a very broad set of operational capabilities to inflect the performance of our underlying businesses. I think that's what you see coming through in the numbers. We've actually been cautious about the macro for some time.
We, in fact, have underwritten multiple compression into our centering cases really for a fund cycle and a half, which puts a lot of pressure on that focus on growth. I think part of the reason that we're seeing this consistently strong growth is the neighborhood and the impact that we're having on our companies. That's, I think, certainly part of what's flowing through. I'd say elsewhere in our business, which is, of course, very important on credit and real estate, we're also seeing strength. We actually get questions because I think folks are particularly focused on the leveraged finance world on our direct lending business, which is Twin Brook. It focuses on the lower middle market, which is an interesting place, has an excellent market share, and it's been steady.
I mean, we have two times coverage ratio and consistently LTV of about 43%, loan to value about 43%. And we've seen good growth in the underlying portfolio of 290 companies. Like the private equity side, I think that reflects both the resilience of the macro, but also the way we go about doing things in terms of the selection of companies. 100% of these companies have covenants. We sit at the table, I think 98%, it's senior secured. We're in the revolver. I think the way we do things is another part of the reason that we're seeing such strength in the portfolio. I'm not at all complacent. It's an interesting market and an interesting moment we're living through. I can tell you that we've been very pleased with the performance so far.
Great. Turning to capital markets, can you talk about the pipeline and opportunity set that you see in the current backdrop, how volatility has impacted that pipeline of deals that were arguably slated to get done? How has that sort of transpired, and how's it looking now in terms of the outlook for the remainder of the year?
Absolutely. I think that, I mean, I sit on a number of our investment committees and am sort of aware of what's happening across the firm. We're still very busy and active. I would have said going into the year it might have been robust, maybe even more than we can handle. I do think volatility in some cases causes folks to hunker down a bit, but it's still very active. We're still, I think, quite pleased with our pace of investment. I think that there's a reason that we've continued to see the level of activity. In my mind, if you think about the private capital market, there's sort of a flow side of the business where things are usually intermediated, and they come out with a chaperone, you have a chaperone dinner with, name your investment bank and the management team.
Very high probability that that's an actionable opportunity because it's for sale. On the source side of the world, which is where we participate for the most part, it's less certain that there'll be a transaction, but you're usually coming with a proprietary idea or a strategic or some other partners coming with an idea to you. That has been a very healthy portion. In fact, 70% of our latest U.S. flagship fund on the private equity side is either structured relationships with corporate, a carve-out, or some combination thereof. I think that side of the market is a little less volatile, a little less tied to overall deal market. That's, I think, been part of the reason.
If you look at Asian growth, the majority of those deals are also proprietary, and there is a very healthy set of those deals that are also corporate partnerships. In fact, we have also had partnerships with universities and not-for-profits. Very unusual sort of deal sourcing stories, which I think result in our portfolio for us to look a little bit different than others. On the credit side, volatility is sometimes your friend, I think, in terms of opportunities. On Twin Brook, we have a very active pipeline. We are sort of the incumbent in those 290 or 300 companies in that in these periods, they sometimes do add-on acquisitions with even greater frequency, and we are the lender. Credit Solutions, really interesting capital structure opportunities. Good companies with challenging capital structures. I think the pipeline in that business is as robust at this moment as it has ever been.
That is sort of, again, a very creative capital type of approach. Structured credit, which is non-EBITDA-based, asset-based lending, the opportunity set is extraordinary. Frankly, the opportunity set significantly exceeds the capital base we have built there, although, of course, over time we are going to try and address that. That is a business that has been driven from a number of different angles, including LPs, particularly insurance companies increasingly wanting to be in that space. In some cases, including with our insurance partners, we have worked together to get into new areas and to innovate. Investment-grade asset-based financing is an example. There is a lot of activity. On the real estate side, I would tell you that we are getting access to some assets that either lenders or sometimes REITs, some owners that are feeling some form of distress, are selling.
These assets are not assets that we would usually get access to. Some really interesting high-quality assets, a lot of defensive space. We are not overly burdened by U.S. office exposure. We have been able to play offense. There have been some opportunities. We have looked at some really interesting take-privates. Again, opportunities that would not necessarily be available in other markets. There is no question that volatility often causes people to slow down. I think in part because of the way that we source opportunities, we have continued to be very active.
It sounds like a little bit of a differentiated sourcing funnel maybe versus others. But maybe along those lines, as you're thinking about this sort of backdrop, anything stand out in terms of the most compelling areas for deploying capital leaning into over the next 12 months?
I think there's a lot of interesting pockets. Again, we try to be super selective in terms of the areas we focus in. It's a competitive market. We want to make sure we're focusing in areas where we have real competitive advantage. If I think about geographically, we actually feel like there's a lot of interesting opportunity in Europe right now. I look at Europe and I think about the areas that are compelling to me. Areas like on the sector side, technology and software, healthcare, climate investing, the deal types, some of the secondary opportunities there are, there are GP-led secondaries. I feel like a lot of the real estate opportunities on the industrial side, logistics side, student housing. I actually feel like the interesting opportunities in Europe are very well lined up with our authentic global strengths as a firm, the spots that we've picked.
We have been busy, and I feel like that's an opportunity. There's an opportunity to continue. As I mentioned, we spend a lot of time in Europe. We have an excellent group of folks across the platform and likewise on the credit side in Europe. I think that's interesting. In Asia, we've continued to be busy. In Asia, for us, we've leaned into places like Australia and India, Southeast Asia, Korea, Japan, particularly on the real estate side. We have been a little less active in China. We have a team there, but it's less than 2% of our AUM. It's harder for us because I think the rules of engagement are not quite as clear. It's a good time, I think, frankly, to be a global firm.
I think there is some overall dialogue around global diversification, and I feel really well positioned as far as that goes. On the individual businesses, structured credit, as I said, super busy. One of the things we try to do in all of our businesses is not only participate in the spaces we are in, but figure out where the opportunities are going to arise. We've been almost in some respects a first mover in areas like HELOCs, which is in a world where people have equity in their homes, but they also have lower interest rate mortgages that they do not want to refinance. That is a really interesting place. We've found some strategic partnerships in the space to allow us to participate there. I think there is a lot more opportunity to explore. Essential housing, I mentioned a really strong pipeline. There is another place.
My partner, Ryan, talks about going into the lab. The team created an essential housing business. That is essentially working with builders who are both reacting to the macro inadequacy of perpetual inadequacy of housing and also the desire of those home builders to become more capital efficient and more thoughtful about their balance sheets. This is a company that, or this is a business for us. It is on its, I think, third fund. $20 billion of project value, 16 different home builders that they have worked with. These are places where we are not following, but we are really trying to lead. We see a lot of opportunity there. Just a few examples. I know we only have 17 minutes, so I will stop now.
Fair enough. Why don't we shift gears and talk about the exit backdrop? I think there's a lot of excitement coming into this year, but given some of the volatility, maybe expectations have tempered a little bit. I guess, how do you see the outlook for exit activity from here? How much of the portfolio would you say is exit ready?
Exits is a place we spend a particular amount of time thinking about. I feel like this is a very important topic for our partners. It's a very important topic for us. Before I get into sort of the numbers, process-wise, whatever your strategy is, everybody spends a lot of time on the investing decision going in. Everyone has investment committees. I think ours is particularly robust, and we have a particularly tight strategy, but this is something that is part of the core job of private equity. I think one of the things we do a little differently is we try to bring the exact same level of rigor to the exit dialogue. That's something that's evolved really over the last 10 or 15 years. We've gotten tighter and tighter. It's a very engaged dialogue.
I mean, I think of myself as an investor, a deal guy. We do sometimes fall in love with our businesses. I think it actually really matters that we come together as a partner group and figure out not necessarily what's best for the business, what's best for the fund and for the LPs. That has led to some very interesting patterns for us. If you look at TPG Capital, we were net sellers in 2021, 2022, not 2023, and then 2024. In 2021, where everyone was really leaning in, we sold, and we were actually busy on the origination side, but we sold twice as much in TPG Capital as what we invested at that time. I think that that's put us in a really good place relative to our partners. DPI has been important for us. We've demonstrated our focus on exits.
We've continued to see a lot of activity. Actually, about 60% of our private equity exits have been to strategics, which is also a little insulated from the more open and shut IPO market. In markets like India, I think we took two companies public last quarter, and we've had 11 in total in the last three years. We've continued to see good liquidity even into the choppiness of this year. I think on the growth side, we have three portfolio company exits, full exits that are out there, some of which I'm not sure we've disclosed the details of. We just finished our sell down of Viking Cruises on the capital side. Rise Climate fully exited Tata Technologies and has had some other important liquidity recently. Growth is already, I think. Growth is, as I mentioned, three full company exits.
I think they're already at $1.8 billion of exits, which is more than they had last year combined. We're only in June. I think the overall picture for us on liquidity has been good. None of which to say that it's easy. I do think in moments of volatility, people tend to hunker down a bit, but we've been able to find a way.
Were any of those second quarter events?
Yeah, actually.
About Viking?
Yeah. Yes, Viking was, I think, the last 10 days.
Okay. And then those three on the horizon, that's the.
Yeah, sort of some now, then some a little less so.
Okay. Maybe turning to fundraising. We are seeing some headlines around some challenges around institutional asset owners potentially coming into the allocating to the asset class, whether it's endowments or China LPs. In the context, we still have the DPI challenges across the industry. It seems like a little bit of a tougher backdrop for private equity fundraising. You're in the market with several flagship funds. Maybe just talk a little bit about your expectations, timing around that, magnitude, pace of those campaigns, and the context of what has been strong performance and strong DPIs from TPG.
Yes. Thank you. I do think it's an interesting market because, as is often the case, different parts of your partner base are experiencing the world somewhat differently right now. We reiterated our guidance in the first quarter conference call that we were going to hope to raise, expect to raise significantly more capital in 2025 and 2024. We continue to feel confident and comfortable with that guidance. On the PE side, where I think we get a lot of questions around the appetite for commitments, I do think it's a story of having differentiated ourselves in a positive way. DPI is important, as you mentioned. That's something we've been focused on a long time well before we started hearing phrases like DPI is the new IRR, which I've heard a few times today already. That's been a positive.
I think the other thing that's positive is just the level of differentiation in the portfolios that we are looking at, these structured relationships, these carve-outs. I think people really appreciate that. They appreciate the consistency between the strategy that we're articulating and the discipline around that strategy and what we're doing and the execution. I think that that's been important. We are, as you say, in the market with our U.S. and European flagships, which will be TPG 10 and Healthcare Partners 3, and looking for a sizable close around the middle of the year. Of course, in heavy dialogue since we're approaching the middle of the year with a lot of our cornerstone LPs and continuing to feel like there's real progress along that front. Climate is another important fundraiser for us.
That is an area of the world where there's noise in the U.S. I think it's great to be a global asset manager at this moment, as I said earlier. I think it's great to have resources, invest in resources and capital formation resources around the globe. We have had a strong start in the climate fundraiser, over 60% of our target. I would say that despite the U.S.-centric noise, we continue to see an enormous amount of appetite, both from a capital formation and a deal flow perspective, outside the U.S. In Europe, we've talked about our Global South initiative publicly.
That's another interesting sort of dimension where one of our good partners globally said, "We want to not only participate in this investment strategy, we want to have some of the capital deployed in the Global South." That's something I think we're going to continue to see. There's real momentum around that business. Asia, the Middle East, Europe, really active, not at all candidly affected by some of the noise. Just from the underlying belief that we have that this is a bit of a generational opportunity, if you look at just energy transition as one subset of the climate opportunity, the needs for energy are growing so dramatically in the U.S. and elsewhere, data systems, there's data centers and the like, that you see it. In Europe, you see blackouts, right, which speaks to sort of the aging infrastructure.
Clean energy is becoming increasingly competitive on a cost basis and I think increasingly relevant as you think about addressing some of these macro needs. In any event, climate is global for us. I do think we're seeing there and elsewhere to some degree a little bit more of a barbell in terms of first close versus later closes as people want to see the performance. Again, we continue to feel really excited about the trajectory. In stepping back from any one campaign, I think you'll continue to see a little bit more of this barbelling in terms of the fund closes. On the credit side, we've said that we're going to raise more credit in 2025 than 2024. I think the thing I would want to highlight here is that we're feeling increasingly enthusiastic about the cross-sell opportunity.
I think there've been over 200 introductions involving senior members of our team on the legacy TPG side and engaging with the senior team on the legacy Angelo Gordon side. We're all just one firm now. The traction is only increasing there. It's beyond what we've closed year to date, just the dialogue around SMAs. We announced on our last earnings call, I think it was a $4 billion sort of special cross-platform relationship. We did not announce the name. We have 10 plus dialogues going on around those types of conversations now. These things sometimes take a little bit of time, but it does feel to me like the flywheel is spinning. I think that's really exciting to see. I think it reinforces the reason for leaning into this combination, which has been a really successful one for us.
Why don't we dig in a little bit on credit? Newer area for you guys at TPG, both the Angelo Gordon acquisition. First quarter fundraising was, I think, a little bit lighter, but you guys reiterated your expectations to raise more this year for AG Credit versus last year. Maybe just update us on the fundraising on the credit front, how the pipeline is shaping up, and where you're seeing some of the most demand.
Yeah. I mean, again, I think we feel good to sort of continue a little bit of what I was saying before about that cross-sell opportunity and feeling like we're having real traction and these sort of chunkier opportunities. I think we talked about $3 billion of discrete credit mandates that were closed or expected to be closed. That number has grown since our earnings call. We're seeing clients that are continuing to broaden their relationship with us. We've had a really successful close in our middle market lending business, Twin Brook, and we're starting the dialogue and already engaged with LPs around the graduated product, which is, again, another interesting opportunity. I've mentioned before, structured credit is really interesting and exciting. A huge amount of opportunity, a lot of engagement around how to expand that into investment grade, I mentioned earlier, and other avenues. Great uptake.
If you look at the insurance part of our overall LP base in AUM, it's up by a third plus since we closed the Angelo Gordon deal. That speaks really well to credit, particularly to the structured credit world. We're seeing a lot of traction. I think we're feeling really good about that momentum. None of these things come immediately when you close a transaction. The sense of cross-sell, and probably at least as important, the sense of TPG as the world of LPs focuses on an ever smaller number of GP partners with whom they want to have broader and deeper relationships across asset classes. I think we feel really well positioned for that. We're seeing that in the nature and level of engagement around these larger opportunities.
You spoke to some of the benefits, the synergies of TPG coming together with Angelo Gordon. Have there been any sort of challenges that you've had to overcome as you brought two firms together, kind of looking back? Any sort of surprises or interesting learnings?
I think the headline is definitely one of feeling really excited about it. I mean, as I told you, I spent years of my life on it. We started with a number that was probably 50 or 60 folks, but spent the vast, vast majority of our time with this group and getting to know one another. The reality, when you're executing these acquisitions, you're really just merging two partnerships together, right? One of the things we wanted to make sure of is that we were not engaging with someone who was just trying to sell their business, but that instead they were looking to partner and throw in with us and really become one firm. That they wanted to find opportunities for collaboration on individual deals across asset classes to build new asset classes like the hybrid solutions that we've come together.
Across all of those dimensions, I would tell you, I think it's really been exceeding our expectations, the way I describe it. On the challenges side, we have put a lot of energy against the integration. I think it's gone very well. It is the case that if you think about particularly a fund that's in mid-fundraise when these deals come together, it's natural and we experience LPs saying, "Let me make sure and see how this plays out. Let me take a pause. Let me see. Is everyone sort of in their seat? Is this a partnership where people are going to keep growing? Are the incentives well aligned? Is the organ going to work?" I think that that's the reality of it. I don't know that it was particularly a negative surprise so much as just a reality of businesses that are driven by people.
As we see now the traction and the flywheel spinning, we're excited. I think it speaks again to the logic of the underlying transaction. The thing I would tell you I'm the most encouraged about from my presidency to someone who grew up in one culture has been the way in which the cultures have come together and the sense of valuing the same things as collaboration, the intense focus on excellence and making sure that we always have earned the right to grow as our first job in the morning and last job at night. All of that feels excellent. It's been just really encouraging for someone who's been around as long as I have.
With the AG deal under your belt, how are you thinking about M&A at this point? Where could it be most additive? How are those conversations progressing?
I'd start off by saying we've created a lot of value over time organically. If you exclude Angelo Gordon and now we've recently announced Pepper Tree, I'll come to that in a minute. We've created very accretive growth by launching products, not with a blank sheet of paper thinking, "Oh, here we could add an asset class," by following our strengths and the IP and ecosystems we have and partnering with our long-term LPs into natural adjacencies. That continues to be a really important opportunity for us. Having said that, the inorganic side is also important. I think we look at Angelo Gordon as a really good proof point that we can do this, we can execute, we can integrate. That was a platform transaction. It was a really important one for us for all the reasons we just talked about.
I think it is encouraging. The Pepper Tree transaction, which we announced, we are also very excited about. That is a little bit of a different type in that it's an excellent team and excellent track record in digital infrastructure, which is an area where we have adjacencies already, but this gives us a really strong footprint from which to build further. I think that we will continue to look at things that feel a little bit more platform-like, but also a little bit more like we're filling the blank. We might also, I think, fill in sort of holes in our existing set of capabilities, which we might call tuck-ins, but they're more important than that name implies. I think we might also find opportunities to sort of strengthen ourselves in geographies. You have mentioned Europe.
We have great businesses in these places, but even more critical mass might help us. We continue to be very active on the business development front. I think we have a really clear sense of the areas that are logical and where we feel like additional resources would not only be additive from a growth perspective, but would make our existing businesses better. That is really the primary criteria. I think there are a lot of opportunities out there.
Maybe just somewhat related to that theme around M&A, just curious how the dialogue is progressing around strategic insurance relationships and how you're thinking about capital-light, capital-heavy, or some middle ground of a hybrid in between.
Sure. I think just to start, our broad firm-wide relationships with insurance have been great and growing. I think it's yet another benefit to having credit in-house because I think that's really one of the key unlocks there. I mentioned that those LP relationships have grown by more than a third since we started, which is excellent. I do think there's a symbiotic relationship in the industry, not talking about us now, with these more strategic relationships. The stronger returns on the asset management side help insurers be more competitive in their market. Of course, from a capital formation and an FRE standpoint, there's a lot of benefits that revert back. What I would tell you is that, much like we were a couple of years into thinking about credit, we're much more sophisticated and understand that market even better than we did when we started.
I do think it's something that could be quite interesting. We don't have actually a really preconceived set of ideas that it has to look like X, Y, or Z. We have criteria. We want a distinctive business that is differentiated in what is also a competitive market of insurance. We want a team that understands their business and wants to throw in with us, isn't trying to sell, but is trying to build. We want flexibility to sort of build together and figure out, again, how to create synergy between the two. As to your specific question about asset-light, asset-heavy, what I would tell you is that we are open-minded and we can envision different states of the world that would be compelling.
What I think is unlikely for you to see from us is something that looks like us shifting and converting our business into an insurance business with an asset management arm. That is unlikely. We want to stay in the core business that we are in. We do think that there is a possibility if it is the right team, it is the right culture, and it is the right structure for an insurance capability, regeneration capability to really help us with our long-term plans. We are going to be selective and only do it if it makes sense and only do it if we are convinced, as we were in the case of Angelo Gordon, that it is going to be a great cultural fit.
Great. I'm afraid we'll have to leave it there.
Thank you very much .
All right. Great. Thank you.