Thank you all for joining us, and welcome to BofA's 34th Annual U.S. Financial Services Conference. This is Craig Siegenthaler, our North American Head of Diversified Financials at Bank of America, and I'm pleased to introduce Jack Weingart. Jack is the Chief Investment Officer of TPG, and he joined TPG back in 2006, and prior to his appointment as CFO, he was a co-managing partner at TPG Capital since 2017. Jack is also on the board of directors of Viking Holdings and previously served on the board of several private companies, including J.Crew, Cano Health, and Chobani. Jack, thanks for joining us.
Thanks for having me, Craig.
So TPG was founded, I have here in 1992, but the legacy was sort of before that. So officially, was it 1992?
The founding of TPG was 1992. Obviously, before that, David Bonderman and Jim Coulter were managing the Bass family office down in Texas, and that was really the roots that dated way back before 1992.
Okay, so I saw the 1992, and thanks for clarifying that. I thought it might have been a mistake at first. So went public in 2022, it's a leading global alt manager with about $290 billion in AUM. The firm's roots are in its West Coast-based offering and its family office heritage, as Jack just shared. Maybe just starting with earnings, because you just reported 4Q 2025 earnings on Thursday. For those who haven't had a chance to see results or to listen to the call, what were the highlights or the key takeaways from the call?
Sure. Well, first of all, if you missed it, it's not your fault we pulled a fast one on you. We were planning to announce yesterday, Monday, and with some of the questions in the market being raised about software exposures and some of the reactions of our stock, we were getting questions last week from shareholders and analysts saying, "What can you tell us?" Of course, our answer was nothing, because we're in a quiet period. But we thought rather than wait until Monday, we would accelerate and announce on Thursday of last week, which is what we did. So on the call, we talked about the quarter and the year last year. We also wanted to proactively address some of the questions we were getting.
The short answer on the software side is that about 11% of our total AUM is in software, and that breaks down 2% in credit, so almost no exposure in credit, and about 18% of our private equity AUM is in software companies. Then we spent a fair bit of time on the call, and I encourage you to listen to it or look at the transcript, talking about how we think about investing in software in the private equity business as control investors who are trying to use things like Generative AI and a lot of other ways to help our companies improve what they're doing, and how we see the portfolio breaking down between those who might benefit from utilizing Generative AI to grow more efficiently or more effectively, and those who might be more at risk.
I'm happy to talk more about that, but that was one of the topics that we addressed on the call. The other topic was the purpose of the call, which was earnings. We had an excellent year last year. We called it a breakout year on the call. We raised about $51 billion of capital, up from $30 billion the prior year, so about a 70% increase in fundraising. We had set out the year saying our goal was to raise substantially more capital in 2025 than we raised in 2024. We hadn't forecast a 70% increase, but we were pleased with really every element of the engine firing well on the capital raising side last year. Likewise, on the investing side, we had an excellent year of investing, deploying a little more than $50 billion on the deployment side as well. FRR grew to $2.1 billion.
FRE grew for the year to about $950 million. As you mentioned, we went public in 2022. At that time, our LTM FRE was a little more than $300 million. It's been a substantial period of growth for us. I would say during the course of the year last year, our momentum accelerated. Q4 was the strongest quarter of the year and really a record quarter for us in a lot of respects.
Great. Well, congrats on that growth. You have grown very quickly since the 2021 IPO, and you're well positioned for multiple secular themes. Now, looking forward, what is the growth outlook today, and how much of a role will your flagship funds play versus product innovation and things we haven't even seen yet?
Well, if you think about the journey we've been on, which you've had a front row seat to, when we went public again four years ago, about 80% of our AUM was in private equity. And we talked openly at the time about one of the reasons we were going public was to create a public currency, to create a balance sheet, to expand our business into new asset classes, to get back into private credit, to expand what we do in real estate, to grow into infrastructure. And today, a short four years later, about 50% of our AUM is in private equity, and that private equity business has grown substantially. So we haven't shrunk our way from 80 - 50. We've been growing, but we've just been growing in other asset classes even more quickly.
So almost by definition, the answer to your question is our growth going forward will be less reliant on the big flagship fund and more diversified. And I talked about that on the call, that over time, the growth of our business into new asset classes, the growth of the credit business we bought from Angelo Gordon into a much larger and broader business than it was even when we bought Angelo Gordon just a couple of years ago, gives us now a much more diversified platform with less reliance on kind of the cyclicality of large private equity flagship fund growth and more diversified growth. So think about a much bigger base with the same growth opportunity we have for our existing businesses that we had at the time of IPO with just a lot more existing businesses.
The other thing I'd say is, in addition to expanding our existing AUM at IPO, we talked about our growth having kind of a horizontal component and a vertical component, with the vertical component being take what we're doing and expand each business, the horizontal component being expand into new asset classes, both inorganically and organically. We've had a long history as a firm of successfully growing organically, taking what we're doing, seeing a new market opportunity we think we had a right to win in, and building a new fund with a new team and expanding in that category. We've continued that organic innovation, whether it's growing into the GP-Led Secondaries market, expanding into hybrid solutions with the Angelo Gordon team, now with the credit platform growing into areas like investment-grade Asset-Backed Finance, growing into a different part of the Direct Lending market from what Twin Brook has done historically.
So through that, the horizontal axis has grown significantly. We still have horizontal room to grow, and we have vertical room to grow across a much bigger X-axis, if you will. The only thing I'd add to that is, in addition to asset-class-driven growth, there's kind of channel growth. So we, as you know, have been very focused on expanding our work with insurance clients and expanding our private wealth business.
Great. Let's talk about your strategic priorities for a moment. Can you update us on what they are for 2026, including a refresher of the targets for fundraising and FRE margin?
Sure. Actually, before I get to the financial targets, I think about the strategic priorities being very aligned with what I just talked about as our growth pillars. What I mean by that is scale existing businesses, finish the campaigns we're in the market with right now, and generate fund-over-fund growth like we have consistently across our businesses. We're in the market with our big new flagship buyout fund, TPG Capital X, and Healthcare Partners III. We had kind of accelerated success in that fundraise last year, I would say, but we have more work to do to finish those fundraises this year. And that's true across a number of existing funds.
So complete existing fundraises successfully, continue to launch and grow and scale new businesses, and then on the channel side, drive continued success on the private wealth side and continue to expand in insurance, and then continue to consider inorganic opportunities as appropriate, translating that to the targets that we articulated on the call. On the fundraising side, again, we had grown from $30 billion of fundraising the prior year to $51 billion last year. And I made the comment that we don't consider that to be a cyclical peak. To your question on reliance upon kind of the cyclicality of large flagship fundraisers, we feel like we've gotten now to this diversified base that I talked about, and we've hit a new level of expected annual fundraising.
Despite the fact that we pulled forward demand into things like the TPG Capital campaign that became more loaded toward last year than this year, we expect this year to be another robust year for fundraising, raising another in excess of $50 billion, again, up from $30 billion just two years ago. When we went public, we wouldn't have had that consistency. Over $50 billion of fundraising this year. Then on the FRE margin side, we've been very focused on kind of systematically increasing our margin since IPO, the FRE margin, and we've been successful. Since IPO, we've expanded our FRE margin about 800 basis points.
We do see continued opportunity to generate operating leverage through the growth levers that I talked about, despite the fact that we're continuing to invest in building our team, building our private wealth business, building out new capabilities like expanding our asset-backed finance business, building our fundraising team. Despite those investments in growth, we do expect continued FRE margin expansion. Our margin last year was 45%, and we expect a margin this year about 47%.
Let's stick with fundraising. You have several of your big capital and climate funds in the market right now. Also, many credit strategies are also fundraising in parallel and also real estate. What segments do you think investors are underestimating from a fundraising standpoint as you continue to grow these platforms?
I don't know about who's estimating what, but I would tell you that just to give a little more color behind the $50 billion last year, $50 billion this year. Last year, if you leave aside things like SMAs, which we're doing more of with our biggest clients, we were in the market last year for about 25 different products. We'll be in the market this year for about 35 products. So even relative to last year, less reliance upon larger campaigns and more diversification across businesses. I think it's kind of well understood. Last year was a particularly strong year in fundraising for us on the credit side. We raised more than $20 billion for our credit businesses of the 50. So I think our ability to scale the TPG Angelo Gordon credit businesses, I think, is now pretty well understood.
We'd expect this year to be another robust year of credit capital raising. I think our ability and success at raising and deploying capital on the private equity side is pretty well understood. I think if there's an area that will be the biggest new entrant to our fundraising campaigns this year, and maybe one that's not quite appreciated yet, is our real estate business. We'll be in the market with at least four different real estate funds during the course of the year this year. Our real estate track record is very, very strong. We're already in early dialogue with LPs, seeing really strong support for us to grow fund-over-fund in real estate, just like we have in private equity and credit.
So let's talk about realizations now. Over the last few years, the realization backdrop has been challenging for both private equity and real estate due to several headwinds. Do you see this environment changing this year with the expected pickup in IPO and M&A? And how does this also impact when you bring it down to the TPG level?
Well, I guess our lens is a little bit different on realizations than some in the market. I mean, you know from following us closely, Craig, we've been very systematic about our approach to driving realizations. If you look over the past five years, we probably averaged $25-ish billion of realizations every year. And that was across different mixes of businesses. We did spike in 2021 when the market was more focused on driving new investments, when the accelerated deployment environment in 2021 in a zero-rate environment, a high multiple environment. At that moment in time, we were significant net sellers. We just took a point of view that those multiples would not be sustainable, and it was a good time to crystallize gains in our portfolio.
So we sold, for example, in Fund VII, which was our mature private equity fund at the time, we sold every software c
ompany in the fund by the end of 2021. Since then, we've been systematic about realizations. We hear all the time from our LPs that we're one of the most consistent generators of DPI for them. So having been a consistent seller, we do expect this year, if market conditions stabilize a bit, to be a pickup from last year, but it won't be as much of a pickup because we've already been consistent over the years.
Okay. Let's talk about your insurance business. Earlier this year, TPG announced an insurance strategic partnership with Jackson Financial to establish a long-term investment management agreement. Can you comment on why Jackson was the right partner for TPG in your first major push in the insurance channel?
Yeah, I guess I would step back and say it's not really our first major push in the insurance channel. It's our first kind of structured partnership. But if you look, one of the real opportunities we saw when we acquired Angelo Gordon was to expand our business with insurance clients. I mean, we had, I know personally from having relationships with many of them since I joined the firm 20 years ago, we have a great set of insurance relationships on the TPG side. By definition, because most of what we've done is private equity, we can only address a small part of their book if we're investing private equity. A much bigger part of their book is invested in credit with a leaning toward investment-grade credit for obvious reasons.
So with Angelo Gordon, with our now ability to invest across private credit from direct lending to asset-backed credit, which we used to call structured credit, to credit solutions, to CLOs, we've got a great toolkit to expand what we're doing with our pre-existing insurance relationships. And that's already been happening one relationship at a time, one insurance client at a time through SMAs, through rated note structures, through lots of different kind of capital structure, capital-friendly access points for insurance clients. So we had taken our insurance business up by multiple factors before announcing Jackson. Now, we also had, just like we were relatively clear in articulating at IPO our desire to acquire a credit platform, we also have been pretty clear about our willingness to entertain structured relationships with insurance clients. Lots of that has gone on in the industry.
It's ranged from asset-light SMAs to equity swaps to create alignment to full acquisitions. We also have been pretty clear that our preference was to maintain a balance sheet-light approach and not to acquire an insurance company in its entirety. We wanted, if we were going to announce a partnership like the Jackson partnership, we wanted to find a partner who was looking for what we do well, be a great investment management partner for them, someone that we could partner with to help them succeed, to create a real win-win between the two of us, and to do it in a balance sheet-light way, not balance sheet zero, but balance sheet light. We had known Jackson for quite a while at the top of the house. Their CEO, our CEO, got to know each other through looking at deals together, lots of different dialogue.
That just kind of naturally strengthened over time. It turned out Jackson is very focused on growing their fixed annuity business. They're creating a reinsurance business alongside what we're doing with them. We can be a very powerful investment management partner with them to help them enhance the returns in their book to drive that business. We use some of our capital to help invest in Jackson equity with $500 million that they can use to help capitalize that new vehicle. And in return, we got a very long duration, very high-quality investment management agreement that starts at $12 billion. We scaled to that over time with the potential that that can expand to $20 billion, which is just the right size for us. It gives us long-term visibility into guaranteed FAUM.
The initial focus is on direct lending and investment-grade asset-backed finance, which are both areas that we feel like we can grow substantially from what Angelo Gordon has done historically. So it gives us a great partner to grow in that area.
Jack, let's move into the private wealth channel. You've had a very successful launch with TPOP last year. So maybe talk about how that's gone. And then maybe also share with us, what is your strategy? What's next for that channel?
Sure. This one's near and dear to my heart because in addition to continuing to be the CFO of TPG, I am the CEO of TPOP, having spent my whole career around the private equity business at TPG. And seeing over the years, we had been placing kind of one closed-end fund at a time with the private wealth market. And when that's all you're doing, you're kind of episodic in your engagement with the channel. You're offering kind of one fund every three years. And the cumbersome nature of having the capital drawn down over a three or four year period as we invest it and then returning capital once we start selling companies is an inefficient way for individual investors to invest in private equity.
So we felt like we have this very strong, high-returning, importantly, diversified set of private equity businesses at the firm we built over a 33-year period. Our goal with TPOP was to create a single access point for individual investors to invest with us across everything we do in private equity in a fully funded vehicle. And to enable that, we spent the better part of a year creating a seed portfolio on our balance sheet and then transferred that portfolio in as we began accepting inflows, which we did in June of last year with really just two anchor partners on the private wealth side who wanted to be our initial partners in that business. We've added one international private bank since then. And just across that relatively limited distribution strategy, by the end of January, we've raised about $1.5 billion, which is quite a strong start.
I would say we're still relatively early in our penetration of those initial partners. So going forward, we'll be expanding those and adding additional distribution partnerships to TPOP. We've got 3-5 already lined up for the year this year with kind of a weighting toward international distribution. So we're very optimistic that TPOP, with this strong start, also had very strong returns in the early months of the launch. We've got a long way to go in growing that product. But equally importantly, it's been really important to the establishment and growth of our brand in the financial advisor community with these partners.
If you take the two anchor partners of ours, we're doing business now with multiples in number of financial advisors as we had ever worked with in the 30-year history of our firm because the product we've created is so much more accessible to a bigger universe of their clients. So that is now creating a foundation for us to grow off of, not just by growing TPOP, but by expanding across asset classes. So again, I think on our earnings call, I mentioned a multi-strategy private credit interval fund and a non-traded REIT would be kind of the next two pillars in our product suite, which would kind of think about a credit interval fund looking a little bit like TPOP in private equity does for us, kind of feeding off of everything we do in private equity.
A credit interval fund would co-invest with us across the asset classes that we invest in in private credit and deliver a yield vehicle with the same kind of seeding approach, the same kind of ease of access across this broader base of advisors who now kind of know and trust our brand.
So, Jack, it's been two years since you've closed Angelo Gordon. How has your credit and real estate business evolved kind of to date? And also, what's next for that business?
Well, I talked about this a little bit. Think about that horizontal axis and vertical axis that I talked about. The first step after acquiring Angelo Gordon, as we talked to their portfolio managers during the decision we all came to about whether to partner together, the biggest thing we heard was we are opportunity-rich and capital-starved because their fundraising team wasn't keeping up with the opportunity they saw in the marketplace on the investing side. So the first step, the first opportunity for us, we said, we think we could help with that. We've got a pretty good LP presence in the market, and we see a lot of our bigger LPs looking to allocate more capital to the private credit space. And as it turns out, we only had a 10% overlap between our LPs and Angelo Gordon's historic LPs.
So we had a real opportunity to help them scale their existing businesses, keep doing what they're doing, but raise more capital to fund the growth of their existing businesses. I'd say we're midstream in that. We definitely took a step function change. When we raised $20 billion last year, most of that went to fund their existing businesses. The next step for us is both horizontal and vertical. We've announced two new businesses that we're creating off of the chassis of Angelo Gordon. One of those elements of the chassis was the structured credit business. Everything we did in the structured credit prior to the acquisition was targeting higher return portions of the market. Think about a 10%-13% kind of return category.
So none of that capital was going into the higher rated portions of the market, the investment-grade space being the biggest, most scalable portion of asset-backed finance that we didn't plan at all. We created a lot of it and held the junior pieces with a higher return profile and sold off the investment-grade pieces to others in the market. So why shouldn't we develop a capital base to hold those opportunities that we were already sourcing? So that's where Jackson comes into play. That's where the other insurance clients we're working with come into play, take the structured credit asset-backed finance business and expand it horizontally across a bigger risk-return spectrum. The other business we announced on the earnings call was what we're calling TPG Advantage Direct Lending. So focus on the direct lending business.
What Angelo Gordon had done historically was their business is called Twin Brook, and it's an exceptionally strong, very well-positioned business in the lower middle market. We lend to companies with less than $25 million of EBITDA. It's kind of what direct lending used to be, lending to smaller companies who can't access the syndicated loan market and getting paid more for that. Of course, it requires good credit underwriting. But with that comes much more control, one or two maintenance financial covenants in every loan, controlling the revolver, being the bank to that company. But because of that focus, what would happen would be that the most successful companies that Twin Brook would lend to, maybe they start with $20 million of EBITDA and they grow to $50 million-$60 million of EBITDA, and that sponsor would sell the company to the next owner.
And Twin Brook has the incumbent lending relationship but walks away from the relationship because it's no longer part of their defined universe that they lend to. The company's gotten bigger, the terms of the loan change, and they walk away. So we've got this great incumbency with an inherently positive selection bias universe of companies because they're the ones that have grown most effectively to grow out of their target lending range. So think about us creating a direct lending business that sits right on top of Twin Brook and builds our direct lending business. Much like in structured credit, we're building across a bigger swath of the market. Same thing is true on the direct lending side. So that's how we've been thinking about evolving and growing and strengthening the already strong credit business that we bought both horizontally and vertically. And there's more to come.
Great. Well, let's hit on private credit. Got a lot of media attention last year, even though U.S. GDP growth was pretty solid. Credit quality also looked stable across the industry. With that in mind, can you give us an update on the credit quality of your businesses and also your view on net flow trends?
Sure. And we've talked about this on our call, but the credit quality within the really direct lending for us today is Twin Brook, that $0 million-$25 million EBITDA range. What comes with that, I just alluded to this a little bit, is lower leverage levels than you would find at the high end of the market. They're smaller companies. They shouldn't have as much leverage. But our entry leverage levels in Twin Brook tend to be in the kind of 3.5x-4x range, as opposed to at the very upper end of the direct lending market, you see leverage ratios of 5x, 6x, 7x as direct lenders are competing with the syndicated loan market for borrowers to use them.
So if you layer on top of that the kind of private equity investment wave that we went through in 2020-21 in a zero-rate environment and some of those loans to the larger companies were made with skinnier coverage ratios to start with, then you layer on top of that an increase in rates as we've seen. And in some cases, businesses that have not performed to the sponsor's expectations, it shouldn't be too surprising that some of that cohort is flowing through to higher pick rates as a sign of strain in some of the direct lending portfolios. Twin Brook's really seeing none of that. I mean, our pick rates are very, very low. Credit quality is high. Of course, and what risk does come up as companies evolve, we have a front-row seat to managing that risk, right?
If a company draws on their revolver unexpectedly, that's always a sign of something happening. So when that happens, we're the revolver lender. So we see it right away. And the next day, we're on the phone with the company and the sponsor and talking through what's happening and bringing them back to the table. So because of the lower leverage, higher coverage ratios, and more active credit management, we feel very good about the exposures in Twin Brook's book.
Great. We're going to end it there. Jack, on behalf of all of us at Bank of America, thank you very much for joining us.
Thank you.