Good morning, and welcome to TPG's third quarter 2026 earnings conference call. Currently, all callers have been placed in listen-only mode. Following management's prepared remarks, the call will be open for your questions. If you would like to ask a question at that time, please press star one on your telephone keypad. If you need to remove yourself from the queue, press star two. To get to as many questions as time permits, we ask that you please limit yourself to one question. At any time, if you should need operator assistance, press star zero. 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 today are Jon Winkelried, Chief Executive Officer, and Axel André, Chief Financial Officer. In addition, Jim Coulter, Executive Chairman and Co-Founder, and Jack Weingart, CEO of TPG Global Wealth Solutions, are here with us for the Q&A portion of this call. I would 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 are 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 $100 million and after-tax distributable earnings of $265 million or $0.65 per share of Class A common stock. We declared a dividend of $0.55 per share of Class A common stock, which will be paid on November 23rd, 2026, to holders of record as of November 9th, 2026. With that, I will turn the call over to Jon.
Good morning, everyone. Thank you for joining us. TPG's strong third quarter results reflect our broad-based momentum and the continued progress against our long-term strategic objectives. We have successfully scaled and diversified our franchise, and despite a challenging macro backdrop, our pace of growth has accelerated. Over the last five years, we have more than tripled our AUM and doubled our capital formation on an annual basis. Today's dynamic environment, including higher rates, increased geopolitical uncertainty, and rapid advances in AI, continues to add complexity to the investing landscape. However, periods of dislocation create some of the most attractive investment opportunities, and we are uniquely positioned to capitalize on them given our record $86 billion of dry powder and our flexibility to invest across the capital stack.
In my conversations with our clients, who are the largest allocators of capital globally, they are seeking partners with the discipline and track record to navigate uncertainty and source opportunities that generate alpha. These clients have significant visibility into our portfolios, investment pipelines, and performance, and they are increasingly choosing to deepen their partnership with TPG. The quality of these relationships is reflected in our robust capital formation this quarter. We raised more than $15 billion, bringing our year-to-date total to nearly $42 billion. We are tracking ahead of the expectations we set at the start of the year, and we view this as a powerful testament to the strength of our franchise. I will walk through some highlights across our asset classes. Starting with private equity, we raised $8.5 billion in the third quarter and more than $21 billion year-to-date.
We held a final close for our second Rise Climate Fund and the Global South Initiative, bringing aggregate commitments to $10.4 billion across the two funds and related vehicles. This highly successful outcome represents a 44% increase over our inaugural fund and further validates TPG's leadership in the climate sector. Notably, 31% of commitments came from investors who are new to TPG. Our clients recognize the powerful secular trends of rising power demand, the reindustrialization of major economies, and the reshaping of global supply chains, which together are driving an unprecedented need for capital. Our climate franchise is well-positioned to meet that need and build on the momentum within our portfolio. For TPG X and Healthcare Partners III, we raised an additional $1.7 billion during the quarter, bringing our total to nearly $16 billion.
This represents an important milestone as commitments to date already exceed the size of our prior vintage. We also completed fundraising for TECA, our Asia growth equity strategy, surpassing our target with $1.3 billion raised for our inaugural fund. TECA is another clear example of our ability to successfully incubate and launch adjacent strategies. For our third Tech Adjacencies fund, we closed $1.6 billion during the quarter, bringing total commitments to $2.5 billion. This accelerating demand reflects both the expanding opportunity set and the strong performance we have delivered to date. AI has become an important pillar of the strategy, and we have continued to provide clients with differentiated access to AI-related investment. Finally, for Peppertree, since launching our 11th fund earlier this year, we raised $2.2 billion to date, including commitments through October.
The speed of this campaign has been driven by strong demand for Peppertree's specialized strategy focused on essential tower infrastructure, as well as our success in broadening its client base. More than 50% of commitments so far have come from investors new to the Peppertree strategy, including some of TPG's largest clients globally. This is another powerful validation of our ability to integrate and scale inorganic opportunities. Credit, we raised $5.8 billion during the quarter, bringing our year-to-date total to nearly $16 billion. We held a first close of $2 billion for our fourth Essential Housing fund, which has already exceeded the size of its predecessor. This strategy, which provides bespoke land financing to leading home builders, is resonating with investors given its predictable, uncorrelated returns and the structural advantages relative to traditional fixed income.
For Advantage Direct Lending, our core middle-market direct lending strategy, we raised an additional $550 million, bringing total capital raised to $1.4 billion, including commitments that are signed but not yet closed. This represents approximately $3 billion of total buying power, including target leverage. To date, ADL has invested $1 billion of capital across 30 first-lien senior secured loans, selected from more than 425 opportunities sourced across our relationships with sponsors and corporates. Since acquiring Angelo Gordon three years ago, we have nearly doubled our credit AUM and continue to successfully expand into adjacent strategies. Our pace of capital formation has reached a structurally higher run rate, and we expect to double our credit AUM again to $200 billion by the end of 2029. As we have discussed, we are now in a significant fundraising cycle for our real estate platform.
We are currently in the market with four of our real estate equity funds in the U.S. and Asia, and expect our capital formation activity to build through year-end and into 2027. In the past week, we held a first close for our TPG Real Estate opportunistic strategy, raising approximately $5 billion for our fifth fund and related vehicles. This includes strong support from both long-standing TREP relationships as well as important new partners for TPG Real Estate and the broader firm. We view this outstanding start as a testament to our leadership in real estate investing and our clients' confidence in our ability to continue delivering compelling results in a dynamic environment. Lastly, our experience in the private wealth channel remains differentiated from the broader industry. Inflows across our T-POP strategy were approximately $400 million in the quarter, bringing total AUM to $3.5 billion at the end of September.
We have continued to broaden our distribution footprint, adding several new international distribution partners this year, and we are also seeing subscriptions accelerate in the RIA channel. With annualized inception- to- date returns of 31%, T-POP continues to be a preferred solution among increasingly selective partners and advisors. TCAP, our non-traded BDC, saw gross inflows of $134 million in the third quarter, bringing total AUM to $5.6 billion, more than 4x its size when we acquired Angelo Gordon three years ago. Notably, redemption requests declined to just 1.2% of total shares outstanding, well below industry averages, and TCAP has generated positive net flows every quarter since inception. In October, TCAP raised an additional $138 million, bringing year-to-date net inflows to $543 million, which represents approximately 24% of its NAV as of the end of last year.
Looking ahead, we now expect to exceed our original target of fundraising more than $50 billion in 2026, which Axel will discuss in more detail. Across our most recent cycle of fundraises, we have grown fund sizes by 30% on average and have welcomed more than 200 new clients to our firm since the beginning of 2025. Against a difficult fundraising backdrop, we continue to take share as many of the world’s largest and most sophisticated investors are increasingly partnering with TPG given our distinct strategies and consistently differentiated performance. Turning to deployment, we invested over $11 billion in the third quarter. While renewed interest rate volatility may temporarily impact the pace of transactions, we continue to identify compelling opportunities to deploy capital, and our pipelines remain robust. Our Credit platform had its most active deployment quarter so far this year, investing $7.7 billion of capital across our strategies.
In Credit Solutions, a higher- for- longer rate environment continues to expand our opportunity set. Companies with strong fundamentals but stretched balance sheets are increasingly seeking bespoke capital solutions that offer both scale and execution certainty. As a result, our third Credit Solutions fund has deployed more than $5 billion of gross capital over the past two years, including recycled proceeds from several large early realizations. In Middle Market Direct Lending, Twin Brook generated $3.7 billion of gross originations, and 2026 is on track to be one of our most active years to date. Our leading position in the lower middle market, where we've built deep relationships over many years, has driven consistent deal flow even as activity in the upper middle market has slowed.
Our portfolio of over 300 companies continues to be an embedded source of origination, with add-ons accounting for more than 30% of this quarter's volume. In Asset Based Finance, we deployed more than $2 billion across our core sectors. This included a first-of-its-kind credit secondaries transaction, where we provided a liquidity solution for a GP's residential mortgage fund that was nearing the end of its life. Additionally, we continue to build out our investment-grade ABF capabilities with six transactions completed in the third quarter and a robust near-term pipeline. Our private equity strategies invested $2 billion in the quarter and $16 billion year-to-date. While higher rates may create headwinds for PE more broadly, our pipelines remain healthy given our growth-oriented investment approach focused on driving operational transformation. Over the past decade, more than 80% of the value creation within TPG Capital and TPG Growth has come from earnings growth.
As performance across the industry diverges, we believe our distinct approach will continue to drive differentiated results. Additionally, the industry-wide need for liquidity has continued to propel the GP-led secondaries market, which is on track for another record year and remains the fastest-growing part of the PE asset class. Sponsors are increasingly using continuation vehicles to extend ownership of their best-performing assets while returning capital to investors. As a result, TPG GP Solutions' pipeline of high-quality opportunities has grown approximately 35% over the past two years, and we've maintained a highly selective conversion rate. We continue to be a partner of choice for sponsors and companies looking for deep sector expertise and the ability to invest at scale. In our Tech Adjacencies strategy, we co-led a $3.9 billion Series F financing for Crusoe, a vertically integrated AI infrastructure platform.
Our underwriting drew on our unique perspectives across the firm, including TTAD's investments in leading LLMs, TREP's data center expertise, and Rise Climate's insights into power generation. Crusoe is a great example of how we're leveraging the full breadth of our platform to invest across the AI value chain. In real estate, we deployed $1.8 billion of capital in the third quarter, and our pipeline remains active. The current environment is impacting real estate investing through elevated financing costs, valuation uncertainty, and reduced liquidity. This is placing additional stress on owners with legacy assets acquired at peak valuations and lower rates, driving further capitulation and the need for solutions capital. As a result, across our real estate equity strategies, we expect to see a growing number of attractive opportunities to acquire high-quality assets. At the same time, traditional real estate lenders with legacy exposure have become more cautious and selective.
This has created a constructive backdrop for well-capitalized real estate credit investors such as TRECO. We continue to deploy capital at a steady pace and expect our first fund to be fully committed by mid-next year. During the quarter, TPG AG U.S. Real Estate acquired a national portfolio of medical outpatient buildings. This is a thematic area of focus for us, given strong demographic tailwinds, a secular shift toward more affordable sites of care, and favorable supply-demand dynamics. This investment was sourced off-market through our proprietary relationship with a highly motivated seller seeking to reposition its portfolio. Finally, we generated $6.6 billion of realizations during the quarter, bringing our year-to-date total to more than $20 billion. We continue to be highly focused on generating liquidity for our clients with several meaningful exit processes underway.
We expect the cadence of realizations to accelerate towards the end of this year and into 2027. Stepping back, we've delivered on the ambitious growth objectives we've established as a public company. Over the past five years, we've built a distinctive alternatives platform across private equity, credit [inaudible]
[inaudible] approximately 47%, demonstrating continued underlying margin expansion. Given our strong performance year-to-date, we're raising our full year 2026 FRE margin guidance to approximately 48%, which would represent nearly 300 basis points of expansion compared to 2025. Turning to PRE, as Jon noted, our realization activity totaled $6.6 billion in the quarter, driven by significant activity across our asset classes, including meaningful sell downs of public positions in TPG Capital, Rise, and Tech Adjacencies. This generated $7 million of realized performance allocations. Our lower PRE this quarter was a result of fund mix as private equity monetizations were primarily used to return costs to our clients. The momentum across our portfolios remains strong, demonstrated by positive value creation in each of our platforms and a sequential growth in our net accrued performance balance to a record $1.5 billion at the end of the third quarter.
Looking ahead, while the current environment may impact the timing of realizations across the industry, we expect to continue selectively monetizing investments at attractive valuations. We remain highly intentional in our exit planning and continue to expect realized performance allocations to pick up in the fourth quarter and into 2027. Our effective corporate income tax rate for the third quarter was 10.4% as we benefited from the tax deductions generated by our annual RSU vesting in January. As a result of our strong profitability year-to-date, these deductions are now fully utilized, and we expect our tax rate to step up into the high teens to low 20s in the fourth quarter. Altogether, our third quarter after-tax distributable earnings were $265 million, or $0.65 per share of Class A common stock.
We finished the quarter with $346 billion of total assets under management, up 21% year-over-year, driven by strong broad-based capital formation across the firm. Fee-paying AUM grew 16% year-over-year and reached $190 billion at the end of the third quarter. AUM subject to fee earning growth was $54 billion, including $43 billion of AUM not yet earning fees. The largest component of this sits within our credit platform, where we generally earn fees upon deployment. This represents a highly visible revenue opportunity of approximately $160 million on an an annualized basis as we put this credit capital to work. Our dry powder stood at a record $86 billion at the end of September, representing 45% of our fee-paying AUM. Periods of market volatility have historically played to TPG's strengths, and our significant dry powder positions us well to capitalize on the higher-for-longer rate environment across our asset classes.
Moving to our investment portfolios, fundamentals remain strong with positive value creation across each of our platforms in the third quarter. In private equity, our portfolio appreciated 3% in the quarter and 10% over the last 12 months. Revenue and EBITDA growth across our Capital, Growth, and Impact platforms continue to track in the mid to high teens. Specifically, aggregate bookings across our TPG Capital and TPG Growth software portfolio grew more than 25% in the third quarter, which is a notable step up from the first half of the year. Our software companies are leaning into AI to drive new products and features, which is directly contributing to the strong bookings growth. In credit, our portfolio appreciated 2% in the quarter and 11% over the last 12 months with healthy credit quality across the board.
In Middle Market Direct Lending, Twin Brook portfolio companies continue to generate stable earnings growth with an average interest coverage ratio of approximately 2.3x and a low non-accrual rate of 1.6%. Notably, our annualized loss ratio since inception has remained unchanged at only two basis points. Our third Credit Solutions fund generated a 2% time-weighted net return in the third quarter, and inception- to- date performance remains very strong at a 29% net IRR. In Asset Based Finance, all our ABC funds remain at or above their target range and are currently generating a yield to maturity of more than 14%. Additionally, our public structured credit strategy, MVP, continues to materially outpace public credit indices in a period of renewed interest rate volatility.
In real estate, our portfolio appreciated 1% in the quarter and 8% over the last 12 months, which remains highly distinctive, particularly in today's rising rate environment. Our value creation during the quarter was primarily driven by strong operating performance in our residential, retail, and office holdings. Looking ahead, given the momentum across our platform, we are updating our full- year 2026 fundraising guidance. Following the $42 billion of capital we raised through the first nine months of this year, we now expect to raise more than $55 billion for the full year. This is benefiting in part from the pull- forward of certain closes initially budgeted for 2027. We expect our fourth quarter fundraising to be driven by the following. First closes across our real estate funds, including $5 billion for our TREP opportunistic strategy, which Jon discussed.
Final closes for TPG X, Healthcare Partners III, Tech Adjacencies III, and our second Asset Based Credit drawdown fund. Additional closes for a second GP Solutions fund and our sixth Twin Brook drawdown fund. Lastly, continuous fundraising in our perpetual strategies, including T-POP, TCAP, and ADL. For 2027, our capital formation pipeline remains well-diversified, including significant contributions from our real estate strategies, which you've already begun to see. Continued inflows into our Credit platform, driven by the breadth of our strategies and growing insurance partnerships. Accelerating demand in the private wealth channel for our existing products, T-POP and TCAP. We are also actively advancing our new product pipeline and expect to launch a multi-strategy credit interval fund and a non-traded REIT next year. Beyond 2027, as Jon highlighted, we continue to expect accelerated growth, including doubling our credit AUM to $200 billion by the end of 2029.
This underscores our confidence in the long-term growth trajectory of our business and our ability to continue delivering strong performance for our clients. I am incredibly excited to join TPG at a time like this and to continue building on our broad-based momentum. Thank you again for joining us today. I will now turn the call back to the operator to take your questions.
At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Again, please limit yourself to one question. We will take our first question from Ben Budish with Barclays. Your line is now open. Please go ahead.
Actually, Ben. Ben. Can you hang on one second?
I sure can.
Yeah, thanks. For everyone on the call, we understand the webcast had a technical issue and was down momentarily. We will make sure we get the replay posted as soon as possible, and there will also be a transcript posted to the site as soon as possible. I did just want to repeat something Axel said in case it was missed, which regards our FRE margin guidance. He said that given our strong performance year-to-date, we are raising our full- year 2026 FRE margin guidance to approximately 48%, which would represent nearly 300 basis points of expansion compared to 2025. I just want to make sure everyone heard that. With that, Ben, go ahead with your question. Thank you.
Yeah. Thanks, Gary. All right. Good morning, and thanks for taking my question. Maybe Axel, great to hear about all the fundraising momentum and the positive realization commentary. Curious if you could just maybe size it up a little bit more. Obviously, this quarter looked like a bit more of an anomaly. We have seen strong and weak quarters over the last two, three years. I am curious if you can give us any more color on what Q4 looks like, what the run rate looks like based on the current pipeline and maybe similarly for transaction fees. Seems like you guys have been busy. Obviously, quarters can bounce around. But if you help us dimensionalize what to expect there that would be helpful. Thank you.
Yeah. Thanks, Ben, for the question. Look, like I said in the prepared remarks, we expect to raise more than $55 billion for this year, given our strong momentum, which is really broad-based across our strategies, backed by strong investment performance and our longstanding client relationships. We raised approximately $42 billion year-to-date. We expect to finish the year with several large flagship closes across asset classes, including TPG X and Healthcare Partners III, TREP V, and ABC II. We also expect to hold first closes for our Asia Realty VI and Japan Value II real estate strategies and raise incremental capital for our direct lending, MMDL VI, and Essential Housing IV credit strategies, as well as our ADL and CLO business. Beyond those flagship campaigns, newer strategies are also becoming increasingly meaningful contributors, such as Sports, TGS II.
In addition to our drawdown funds, we expect to see continued strong inflows through our private wealth products, T-POP and TCAP. As it relates to transaction fees, capital markets fees, as we said, it is hard to predict. It is generally correlated with deployment activity. On our last call, we mentioned how we benefited from the pull- forward of certain transactions, resulting in a record level of transaction fees in the second quarter. But in terms of the third quarter result of $55 million of transaction fees, we are very pleased with that result.
Thank you. We will move on to Glenn Schorr with Evercore. Your line is open.
Hi there. A question on your realization and what drives the confidence, because I think we have been watching the industry, we all been watching the industry waiting on exits to ramp up. You made some great comments on the cadence of realizations accelerating in 4Q and 2027. I am curious if you could just give us a little more color on what drives that confidence, and then when you look at the net accrued slide that you give us, which I love, the 2020 and prior vintages, the net accrued actually went down. It went up for every other one of the vintages you list. I do not know if you can dimensionalize anything while you answer the question on realizations. Thanks so much.
Yeah, sure. Thanks, Glenn. Let me get started and I will pass it on to Jon. Maybe starting with the last part of your question, so in terms of that net accrued performance balance. So you are right, as we look at the change quarter over quarter, you see that we have essentially added to that net accrued performance balance for the newer vintages, 2021, 2022, 2023, 2024, et cetera. Whereas 2020 and before that net accrued performance balance is decreasing, which is good. It is a sign that we are basically executing on monetization, on realization activity, and that will ultimately result in flow-through to PRE.
Thanks, Glenn. Look, overall, I think with respect to the monetization pipeline, I think we are pretty happy with and feel pretty good about the quality and breadth of the realization pipeline. We had, as you know, approximately $7 billion of realizations in the third quarter, and over $25 billion of realizations over the last 12 months. I think you also know that there is a cycle to realizations just in terms of getting transactions done. We continue to be highly focused on return of capital. In the last 12 months, over $8 billion of capital was returned from TPG Capital, TPG Growth, TTAD, and the LSI strategies. We have also pretty good visibility with respect to a number of transactions. We have five signed deals in the pipeline that are waiting to close across our PE and real estate business.
Look, I think that over the arc of time, based on what is going on in the environment, the ease or difficulty in the environment in terms of getting deals done, it ebbs and flows. This is something that we have been consistent about in terms of focusing on DPI as an important element of our differentiated performance. If you look at year-over-year, over the last five years, I think that we have had a general upward trajectory in terms of the return of capital. That has been true over the last three years, including the last 12 months. That is what gives us our confidence.
Thank you. We will move on to Alex Blostein with Goldman Sachs. Your line is now open. Please go ahead.
Hey, good morning. Thank you for taking my question as well. I wanted to dig into two areas you mentioned. Obviously, lots of momentum in the business as you highlighted, but the two specific areas are real estate and credit that I was hoping to double-click on. I guess one, environment has been super volatile, especially with rates. Really encouraging to see you guys start off this real estate fundraising with $5 billion. Maybe just expand a little bit on how you anticipate this flagship real estate fundraise to unfold over the next several quarters, both in terms of the absolute size and timing. Secondly, and maybe even more importantly, Jon, to your point about doubling the credit business again by 2029 to $200 billion, can you maybe just help us unpack some of the key drivers and how you are thinking about that coming through as well? Thanks.
Yeah. Thanks, Alex. Look, on the real estate side, just starting with the here and now in terms of our TREP V fundraise. We're having, I would just say, not to get over my skis, but I have to say that when I look at the arc of these fundraisings with respect to large funds, and what the initial response looks like and feels like, I would say this is one of the strongest starts to a fundraising that we have had across our system. Based on what's going on with rates and some of the dislocation in real estate over time, I would say generally people being wary of the space, I think that we have gotten. Many of our largest relationships have been very sort of intrigued by the way we've invested and the opportunity set that we see.
I would say also increasingly, one of the other interesting things is that there are a lot of very large institutional pools of capital in the world that have changed their strategy in real estate. What that means is that many of them prior, kind of in prior cycles, had a strategy of being more or less direct investors. I think that what has happened is that as navigating investing in real estate, particularly over this move in rates, going even back to COVID, coming out of COVID, and now in this latest cycle, it's been difficult for people to navigate. So we see an increasing number of large institutional relationships moving to what we call sort of the partnership model.
Which is looking for important GP relationships of theirs that they have a lot of confidence in terms of sourcing really interesting opportunities and size, navigating the various sectors, and then coming along with us in terms of either partnering in the form of co-invest, but they're making very large commitments to us in the underlying fund. So when we look at this fundraise, there are a number of first- time commitments from large institutions that are very interested in partnering with us. So we've had an incredibly strong following in this first close, having raised about $5 billion. I think that we expect the follow-through to be incredibly strong, even in the face of kind of rising rates.
Because one of the things that we're seeing, and we've talked about this over the course of the last several years, we see increasing capitulation sort of quarter by quarter. Large pools of real estate assets that need to actually liquefy and sell assets. We've seen harder- to- come- by assets that finally are breaking loose over the last really two years, frankly, and increasing, particularly given this last move- in rates. We're seeing the opportunity to invest at what we think are very attractive cap rates and also way below replacement value. Then the other thing that we see happening in this environment, which is, I think, always very important in a real estate cycle, is generally one of the watch outs when you're acquiring real estate in a particular sector is new supply.
Because of what's happened in this cycle and rates, we don't see that happening in terms of generally across the landscape, with the exception, obviously, of what's going on at data centers more broadly, and that's a story unto itself. I think that in terms of our long-term target for the fund, I think we've talked about that in the past. I think we're pretty confident that we're going to accomplish that. On the credit side, look, we are coming through a period where we're sort of at a systemically, organizationally higher level of fundraising cadence as a result of the significant expansion in relationships as people have gotten to know our credit strategy over the last three years. If you look at new to strategy, new to fund kind of commitments that are coming from long-standing TPG clients, that flow-through is very significant.
We're also beginning to expand, as you know, in a number of our different areas. For instance, ADL is an example where we're leveraging off of the flow we see through both Twin Brook in larger companies that we have banked, as well as in Credit Solutions where we're seeing very bespoke financing opportunities. In many cases, we essentially can structure things like first outs and other opportunities that are really perfect for our ADL kind of risk/ reward type of perspective there in terms of what we're trying to do. So we have a lot of confidence in continuing to grow that part of our platform where we haven't had that before. On the Asset Based Finance side, we're growing our business meaningfully there. Obviously, we have ramped significantly our insurance company relationships since we acquired our credit platform. That continues to grow, continues to be healthy.
We're also ramping our deal sourcing and asset sourcing capabilities. We have a growing pipeline every quarter on the IG ABF side. There are a number of opportunities for expansion there that we're actively engaging in. Infrastructure finance is another area where we're continuing to pick our spots. Obviously, I think you got to navigate that sector very carefully right now and just in terms of credit quality and where we want to play, but that's another area where we continue to see growth opportunities. The last thing I'll say is in Credit Solutions, when you look at what people are talking about with respect to the maturity wall and bespoke financing requirements that many sponsors have as it relates to their portfolio, the AI financing bulge and bespoke financing opportunities there. Last two years, we've deployed over $5 billion. We've already had several realizations.
We're recycling that capital. That business just can be a lot bigger as a result of the size of the opportunity.
Thank you. We will move on now to Brennan Hawken with BMO.
Hey, good morning. Thanks for taking my question. I guess it still is morning. Okay. Fundraising, really great to hear the raised target here for 2026 and encouraging that it is a pull forward from 2027, especially given the extended time frames you hear across the industry for fundraising. Thank you for that. Curious about what that might mean for 2027, though, given the pull forward. Does that mean that 2027 is going to have a harder time growing on 2026? I know that that is a little bit of a what have you done for me lately type of question, but curious about how we should think about that.
Well, that is that type of question. You are right. I guess one way to describe it is that when you look at our capital formation process and you take a little bit of a snapshot of looking back to, let us say 2020, all the way through to where we are today. Because of the growth of our business, because of the diversification of our platforms now, the firm looks very different, right? We have had a systemic cycle of fundraising where from 2020 through 2023, we had a series of large fund capital raising efforts and systemically raised our annual fundraising cadence to somewhere in the $25 billion-$40 billion range.
Just as a note, in that cycle, when we raised the last TPG Capital fund, as an example, TPG IX, and on Healthcare Partners II, that fundraising, because obviously it is a large fund, was a much larger percentage of what that fundraising cycle looked like versus what it does in this current fundraising cycle as a result of the diversification. What is happening is with the growth in all of our businesses, we have now moved up to systemically being in the, let us call it, about $45 billion to maybe $60 billion-ish, annual fundraising cadence. Any one fundraising, any one campaign is a much smaller percentage of the total. There is a much more diversification and breadth within the fundraising cadence that we are involved in, and that will continue. We are ending some of our largest campaigns, capital, our healthcare campaign, or excuse me, our climate campaign.
We are now going into a cycle of real estate fundraising campaigns. There is some degree of our underlying fundraising effort that is, I would say, more continuous, particularly as a result of businesses like the credit business, where you are raising SMAs and funds of one and things like that. There are many more components to the fundraising picture now that we have. Exactly what the number will be next year, we are not going to give guidance on that right now, because we are focused on powering through this part of the cycle. But I would say that is a perspective for you just in terms of how we think about it.
Thank you. We will move on now to Mike Brown with UBS. Your line is open.
Okay, great. Good morning. Thanks for taking my question. On the wealth side, you continue to really broaden the platform. You have new evergreen product launches, and you have continued success from T-POP. How should we think about the opportunity for these newer products to really broaden the potential here? As you add more products and continue to prove the platform out to your distribution partners, do you think you can see an acceleration in the wealth fundraising? Do you need to continue to invest in the team to continue to support that growth potential? Thank you.
Yeah. Hey, Mike, it is Jack. Thanks for the question. Look, the progress we have made so far has largely been, as you know, in the private equity business. I would say it is not just T-POP and related strategies where we are seeing the scaling that both Axel and Jon referred to. I would say even since the end of the third quarter on that topic, we have seen a pickup in flows, and current run rate across the strategy of about $200 million a month. I would expect T-POP and related strategies to continue to scale. In addition, some of the fundraising you saw in Q3 was a result of us successfully placing closed-end private equity funds with our channel partners.
As we are building our brand more broadly with our partners, we are finding them selectively choosing, in addition to the evergreen product, really attractive drawdown funds to accentuate their exposure to those strategies. One of those on one of the biggest platforms in the U.S. was the biggest closed-end fundraise on their entire platform across all managers during the year. We are really seeing a benefit in multiple ways in private equity. The next step for us on the T-POP front, on the private equity front, is to continue to expand our distribution partners. We talked about onboarding a few more. Those are very early in their ramp stage. I was in Asia a couple of weeks ago. I am going back again next week as part of our brand-building effort over there, and we are seeing very good traction with those partners, but very early. You will see continued expansion there.
In addition, on the private equity side, if you look out throughout 2027, really in the first quarter, first half of next year, we have five or six more very significant partners lined up in different regions to continue to expand that. That is step one for us, and I think that will, to your question, result in an increase in the pace of expansion in private equity. On top of that, as we have talked about, I think Axel also mentioned, during the course of the year next year, we are still working toward launching both a multi-strategy credit interval fund and a non-traded REIT. We think with the brand building we are doing through the private equity expansion, we are kind of earning our way to having the right to expand with those partners who are having an exceptional experience with us on the private equity side.
When you add all that together, I do think your intuition is correct that we will continue to accelerate in the wealth channel generally. If you look back in 2024, 2025, 2026. In 2025, we grew substantially. In 2026, we are going to end up raising through the wealth business more broadly, almost twice as much as we raised in 2025. So the pace of expansion already is here, but we will have more levers driving that in the next 12- 24 months. Your last question on team, we are actively adding to our team. We have been building this year, just hired another person in the last 24 hours to be a senior member of the team to help us drive expansion of our national account strategy.
Yes, we are adding to the team, both on the national account side and the product side and on the distribution side.
Thank you. We will move on now to Ken Worthington with JPMorgan. Your line is open.
Hi, good morning, and thanks for taking the question. As we think about 2027, how should we think about the underlying FRE margin outlook, given catch-up fees positively influenced the margin for 2026, and given some of Jack's comments there about the continued investment that you are making in wealth management?
Yeah. Thanks for the question. You are right. When we look at the third quarter, FRE margin of 50% clearly benefited from the catch-up fees. $62 million of catch-up fees contributed in the quarter. As I said, if we normalize for what we could call a normal level of catch-up fee, although there is no such thing, our FRE margin would have been approximately 47%. Given our strong margin performance year-to-date, we are updating our guidance for the full year, like I said, to approximately 48%, which represents nearly 300 basis points of improvement relative to 2025. Look, as we have discussed before, this is just a point along the way for us. This is not a final destination. Over the long term, we remain highly confident in our ability to continue expanding our FRE margin into the 50s, supported by really several structural drivers.
I would say one on the revenue side, continued revenue growth driven by fund-over-fund growth, private equity strategies and other newer initiatives, accelerating credit FAUM deployments, and continued scaling of our high-margin capital markets business. On the expense side or on the operating leverage side, greater operating leverage from our continued scaling into new and emerging strategies where the initial team build-out costs are largely behind us. Lastly, additional productivity benefits from our firm-wide AI initiatives that are really focused on streamlining some of our data and workflow-intensive operations. We are not putting an exact timeline for this expansion into the mid-50s. We are focused on the long-term growth of our business. We want to give ourselves the room to continue investing in the business in a measured and disciplined way.
So the key investment areas would include capital formation, private wealth distribution, as we just discussed with Jack, and our credit capabilities. Our FRE margin expansion may not be perfectly linear quarter by quarter, but our long-term trajectory is compelling and remains firmly intact.
Great. Thank you.
Thank you. We will move on now to Steven Chubak with Wolfe Research. Your line is open.
Hi, good morning, and thanks for taking my question. I was hoping to double-click into the digital infra opportunity, just given how prevalent that has been across the capital markets ecosystem. Was hoping you could speak to how the firm is positioned to participate, understand your legacy exposure is more through direct investments in the model providers. But as we think about the fundraising of the next set of real estate funds, the climate TI strategy, how does it inform the sizing of some of these strategies, and which areas are you more comfortable leaning into? Which pockets are you looking to avoid?
Yeah. Thanks for that. Look, I think for starters, the context of your question is helpful because I think one of the things when we think about the, you described it as digital infrastructure. When we think about the acceleration and the development of infrastructure more broadly, we feel like our approach to it is across the multi-strategy breadth of the firm, and that is how we do look at it.
For instance, if you look at the opportunity set across our firm from Peppertree on the tower side, which is critical digital infrastructure, across to what we are seeing in our climate business as it relates to the evolution of and the importance of energy and what we think of as the picks and shovels around the development of the infrastructure opportunity and the flow of opportunities we are seeing there. Then cross it over to our real estate business and what we think is the real estate angle on the data center opportunity, where we have been invested now for some time. I think we feel like this is an environment where there is going to be a number of really interesting opportunities. Just to double-click on a couple of those things.
I think if you look at on the digital infra side, where we have our Peppertree business. Our Peppertree business has an extraordinarily dedicated following, and as I mentioned in my comments, in the current fundraise, which has been extremely strong. The Peppertree team has a very dedicated following. What we have found is that many of our long-standing relationships are very interested in getting exposure to the strategy. The macro as it relates to that strategy is really intriguing. If you look at the need for critical digital infrastructure, it is only going up. One example of that, by the way, is the latest announcements, what you have seen out of Starlink, where they are dedicated to creating a terrestrial infrastructure capability around wireless. I think the number they quoted was something like 8,000 towers— 80,000 towers, sorry. Yeah.
Some enormous number in terms of what their build-out is going to look like. We think that that is incredibly bullish for our opportunity in the business. So we are expecting that will continue to grow and expand as an opportunity. We have also seen in our private equity business just in terms of the evolution of what is going on in technology and AI. Obviously, we are picking our spots there. We have made a number of investments across the LLMs and other interesting AI-related technologies across Capital, TTAD, and Growth. We continue to expect that that is going to be a really important area.
I think generally the last thing I will say on it is on the credit side where we are being targeted with respect to the risk structures that we think are good risk-reward where you are getting compensated for the risk. I think there is a lot of embedded risk in the market right now with respect to certain of the structures that have been financed. I think we feel that ultimately one of the interesting opportunities besides the transactions that we are financing ourselves because we like the structuring around them, is that at some point we expect that portions of that financing flow will likely break in terms of valuation. As a result of that, I think that the build in our dry powder and the opportunities that we expect to come as a result of that we think is real.
We are also going to be opportunistic as it relates to where we think that the value reset makes sense for us. So that is how we are looking at it.
Thank you. We will move on now to Devin Ryan with Citizens Bank. Your line is open.
Thank you. Good morning. Thanks for taking the question. Question on just the insurance platform and whether the capabilities developed through the Jackson relationship are beginning to maybe open up broader discussions with other insurers. Really just trying to think about if the third party insurance can really become kind of a distinct growth business for TPG rather than primarily serving as capital for existing strategies. Trying to also connect that back to the $200 billion credit AUM objective and how relevant this could be. Thanks.
Yeah. Well, I think the answer is yes. First of all, the Jackson relationship has been an incredibly strong partnership. The engagement only increases across the firm. We started, as you know, with a focus particularly on IG ABF and improving their access to IG ABF as well as Twin Brook on the direct lending side. Both of those initiatives are growing substantially. What is happening as well, and I think I might have mentioned this on maybe another call, but because of the production capability that we have developed, the sourcing capability on the IG ABF side, that is serving a range of relationships for us, a range of insurance company relationships for us. That is up-leveling the entire capability that we have with our partners. Secondly, I think we have talked about the growth in our insurance partnerships particularly since the original Angelo Gordon acquisition.
The number of insurance partnerships and the AUM has grown meaningfully over that period of time and has more than doubled. So we continue to develop new relationships and expand the breadth of that. We on the capital formation side, we have a dedicated insurance coverage capability and dedicated insurance coverage group that is a global effort. If you look at the distribution of our insurance capital, our insurance capital right now is distributed around the globe between the U.S., Europe, and Asia with the heaviest concentration in the U.S. right now. But we expect that that will continue to grow on a global basis. That I think will be an important driver of continued AUM growth across our credit franchise.
So as far as kind of back to our kind of $200 billion target, I expect that our insurance business will be an important part of that. We expect it to be a very strategic element of that long-term growth.
It's Jack. I would add just one thing. You asked whether the insurance business could expand beyond just being a sourcing channel for our existing businesses, and I would make it clear that is already happening. If you look at all of the building we are doing into the investment grade ABF space and other IG or lower risk- return rated segments of the market, those are markets that Angelo Gordon, we acquired them, did not participate in. Our expanding insurance business is already significantly expanding our market opportunity into new areas.
Thank you. We will move on now to Brian Bedell with Deutsche Bank. Your line is open.
Great. Thanks. Thanks so much for taking my question. You answered some elements of this already, and it is on deployment, and you definitely talked about this on the data center infrastructure side. But if we can maybe zero in on the two recently raised funds, fresh funds in the Capital segment and then in the Rise Climate II and Global South. If you can comment on maybe how you are envisioning the pacing of deployment given these opportunities. Is it on track, do you think, to be either faster or slower than prior funds? Then just connecting that with transaction fees, should we be thinking of that deployment pace as informing the transaction fee growth, or are there other areas within the capital markets business that you think that are not quite scaled yet or not quite internally built out yet that have more upside to that?
Just quickly. I think that the scale of the opportunity is obviously meaningful in terms of deployment into the ecosystem that you're describing. I think that we have a number of scaled pools of capital that I mentioned before that we're taking advantage of this, including, by the way, credit, which you didn't mention. If you look at the broader flows as a result of this, I think, again, we are trying. In terms of predicting pace, that's always tough. I think that obviously the AI- related ecosystem is, I think, clearly going to be a larger portion of the deployment picture as we think about deploying each of these different funds.
I'd like to ask Jim if he can, hopefully he's still on and can hear us, but I'd like him to comment on the climate ecosystem, because I think that's particularly interesting as it relates to this.
Yes, the climate ecosystem is essentially morphing into a picks- and- shovels expression of what is happening in the reset of the power sector around the world. We're seeing quite active deployment across our activities there. The funds we're closing are already about 25% deployed. If you look into that deployment, you'll find utility services in the U.S., you'll find green data centers in India. You'll find wind in India and data center equipment businesses across the U.S. So I think we are well-positioned in the ancillary aspects of the huge capital cycles that are going on around the world through these products.
Thank you. We'll move on now to Arnaud Giblat with BNP. Your line is open.
Yeah, good morning. I just wanted to circle back on performance fees and the absence or virtual absence in the quarter. I am just wondering why that is, despite a decent level of realizations in the quarter, positive value creation across all platforms and accrual build. I just wanted more detail there so we can square back with expectations of performance fees picking back up in Q4 and in 2027. Thank you.
Yeah, that is an excellent question, Arnaud. This is Axel. Look, in the quarter we generated $6.6 billion of realizations. Which by the way brought the year-to-date total to $20.4 billion, up 10% year-over-year. The proceeds, those proceeds from realizations were largely used to return basis on realized deals and cover unrealized losses, mainly in TPG VIII. As we prudently reflected market volatility in the software companies that are facing greater AI- related defensive risk. Outside of these specific companies, the portfolio fundamentals remain very strong, with growth outpacing the broader market. Positive value creation across every platform this quarter and private equity in particular. Private equity strategies appreciated 3% in aggregate.
For example, we mentioned that aggregate bookings in our TPG Capital and Growth software companies grew more than 25% in the third quarter, clearly accelerating from the first half of the year. What we are seeing is that AI- enabled revenue and cost initiatives are accelerating earnings growth at many companies in software and beyond. The fixed side of the $6.6 billion of realization in the quarter is that we saw our net accrued carry rose sequentially to a record $1.5 billion at quarter-end. While the current market conditions may temporarily impact the timing of realizations, we see clear opportunities to selectively monetize investments at attractive valuations. We continue to expect realized performance allocations to pick up in the fourth quarter and into 2027.
Thank you. We will move on now to Bart Dziarski with RBC Capital Markets. Your line is open.
Great. Thanks for taking the question and good morning, everyone. Just wanted to ask a question around on higher rates and the impact on private equity specifically as it relates to performance. You talked about deployment, monetization. Thanks for that color. But in terms of performance, you're historically been an alpha generator, very strong performance within that asset class, and just wondering if value creation plans or anything like that are changing in light of the incrementally higher rate environment to preserve that performance advantage. Thanks.
Yeah. Thanks for the question. I started off my comments just talking about, obviously, the increasing interest rate environment, and its impact generally on the markets. I think that certainly it will have an impact on transactional activity, cost of capital, et cetera. Having said that, though, and I think you've heard us talk about this quite a bit. Our business on the private equity side is not really a kind of leverage arbitrage business. Our business on the private equity side is a growth-oriented business, where we're generally driving top- line and earnings growth in our companies, trying to inflect growth, whether it's by just the core strategy evolution, better execution, implementation of technology, et cetera. As a result of that, we use leverage. We're far from using maximum leverage in our strategy to finance our companies.
As I said, I think I said in my comments, you can look at a long arc of time in terms of a decade where 80% of our value creation across our private equity strategies is essentially from that base earnings growth, as opposed to things like multiple expansion or any kind of leverage arbitrage. The other thing I would say, which is important in our portfolio, which we didn't get a chance to talk about today, is that we have been anticipating just generally more volatile markets. Going back probably now 24 months, we have undergone systematically, as a result of our capital markets capability, an effort to optimize balance sheet structure and execute refinancings, extend maturities where we can, lower our borrowing costs where we can, and make sure that we're operating on the best terms.
If you look at our interest coverage ratios, if you look at our general leverage ratios, they're all generally at the lower end of what you see across large buyout players in the market. We're not that concerned, to be honest, with rates as it relates to kind of inflicting any pain on our strategy. I think we're cognizant of it, of course, because it does have an impact on the overall transaction level, I think, in the market.
Thank you. We'll move on now to Michael Cyprys with Morgan Stanley. Your line is open.
Hey, good morning. Or, I guess, good afternoon at this point. Thanks for squeezing me in, taking the question. I wanted to come back with a question on AI infrastructure, given your investments across data centers and related power infrastructure. Just curious how you're thinking about any sort of concentration risk. How much exposure are you comfortable taking to that theme within your funds? And I was hoping you could elaborate a bit on some of the risks that you were alluding to earlier within certain structures that are being financed, how you protect against that. And while you've been quite active on the equity side, curious to what extent you see opportunities to participate more on the financing side through your credit platform.
Yeah. Thanks, Mike. Well, look, I think to start off with from a high level, I think that we're trying to be very selective in terms of what we do on that side of the business. I think that what we have tended to look for is in-place assets that are generating, are leased and generating cash flow. And if you look at our current exposures, I think that that's consistent with where we are. I would say a couple of the things that we are very mindful of is development risk within our portfolio. We have very little of that across our portfolio. When we look at kind of what part of the ecosystem we feel comfortable in, I think Jim commented on sort of like, we use this expression, picks and shovels.
I think that around the data center evolution, there's obviously a substantial energy need in terms of electrification. There's clearly an industrial supply chain dynamic going on with respect to what needs to be done to fulfill the data center demand framework. We are digging into that and have invested actively in what I think of as sort of the second-order opportunity around the data centers, where we feel like fundamentally, the risk/reward of that is very good. And it's distributed. It's not concentrated in several large data centers, but it's distributed around the data center ecosystem. Some of the risks that I was referencing before are that if you look at the financing that's going on in the market, obviously there is an extraordinary need for capital.
I think some of the risks that we look out for as it relates to how we think about lending and exposing ourselves is, one, development risk, as I mentioned already. Because there is a number of headwinds as it relates to development risk. Certainly just the political dynamic in terms of, and the community dynamic in terms of people pushing back, I think is creating uncertainty and in some cases, surprises around that process. That's one element of risk. The second element of risk, I would say, is that the dependency on more and more financing and the questions of whether and at what price some of that financing will be available. We're trying to reduce our exposure or avoid exposure to this sort of cycle of ongoing borrowing requirements, where we think that it's unclear whether or not investors will keep stepping up.
One of the things that we typically see in the credit markets is that in areas that are flush with a lot of financing, you get to concentration issues among investors, how much exposure they can take. We're dealing with an historic level of financing pressure in the market right now. We're starting to see that question of, I can't take any more, or if I take any more, it's got to be a different type of risk/ reward or different type of structure, or terms have to be different in terms of what the required returns are. That's where we think we're trying to be careful about what our exposures are. We have seen a number of opportunities as a result of that trend to work on more innovative, creative structures around that.
We're working on one actually now as we speak, and we feel like in that context, we can structure better protections and better risk reward. That's an area where we feel like our capital will be well deployed. I think over time, I do think that there is going to be, I guess, I don't know if the right term is some level of distress in the space or some level of repricing maybe is more appropriate. I think that there are going to be opportunities to step in when that happens. I would say that's how we're thinking about it.
Yeah. If I can add, Jon. Michael, you've been through cycles before, as we all have been, but there's a very good argument right now, and it's being made pretty well for a large data center beta play. That is certainly moving through the market. We're of a size and a focus where we're very focused on the data center alpha play, where we don't have to necessarily do the full beta play, where we can sort of pick our spots, as Jon is describing. Having been through fiber cycles and airline cycles, et cetera, when the market gets very sure of something, occasionally it's good to be cautious, and this may be a moment where we're seeing some of that cautious alpha-seeking activity in our pipeline.
This concludes the question- and- answer portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks.
Great. Thanks, operator, and thank all of you for joining us today. As always, if you have any additional questions, please feel free to follow up with the IR team. Otherwise, we'll look forward to speaking with you all again next quarter.
This concludes today's TPG's third quarter 2026 earnings call and webcast. You may now disconnect your line at this time, and have a wonderful day.