July 2, 2021

Breakingviews: TPG, waiting out first IPO boom, may ride another

by Breakingviews.

David Bonderman and Jim Coulter made billions of dollars out of knowing when to sell stuff. But the buyout firm they founded, TPG, watched peers Blackstone, Carlyle, KKR, and Apollo Global Management ride into public ownership, achieving greater size and minting extraordinary wealth for their partners. Allowing rivals to deal with growing pains, including generational succession, has its merits too, as TPG might prove if it sells its own stock to the public, as the Wall Street Journal reports is now a possibility.

The firm overseeing some $100 billion of assets turned inward following the financial crisis after an ill-timed investment in a bank, Washington Mutual, left it licking wounds. Others forged ahead with public stock offerings. By 2012, TPG’s biggest peers were answering to two sets of investors: those in their funds and public shareholders.

Being in the limelight, though, wasn’t easy. A spate of high-profile bankruptcies of leveraged buyouts, including energy giant TXU and retailer Toys R Us, made the listed buyout groups easier targets for political and public opprobrium. Blackstone boss Steve Schwarzman and others were criticized for their extreme wealth, which going public made more transparent.

And there were messy dramas: Apollo’s founder Leon Black lost his role amid ties to convicted sex offender Jeffrey Epstein. True, TPG had a run-in, too. Growth fund founder William McGlashan was sentenced to prison earlier this year for paying a counselor to help get his child into college. But as an unlisted, private firm, that scandal was arguably easier for TPG to keep contained.

The public pioneers also realized belatedly the limitations of the way they’d structured themselves, with byzantine partnerships and share classes that investors didn’t understand or like. Blackstone finished converting to a corporation from a publicly traded partnership in mid-2019, and since then its shares have almost tripled.

As a private firm, TPG was under less pressure to gather assets, which gave it a bit more flexibility to raise only what it thought it could profitably spend. But now it has some catching up to do. Its next-smallest peer, Carlyle, has 2.5 times TPG’s bulk. Blackstone is more than six times larger. A stock price will at least give TPG and its next generation of partners a currency with which to do deals and another incentive to grow, this time, having allowed for others to make mistakes first.

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BREAKINGVIEWS

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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