TPG’s IPO cements fee shift for private equity firms going public


The initial public offering of the US buyout group TPG on Thursday will bring structural changes to the private equity industry.

TPG is Rebuild that finance As part of an IPO that provides shareholders with only 20% of future performance-based profits, the company said in its prospectus that it was down from 50% if no changes were made.

Industry executives call the structure of TPG a “next generation” private equity IPO. This reduces some of the performance fees to public shareholders and provides more stable management fees.

“This is a new standard,” said Sole Goodman, Head of Alternative Asset Management Banking at Evercore. “Almost all bankers in the area of ​​advising private equity companies about IPOs are currently advising listed companies not to donate most of their performance fees.”

Founded in 1992, TPG will be the latest private equity group Develop an open market Listing on Nasdaq at a price of $ 29.50 per share puts the company in value at about $ 9 billion. TPG declined to comment.

IPO pricing policy is standing In contrast Until Blackstone became the first major private equity company to be released in 2007. Blackstone has sold more than half of its overall management and performance-based compensation-based revenue to shareholders, a model followed by KKR, The Carlyle Group and Apollo Global Management.

Private equity groups typically charge investors a 2% management fee in addition to gaining a 20% share of the return on investment. Investors who buy TPG equity own an entity that generates most of its revenue from basic management fees rather than performance-based fees.

Analysts and investors Be attracted According to bankers and private equity executives, it is stable and easy to model, so it is a private equity management fee income.Meanwhile, they Discounted performance-based profit This is because it is difficult to predict because it may fluctuate depending on market conditions.

Joseph Lombardo, Head of Advisory Practices for Private Equity Partnerships of Investment Bank Houlihan Lokey, said:

Recent private equity IPOs focus on shareholder exposure to management fees.Stockholm-based private equity firm EQT Partner The 2019 listing provided public shareholders with one-third of the performance fee, but provided all management fees.Newyork-based asset manager Blue owl Listed in May 2021, it provided public shareholders with approximately 15% of its performance-based profits.

According to insiders, the valuations of listed companies have skyrocketed to 25-30 times their performance-based earnings, but the group still receives only 5-10 times its return on investment. Old-fashioned listed private-equity funds are adjusting their economies to look more like new entrants.

In February 2021, KKR announced that it would change the way it pays its employees, shifting from paying insiders more than 40% of its overall management and performance-based fee income. Currently, we pay employees up to 25% of management compensation-based revenue, while we pay up to 70% of performance-based compensation revenue. This has led to an increase in general shareholder claims for management fees and insider claims for performance. Profit.

Apollo said in November that it would limit insider payments to 25% of management fee-based revenue, but increase payments from performance fees from 50% to 70%. Blackstone’s second-quarter disclosure shows that Blackstone has made similar changes.

Under the new structure, TPG has generated $ 505 million in profits that can be distributed to public shareholders over the last 12 months, but $ 1.2 billion if the commission ratio was not changed. Of TPG’s revenue, 62%, or $ 311 million, comes from basic administration costs, compared to less than 20% before restructuring.

“What TPG is doing is appropriate and shareholder-oriented,” said CT Fitzpatrick, founder of Balkan Value Partners. “We have no problem weighting more success rewards to the management team.”

However, Fitzpatrick called this change a “mixed blessing” because private equity firms are directing investors in the public market to higher-valued management fee returns.

“Finding undervalued companies in this area can be more difficult for us,” Fitzpatrick said. “We are not going to sell in a hurry, but if they reach our fair value quote, we will.”

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