TPG Eyes Impact for Growth

By David G. Barry

the publicly traded alternative asset manager, sees “substantial opportunity” in expanding its now-$14 billion impact platform, TPG Rise.

Speaking on the firm’s first quarter call with analysts, TPG Founding Partner Jim Coulter said the firm has been “building up” the platform for future expansion. Areas, he said, that may make sense to its client base include impact-related investments in infrastructure, public markets or the credit markets. All of those categories involve “a build and are in the future,” he said. “But I continue to think that this is a trend that, if anything, will accelerate.”

Coulter’s comments come just weeks after TPG closed its debut TPG Rise Climate fund at $7.3 billion and is just weeks way from closing its third broad-based impact fund, Rise III, which has a $3 billion target. His comments also hold significance for two other key reasons.

The first is that funds deemed as impact – those that are focused on generating both societal and financial gains – are being embraced by institutional investors, many of whom are more focused on environmental, social and governance issues. One institutional investor, half-jokingly said, their team has become convinced that any fund deemed “impact” can be raised in a “nano-second.”  

The second reason why Coulter’s comments are notable is that they provide a hint at how TPG – which only went public in January – may look to grow. As of March 31, it had more than $120 billion in assets under management – up from $95 billion a year earlier. The firm has said it is interested in adding infrastructure and credit strategies to its platform – perhaps through acquisitions. But during the quarterly call, CEO Jon Winkelried said that while it is still looking at those areas, there is nothing imminent.

Impact, though, is an area where TPG was an early and significant entrant, having begun investing in the sector five years ago. Today, it is the third largest of TPG’s five platforms, ranking behind traditional private equity and growth strategies. Perhaps even more importantly, the firm’s Rise funds had a net internal rate of return of 25% as of Dec. 31 – displaying its belief that impact investments do not need to have lower returns.

In 2021, investors in TPG’s impact funds received more than $1 billion in distributions – half of which came from the sale of Dreambox Learning to Evergreen Coast Capital Corp., an affiliate of Elliott Investment Management. Dreambox is a Seattle area education technology company.

“We think there is substantial opportunity to expand the Rise platform in a number of directions,” said Coulter, who also is managing partner of TPG Rise Climate.

One reason for the optimism from Coulter and TPG is the success that the firm had in raising the Rise Climate Fund. Coulter said that when TPG launched the fund last year “there were questions on both sides” of what he described as the “two-sided marketplace.” Specifically, will there be enough focused capital demand out of our investors for this type of product? And secondly, at a $7 billion scale where we ended up, would there be investment demand? A year into it, as our general counsel would say, ‘asked and answered.’  In other words, there has been very substantial demand on the product side, and we see that growing. And I have been pleasantly surprised by the scale and persistency of opportunity we're seeing in the marketplace.”

In fact, TPG through March has already deployed $2 billion, or more than a quarter of the fund – a development that Coulter said, “calls out for both the opportunity to scale the strategy and brings forward some of our thinking in terms of when market opportunity return might be.”

Among the fund’s transactions are an investment in a newly created electrical vehicle subsidiary of India’s Tata Motors. It also teamed up with TPG’s Rise Fund to make a $500 million investment in Nextracker, a provider of solar tracker and software solutions for utility scale solar projects. 

One reason the firm cites for the success of its Rise investments is Y Analytics, its impact assessment and ESG performance arm which objectively measures and reports on the true impact of its invested capital.

The pace at which TPG is deploying the Rise Climate Fund has led to questions over whether the firm might be back in the market with a second Rise Climate Fund sooner than anticipated. Coulter said that based on what the firm has seen, it expects investment activity in the sectors Rise is focused on to continue, including online education, broadband for the underprivileged, health care access and financial services.

“If you think about the climate transition, higher oil prices and concerns about energy security suggests a forward build and acceleration -- accelerating build into a green climate framework,” Coulter said. The firm, he added, also has benefitted from the fact that companies are finding it harder to get high valuations, with Special Purpose Acquisition Companies, or SPACs, and so-called “momentum” investors on the sidelines. TPG, as a result, has found companies more willing to take its capital at what it sees as reasonable valuations.

Illustrating this point is a company that TPG’s Rise Fund invested in earlier this year: Acorns, a mobile savings and investment platform with more than 4.7 million subscribers. The company, said Winkelried during the analysts call, was planning on raising capital through a SPAC transaction. However, when the SPAC market began experiencing volatility, TPG was able, he said, to invest capital “on attractive terms.”