The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information presented in our historical financial statements and the related notes included elsewhere in this report. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and elsewhere in this report, particularly in "Cautionary Note Regarding Forward-Looking Statements," "Part II-Item 1A.-Risk Factors" and "--Unaudited Pro Forma Condensed Consolidated Financial Information and Other Data" should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 29, 2022 . We assume no obligation to update any of these forward-looking statements. OnJanuary 12, 2022 , we completed a corporate reorganization (the "Reorganization"), which included a corporate conversion ofTPG Partners, LLC to aDelaware corporation namedTPG Inc. , in conjunction with an initial public offering ("IPO") of our Class A common stock. The IPO closed onJanuary 18, 2022 . Unless the context suggests otherwise, references in this report to "TPG", "the Company", "we", "us" and "our" refer (i) prior to the completion of the Reorganization and IPO toTPG Group Holdings SBS, L.P. and its consolidated subsidiaries and (ii) from and after the completion of the Reorganization and IPO toTPG Inc. and its consolidated subsidiaries.
Business Overview
We are a leading global alternative asset manager with approximately$120.4 billion in assets under management ("AUM") as ofMarch 31, 2022 . We primarily invest in complex asset classes such as private equity, real estate and public market strategies. We have built our firm through a 30-year history of successful innovation and organic growth, and we believe that we have delivered attractive risk-adjusted returns to our clients and established a premier investment business focused on the fastest-growing segments of both the alternative asset management industry and the global economy. We believe that we have a distinctive business approach as compared to other alternative asset managers and a diversified, innovative array of multi-product investment platforms that position us well to continue generating sustainable growth across our business. Our platforms are: •Capital: Our Capital platform is focused on large-scale, control-oriented private equity investments. Capital platform funds are organized in four primary products, including (i)TPG Capital , ourNorth America andEurope -focused private equity and large-scale growth equity investing business, (ii) TPG Asia, ourAsia dedicated franchise, (iii)TPG Healthcare Partners , which makes healthcare-related investments primarily in partnership with other TPG funds, and (iv) single asset continuation vehicles which allow limited partners to remain invested in a portfolio company beyond the life of the TPG fund that initially invested in the company. •Growth: Our Growth platform provides us with a flexible mandate to capitalize on investment opportunities that are earlier in their life cycle, are smaller in size and/or have different profiles than would be considered for our Capital platform. Our Growth platform consists of three primary products, including (i)TPG Growth , our dedicated growth equity and middle market investing product which makes growth equity, control growth buyout, and late-stage venture investments globally, (ii) TPG Tech Adjacencies, which pursues minority structured investments in technology sectors, and (iii) TPG Digital Media, which focuses on opportunities in digital media and content-centric themes. •Impact: We have a fundamental belief that private enterprise can contribute significantly to addressing societal challenges globally and launched our Impact platform in 2016 to pursue both competitive financial returns and measurable societal benefits at scale. Our Impact funds are organized in three primary products, including (i) The Rise Funds, our vehicles for investing across multiple vectors of societal impact, such as climate, education, financial inclusion, agriculture, and healthcare, (ii) TPG Rise Climate, our dedicated climate impact investing product, and (iii) an emerging markets healthcare fund, Evercare. •Real Estate: We established our real estate investing practice in 2009 to pursue real estate investments systematically and build the capabilities to do so at significant scale. Today, we are investing in real estate through three primary products, including (i)TPG Real Estate Partners ("TREP"), an opportunistic strategy that focuses on acquiring and building real estate platforms utilizing a distinct theme-based strategy, which often aligns with TPG's 46
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broader thematic sector expertise, (ii) TPG Real Estate Thematic Advantage
Core-Plus, an extension of TREP which targets investments in stabilized or near
stabilized real estate, and (iii) TPG RE Finance Trust, Inc. (NYSE: TRTX)
(“TRTX”), our publicly traded mortgage real estate investment trust (“REIT”).
•Market Solutions: Our Market Solutions platform leverages the broader TPG ecosystem to create differentiated products in order to address specific market opportunities. The Market Solutions platform products consist of Public Market Investing funds, SPACs, Capital Markets activities, and Private Markets Solutions, which seeks to acquire private equity positions on a secondary basis. The investment adviser of our funds generally receives a management fee based on a percentage of the fund's capital commitments, or the fund's invested capital, depending on the fund's terms and position in its lifecycle. The investment advisers to certain of our funds may also receive special fees, including transaction fees upon consummation of transactions, monitoring fees from portfolio companies following acquisition and other fees in connection with their activities. As part of its partnership interest in a fund and, in addition to a return on its capital interest in a fund, the general partner or an affiliate is generally entitled to receive performance allocations from a fund. Performance allocations are generally calculated on a realized basis, and each general partner (or affiliate) is generally entitled to an allocation of 20% of the net realized profits generated by such fund, subject to a preferred limited partner return typically of 8% per year.
Operating Segments
We operate our business as a single operating and reportable segment, which is consistent with how our CEO,who is our chief operating decision maker, reviews financial performance and allocates resources. We operate collaboratively across platforms with a single expense pool.
Trends Affecting our Business
Our business is affected by a variety of factors, including conditions in the financial markets and economic and political conditions. Changes in global economic conditions and regulatory or other governmental policies or actions can materially affect the values of funds managed by TPG, as well as our ability to source attractive investments and completely deploy the capital that we have raised. However, we believe our disciplined investment philosophy across our diversified investment platforms and our shared investment themes focus on attractive and resilient sectors of the global economy have historically contributed to the stability of our performance throughout market cycles. The three months endedMarch 31, 2022 generally experienced increased volatility across asset classes relative to the preceding few quarters. Multiple compounding factors impacted the global economic backdrop and financial markets, notably tightening monetary policy, higher inflation as a result of supply chain constraints, wage pressures due to labor shortages, and the ongoing geopolitical conflict inEurope . InU.S. equities, the S&P 500 returned (4.9%) in the first quarter of 2022 resulting in the first negative quarter since the onset of the COVID-19 pandemic in early 2020. A late-March rally masked the degree of intra-quarter volatility, with the index touching as low as (12.5%) for the year prior to recovering towards the end of the quarter. Energy and Utilities were the only S&P 500 sectors to gain in the quarter as the ongoing conflict betweenRussia and theUkraine drove commodity prices 25.5% higher, as indicated by the Bloomberg Commodity Index. Conversely, Consumer Discretionary, Technology, and Communication Services equities saw the largest declines. The CBOE Volatility Index rose 19.4% to 20.6% in the first quarter of 2022. Elevated levels of inflation persisted during the three months endedMarch 31, 2022 . The Consumer Price Index rose 7.5%, 7.9%, and 8.5% year-over-year at the January, February, and March readings, respectively, compared to an average monthly reading of +4.7% through 2021. In part due to elevated inflation, theU.S. Federal Reserve ended quantitative easing measures and raised interest rates for the first time since the pandemic began, increasing the fed funds target 25bps to 0.25%-0.50%. Further, theFederal Reserve increased rate guidance for 2022 and 2023 from the guidance provided at its previous meeting inDecember 2021 .U.S. Treasury yields increased across the curve during the three months endedMarch 31, 2022 , with larger swings seen at the short end of the curve. 2-Year Treasuries ended the quarter yielding 2.33%, up from 0.73% at the end of 2021, and the 10-Year Treasury yield rose to 2.33% from 1.51%. Corporate bonds moved in tandem with Treasuries.U.S. High Yield and InvestmentGrade Bond indices fell (4.5%) and (5.9%) respectively in the quarter. High Yield credit spreads 47
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widened over 100bps at their worst point during the quarter, though ended the
quarter only 30bps wider than
TheU.S. unemployment rate declined to 3.6% by the end of the three months endedMarch 31, 2022 , from 3.9% as of the end of 2021, though labor force participation remains below pre-pandemic levels. Average hourly earnings rose 1.3% to$31.73 in the quarter, a 5.1% annualized rate. Over the past 12 months, as of the end ofMarch 2022 , average hourly earnings have increased by 5.6%. Retail sales in the US were up 0.5% month-over-month in March, below the 0.8% rise in February. Consumer spending remains robust but reflect mainly an increase in spending due to a surge in prices for energy, food and other goods and services In addition to these macroeconomic trends and market factors, our future performance is heavily dependent on our ability to attract new capital, generate strong, stable returns, source investments with attractive risk-adjusted returns and provide attractive investment products to a growing investor base. We believe the following factors will influence our future performance: •The extent to which prospective fund investors favor alternative investments. Our ability to attract new capital is in part dependent on our current and prospective fund investors' views of alternative investments relative to traditional asset classes. We believe that our fundraising efforts will continue to be subject to certain fundamental asset management trends, including (i) the increasing importance and market share of alternative investment strategies to fund investors of all types as fund investors focus on lower-correlated and absolute levels of return, (ii) the increasing demand for private markets from private wealth fund investors, (iii) shifting asset allocation policies of institutional fund investors in particular favoring private markets and (iv) increasing barriers to entry and growth. •Our ability to generate strong, stable returns on behalf of our fund investors. Our ability to raise and retain capital is significantly dependent on our track record and the investment returns we are able to generate for our fund investors. The capital we raise drives growth in our AUM, fee earning assets under management ("FAUM") management fees and performance fees. Although our AUM, FAUM and fee-related revenues have grown significantly since our inception and in recent years, a significant deterioration in the returns we generate for our fund investors, adverse market conditions or an outflow of capital in the alternative asset management industry in general, or in the private equity segments in which we specialize, could negatively affect our future growth rate. In addition, market dislocations, contractions or volatility could adversely affect our returns in the future, which could in turn affect our fundraising abilities in the future, as both existing and prospective fund investors will consider our historical return profile in future asset allocations. •Our ability to source investments with attractive risk-adjusted returns. Our ability to continue to grow our revenue is dependent on our continued ability to source attractive investments and efficiently deploy the capital that we have raised. Although the capital deployed in any one quarter may vary significantly from period to period due to the availability of attractive opportunities and the long-term nature of our investment strategies, we believe that our ability to efficiently and effectively invest our growing pool of fund capital puts us in a favorable position to maintain our revenue growth over time. Our ability to identify attractive investments and execute on those investments is dependent on a number of factors, including the general macroeconomic environment, market positioning, valuation, transaction size and the expected duration of such investment opportunities. A significant decrease in the quality or quantity of potential opportunities, particularly in our core focus sectors (including technology and healthcare), could adversely affect our ability to source investments with attractive risk-adjusted returns. •The attractiveness of our product offerings to a broad and evolving investor base. Investors in our industry may have changing investment priorities and preferences over time, including with respect to risk appetite, portfolio allocation, desired returns and other considerations. Fund investors' increasing desire to work with fewer managers has also resulted in heightened competition. We continue to expand and diversify our product offerings to increase investment options for our fund investors, while balancing this expansion with our goal of continuing to deliver consistent, attractive returns. Our track record of innovation and the organic incubation of new product platforms and strategies is representative of our adaptability and focus on delivering products that are in demand by our clients. 48
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•Our ability to maintain our competitive advantage relative to competitors. Our data, analytical tools, deep industry knowledge, culture and teams allow us to provide our fund investors with attractive returns on their committed capital as well as customized investment solutions, including specialized services and reporting packages as well as experienced and responsive compliance, administration and tax capabilities. Our ability to maintain our advantage is dependent on a number of factors, including our continued access to a broad set of private market information, access to deal flow, retaining and developing our talent and our ability to grow our relationships with sophisticated partners.
Reorganization
OnDecember 31, 2021 , TPG undertook certain transactions as part of the Reorganization (as defined herein), which included transferring to RemainCo certain economic entitlements to performance allocations from certain of the TPG general partner entities as well as cash at theTPG Operating Group that related to those TPG general partner entities' economic entitlements. We continue to consolidate these TPG general partner entities because we maintain control and have an implicit variable interest. We also transferred theTPG Operating Group's co-investment interests in consolidated TPG Funds (as defined herein) which led to the deconsolidation of those funds as ofDecember 31, 2021 . Additionally, we transferred certain other economic entitlements associated with certain other investments, including our investment in certain TPG funds we do not consolidate, our former affiliate and other equity method investments. This did not include certain of our strategic equity method investments, includingHarlem Capital partners,VamosVentures and LandSpire Group , as the economics of these investments continue to be part of theTPG Operating Group after the Reorganization. Subsequent toDecember 31, 2021 and in connection with our IPO,TPG Partners, LLC converted from a limited liability company to aDelaware corporation and changed its name toTPG Inc. and completed the remainder of the Reorganization onJanuary 12, 2022 . Following our incorporation, the Reorganization and the IPO, we are a holding company and our only business is to act as the owner of the entities serving as the general partner of theTPG Operating Group partnerships and our only material assets are Common Units representing 25.6% of the Common Units and 100% of the interests in certain intermediate holding companies as ofMarch 31, 2022 . In our capacity as the sole indirect owner of the entities serving as the general partner of theTPG Operating Group partnerships, we indirectly control all of theTPG Operating Group's business and affairs. Basis of AccountingTPG Inc. is considered the successor ofTPG Group Holdings for accounting purposes, andTPG Group Holdings' consolidated financial statements are our historical financial statements. Given the ultimate controlling partners ofTPG Group Holdings controlTPG Inc. ,who in turn controls theTPG Operating Group , we account for the acquisition of such continuing limited partners' interests in our business, as part of the Reorganization, as a transfer of interests under common control. Accordingly, we carry forward the existing value of such continuing limited partners' interest in the assets and liabilities recognized in theTPG Operating Group's financial statements prior to our IPO into our financial statements following our IPO.TPG Group Holdings' historical financial statements include the consolidated accounts of management companies, general partners of pooled investment entities and certain consolidated TPG funds, which are held inTPG Operating Group I, L.P. (formerly known as "TPG Holdings I, L.P. " and referred to as "TPG Operating Group I"),TPG Operating Group II, L.P. (formerly known as "TPG Holdings II, L.P. " and referred to as "TPG Operating Group II") andTPG Operating Group III, L.P. (formerly known as "TPG Holdings III, L.P. " and referred to as "TPG Operating Group III"). Prior to our IPO, theTPG Operating Group was controlled byTPG Group Holdings and as a result of the Reorganization is controlled byTPG Inc. after our IPO. When an entity is consolidated, we reflect the accounts of the consolidated entity, including its assets, liabilities, revenues, expenses, investment income, cash flows and other amounts, on a gross basis. While the consolidation of an entity does not impact the amounts of net income attributable to controlling interests, the consolidation does impact the financial statement presentation in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). This is a result of the fact that the accounts of the consolidated entities being reflected on a gross basis, with intercompany transactions eliminated, while the allocable share of those amounts that are attributable to third parties are reflected as single line items. The single line items in which the accounts attributable to third parties are recorded are presented as non-controlling interests on the condensed consolidated statements of financial condition and net income (loss) attributable to non-controlling interests on the condensed consolidated statements of operations. 49
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We are not required under GAAP to consolidate the majority of investment funds we advise in our condensed consolidated financial statements because we do not have a more than insignificant variable interest. Pursuant to GAAP, we consolidate certain TPG funds and SPACs, which we refer to collectively as the "consolidated TPG Funds and Public SPACs," in our condensed consolidated financial statements for certain of the periods we present. Management fees and performance allocations from the consolidated TPG Funds and Public SPACs are eliminated in the condensed consolidated financial statements. The assets and liabilities of the consolidated TPG Funds and Public SPACs are generally held within separate legal entities and, as a result, the liabilities of the consolidated TPG Funds and Public SPACs are non-recourse to us. Since we only consolidate a limited portion of our TPG investment funds, the performance of the consolidated TPG Funds and Public SPACs is not necessarily consistent with or representative of the aggregate performance trends of our TPG investment funds.
Impact of COVID-19
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a global pandemic. Numerous countries, includingthe United States , instituted a variety of restrictive measures to contain the viral spread, including mandatory quarantines and travel restrictions, leading to significant disruptions and uncertainty in the global financial markets. While many of the initial restrictions inthe United States have been relaxed or removed, the risk of future outbreaks of COVID-19, or variants thereof, or of other public health crises remain. Further, certain public health restrictions remain in place and lifted restrictions may be reimposed to mitigate risks to public health. In 2021, the global economy began reopening, facilitating robust economic activity. However, the economic recovery is only partially underway and has been gradual, uneven and characterized by meaningful dispersion across sectors and regions with uncertainty regarding its ultimate length and trajectory. Further, the emergence of COVID-19 variants and related surges in cases have resulted in setbacks to the recovery, and subsequent surges could lead to renewed restrictions. Many public health experts believe that COVID-19 could persist or reoccur for years, and even if the lethality of the virus declines, such reoccurrence could trigger increased restrictions on business operations. The COVID-19 pandemic has affected, and will continue to affect, our business. We continue to closely monitor developments related to COVID-19 and assess any potential negative impacts to our business. In particular, our future results may be adversely affected by (i) decreases in the value of investments in certain industries that have been materially impacted by the COVID-19 pandemic and related governmental measures, (ii) slowdowns in fundraising activity and (iii) reductions in our capital deployment pace. See "Item 1A.-Risk Factors-Risks Related to Our Business-Significant setbacks in the reopening of the global economy or reinstatement of lockdowns or other restrictions as a result of the ongoing COVID-19 pandemic may negatively impact our business and our results of operations, financial condition and cash flow" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Key Financial Measures
Our key financial and operating measures are discussed below.
Revenues
Fees and Other. Fees and other consists primarily of (i) management and
incentive fees for providing investment management services to unconsolidated
funds, collateralized loan obligations and other vehicles; (ii) monitoring fees
for providing services to portfolio companies; (iii) transaction fees for
providing advisory services, debt and equity arrangements and underwriting and
placement services; and (iv) expense reimbursements from unconsolidated funds,
portfolio companies and third-parties. These fee arrangements are documented
within the contractual terms of the governing agreements and are recognized when
earned, which generally coincides with the period during which the related
services are performed and in the case of transaction fees, upon closing of the
transaction. Monitoring fees may provide for a termination payment following an
initial public offering or change of control. These termination payments are
recognized in the period in which the related transaction closes.
Capital Allocation-Based Income. Capital allocation-based income is earned from
the TPG funds when we have (i) a general partner's capital interest and (ii)
performance allocations which entitle us to a disproportionate allocation of
investment income or loss from an investment fund's limited partners. We are
entitled to a performance allocation (typically 20%) based on cumulative fund or
account performance to date, irrespective of whether such amounts have been
realized. These performance allocations are subject to the achievement of
minimum return levels (typically 8%), in accordance with the terms set forth in
the respective fund's governing documents. We account for our investment
balances in the TPG Funds, including performance allocations, under the equity
method of accounting because we are presumed to
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have significant influence as the general partner or managing member; however, we do not have control as defined by Accounting Standards Codification Topic 810-Consolidation. The Company accounts for its general partner interests in capital allocation-based arrangements as financial instruments under ASC Topic 323-Investments -Equity Method and Joint Ventures as the general partner has significant governance rights in the TPG funds in which it invests which demonstrates significant influence. Accordingly, performance allocations are not deemed to be within the scope of Accounting Standards Codification Topic 606-Revenue from Contracts with Customers ("ASC 606").
Expenses
Compensation and Benefits. Compensation and benefits expense includes (i)
cash-based compensation and benefits (ii) equity based compensation and (iii)
performance allocation compensation. Bonuses are accrued over the service period
to which they relate. In addition, we have equity-based compensation
arrangements that require certain TPG executives and employees to vest ownership
of a portion of their equity interests over a service period of generally one to
six years, which under GAAP will result in compensation charges over current and
future periods. In connection with our IPO, we granted restricted stock units
("RSUs") to executives and employees. Performance allocation payments in the
legal form of equity made directly or indirectly to our partners and
professionals are allocated and distributed, when realized, pro rata based on
ownership percentages in the underlying investment partnership and are accounted
for as distributions on the equity held by such partners rather than as
compensation and benefits expense prior to the Reorganization and IPO.
Subsequent to the Reorganization and IPO, we account for these distributions as
performance allocation compensation.
General, Administrative and Other. General and administrative expenses include
costs primarily related to professional services, occupancy, travel,
communication and information services and other general operating items.
Depreciation and Amortization. Depreciation and amortization of tenant
improvements, furniture and equipment and intangible assets are expensed on a
straight-line basis over the useful life of the asset.
Interest Expense. Interest expense includes interest paid and accrued on our
outstanding debt and along with the amortization of deferred financing costs.
Expenses of consolidated TPG Funds and Public SPACs. Expenses of consolidated TPG Funds and Public SPACs consists of interest expense and other expenses related primarily to professional services fees, research expenses, trustee fees, travel expenses and other costs associated with organizing and offering these entities. Investment IncomeNet Gains (Losses) from Investment Activities. Realized gains (losses) may be recognized when we redeem all or a portion of an investment interest or when we receive a distribution of capital. Unrealized gains (losses) result from the appreciation (depreciation) in the fair value of our investments. Fluctuations in net gains (losses) from investment activities between reporting periods are primarily driven by changes in the fair value of our investment portfolio and, to a lesser extent, the gains (losses) on investments disposed of during the period. The fair value of, as well as the ability to recognize gains from, our investments is significantly impacted by the global financial markets. This impact affects the net gains (losses) from investment activities recognized in any given period. Upon the disposition of an investment, previously recognized unrealized gains (losses) are reversed and an offsetting realized gain (loss) is recognized in the period in which the investment is sold. Since our investments are carried at fair value, fluctuations between periods could be significant due to changes to the inputs to our valuation process over time. Interest, Dividends and Other. Interest income is recognized on an accrual basis to the extent that such amounts are expected to be collected using the effective interest method. Dividends and other investment income are recorded when the right to receive payment is established.Net Gains (Losses) from Investment Activities of consolidated TPG Funds and Public SPACs. Net gains (losses) from investment activities includes (i) realized gains (losses) from the sale of equity, securities sold and not yet purchased, debt and derivative instruments and (ii) unrealized gains (losses) from changes in the fair value of such instruments. Unrealized Gains (Losses) on Derivative Liabilities of consolidated Public SPACs. Unrealized gains (losses) on derivative liabilities of consolidated Public SPACs are changes in the fair value of derivative contracts entered into by our consolidated Public SPAC entities, which are included in current period earnings. 51
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Interest, Dividends and Other of consolidated TPG Funds and Public SPACs.
Interest income is recognized on an accrual basis to the extent that such
amounts are expected to be collected using the effective interest method.
Dividends and other investment income are recorded when the right to receive
payment is established.
Income Tax Expense As a result of the Reorganization, the Company is treated as a corporation forU.S. federal and state income tax purposes. We are subject toU.S. federal and state income taxes, in addition to local and foreign income taxes, with respect to our allocable share of taxable income generated by theTPG Operating Group partnerships. Prior to the Reorganization, the Company was treated as a partnership forU.S. federal income tax purposes and therefore was not subject toU.S. federal and state income taxes except for certain consolidated subsidiaries that were subject to taxation in theU.S. (federal, state and local) and foreign jurisdictions as a result of their entity classification for tax reporting purposes. Non-controlling Interests For entities that are consolidated, but not 100% owned, a portion of the income or loss and corresponding equity is allocated to owners other than TPG. The aggregate of the income or loss and corresponding equity that is not owned by us is included in non-controlling interests in the condensed consolidated financial statements. 52
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Key Components of our Results of Operations
Results of Operations
The following table provides information regarding our condensed consolidated
results of operations for the periods presented:
Three Months Ended March 31,
2022 2021
(in thousands)
Revenues
Fees and other $ 273,005 $ 210,155
Capital allocation-based income 837,705 994,578
Total revenues 1,110,710 1,204,733
Expenses
Compensation and benefits:
Cash-based compensation and benefits 116,359 127,981
Equity-based compensation 185,911 -
Performance allocation compensation 523,138 -
Total compensation and benefits 825,408 127,981
General, administrative and other 102,264 53,130
Depreciation and amortization 8,699 1,364
Interest expense 4,638 3,921
Expenses of consolidated TPG Funds and Public SPACs:
Interest expense - 192
Other 1,523 8,058
Total expenses 942,532 194,646
Investment income
Income from investments:
Net gains from investment activities 6,643 72,404
Interest, dividends and other 204 979
Investment income of consolidated TPG Funds and Public SPACs:
Net losses from investment activities
- (7,616) Unrealized gains on derivative liabilities of Public SPACs 2,657 87,600 Interest, dividends and other 126 988 Total investment income 9,630 154,355 Income before income taxes 177,808 1,164,442 Income tax expense 15,004 3,128 Net income 162,804 1,161,314
Net (loss) income attributable to redeemable equity in Public
SPACs prior to IPO
(517) 63,558
Net loss attributable to non-controlling interests in
consolidated TPG Funds prior to IPO
- (5,736)
Net income attributable to other non-controlling interests
prior to IPO
966 589,311 Net income attributable to TPG Group Holdings prior to IPO 5,256 514,181 Net income attributable to redeemable equity in Public SPACs 1,823 -
Net loss attributable to non-controlling interests in
Operating Group
(4,912) - Net income attributable to other non-controlling interests 118,904 -
Net income attributable to
-
Net income per share data:
Net income available to Class A common stock per share
Basic
$ 0.52 $ -
Diluted $ 0.11 $ -
Weighted-average shares of Class A common stock outstanding
Basic 79,240,057 -
Diluted 308,892,698 -
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Three Months Ended
Revenues
Revenues consisted of the following for the Three Months EndedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Change % ($ in thousands) Management fees$ 204,808 $ 153,929 $ 50,879 33 % Transaction, monitoring and other fees, net 24,882 25,842 (960) (4) % Expense reimbursements and other 43,315 30,384 12,931 43 % Total fees and other 273,005 210,155 62,850 30 % Performance allocations 799,958 946,134 (146,176) (15) % Capital interests 37,747 48,444 (10,697) (22) % Total capital allocation-based income 837,705 994,578 (156,873) (16) % Total revenues$ 1,110,710 $ 1,204,733 $ (94,023) (8) % Fees and other revenues increased by$62.9 million , or 30% during the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . The change is comprised of an increase in management fees of$50.9 million and increases in expense reimbursements and other of$12.9 million , partially offset by decreases in transaction, monitoring and other fees, net of$1.0 million . Management Fees. The increase in management fees was primarily driven by additional management fees from Rise Climate of$28.2 million , which held its initial close in the third quarter of 2021, Growth V of$7.7 million andTREP IV of$8.7 million , which had its initial close inJanuary 2022 .NewQuest , which was acquired onJuly 1, 2021 , also contributed an additional$6.6 million of management fees during the three months endedMarch 31, 2022 . The increases were primarily offset by a decline in management fees of$6.1 million earned from TPG VII driven by lower assets under management during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . Certain management fees in the three months endedMarch 31, 2022 were considered catch-up fees as a result of additional capital commitments from limited partners to Rise Climate in the amount of$2.8 million . Rise Climate had its initial closing in 2021. Transaction, Monitoring and Other Fees, Net. The decrease in transaction, monitoring and other fees, net during the three months endedMarch 31, 2022 was primarily driven by decreased transaction fees of$3.7 million earned from portfolio companies in our Real Estate and Capital platforms partially offset by an increase of$2.8 million in transaction fees, net related to broker-dealer activity within the Market Solutions platform. Expense Reimbursements and Other. The increase in expense reimbursements and other was largely driven by additional reimbursements from TPG funds of$5.3 million and the administrative service fees from RemainCo totaling$5.1 million during the three months endedMarch 31, 2022 . Performance Allocations. Performance allocations decreased by$146.2 million to$800.0 million for the three months endedMarch 31, 2022 , compared to$946.1 million for the three months endedMarch 31, 2021 . The decrease primarily resulted from lower realized and unrealized portfolio appreciation of 7% during the three months endedMarch 31, 2022 compared to 11% realized and unrealized appreciation of the portfolio during the three months endedMarch 31, 2021 . Realized performance allocations for the three months endedMarch 31, 2022 and 2021 totaled$585.7 million and$133.6 million , respectively. Unrealized performance allocations for the three months endedMarch 31, 2022 and 2021 totaled$214.3 million and$812.5 million , respectively. The table below highlights performance allocations for the three months endedMarch 31, 2022 and 2021, and separates the entities listed into two categories to reflect the Reorganization: (i) TPG general partner entities from which the TPG Operating Group Common Unit holders are expected to receive a 20% performance allocation and (ii) TPG general partner entities from which the TPG Operating Group Common Unit holders are not expected to receive any performance allocation. 54
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Three Months Ended March 31,
2022 2021 Change %
($ in thousands)
TPG Operating Group Shared:
TPG VII$ 411,179 $ 343,516 $ 67,663 20 % TPG VIII 187,524 62,629 124,895 199 % Asia VI (1) 22,953 195,728 (172,775) (88) % Asia VII 30,601 50,535 (19,934) (39) % THP 21,020 27,101 (6,081) (22) % TES 8,961 - 8,961 NM AAF 21,298 - 21,298 NM Platform: Capital 703,536 679,509 24,027 4 % Growth III (1) (27,903) (29,915) 2,012 7 % Growth IV 13,933 110,696 (96,763) (87) % Growth V 11,391 7,572 3,819 50 % TTAD I 7,240 15,922 (8,682) (55) % TDM 10,571 17,107 (6,536) (38) % Platform: Growth 15,232 121,382 (106,150) (87) % Rise I (2,628) (9,939) 7,311 74 % Rise II (522) - (522) NM Platform: Impact (3,150) (9,939) 6,789 68 % TREP III 46,067 10,604 35,463 334 % TAC+ 2,555 - 2,555 NM Platform: Real Estate 48,622 10,604 38,018 359 % TPEP 6,501 673 5,828 866 % NewQuest 7,868 - 7,868 NM Strategic Capital (2,024) - (2,024) NM Platform: Market Solutions 12,345 673
11,672 1734 %
Total TPG Operating Group Shared:
TPG Operating Group Excluded:
TPG IV (5) 2,716 (2,721) (100) %
TPG VI (8,969) (11,098) 2,129 19 %
Asia IV (28) 1,003 (1,031) (103) %
Asia V 12,034 19,986 (7,952) (40) %
MMI 588 259 329 127 %
TPG TFP (2) (3) 1 33 %
Platform: Capital 3,618 12,863 (9,245) (72) %
Growth II 3,077 45,235 (42,158) (93) %
Growth II Gator 3,966 60,341 (56,375) (93) %
Biotech II - (342) 342 100 %
Biotech III 5,639 6,624 (985) (15) %
Biotech IV (4) - (4) NM
Biotech V - (45) 45 100 %
Platform: Growth 12,678 111,813 (99,135) (89) %
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Three Months Ended March 31,
2022 2021 Change %
($ in thousands)
TREP II 1,172 21,943 (20,771) (95) %
DASA - Real Estate 1,018 (2,660) 3,678 138 %
Platform: Real Estate 2,190 19,283 (17,093) (89) %
TSI 164 (54) 218 404 %
Evercare 4,723 - 4,723 NM
Platform: Impact 4,887 (54) 4,941 9150 %
Total TPG Operating Group Excluded (2)
Total Performance Allocations$ 799,958 $ 946,134 $ (146,176) (15) % ___________ (1)After the Reorganization, we retained an economic interest in performance allocations from the Growth III and Asia VI general partner entities, which entitles us to a performance allocation equal to 10%; however, we intend to allocate the full amount as performance allocation compensation expense. As such, net income available to controlling interest holders is zero for each of these funds following the Reorganization. (2)The TPG Operating Group Excluded entities' performance allocations is not a component of net income attributable to TPG following the Reorganization; however, the TPG general partner entities continue to be consolidated by us. We transferred the rights to the performance allocations theTPG Operating Group historically would have received to RemainCo onDecember 31, 2021 . As such, net income available to controlling interest holders will be zero for each of the TPG Operating Group Excluded entities beginningJanuary 1, 2022 . See "Unaudited Pro Forma Condensed Consolidated Financial Information and Other Data" which reflects the projected impact of the Reorganization. The decrease in total performance allocations for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily driven by lower realized and unrealized appreciation in Asia VI, Growth IV and Growth II Gator, partially offset by higher realized and unrealized appreciation in TPG VII and TPG VII. As ofMarch 31, 2022 , accrued performance allocations for Common Unit holdersTPG Operating Group shared TPG general partner entities totaled$4.8 billion . As ofMarch 31, 2022 , accrued performance allocations for Common Unit holdersTPG Operating Group excluded TPG general partner entities totaled$0.7 billion . Capital Interest. Capital interest income decreased by$10.7 million to$37.7 million for the three months endedMarch 31, 2022 compared to$48.4 million for the three months endedMarch 31, 2021 . The decrease was primarily driven by income from our investments in the Capital and Growth platforms.
Expenses
Cash-Based Compensation and Benefits. Cash-based compensation and benefits expense decreased by$11.6 million , or 9%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The decrease was primarily driven by a$27.6 million decrease in accrued bonuses for senior professionals for the three months endedMarch 31, 2022 which, following our Reorganization and IPO, are recorded in performance allocation compensation expense. The decrease was partially offset by increases in salaries and benefits and accrued bonuses of$8.6 million and$6.4 million , respectively, driven by an increase in headcount for the three months endedMarch 31, 2022 . Equity-based Compensation. Equity-based compensation expense increased by$185.9 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily driven by the Reorganization and IPO, which resulted in$169.9 million of expense associated with unvested units granted to certain of our employees atTPG Partner Holdings , RemainCo, and theTPG Operating Group as well as$15.1 million of expense associated with RSUs granted to TPG employees and certain of our executives upon completion of our IPO inJanuary 2022 . We had no such expense during the three months endedMarch 31, 2021 . Performance Allocation Compensation. Performance allocation compensation increased by$523.1 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase is attributable to the recognition of partnership distributions to our partners and professionals as compensation expense following our IPO. We had no such expense during the three months endedMarch 31, 2021 as we were a private partnership. 56
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General, Administrative and Other. General and administrative expenses increased by$49.1 million , or 92%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily driven by a$30.4 million increase in office overhead and other, inclusive of a$20.6 insurance policy purchased in connection with the IPO. This increase was also driven by a$6.8 million increase in professional fees and an increase in reimbursable expenses incurred on behalf of TPG funds of$5.3 million . Depreciation and Amortization. Depreciation and amortization increased by$7.3 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase is primarily due to the amortization of intangible assets of$7.1 million during the three months endedMarch 31, 2022 , related to the acquisition ofNewQuest onJuly 1, 2021 . Interest Expense. Interest expense increased by$0.7 million , or 18%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . This increase was primarily driven by interest expense of$0.6 million on the Senior Unsecured Term Loan. Expenses of consolidated TPG Funds and Public SPACs. Expenses of consolidated TPG Funds and Public SPACs decreased by$6.7 million , or 82%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The decrease was primarily due to a reduction of$4.5 million of non-recurring professional services expenses fromTPG Pace Tech Opportunities Corp. , which completed its business combination inSeptember 2021 , and a decrease of$3.3 million of other expenses forTPG Pace Beneficial Corp. Net Gains from Investment Activities. Net gains from investment activities decreased by$65.8 million , to a gain of$6.6 million for three months endedMarch 31, 2022 from a gain of$72.4 million , for the three months endedMarch 31, 2021 . Following the Reorganization, we no longer recognize net gains or losses from certain strategic investments that were transferred to RemainCo onDecember 31, 2021 . The gain recognized during the three months endedMarch 31, 2022 is primarily attributable to$7.9 million of income earned from our equity method investment in NRDY. Interest, Dividends and Other. Interest, dividends and other decreased by$0.8 million , or 79% for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The decrease was driven by lower dividends received from TRTX during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . Net Losses from Investment Activities of consolidated TPG Funds and Public SPACs. Net losses from investment activities of consolidated TPG Funds and Public SPACs had no activity during the three months endedMarch 31, 2022 compared to$7.6 million for the three months endedMarch 31, 2021 . Following certain Reorganization activities, the Company no longer consolidates TPEP as the Company does not have a controlling financial interest. Unrealized Gains on Derivative Liabilities of Public SPACs. The$2.7 million and$87.6 million of unrealized gain on derivative instruments recognized during the three months endedMarch 31, 2022 and 2021, respectively, were attributable to warrants issued by the consolidated Public SPAC entities and forward purchase agreements held by third parties. The warrants held by public investors and forward purchase agreements are treated as liability instruments rather than equity instruments and subject to mark-to-market adjustments each period. Upon the consummation of acquisitions of target companies by our Public SPACs or the wind down of a Public SPAC, the associated liability will no longer be included in our condensed consolidated financial statements. Interest, Dividends and Other of consolidated TPG Funds and Public SPACs. Interest, dividends and other of consolidated TPG Funds and Public SPACs decreased by$0.9 million , or 87%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2022 . This decrease was primarily driven by no longer recognizing dividends from our previously consolidated hedge fund, TPEP, which was deconsolidated following certain Reorganization activities onDecember 31, 2021 as the Company no longer has a controlling financial interest. Income Tax Expense. Income tax expense increased by$11.9 million , or 380%, for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . This increase was primarily related to the incorporation ofTPG Inc. as part of the Reorganization and IPO during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . 57
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Unaudited Condensed Consolidated Statements of Financial Condition (GAAP basis)
March 31, 2022 December 31, 2021
($ in thousands)
Assets
Cash and cash equivalents $ 1,454,619 $ 972,729
Investments 6,347,314 6,109,046
Due from affiliates 207,819 185,321
Other assets 643,787 670,452
Assets of consolidated TPG Funds and Public SPACs 1,010,788 1,024,465
Total assets $ 9,664,327
Liabilities, Redeemable Equity and Equity Debt obligations$ 443,972 $ 444,444 Due to affiliates 244,119 826,999 Accrued performance allocation compensation 4,074,727 - Other liabilities 428,125 372,597 Liabilities of consolidated TPG Funds and Public SPACs 48,043 56,532 Total liabilities$ 5,238,986
Redeemable equity from consolidated Public SPACs$ 1,000,056
Equity
Class A common stock
authorized (79,070,565 and 0 shares issued and outstanding
as of
79 $ -
Class B common stock
authorized (229,652,641 and 0 shares issued and outstanding
as of
230 -
Preferred stock,
authorized (0 issued and outstanding as of
and
- - Additional paid-in-capital 479,854 - Retained earnings 41,257 - Partners' capital controlling interests - 1,606,593 Other non-controlling interests 2,903,865 4,654,821 Total equity 3,425,285 6,261,414 Total liabilities, redeemable equity and equity$ 9,664,327
Cash and cash equivalents increased
of
Investments increased$238.3 million as ofMarch 31, 2022 primarily due to an increase in unrealized accrued performance fees of$214.6 million . For the three months endedMarch 31, 2022 , our investments have generated realized and unrealized portfolio appreciation of 7%. Accrued performance allocation compensation increased$4,074.7 million as ofMarch 31, 2022 . The increase is primarily due to recognition of performance allocation compensation for the three months endedMarch 31, 2022 following our IPO. Total equity decreased$2,836.1 million as ofMarch 31, 2022 primarily due to the Reorganization and our IPO inJanuary 2022 , which transferred certain investments to RemainCo, reclassified certain performance allocations historically reflected as non-controlling interests to performance allocation compensation liabilities, and resulted in the issuance of 79 million shares of Class A common stock and net proceeds of$793.4 million . 58
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
Defined terms included below shall have the same meaning as terms defined and
included elsewhere in this Form 10-Q. The following unaudited pro forma condensed consolidated statement of operations for the three months endedMarch 31, 2021 presents our consolidated results of operations and gives pro forma effect to the Reorganization, the consummation of the initial public offering (the "IPO") and other impacts of the IPO (see transactions described under Note 1, "Organization" in the notes to the financial statements), as if they had occurredJanuary 1, 2020 . The owners of theTPG Operating Group completed a series of actions during the year endedDecember 31, 2021 and onJanuary 12, 2022 as part of the Reorganization, in conjunction with the IPO that was completed onJanuary 18, 2022 . An unaudited pro forma condensed combined balance sheet is not presented because the Reorganization, IPO and the related transactions are fully reflected in the Company's unaudited condensed consolidated statement of financial condition for the three months endedMarch 31, 2022 included elsewhere in this Quarterly Report on Form 10-Q. The following unaudited pro forma condensed consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 "Amendments to Financial Disclosure about Acquired and Disposed Businesses." The pro forma adjustments are based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the effect of the Reorganization, IPO and related transactions on the historical financial information of TPG. The Company's historic operations consist of multiple consolidated entities formed to provide asset management services under a single controlling entity,TPG Group Holdings . The historical period presented in the unaudited pro forma financial information reflects the operating results ofTPG Group Holdings . Immediately following the Reorganization, theTPG Operating Group and its subsidiaries are controlled by the same parties and as such, we account for the Reorganization as a transfer of interests under common control. The unaudited pro forma condensed consolidated statement of operations may not be indicative of the results of operations that would have occurred had the Reorganization or the IPO and related transactions, as applicable, taken place on the dates indicated, or that may be expected to occur in the future. The adjustments are described in the notes to the unaudited pro forma condensed consolidated statement of operations. The unaudited pro forma condensed consolidated financial information and other data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
The pro forma adjustments in the “Reorganization and Other Transaction
Adjustments” column principally give effect to certain of the Reorganization and
other transactions including:
•The TPG Operating Group transferred to RemainCo certain performance allocation economic entitlements from certain of the TPG general partner entities that are defined as Excluded Assets. We continue to consolidate these TPG general partner entities because we maintain control and have an implicit variable interest. The impact of this adjustment is a reallocation from controlling interests to non-controlling interests.
•The TPG Operating Group transferred to RemainCo the economic entitlements
associated with certain other investments that are part of the Excluded Assets.
•The transfer of certain investments in TPG Funds (as defined herein) to
RemainCo resulted in the deconsolidation of those TPG Funds that have been
consolidated in our historical combined financial statements with the exception
of our Public SPACs.
•Adjustments to sharing percentages of future profits between controlling and non-controlling interests of theTPG Operating Group related to the Specified Company Assets.
The pro forma adjustments in the “Offering Transaction Adjustments” column
principally give effect to the consummation of the IPO, including the corporate
conversion.
We have not made any pro forma adjustments relating to any incremental
reporting, compliance or investor relations costs that we may incur as a public
company, as estimates of such expenses are not determinable.
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The unaudited pro forma condensed consolidated financial information should be
read together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and related
notes included elsewhere in this Quarterly Report on Form 10-Q.
The unaudited pro forma condensed consolidated financial information is included
for informational purposes only and does not purport to reflect the results of
operations of TPG that would have occurred had the transactions described above
transpired on the dates indicated or had we operated as a public entity during
the period presented or for any future period or date. The unaudited pro forma
condensed consolidated financial information should not be relied upon as being
indicative of our future or actual results of operations had the Reorganization
and IPO transactions and the other transactions described above occurred on the
dates assumed. The unaudited pro forma condensed consolidated financial
information also does not project our results of operations for any future
period or date.
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Unaudited Pro Forma Condensed Consolidated
Statement of Operations and Other Data
For the Three Months Ended March 31, 2021
TPG Group Reorganization and Offering
Holdings Other Transaction Transaction TPG Inc. Pro
Historical Adjustments Adjustments Forma
($ in thousands, except share and per
share amounts)
Revenues
Fees and other $ 210,155 $ 5,730 (3) $ - $ 215,885
Capital allocation-based income 994,578 660 (1) - 995,238
Total revenues 1,204,733 6,390 - 1,211,123
Expenses
Compensation and benefits:
Cash-based compensation and benefits 127,981 (31,769) (5) - 96,212
Equity-based compensation - - 107,545 (6) 125,641
18,096 (7)
Performance allocation compensation - 601,595 (5) - 601,595
Total compensation and benefits 127,981 569,826 125,641 823,448
General, administrative and other 53,130 - - 53,130
Depreciation and amortization 1,364 - - 1,364
Interest expense 3,921 998 (4) - 4,919
Expenses of consolidated TPG Funds and
Public SPACs:
Interest expense 192 (192) (1) - -
Other 8,058 129 (1) - 8,187
Total expenses 194,646 570,761 125,641 891,048
Investment income
Income from investments:
Net gains from investment activities 72,404 (52,334) (1) - 20,070
Interest, dividends and other 979 - - 979
Investment income of consolidated TPG
Funds and Public SPACs:
Net losses from investment activities (7,616) 7,616 (1) - -
Unrealized gains on derivative
liabilities of Public SPACs 87,600 - - 87,600
Interest, dividends and other 988 (977) (1) - 11
Total investment income 154,355 (45,695) - 108,660
Income before income taxes 1,164,442 (610,066) (125,641) 428,735
Income tax expense 3,128 - 14,040 (8) 17,168
Net income 1,161,314 (610,066) (139,681) 411,567
Less:
Net income (loss) attributable to
redeemable equity in Public SPACs 63,558 - 63,558
Net (loss) income attributable to
non-controlling interests in consolidated
TPG Funds (5,736) 5,736 (1) - -
Net income (loss) attributable to other
non-controlling interests 589,311 50,440 (1) 25,547 (9) 301,005
231,588 (2)
897 (3)
(156) (4)
(596,622) (5)
Net income (loss) attributable to TPG
Inc. $ 514,181 $ (301,949) $ (165,228) (10) $ 47,004
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Reorganization and
TPG Group Holdings Other Transaction Offering Transaction
Historical Adjustments Adjustments TPG Inc. Pro Forma
Pro forma net income per share data: (11)
Weighted-average shares of Class A common
stock outstanding
Basic 79,335,859
Diluted 308,988,500
Net income available to Class A common
stock per share
Basic $ 0.59
Diluted $ 0.31
Notes to the Unaudited Pro Forma Condensed Consolidated Statement of Operations
and Other Data
1)This adjustment relates to Excluded Assets and is made up of the following
components:
Impact of changes in economics of certain TPG general partner interests in TPG
Funds:
The TPG Operating Group transferred to RemainCo certain performance allocation economic entitlements from certain of the TPG general partner entities that are defined as Excluded Assets, as well as certain cash and amounts due to affiliates of theTPG Operating Group that relate to these TPG general partner entities' economic entitlements. We continue to consolidate these TPG general partner entities because we maintain control and have an implicit variable interest. This adjustment results in a transfer of$50.4 million from net income attributable to controlling interests to non-controlling interests for the three months endedMarch 31, 2021 , and is reflected in the table below.
Transfer of other investments:
The TPG Operating Group also transferred the economic entitlements associated with certain other investments, including our investment in our former affiliate. For the three months endedMarch 31, 2021 , the impact results in an increase of total revenues of$0.7 million and investment income of$52.3 million with a reduction to net income attributable to controlling interests of$46.6 million and non-controlling interest of$8.1 million . This does not include certain of our strategic equity method investments, includingHarlem Capital Partners ,VamosVentures and LandSpire Group , as the economics of these investments continue to be part of theTPG Operating Group after the Reorganization.
Deconsolidation of consolidated TPG Funds:
We transferred theTPG Operating Group's co-investment interests in certain TPG Funds to RemainCo. These TPG Funds were historically consolidated and as a result of the transfer to RemainCo, are deconsolidated because we no longer hold a more than insignificant economic interest. For the three months endedMarch 31, 2021 , this results in a reduction of$7.6 million of net losses from investment activities, partially offset by a decrease in interest, dividends and other of$1.0 million and associated impacts to income attributable to controlling, non-controlling interest in consolidated TPG Funds, and non-controlling interests, as shown in the table below. 62
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Impact Summary:
The amounts for these adjustments were derived based on historical financial
results. The following table summarizes the pro forma impact for the Excluded
Assets and deconsolidated TPG Funds:
Three
Months Ended
Exclusion of Exclusion of ($ in thousands) legacy entities consolidated funds Total Revenues Fees and other $ - $ - $ - Capital allocation-based income (loss) 660 - 660 Total revenues 660 - 660 Expenses Compensation and benefits - - - General, administrative and other - - - Depreciation and amortization - - - Interest expense - - - Expenses of consolidated TPG Funds and Public SPACs: - Interest expense - (192) (192) Other - 129 129 Total expenses - (63) (63) Investment income Income from investments: Net gains (losses) from investment activities (52,334) - (52,334) Interest, dividends and other - - -
Investment income of consolidated TPG Funds and Public
SPACs:
Net losses from investment activities
- 7,616 7,616 Unrealized gains (losses) on derivative liabilities Public SPACs - - - Interest, dividends and other - (977) (977) Total investment income (52,334) 6,639 (45,695) Income before income taxes (51,674) 6,702 (44,972) Income tax expense - - - Net income (loss) (51,674) 6,702 (44,972) Less:
Net loss attributable to redeemable equity in Public
SPACs
- - - Net income (loss) attributable to non-controlling interests in consolidated TPG Funds - 5,736 5,736 Net income (loss) attributable to other non-controlling interests 50,289 151 50,440 Net income (loss) attributable to controlling interests$ (101,963) $ 815$ (101,148) 2)This adjustment relates to the changes in economic entitlements that the holders of TPG Operating Group Common Units retain, and the associated reallocation of interests after the Reorganization. Specified Company Assets include certain TPG general partner entities to which theTPG Operating Group retained an economic entitlement and that are consolidated both before and after the Reorganization. As part of the Reorganization, the sharing percentage of the associated performance allocation income was reallocated between controlling and non-controlling interests. Subject to certain exceptions, RemainCo is entitled to between 10% and 15% of these Specified Company Assets' related performance allocations, which we treat as non-controlling interests, and to allocate generally between 65% and 70% indirectly to our partners and professionals through performance allocation vehicles and Promote Units, with the remaining 20% available for distribution to the TPG Operating Group Common Unit holders. RemainCo's entitlement to performance allocations associated with future funds will step down over time. See "Item 13.--Certain Relationships and Related Transactions, and Director Independence-RemainCo Performance Earnings Agreement" in our Annual Report for the year endedDecember 31, 2021 . In conjunction with allocating between 65% and 70% of performance allocations associated with the Specified Company Assets to our partners and 63
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professionals, we have reduced the amount of cash-based bonuses historically
paid to these individuals as further described in Note 5 below.
The primary impact of this is a reallocation from income attributable to
controlling interests to income attributable to non-controlling interests.
Specifically, this adjustment reflects reclassifications of
the three months ended
controlling interests to net income attributable to other non-controlling
interests.
3)This amount reflects an administrative services fee that we receive for
managing the Excluded Assets transferred to RemainCo that are not part of the
4)This adjustment reflects incremental interest expense related to additional financing theTPG Operating Group used to declare a distribution of$200.0 million to our controlling and non-controlling interest holders prior to the Reorganization and the IPO. The distribution was made with$200.0 million of proceeds from the senior unsecured term loan issuance. The Senior Unsecured Term Loan carries an interest rate of LIBOR plus 1.00% and matures inDecember 2024 . The impact of the adjustment is an increase to interest expense of$1.0 million with a corresponding impact to net income attributable to controlling interests and non-controlling interest holders for the three months endedMarch 31, 2021 . 5)Reflects the reclassification of performance allocation amounts owed to senior professionals from other non-controlling interests to performance allocation compensation. Following the IPO, we account for partnership distributions to our partners and professionals as performance allocation compensation expense. As described in Note 2 above, we have adjusted our performance allocation sharing percentage and in conjunction with allocating between 65% and 70% of performance allocations associated with the Specified Company Assets to certain of our people, we are reducing the amounts of cash-based bonuses and increasing the performance allocation compensation expense. For the three months endedMarch 31, 2021 , the impact to the unaudited pro forma condensed consolidated statement of operations included additional performance allocation compensation of$569.8 million with a corresponding reduction to net income attributable to non-controlling interest and a reduction of$31.8 million from compensation and benefits with a corresponding increase to net income attributable to controlling and non-controlling interest of$26.8 million and$5.0 million , respectively. Amounts have been derived based upon our historical results. 6)Our current partners hold restricted indirect interests in Common Units throughTPG Partner Holdings and indirect economic interests in RemainCo as a result of the Reorganization and the IPO. The number ofTPG Partner Holdings units outstanding at the time of the IPO total 245,397,431, of which 73,849,986 are unvested. The number of units outstanding related to our existing partners' indirect economic interests in RemainCo at the time of the IPO total 198,040,459, of which 26,922,374 are unvested. In conjunction with the Reorganization,TPG Partner Holdings distributed its interest in RemainCo and the underlying assets as part of a common control transaction to its existing owners, which are our current and former partners. No changes were made to the terms of the unvested units.TPG Partner Holdings and RemainCo are both presented as non-controlling interest holders within our consolidated financial statements. We account for theTPG Partner Holdings units and indirect economic interests in RemainCo as compensation expense in accordance with Accounting Standards Codification Topic 718 Compensation - Stock Compensation. The unvestedTPG Partner Holdings units and unvested indirect economic interests in RemainCo will be charged to compensation and benefits as they vest over the remaining requisite service period on a straight-line basis. The vesting periods range from immediate vesting up to six years. Expense amounts forTPG Partner Holdings units have been derived utilizing a per unit value of$29.50 (the IPO price) and adjusting for factors unique to those units, multiplied by the number of unvested units, and will be expensed over the remaining requisite service period. Expense amounts for the unvested indirect interests in RemainCo have been derived based on the fair value of RemainCo, utilizing a discounted cash flow valuation approach, multiplied by the number of unvested interests, and will be expensed over the remaining requisite service period. These adjustments resulted in expenses for the three months endedMarch 31, 2021 totaling$107.5 million . There is no additional dilution to our stockholders, contractually these units are only related to our non-controlling interest holders, and there is no impact to the allocation of income and distributions to our stockholders. Therefore, we have allocated these expense amounts to 64
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our non-controlling interest holders. See "Item 13.--Certain Relationships and Related Transactions, and Director Independence-RemainCo Performance Earnings Agreement" and "Item 13.--Certain Relationships and Related Transactions, and Director Independence-The TPG Operating Group Limited Partnership Agreements" in our Annual Report for the year endedDecember 31, 2021 for additional details on RemainCo. 7)At IPO, we granted to certain of our people RSUs with respect to approximately 9,280,000 shares of Class A common stock (although we are authorized to grant up to 4% of our shares of Class A common stock, measured on a fully-diluted, as converted basis, which would be 12,277,912 shares of Class A common stock). Of these RSUs, we granted 8,229,960 shares of Class A common stock immediately following the completion of the IPO. These RSUs generally vest over four years in three equal installments on the second through fourth anniversaries of the grant date (with some grants vesting on shorter alternate vesting schedules), subject to the recipient's continued provision of services to the Company or its affiliates through the vesting date. In addition, under TPG's Omnibus Equity Incentive Plan, which was approved by our board of directors onDecember 7, 2021 and our shareholders onDecember 20, 2021 (the "Omnibus Plan"), we granted immediately following the IPO long-term performance incentive awards to certain of our key executives in the form of RSUs (certain of which have performance-vesting criteria) with respect to a total of 2,203,390 shares of Class A common stock. Furthermore, we have currently named two of our three independent directors, and granted RSUs to the two named independent directors with respect to 20,340 shares of Class A common stock, immediately following the IPO. This adjustment reflects compensation expense associated with the grants described above had they occurred atJanuary 1, 2020 . The grants of such RSUs results in recognition of compensation expense for the three months endedMarch 31, 2021 in the amount of$18.1 million . These expenses are non-cash in nature and allocated to the Common Unit holders. Not included in the above Offering Transaction Adjustment are RSUs (which are part of the RSUs with respect to approximately 9,280,000 shares of Class A common stock referred to above) with respect to 1,050,040 shares that were granted in 2022 after the IPO, including those to people hired for new roles created in connection with the IPO. In addition, we plan to grant RSUs of 10,170 shares to our third independent director when named. These additional grants will have similar vesting terms and conditions as the RSUs mentioned above. 8)The TPG Operating Group partnerships continue to be treated as partnerships forU.S. federal and state income tax purposes. Following the IPO, we are subject toU.S. federal income taxes, in addition to state, local and foreign income taxes with respect to our allocable share of any taxable income generated by theTPG Operating Group that flows through to its interest holders, including us. As a result, the unaudited pro forma condensed consolidated statement of operations reflects adjustments to our income tax expense to reflect a blended statutory tax rate of 23% at TPG, which was calculated assuming theU.S. federal rates currently in effect and the statutory rates applicable to each state, local and foreign jurisdiction where we estimate our income will be apportioned. The following table summarizes the impact for the period presented: Three Months Ended March 31, 2021 Reorganization and Other ($ in thousands) Transaction Adjustments Income before provision for income taxes $ 554,377
Less:
Provision for local and foreign income taxes 3,128 Net income attributable to redeemable interest in Public SPACs 63,558 Net income attributable to other non-controlling interests 275,458
Income before provision for income taxes attributable to
Operating Group
212,233
TPG Inc. blended statutory tax rate 0.00 %
Provision for TPG Inc. statutory income tax -
Provision for local and foreign income taxes 3,128
Less: Prior recorded provision attributable to TPG 3,128
Adjustment to provision for income taxes $ -
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Three Months Ended March 31,
2021
Offering Transaction
($ in thousands) Adjustment
Income before provision for income taxes $ 428,736
Less:
Provision for local and foreign income taxes 3,128 Net income attributable to redeemable interest in Public SPACs 63,558 Net income attributable to other non-controlling interests 301,005
Income before provision for income taxes attributable to
61,045 TPG Inc. blended statutory tax rate 23 % Provision for income taxes $ 14,040 9)Prior to the IPO, TPG held Common Units representing 78.1% of the Common Units and 100% of the interests in certain intermediate holding companies. In our capacity as the sole indirect owner of the entities serving as the general partner of theTPG Operating Group partnerships, we indirectly control all of theTPG Operating Group's business and affairs. As a result, we consolidate the financial results of theTPG Operating Group and its consolidated subsidiaries and report non-controlling interests related to the interests held by the other partners of theTPG Operating Group and its consolidated subsidiaries in our consolidated statements of operations. Following the IPO, TPG owns 25.6% of the Common Units, and the other partners of theTPG Operating Group own the remaining 74.4%, excluding the equity-based compensation expense related to our partners' unvestedTPG Partner Holdings units and indirect economic interests in RemainCo, which has been allocated only to non-controlling interest holders. Net income attributable to non-controlling interests represent 74.4% of the consolidated income before taxes of theTPG Operating Group . Promote Units are not included in this calculation of ownership interest.
The computation of the pro forma income attributable to non-controlling
interests in the
Three Months Ended March 31,
2021
Reorganization and Other
($ in thousands) Transaction Adjustments
Income before provision for income taxes $ 554,377
Less:
Provision for local and foreign income taxes 3,128 Net income attributable to redeemable interest in Public SPACs 63,558 Allocable Income 487,691
Less:
TPG Inc.'s economic interest in theTPG Operating Group (a) 212,233
Net income attributable to non-controlling interest in the
Operating Group
$ 275,458 ___________ (a)The amount represents the net income attributable to non-controlling interest holders in theTPG Operating Group adjusted for the allocation of equity-based compensation expenses related toTPG Partner Holdings units and indirect economic interests in RemainCo held by our partners. Refer to note 6 herein. 66
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Three Months Ended March
31, 2021
Offering Transaction
($ in thousands) Adjustment
Income before provision for income taxes $ 428,736
Less:
Provision for local and foreign income taxes 17,168 Net income attributable to redeemable interest in Public SPACs 63,558 Allocable Income 348,010
Less:
TPG Inc.'s economic interest in theTPG Operating Group 47,005
Net income attributable to non-controlling interest in the
Operating Group
301,005
Less: As adjusted pro forma income attributable to non-controlling
interest in the
subsidiaries
275,458
Adjustment to income attributable to non-controlling interest in
the
$ 25,547 ___________ (a)The amount represents the net income attributable to non-controlling interest holders in theTPG Operating Group adjusted for the allocation of equity-based compensation expenses related toTPG Partner Holdings units and indirect economic interests in RemainCo held by our partners. Refer to note 6 herein. 10)Pro forma basic net income per share is computed by dividing net income available to Class A common stockholders by the weighted-average shares of Class A common stock outstanding during the period. The weighted-average shares outstanding excludes shares of Class A common stock reserved for issuance under the Omnibus Plan equal to 10% of our shares of Class A common stock, measured on a fully-diluted, as converted basis, including that we granted up to 4% to certain of our people in connection with the IPO, as well as certain long-term performance incentive awards and awards to our independent directors. We anticipate that a portion of the RSUs we granted to certain of our people in connection with the offering were granted immediately following the effectiveness of the IPO and a portion may be granted thereafter in 2022 in relation to the IPO, including to people hired for new roles created in connection with the IPO. Pro forma diluted net income per share is computed by adjusting the net income available to Class A common stockholders and the weighted-average shares of Class A common stock outstanding to give effect to potentially dilutive securities. The calculation of diluted earnings per share excludes Class B common stock, which may only be held by theTPG Operating Group owners other than us or our wholly-owned subsidiaries and their respective permitted transferees, and are therefore not included in the computation of pro forma basic or diluted net income per share.
11)The following table sets forth a reconciliation of the numerators and
denominators used to compute pro forma basic and diluted net income per share.
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