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Leaders of TPG Inc. said this year’s market declines have reshaped the investment landscape for high-growth companies, creating opportunities to invest at lower prices.

The private-equity firm, whose assets rose 26% to about $120 billion at the end of March from a year earlier, has been mainly a seller over the past year, a trend that continued in the first quarter. TPG said it raised about $5.45 billion and invested $4.45 billion in the quarter.

But the continuing stock-market decline, which has hit technology companies and high-growth businesses especially hard, is opening up a chance to become a buyer, firm executives told analysts in an earnings call Tuesday.

There has been “a complete about-face" in negotiations with companies that need financing this year, said Jim Coulter, executive chairman and founding partner of the Fort Worth, Texas-based firm.

Last year, companies were often able to get financing at prices much higher than TPG was willing to pay, often from blank-check companies or momentum investors, he said. This year, with those buyers having left the market, more companies have to accept TPG’s terms.

“What we’re seeing here is a fundamental reset," Mr. Coulter said. “As net sellers last year, there’s an opportunity to be very disciplined net buyers this year."

TPG, which held an initial public offering early this year, reported a decline in first-quarter net income as revenue fell and expenses rose. It earned $41.3 million attributable to post-IPO shareholders for the quarter, down from $47 million in the same period a year ago, while revenue slipped to about $1.11 billion from $1.21 billion on a pro forma basis.

But after-tax distributable earnings more than tripled to $199 million, or 52 cents a share, from $64.9 million on a pro forma basis a year earlier. Analysts polled by FactSet were expecting 47 cents a share for the just-ended quarter.

TPG’s shares rose 4% Tuesday to close at $26.22. But that is down 11% from the firm’s Jan. 14 IPO price of $29.50 per share.

Publicly traded private-equity managers have reported lower net income this year after a record-setting 2021, when frothy markets allowed them to successfully harvest their investments. Blackstone Inc. reported that its first-quarter earnings were lower than a year ago, while both KKR & Co. and Apollo Global Management Inc. suffered first-quarter net losses.

These private-equity managers have diversified away from buyout funds into areas like real estate, insurance and private credit, in part as a strategy to soften the blow from declines in public stock and bond markets, which tend to hurt the value of private-equity holdings. TPG is predominantly a private-equity manager, including growth and social-impact investing, along with a real-estate portfolio valued at about $18 billion.

TPG’s investments held up even as the S&P 500 index declined about 5% in the first quarter. The firm’s total assets appreciated by about 2%, not counting exit deals signed during the quarter, Chief Executive Jon Winkelried said.

While high-growth stocks have fallen particularly sharply this year, TPG’s growth portfolio rose about 1.5% in the first quarter. Companies with rapid growth but low profitability have seen their valuations decline the most, Mr. Winkelried said.

For such companies, “the reset is very broad and very deep," he said. “We’re seeing that settle in across the entire market. The opportunity set continues to get more interesting in a lot of respects, particularly for our form of capital."

TPG’s investment pipeline “is growing at a time when there are fewer competitive sources of capital, such as IPOs and SPACs," Mr. Winkelried added.

He cited financial-technology company Acorns Grow Inc., in which TPG led an investment round last quarter, as an investment that the firm might not have made without the recent valuation declines.

In the first quarter, the firm closed its first climate-themed impact-investing fund at $7.3 billion. It expects to hold a first close for its next vehicle in the strategy around the middle of this year, and to soon hold a final close for its latest opportunistic real-estate fund at its $6.5 billion upper limit, executives said.

However, public-market declines have made fundraising more challenging, TPG executives said.

U.S. public pensions have been hit particularly hard, in part from the so-called denominator effect, which occurs when a decline in public markets forces an institution to correspondingly reduce its private-markets holdings to balance capital allocations. TPG executives said that they expect to raise relatively more money in the future from foreign investors and relatively less from U.S. pensions.

“The market is crowded with managers raising capital, some sooner than their clients expected, and certain segments of the market are temporarily over-allocated," Chief Financial Officer Jack Weingart said, echoing recent comments from leaders of other big private-equity firms. “Fundraising campaigns industrywide will likely take longer than usual to complete."

 

This story has been published from a wire agency feed without modifications to the text

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