TPG Inc. Q2 FY2025 Earnings Call

Good morning, and welcome to TPG's Second Quarter 2025 Earnings Conference Call. Please be advised that today's call is being recorded. Please visit TPG's Investor Relations website for the earnings materials. I will now hand the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin.

Great. Thanks, operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. In addition, our Executive Chairman and Co-Founder, Jim Coulter, and our President, Todd Sisitsky, are also here and will be available for the Q&A portion of this morning's call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements, except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the second quarter, we reported GAAP net income attributable to TPG Inc. of $15 million and after-tax distributable earnings of $268 million or $0.69 per share of Class A common stock. We declared a dividend of $0.59 per share of Class A common stock, which will be paid on September 2, 2025, to holders of record as of August 18, 2025. I'll now turn the call over to Jon.

Thanks, Gary. Good morning, everyone. Before we begin, we want to acknowledge the senseless act of violence that occurred at 345 Park Avenue last week. Our thoughts and prayers go out to those impacted by this tragedy, and we stand in solidarity with our friends at Blackstone, Rudin Management, the New York Police Department, the NFL, and KPMG during this difficult time. To the first responders who acted swiftly and courageously, thank you. Moving to earnings, TPG delivered outstanding results in the second quarter, reflecting the strength and durability of our franchise. Our after-tax distributable earnings for the quarter increased 30% compared to last year, driven by our strong operating metrics. On a year-over-year basis, our second quarter fundraising grew nearly 80% to $11.3 billion and deployment grew 36% to $10.4 billion, and realizations grew more than 20% to $6.5 billion. After quarter end, we completed our acquisition of Peppertree, and the integration process is well underway. We're excited to welcome our Peppertree colleagues to TPG and to introduce our clients to this compelling digital infrastructure strategy. This morning, I'll discuss our momentum across fundraising, deployment, and realizations before turning the call over to Jack to cover our financial results. On the capital formation front, we had the second highest fundraising quarter in our history and the strongest credit fundraising quarter ever. On our last call, I highlighted the strength of our credit fundraising pipeline and that we were at an inflection point in our client dialogues. In the second quarter, we converted that momentum into $11.3 billion of capital raised, of which $5.4 billion was from our credit platform. Importantly, our second quarter numbers do not include any commitments for our flagship buyout funds, TPG Capital IX, and Healthcare Partners III. We're seeing an acceleration of fundraising into the third quarter and are increasingly confident that we will raise significantly more capital in 2025 than last year. I'll share some updates across our campaigns. In private equity, during the quarter, we completed fundraising for TPG Growth VI, exceeding our $4 billion target to raise a total of $4.8 billion for the fund and affiliated vehicles. This represents a 35% increase over Growth V, which is consistent with our track record of driving fund over fund growth across our strategies. In addition to continued support from existing clients, we meaningfully expanded our investor base outside of North America, particularly in the Middle East, Asia, and Latin America. Additionally, we are seeing strong early support for our second GP solutions fund, which we expect to be significantly larger than its predecessor. As a reminder, TGS is our GP-led secondary strategy focused on North America and Europe, and it's experiencing significant demand as GPs look for creative ways to drive liquidity for their strongest performing assets. We recently launched the TGS II campaign and closed on $1.3 billion in the quarter. This early momentum is driven by the strong deployment and performance in our inaugural fund, which is now fully committed across 14 investments. In May, we also launched T-POP, our new perpetually offered private equity product on two of the largest warehouses in the U.S. The initial feedback has been very positive, and we raised approximately $430 million across our first two closes in June and July. The TPG brand is resonating in the channel, and we are establishing a strong following with more than 560 individual financial advisers participating in these closes. This is a great foundation to build upon as we scale T-POP and launch additional products over time. In Credit, the second quarter was a record fundraising quarter with $5.4 billion of total capital raised across our strategies. In Credit Solutions, we closed an additional $1.4 billion of capital for our third flagship fund, bringing the total raised to date to $4 billion. Our market leadership in the opportunistic credit space, further enhanced by our strong cross-firm collaboration, continues to resonate with clients, and our fundraising pipeline remains robust. In middle market direct lending, we held a first close of $1.4 billion for our sixth drawdown fund during the quarter. Due to Twin Brook's leadership position in the lower middle market and a continued steady pace of originations, we launched fundraising for our next vintage fund just seven months after the final close of its predecessor. Twin Brook's differentiated portfolio, disciplined underwriting, and stable returns continue to resonate with both existing and new clients, resulting in a very strong initial close. And in structured credit, we raised $1.4 billion across our ABC drawdown and Evergreen Funds as well as a number of SMAs. Demand for structured credit is high and continues to grow as clients are generally underweight and looking to diversify their exposure beyond corporate credit. Additionally, we continue to expand our product set into key areas such as private investment-grade asset-backed securities. In aggregate, we are seeing significant broad-based momentum in credit fundraising, and we expect 2025 to be a breakout year. I also want to highlight the meaningful progress we've made in the insurance channel. Insurance contributed nearly 30% of the credit capital we raised in the second quarter, primarily through our structured credit and credit solutions strategies. Our scaled and diversified credit platform has enabled us to deepen relationships with our existing insurance partners while also establishing new ones. As we continue to organically grow our insurance client base and commitments, we are also actively evaluating broader strategic partnerships and inorganic opportunities within the channel. While I'm very pleased with our capital formation during the second quarter, I'm even more enthusiastic as I look ahead. For TPG Capital X and Healthcare Partners III, we are in the midst of a rolling first close where we expect to receive total commitments of approximately $9 billion. This strong result during a challenging private equity fundraising environment is a testament to the trust we've built with our clients through our distinct investment approach and excellent performance. While clients remain cautious and highly selective amidst ongoing macro uncertainty and muted distributions, our market leadership and differentiated value proposition in private equity have driven strong absolute and relative fundraising results. Moving on to deployment. We had a robust quarter with more than $10 billion of capital invested, which increased 36% year-over-year. In TPG Capital, we announced the $2.2 billion take-private of AvidXchange, a leading provider of AP automation software and payment solutions in partnership with Corpay. This is another example of a creative win-win corporate partnership that offers significant downside protection. And after the quarter end, we closed the carve-out of Sabre Corporation's Hospitality Solutions business, a leading technology solutions provider to the hospitality industry. Given our focus on vertical market software in the travel and leisure space, we are excited to drive transformational growth in the newly separated business. In Rise Climate, we recently announced a number of investments across Europe and Asia, representing over $10 billion of total enterprise value. This includes SICIT Group, a pioneer in sustainable agriculture; Aurora Energy Research, a U.K.-based provider of data and analytics for the global energy markets; and Techem, a leading digital-first provider of submetering solutions. In credit, we deployed $4.3 billion of capital across our strategies in the second quarter. In structured credit, we continue to be a market leader in residential mortgage securitizations as one of the few managers who are vertically integrated in this space. We placed five issuances in the quarter across home equity, nonqualified mortgage, and agency-eligible collateral types to bring year-to-date securitizations to eight. Twin Brook generated $1.2 billion of gross originations in the second quarter. Add-ons made up nearly half of the activity in the quarter, demonstrating the power of Twin Brook's incumbency within its existing portfolio. And in Credit Solutions, we continue to see a growing pipeline of companies looking for solutions capital at scale. In July, we completed a $1 billion asset-backed term loan facility for Altice USA in partnership with Goldman Sachs. This is a first-of-its-kind transaction in infrastructure-backed financing secured by Altice's Bronx and Brooklyn network assets. We also recently anchored an innovative multibillion-dollar debt financing for xAI, which is one of the world's leading AI companies. We believe this represents one of the first large-scale credit solutions to be provided in the AI space, where we expect demand for creative financings to grow significantly given the immense funding requirements. Both of these financings are great examples of our ability to deliver customized, scaled solutions to address the complex capital needs of corporates. Similar to the DISH transaction last year, they reflect our culture of cross-firm collaboration. Our Credit Solutions, private equity, and real estate teams work together seamlessly to execute these highly bespoke solutions within our core thematic areas. In real estate, we continue to take a patient and disciplined approach to capitalize on the dislocation within the asset class. Over the last two years, we have acquired a number of high-quality assets that are typically unavailable from sellers facing liquidity pressure. These investments have performed well with strong operating fundamentals, driving LTM value creation for our TPG real estate of 14%. As we look ahead, we expect to see a growing pipeline of attractive investment opportunities. Shortly after quarter end, TREP completed the acquisition of two adjacent high-quality office towers located on a full block of Park Avenue South. This is a top submarket in New York City, where favorable supply-demand dynamics have led to a significant improvement in office fundamentals. As a result of strong fundraising, we ended the quarter with record dry powder of $63 billion, representing 43% of fee-earning AUM. Our investment pipelines remain very active, and we expect our deployment pace to accelerate in the back half of this year. Finally, we continue to successfully execute on important exits and liquidity events, driving $6.5 billion of realizations during the quarter across a number of our platforms. We realized nearly $2 billion of total proceeds from public market sales during the quarter. This included fully exiting from Viking Cruises, Tata Technologies, and ServiceTitan, and selling down our positions in Life Time Fitness and Sai Life Sciences. TPG Growth also completed the full company sales of Q-Centrix and Crunch Fitness. We've generated $2.3 billion of liquidity in TPG Growth year-to-date, including signed but not yet closed transactions, putting us on track to reach one of our highest years for realizations for this strategy. And this week, we announced our first exit from TPG Capital IX with the sale of Elite, which we carved out of Thomson Reuters two years ago. This investment marks a strong early outcome for the fund and is a great example of our ability to drive meaningful top-line growth through disciplined operational transformation. Looking across the firm, we continue to experience strong momentum in scaling our business and deepening and broadening our client relationships. In private equity, despite persistent headwinds in the fundraising environment, we continue to differentiate ourselves with strong investment performance and DPI. We believe we are being positively selected by clients and continue to gain market share, driving fund-over-fund growth across both our existing and newer strategies. In credit, we've reached an important inflection point in establishing our credit franchise with our institutional clients. We are now in the process of significantly expanding the capital base across each of our credit businesses, including partnering with our clients to develop and seed new strategies. In private wealth, T-POP and TCAP have provided us with a strong foundation to build our presence in the channel, where we believe our differentiated brand and track record are resonating with advisers and their clients. We continue to build out our sales team, infrastructure, servicing capabilities, and suite of products given the long-term growth opportunity in wealth. Lastly, as the largest pools of capital globally continue to consolidate their relationships with fewer GPs, we are actively engaged in a number of cross-platform strategic partnership discussions. These partnerships position us to grow with our largest clients across multiple strategies and asset classes while also increasing the duration and continuity of our capital base. We're entering the back half of the year with significant strength across each of our platforms and look forward to continuing to deliver outstanding results for our clients and shareholders. I'll turn the call over to Jack to discuss our financial results.

Thank you, Jon, and thanks to all of you for joining us today. As many of you know, last year, we focused on putting the building blocks in place to support our next leg of growth. These included: one, scaling our credit businesses through a successful fundraising year, expecting that this capital would flow into fee-paying AUM as we invest it this year and the future; two, preparing for the launch of our next series of private equity funds; and three, continuing to innovate, building new products and businesses, including GP Solutions, Climate Infrastructure, and T-POP that we expect to scale into greater profitability over time. Through these levers, we expected to begin a new wave of growth this year. Our strong second-quarter results highlight our early success in executing this growth strategy, and we expect our momentum to accelerate from here. We ended the second quarter with $261 billion of total assets under management, up 14% year-over-year. This was driven by $36 billion of capital raised and $21 billion of value creation, partly offset by $23 billion of realizations over the last 12 months. Fee-earning AUM increased 7% year-over-year to reach $146 billion as of June 30. These figures do not include TPG Peppertree, which closed on July 1 and added approximately $8 billion of AUM and over $4 billion of fee-paying AUM. AUM subject to fee-earning growth was $30 billion at the end of the quarter, which included $23 billion of AUM not yet earning fees and represents a revenue opportunity of nearly $200 million on an annualized basis. This shadow FAUM has been scaling with our credit businesses. And as Jon indicated, our deployment pace has begun to accelerate. At the end of the quarter, our net accrued performance balance remained at $1 billion as strong value creation and realizations largely offset each other during the quarter. Our fee-related revenue in the second quarter increased to $495 million and included $43 million of catch-up fees, primarily associated with the strong final close of TPG Growth VI. We reported quarterly fee-related earnings of $220 million. Our FRE margin of 44% in the second quarter benefited from the catch-up fees as well as a step down in cash compensation expense from the seasonally elevated first quarter. After-tax distributable earnings for the second quarter increased 30% year-over-year to $268 million or $0.69 per share of Class A common stock, which included $87 million of realized performance allocations. As Jon noted, our strong pace of monetization has been a significant point of differentiation for us, which continues to benefit our fundraising discussions with clients. Looking at the back half of the year, we expect to drive additional realizations, particularly as the broader market backdrop continues to improve. As a result of our strong quarter, we declared a record dividend of $0.59 per share. Looking at our non-GAAP balance sheet. During the quarter, we further enhanced our liquidity by upsizing our revolving credit facility from $1.2 billion to $1.75 billion. We've drawn on our revolver to fund several growth initiatives, including seeding T-POP's investment portfolio as well as funding the cash portion of the Peppertree acquisition in July. Pro forma for the Peppertree funding, the outstanding balance on our revolver is $570 million, and our available liquidity is more than $1.3 billion. Turning to our portfolio. We continue to drive positive value creation across all our platforms for the second quarter and over the last 12 months. In private equity, the fundamentals across our portfolios remain strong, and we continue to see robust growth that is outpacing the broader market. The portfolio companies within our capital, growth, and impact platforms grew revenue and EBITDA by approximately 16% and 23%, respectively, over the last 12 months. Our private equity portfolio in aggregate appreciated 2% in the quarter and 11% over the last 12 months. In credit, our portfolio appreciated 2% in the quarter and 12% over the last 12 months. In middle market direct lending, all our funds remain at or above their target return ranges as of quarter end. Within our portfolio, our average interest coverage ratio has remained stable at approximately 2x, and our annualized loss ratio is approximately 2 basis points. Our structured credit strategies also continue to perform well. Our first private asset-based credit fund's net IRR since inception was above its target range at 13% at the end of the second quarter. TPG's real estate portfolio appreciated approximately 3% in the second quarter and 14% over the last 12 months. We continue to see strong performance and value creation in our data center, industrial, and residential investments. In addition, TPG AG's real estate portfolio appreciated by 20 basis points in the second quarter and nearly 3% over the last 12 months. Turning to fundraising. We raised over $11 billion during the second quarter. As Jon noted, this was the second-highest fundraising quarter in the firm's history and the highest fundraising quarter ever for our credit platform. As a result of our strong fundraising momentum, we remain very confident that we'll raise significantly more capital this year than last year. Looking at the remainder of the year, we'll be in the market with approximately 25 different products across most of our platforms. The biggest contributors to our fundraising in the back half of the year include the following: one, the rolling first close for our next flagship buyout funds, TPG Capital and Healthcare Partners. As Jon mentioned, we expect to receive total commitments of approximately $9 billion during our rolling first close in the third quarter; two, continued strong capital raising across all of our credit strategies in drawdown funds, perpetual vehicles, and SMAs; three, formal first closes for our second GP Solutions fund and our third tech adjacencies fund, as well as additional closes for TCAP, our new Asia growth buyout strategy. We continue to make strong progress with TCAP and have already raised more than half our target; and four, increasing our penetration within private wealth and insurance. On the topic of private wealth, I'd like to provide a bit more information on our strong progress in this important business. As Jon mentioned, T-POP is off to a great start, raising approximately $430 million in June and July alone, and we expect strong continued expansion with our two initial launch partners. We also have several additional partners lined up domestically and internationally over the next several quarters, including expanding into the RIA channel. On the credit side, Twin Brook's nontraded BDC, TCAP, had its highest organic fundraising quarter yet in the second quarter with more than $200 million of inflows. TCAP is now actively distributed on three major warehouses, and we expect further expansion in the near future. Across our private wealth business more broadly, we continue to grow our distribution network. We're now partnered with over 30 firms globally, which has increased more than fourfold just since the AG acquisition. We're also focused on expanding our suite of evergreen offerings across asset classes, having created a strong foundation with T-POP and TCAP. We're actively working on additional products across credit and real assets. Private wealth is a high-priority growth area for the firm, and we continue to invest in broadening our capabilities to serve the growing needs of financial advisers and their clients. I'd like to provide a few important points regarding our near-term financial outlook. Beginning with the third quarter, our results will include the financial contribution from TPG Peppertree within our Market Solutions platform. As we noted when we announced this transaction, we expect TPG Peppertree to be immediately accretive to FRE and after-tax DE per share. Following the completion of our DIRECTV investment, TPG Capital IX is now fully invested and reserved, and we already activated TPG Capital X in early July. We expect catch-up fees to step down in Q3 and then pick back up throughout next year as we hold subsequent closes in our capital and Climate campaigns. Following the step down in compensation expense in the second quarter, we expect this line item to begin trending back up starting in the third quarter. We continue to invest in our teams in strategic growth areas such as private wealth and Climate infrastructure. Although we expect our FRE margin to decline modestly in the third quarter, consistent with our prior guidance, we continue to expect to exit the year with an FRE margin in the mid-40s. And finally, we expect our effective corporate tax rate to remain in the mid- to high single digits through the remainder of the year. Before I wrap up, I'd like to highlight the significant progress we've made in enhancing the liquidity in our stock since our IPO. Two recent events have contributed to this meaningfully. First, in May, David Bonderman's estate sold 21 million shares of TPG stock in order to satisfy certain obligations, including state tax payments. And second, in connection with the closing of the Peppertree transaction last month, we issued and registered 2.9 million Class A shares as partial consideration. These shares, which were not owned by employees of Peppertree, have already been fully liquidated in the public market. This supply was well received in the market, broadening our shareholder base and allowing many of our largest existing shareholders to further build their positions. Primarily as a result of these two events, the percentage of TPG Operating Group equity owned by TPG Inc. Class A shareholders has increased from 22% to approximately 40% in just 18 months. Taking a step back, we are very pleased with our strong second-quarter results and the progress we continue to make driving growth and diversification across our business. We're experiencing substantial momentum as the pace of activity across the key drivers of our business, fundraising, deployment, and realizations continues to accelerate, and we look forward to creating additional value for all of our stakeholders. Now I'll turn the call back to the operator to take your questions.

And we'll take our first question from Glenn Schorr with Evercore.

So I wonder if you could help us. You're the last of the, I think, the big goals to report. And we've seen you guys had good performance across private equity. You've raised a lot of money, you've returned a lot of money. Yet the aggregate details across private equity are still stuck in portfolios, low DPIs. And I see some surveys that show almost half of LPs saying that they're overweight with maybe potential to cut some allocations. So like is it that the big get more successful, and you're seeing more? Like I'm curious to get your thoughts on the highest-level industry dynamic because you're clearly not seeing the same PE stuck in the mud that a lot of the bigger picture surveys would have, you believe. So I'm just looking for where we're at in that private equity cycle right now.

Thank you, Glenn, for your question. I believe our situation is somewhat different from the general trends in private equity. At a high level, allocations in private equity are currently fuller and higher compared to other asset classes. We maintain strong confidence in the private equity asset class as a significant return driver for major institutional accounts. The feedback we’ve received while engaging with the wealth markets indicates that, given the current state of public markets, there is a growing interest in alpha generation from private companies within the private equity sector. We believe the relevance of private equity will remain solid and substantial for these reasons moving forward. Our approach starts with performance and how we've managed our business and funds. We are consistently pleased with the performance across our fund families. Additionally, we have been very deliberate in managing our funds, focusing on portfolio composition, and being intentional about both acquisitions and exits. Effective management of the exit process and returning capital significantly impacts the overall returns for our investors. It is apparent that the largest capital pools are capturing more market share, and we believe we are also gaining share at a disproportionate rate. Our growth with our largest limited partners has been significant since our IPO. Among our top 100 relationships, all have seen meaningful growth in their commitments across our private equity, credit, and real estate portfolios. Importantly, we have major relationships that are increasing their investments with us rather than decreasing them. This trend also includes both revived relationships and new connections established globally. Overall, we are confident that our private equity business is strong and resilient. As the industry evolves, we anticipate a divide between those who thrive and those who do not, and we feel well-positioned.

And we will take our next question from Ken Worthington with JPMorgan.

I wanted to maybe dig into the build-out of insurance. Can you talk about your view on balance sheet heavy versus balance sheet light? I think the preference has generally been partnerships and balance sheet light. You called out a number of times you don't want to be an insurance company. What would you want or need to see in something more balance sheet heavy that might change your mind in terms of what could be a good fit for TPG? Is it size? Is it price? Is it all the above? Is there some other nuance on the mix that ultimately makes a different structure a good idea for TPG?

Thank you for your question. I’d like to address it by outlining a couple of key principles regarding how we view insurance transactions in relation to TPG. Firstly, maintaining a focus on fee-related earnings is crucial for us as we aim to drive our asset management business. This perspective is central to our evaluation of any potential transactions. Additionally, we are cautious about the types of liabilities we would take on in insurance-related activities. While we’ve previously discussed the possibility of utilizing our balance sheet, it’s essential for us to avoid assuming risks that we don’t feel confident about or that fall outside our expertise regarding certain insurance liabilities. When examining potential transactions, we prioritize how they would affect our ability to grow our asset management franchise and our fee-related earnings without exposing ourselves to excessive risk. In some situations, we have explored opportunities to partner with strategic players in the insurance sector. This approach would enable us to acquire parts of the business, particularly regarding distribution, which would enhance our capacity to gather capital while avoiding areas best managed by dedicated insurance firms. These principles guide our approach as we assess the evolving industry landscape and evaluate potential opportunities, always with these objectives in mind should we decide to move forward with a transaction.

And our next question comes from Alex Blostein with Goldman Sachs.

Maybe going back to Glenn's question around private equity. Obviously, very impressive fundraising numbers with the first close here. I was hoping you could help us think through how you might sort of think about the ultimate size of these funds now. I think like in the past, you talked about 40% to 50% typically coming in, in the first close. So the $9 billion that you raised potentially puts you quite above, I think, certainly prior funds, but also maybe what we were thinking before. And then also, Jack, maybe just kind of walk us through the P&L impact on management fees in the third quarter as you started to earn management fees on these funds and perhaps any step-down things we need to consider?

Yes, Alex, thank you for your questions. I'd like to provide some additional insights on the market as Jon mentioned. Looking at the global institutional LP market, we do not see a decline in allocations to private equity. Overall, we are observing increases in these allocations, though the dynamics vary across different market segments. There is a factor of liquidity that each LP must manage, which is affecting certain areas, particularly in the U.S. institutional market. However, as Jon pointed out, we are experiencing a re-evaluation process in this space, and we believe we are benefiting from that. In our first $9 billion expected to close for TPG and Healthcare Partners III, nearly all of that comes from existing LPs who are increasing their commitments to us by more than 20% on average during the first close process, indicating that we are capturing more share among these LPs. The remaining portion of our fundraising will involve more re-ups from current LPs and new LPs joining us. Regarding the fund size, I agree that the amount raised in this first close surpasses what many are seeing in the current market. Our objective remains to grow fund sizes across our private equity businesses. We have successfully increased the size of our growth fund by 35% compared to the previous one. While we haven't set specific targets for TPG X and Healthcare Partners III, I anticipate that we will achieve a similar growth rate to what we reached with the last fund of the same complex, which suggests a strong start for our first close. Regarding management fees, I mentioned that we activated TPG X last month in July. We have yet to activate Healthcare Partners III, as we still have some investments to complete in Healthcare Partners II. I estimate we will activate that fund possibly in the first quarter of next year. There will be step-downs when we launch the next fund, meaning TPG IX will see a step-down in the fourth quarter as we activate TPG X.

And we will take our next question from Bill Katz with TD Cowen.

The guidance. Just you mentioned the sort of flywheel accelerating to the second half of the year and great to see the significant jump in AUM not yet paying fees. How quickly do you think you can sort of deploy that $30 billion? And then the second part of the question is, I think you mentioned a significantly high level of revenues on that. How much incremental margin might be against that incremental revenue?

We are optimistic about deployment opportunities across our business, which are somewhat influenced by overall market conditions. Our pipelines have been growing quarter-over-quarter in 2025, indicating that deployment should continue to progress. We expect deployment to increase as the year goes on and we'll see how things evolve into 2026. Overall, we feel positive about the opportunities we're encountering. Given the diversity of our business, the range of strategies, and the flexible capital across our funds, we can adapt to many unique opportunities. This adaptability is central to our strategy, allowing us to be active in various capital structure opportunities. Therefore, we remain reasonably optimistic about deployment possibilities. As for the second part of your question, you made a good point.

Margin on incremental deployment.

I mean, obviously, that's going to differ in each asset class.

And we will take our next question from Steven Chubak with Wolfe Research.

One opportunity that maybe hasn't gotten as much airplay on the call is within capital markets. And I was hoping you could speak to, given some of the improvement in deployment in 2Q, certainly encouraging to hear expectations for continued acceleration in the back half. What the potential windfall could be on the capital markets side? And are there any remaining gaps in terms of your capabilities? And just longer term, how large could this business grow over time?

We've consistently discussed the importance of capital markets to our firm and the ongoing development of our business in this area. We've taken several steps, including enhancing our capital markets capabilities across all strategies. We've integrated capital market expertise into each strategy, ensuring they're closely tied to the deal-making process, which allows us to finance transactions, refinance balance sheets, and offer unique solutions while expanding our capital base for larger transactions. Additionally, the collaboration between our credit business and other teams has led to exciting opportunities across asset classes within our capital markets capabilities. Deals like the Altice transaction, the DISH deal from last year, and the xAI investment reflect this teamwork among our investment teams in credit, private equity, and even real estate, all supported by our capital markets capabilities to either extend our capital base or manage risk. Looking ahead, as our firm grows and our strategies evolve, capital markets should expand in tandem with the firm's growth and overall transactional activity. We are optimistic about this area, which will be a key driver for us moving forward.

Yes. I want to mention that last year, transaction monitoring and other fee line items amounted to around $150 million. As Jon noted, we expect this to increase over time, not just aligned with our overall growth but even surpassing it, as we expand into new segments of our business by enhancing our capital markets team. We anticipate this line item will grow healthily this year compared to last year and will accelerate even further next year.

And our next question comes from Dan Fannon with Jefferies.

I wanted to follow up on the retail opportunity and the initial rollout of T-POP. So you talked about, I think, broadening distribution. Maybe if you could expand upon what that looks like. And then also the product roadmap for other products for this channel and how you see that proliferating in the coming quarters?

Thank you for the question. Regarding T-POP, the initial closures we mentioned were with our two large U.S. warehouse launch partners. Most of the capital originated from these partners. Looking ahead, we expect significant growth through these core partners, but we also have additional domestic and international partners lined up. In a couple of months, we plan to launch with a major international bank focused on the Asian market. We are also targeting the RIA market, and it's been publicly disclosed that iCapital has submitted a registration statement for a TPG-branded fund they will manage that will resemble T-POP but will cater to the RIA market. What was the second part of your question?

On the product roadmap beyond private equity. So we've got a lot of growth ahead of us in this core private equity product, T-POP. While we're accomplishing that, we're also in the middle of designing the next wave of products, which will include something broader in credit, like a multi-asset class credit interval fund, something in real assets as well. We've described a lot about our broad-based real estate platform, and we're in the middle of designing a product there as well.

And our next question comes from Brian Bedell with Deutsche Bank.

If I can squeeze in a three-parter on the Impact platform.

We'll take the first part.

At least I'm telling you it's three before all related. But just, I guess, the fundraising pipeline on the Impact platform and the three-parter is, first, Rise III looks like that's 70% invested. So commentary on the next vintage there. Secondly, the Climate franchise, Rise Climate is 80% invested. It looks like on your fund tables and if you can wrap together the I know there's a bundling of the Global South Initiative with the last final close of Rise Climate II coming in. So just if you can update us on the timing of the incremental fundraise there. And then just three, just the tangent strategies to the impact platform like Climate infrastructure, for example, expectations of that into '26.

Sure. This is Jim. Let me address those points and provide some context on the current situation in that area. First, regarding Rise III and IV, we expect to have our first closes for Rise IV likely in the fourth quarter, so we are indeed moving forward in that space and will have more updates soon. Now, discussing the Climate sector requires a broader perspective on the current global climate landscape. First, it's very positive that the bill has passed, bringing clarity to the policy environment. As I travel globally, I've noted extensive discussions about tariffs, and it's clear that international views on U.S. energy policy aren't overly concerned. As Jon mentioned, we've been busy in the Climate sector during the first half of this year, completing five international deals while the U.S. market paused to assess policy developments. Fortunately, the bill resulted in better outcomes than anticipated. A good gauge of this is the Clean Energy Index, which has seen a significant rebound since earlier concerns in April and May, currently sitting 6% above its pre-election levels, with many subsectors performing even better. However, the area most affected by the bill was electric vehicles, where we have not invested in the U.S. In examining the policy landscape, it’s essential to compare our situation now to before the IRA since the IRA was never fully executed. Surprisingly, most sectors now enjoy more support than in 2022, particularly in batteries, which are crucial at this time. The new bill maintains substantial IRA incentives while introducing additional U.S. incentives. Amidst the market noise, the clarity we've attained is quite promising, keeping our pipeline very active. Two critical factors moving forward are the energy shortage in the U.S. and the fact that the most efficient and cost-effective way to increase energy supply remains through renewables. While natural gas will see some growth, it accounted for only 7% of the market this year. Additionally, adaptation efforts will remain strong. In terms of fundraising, we had solid first closes that surpassed our 50% targets, achieving $1.5 billion in capital for the Rise Climate franchise despite market volatility. As we transition into the latter half of our fundraising campaigns, we are well beyond our previous fund cycle in terms of committed capital, some of which is yet to be activated. With increased clarity, we are anticipating the next steps for TRC 2 and the robust opportunities that will arise from our initial commitments to TI. Overall, we are on track in these sectors, realizing there was a temporary pause while the market awaited clarity on the bill, which is likely influencing the fundraising patterns we see throughout the industry. Consequently, the Impact franchise is expected to have a busy six to nine months ahead.

And our next question comes from Michael Cyprys of Morgan Stanley.

Just wanted to circle back to an earlier comment that was made around your engagement in cross-platform strategic partnership discussions to increase duration and continuity of the capital base. I was hoping you could elaborate a bit on your aspirations there, the strategy, how you're approaching this, what this could look like, and how it might contribute over time for TPG?

Sure. Thanks, Michael. We mentioned a strategic partnership example on last quarter's call. The overarching approach aligns with our earlier discussion: we’ve noticed that major institutional partners are becoming more selective in their relationships. They are looking for mutually beneficial arrangements with partners they trust. Consequently, we are engaging in discussions with many of our largest partners about establishing long-term collaborations, which typically involve commitments across multiple asset classes. This is significant because it encompasses more than just one area, focusing on mutual commitments of capital over varying timeframes—usually customized arrangements lasting three to five years—where they agree to invest specific amounts in TPG and our various funds. In exchange, they receive tailored economic incentives. The essence of our partnership lies in securing substantial capital commitments from them in return for these benefits. If circumstances change or milestones aren’t met, some of the economic rewards may revert. These agreements are quite unique, and I can confidently say we're in more discussions with our key partners than ever before. This not only strengthens our ties but also fosters collaboration at the highest levels, allowing us to share ideas and insights about the market. Ultimately, these partnerships enhance our confidence in renewing our major funds, which are central to our strategies, and also create incentives for them to collaborate with us on new initiatives. As you know, launching new strategies and securing anchor LPs is one of the biggest challenges in our industry. These partnerships help facilitate that process with our most significant relationships, speeding up our ability to pursue new growth opportunities. We are optimistic about these ongoing conversations, and when we discuss the timing of our fund closings, these partnerships generally lead to our partners being more inclined to be among the first to commit, while also exploring new growth avenues with us.

Yes, Jack, just a little bit. I mean I see it as it's almost a byproduct of what we've been talking about for a while now is that we see the largest LPs in the world concentrating their capital with fewer partners. And when they do that, they step back and say, if we're going to choose you as a partner in a concentrated way, let's break out of this fund-by-fund mode and talk about what a bigger partnership might look like. And that begins the dialogue about what a longer-term partnership might look like, whether it's designed as an SMA, a fund of one, a perpetual fund with kind of inherent re-ups, but that's the nature of the dialogue. And fortunately, we're on the winning end of a lot of those discussions, which is leading to a lot of these partnership discussions. I think one other thing that's affecting it too, Mike, is that one important kind of like overriding trend that we're seeing in the market is that I think that there was a time when and not recently, there was a time when some of the largest pools of capital in the world were really continuing to focus on their ability to be direct investors. And some of them still are. But what I would say is that there's been a fairly big pendulum swing back the other way, where some of the largest pools of capital in the world are really now much more focused on this partnership model, where they realize that their ability to source on a very broad basis, on a global basis, some of the most interesting transactions across multiple strategies is enhanced by engaging in these partnerships with our core partners. And so I think that that's another trend that I think is also giving rise to this desire to figure out how do they construct these partnerships where they get the benefits of seeing the opportunities that we're creating, but also being able to partner together to get them done. And so I would say that's another kind of broader trend that we're seeing. There's a bit of a pendulum swing back to this kind of doubling down on kind of the partnership model.

And our next question comes from Kyle Voigt with KBW.

Maybe just a question on the 401(k) opportunity. So now that you're adding more breadth to your semi-liquid product suite, just wondering how you're thinking about addressing the 401(k) opportunity if that market begins to potentially open up more to private investments over time.

Yes, that's an important question. As we expand our range of evergreen products and those aimed at high-net-worth individuals in alternative investments, this becomes a key area of focus for us. However, it's premature to predict how things will develop since the executive order has not yet been issued. If we take a broader view of the U.S. retirement savings landscape, it is roughly a $35 trillion market. Around $10 trillion is tied up in defined benefit pension funds, another $10 trillion is within the 401(k) market, and the remainder is in areas like IRAs. Defined benefit pension plans represent some of our largest clients and were early adopters of alternative investments, with their exposure increasing significantly over the past 30-35 years. Currently, roughly one-third of their investment portfolios are allocated to alternatives as they seek to diversify and enhance returns for long-term wealth accumulation. Similarly, the same principles should apply to 401(k) plans, where participants should also focus on compound wealth growth over decades while seeking diversification and improved returns. Therefore, the changes being discussed seem beneficial for 401(k) participants to gain access to the diversification and potential returns from alternatives. Presently, about 40% of capital in 401(k) plans is placed in target date funds, which we believe is a suitable entry point for alternative investments rather than through specific private equity funds. We are currently in discussions with potential partners to collaborate since we can effectively source and execute investments in alternative assets. Additionally, in 401(k) plans, a significant portion of longer-term target date funds is typically invested in equities, which are expected to yield higher returns over time. Consequently, private equity is likely to be a compelling option for 401(k) plans, and we are well-positioned to collaborate with those fund managers to provide access to this investment flow. Our efforts to develop various entry points and frameworks for our private equity business will naturally align with such partnerships.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks.

Great. Thank you, operator. Thank you all for joining us today. If you have any additional questions, please feel free to follow up with the IR team directly.

Thank you.

This concludes today's TPG's Second Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time and have a wonderful day.