TPG Capital, the private-equity firm run by David Bonderman and James Coulter, raised $2 billion for its latest growth-equity fund as the world’s largest buyout firms look beyond big corporate takeovers.
TPG Growth II follows a $1.3 billion fund, known as TPG Star, that was raised in 2007, William McGlashan, the managing partner of TPG Growth, said in an interview. Investors in the new fund include the California Teachers’ Retirement System, according to data on that pension’s website.
The growth initiative at TPG is designed to pursue transactions outside the parameters of the firm’s main buyout funds. TPG, created in 1992, also is ramping up efforts in real estate and so-called special situations where it provides financing for troubled companies, joining competitors such as Blackstone Group LP (BX:US) and KKR & Co. (KKR:US) in pursuing non-LBO expansion.
“The industry is evolving and going from being single product to multiproduct firms,” Coulter said in an interview. “Our investors want to be able to pick and choose.”
Buyout firms also are playing to a desire by big investors to pare the number of private-equity relationships while in some cases increasing the amount they are directing to so-called alternative-asset classes.
TPG stressed in its pitch that the growth fund uses the same investment committee as for its large buyout fund, commanding the same interest from the founders, top deal makers and operating experts. That allows TPG to use its expertise and personnel around the world, yet still look at deals that would be too small for its larger fund.
McGlashan said the connection to the investment committee gives investors comfort that this isn’t a side project within a large firm.
“You want all the best minds of the firm on these deals,” he said.
TPG has used the growth unit to stake fast-growing companies in emerging markets. TPG Growth backed Masan Group (MSN), a Vietnamese conglomerate that counts an instant noodle maker among its holdings.
TPG Star, the previous fund, had returned 1.4 times investors’ money and given them average annual returns of about 14 percent as of March 31, according to the Oregon Public Employees Retirement Fund, which committed $100 million to the STAR fund in 2007.
“There’s a melange of things that are smaller, ’growthier,’ that would fall under the radar as we have these larger funds,” Coulter said.
The growth initiative has of late performed better than TPG’s main funds. TPG Partners VI, raised in 2008, had an average annual return of 2.4 percent as of March 31, the Oregon data show.
McGlashan said funds like the growth pool attract institutional investors looking for the higher returns associated with faster-growing companies, without discussing specific backers.
The firm pitched pensions in the state of Washington, New Jersey and New Mexico, according to information available through their websites.
TPG in 2008 raised a $18.9 billion fund and the firm has participated in some of the largest LBOs ever, including the record-setting 2007 takeover of TXU Corp. for $43 billion.
Deal making has contracted in volume and transaction size in the intervening years. Nine of the 10 biggest leveraged buyouts in history were announced in 2006 and 2007, with $857.9 billion in deals announced in 2007 alone. Last year, managers announced $416.1 billion in deals.
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