Trends and Opportunities Driving the Global Alternatives Landscape: Perspectives from TPG CFO Jack Weingart

In our latest edition of The TPG Take, we sit down with TPG CFO Jack Weingart, who discusses some key trends and opportunities that continue to shape the global alternatives landscape – from a recent trend toward consolidation in the industry to the growing market opportunities in both the high-net-worth and insurance markets.

Jack shares his perspective on those trends across the industry and how TPG is positioned to meet those opportunities.

CFO Perspectives: The Macro Environment

"I think we're back in a period of more normalcy than anything else. People talk about this abnormal high-rate environment, but rates aren't high – rates were extraordinarily low back in 2019. So we believe we're back at a period of stability. There's going to be a continued push and pull between economic growth, interest rates, and inflation, but we believe this more normal period is better for our investing strategy. What we have to think about is what are the degrees of outcomes on the high and low ends of those different variables and how do we generate growth in our portfolio companies while mitigating downside risk in this environment?

In our private equity business, how we managed risk during that period of abnormality – rates at unsustainably low levels, which led to exceptionally high valuation multiples in 2019, 2020, 2021 – is we became net sellers. We took a point of view that those valuation multiples would not continue and they would come down over time. We didn't predict COVID, but we did predict that valuation multiples were exceptionally high. As multiples have come down and interest rates have come up, we've rotated to a more balanced posture between buying and selling. And we believe that's the right approach."

Consolidation Trends in Alternative Asset Management

"The consolidation trend in alternative asset management is fascinating. I've been around alternatives in different ways for 35 years and for a long time, the trend in the industry was toward proliferation. There was talk about that reversing and leading to some consolidation, which never occurred, but in recent years it's begun to happen. I would say that trend is accelerating, and it's accelerating for a couple of reasons:

• On the GP side, the industry is becoming more and more competitive. The need for capital to grow and the competition for talent has grown, and the need for a balance sheet has become more strategic. It's become more difficult to raise capital, so you need to invest more in a larger fundraising team and amortizing that across more asset classes is obviously a benefit.
• On the LP side, this proliferation trend over time led to larger LPs having more and more relationships to manage, which became unwieldy. Our larger clients tell us they're looking to do more investing with fewer relationships. Now to enable that, we have to become a trusted investment partner for them across more asset classes.

At TPG, we've addressed this interest from our clients in a more broad-based investment partner, both organically and inorganically.

For many years, we were primarily a private equity firm. In the wake of the financial crisis, we expanded organically into real estate. We recently expanded into private credit through the acquisition of Angelo Gordon, and now we're expanding organically into infrastructure. So over time, we have now built a multi-asset class alternative asset management firm that can serve the needs of our larger clients who want a holistic partner."

New Market Opportunities: High Net Worth

"If you think about our clients on the continuum from large institutions down to high-net-worth individuals, larger institutional investors have been investing in alternative assets for decades, and the larger ones are more fully allocated than the high-net-worth market. Estimates are that institutional investors who invest in alternatives have, on average, about 13-15% of their asset base invested in alternatives. We believe there's still a real growth opportunity there as institutional investors search for incremental returns. On the high-net-worth side, that number is about 2%. It may never get as big as institutional investor allocations, but it’s going to move in that direction, and the amount of capital in those two pockets is about the same. So the growth opportunity for raising capital from the high-net-worth market is significant.

To serve that large opportunity and access more capital from the high-net-worth market, we need a few things: an excellent brand that's trusted by the market, products that are built to serve the market, and a distribution team to build relationships with financial advisors and end clients in the marketplace.

On the product side, we have excellent investing engines that are generating strong returns, and we're actively working on repackaging those investments in ways that make them more suitable to the high-net-worth market.

There are very few alternative asset management firms in the industry with the combination of brand, product, and resources to access this channel, and we believe we're very well-positioned for this substantial opportunity."

New Market Opportunities: Insurance

"If you think about a life insurance company, to offer competitive returns to their clients embedded in their insurance product, the insurance company has to generate attractive returns in their asset portfolio in a regulatory friendly way.

So over half of an average insurance company's investment portfolio is in investment grade credit. Now, the key to the insurance company is to create excess return in that portfolio, and structured credit and private credit is increasingly the way that insurance companies are looking to do that. That's what's driving the demand for private credit, structured credit, and enhanced return investment grade credit assets in their portfolios.

Before we acquired Angelo Gordon, we really couldn't serve that need. The acquisition of Angelo Gordon and our buildout of Angelo Gordon's capabilities in the structured credit business is enabling us to significantly broaden and deepen our relationships with our insurance clients."

In Other News & Views...

We also want to "circle back" to share other recent insights from our ecosystem, senior leaders, and investing professionals that you might have missed.

In our series Partnerships in Focus, we hear directly from leaders across the TPG portfolio and ecosystem. In this episode, Twelve Co-Founder and CEO Nicholas Flanders discusses how TPG Rise Climate will help Twelve scale and deploy their carbon transformation technology to convert CO2 from a liability to a resource to drive our global economy and combat climate change.

In a new edition of TPG Insights, TPG Twin Brook Managing Partner Trevor Clark discusses the case for investing behind experienced, disciplined Lower Middle Market direct lenders.

Thank you to all of our followers and readers for joining us for another edition of The TPG Take. Please share the newsletter with anyone you think would be interested and we look forward to being back in your inboxes soon.