TPG halts stake sale talks with LPs

Valuation difficulties have prompted the Texas-based mega-firm to cease talks that began more than a year ago with the Kuwait Investment Authority and two California pensions over the potential sale of a single digit stake in its management company.

TPG has abandoned plans to sell a single digit stake in its management company to the Kuwait Investment Authority, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System. It is unclear whether the firm would have sold a stake to just one of the limited partners, or all three.

TPG's venture arm, TPG Ventures, sold a $60 million equity stake in 2001 to CalPERS along with CalSTRS and Oregon's Public Employees Retirement Fund.

Ending the current round of talks sets it apart from fellow mega-firms The Blackstone Group, Apollo Global Management, The Carlyle Group and Fortress Investment Group – all of which have in the past two years sold a stake in their firms to sovereign wealth funds as a means of locking in franchise value and raising fresh capital.

Differences over TPG’s valuation effectively ended negotiations, which PEO reported began more than a year ago.

The David Bonderman-led firm “decided the timing was not right” to pursue a sale, said a source with knowledge of the situation. TPG declined to comment.

Stake sales are to some extent seen as precursors to public listings of management companies, a means for the private equity manager to test investor appetite and value the franchise. In July 2007, CalPERS paid $600 million for an 8.6 percent stake in Apollo prior to its listing on Goldman Sachs’ private trading platform. The firm, which also sold a 9 percent stake to the Abu Dhabi Investment Authority for roughly $1.5 billion, filed its registration to go public with the Securities and Exchange Commission last year.

China’s purchase of a 10 percent Blackstone stake for about $3 billion preceded the firm’s public listing in June 2008; in October China increased the stake by up to 12.5 percent despite a plunge in the firm’s share price from its IPO offering price of $31 per share. Blackstone’s shares closed at $4.29 Tuesday.

Fortress Investment Group’s sale of an $888 million stake to Tokyo bank Nomura Holdings also paved the way for a management IPO.

TPG has decided to forgo any plans for an initial public offering for now, according to the source.

Sovereign wealth funds had been purchasing alternative asset management firm interests with continued appetite until credit market conditions deteriorated. In September 2007, Carlyle sold a 7.5 percent stake worth $1.35 billion to the Abu Dhabi Government fund, Mubadala. In October 2007, Dubai International Capital bought a 10 percent stake in hedge fund Och-Ziff Capital Management. The Qatar Investment Authority acquired an undisclosed minority stake in Fortress in 2007. 

While public pensions have in the past been buyers of management company stakes, some are struggling to fund new commitments and meet capital calls because of shrinking assets coupled with slowed private equity realisations. TPG has been working with its limited partners to offer some liquidity relief. The firm cut the size of its $6 billion financial services-focused fund by 25 percent, or roughly $1.5 billion. TPG also allowed LPs in its most recent mega-buyout fund to reduce their commitments by as much as 10 percent, or up to $2 billion, and cut its management fees across the board.