NewQuest set for TPG windfall if Fund V hits $1.75b

TPG bought 33.3% of NewQuest in 2018 and progressed to 66.67% in February. It claims to have helped the firm scale from $900 million in assets under management (AUM) to $2.4 billion. This was achieved largely through NewQuest closing its fourth fund on $1 billion in 2020, nearly twice the size of the previous vintage.

Details of the investment in NewQuest are disclosed in TPG’s IPO prospectus. It values the total purchase at $494.6 million. The amount paid for the initial 33.3% is not mentioned, but on assuming control, TPG had to reassess the fair value of the position. It settled on $155.4 million, which meant the non-controlling interest was worth $301.2 million.

The second tranche of 33.3% was acquired for $38 million, comprising $5 million in cash, a 0.08% interest in TPG’s holding company valued at $5.8 million, minority interests in select other businesses valued at $18.8 million, and a contingent consideration with a fair value of $8.4 million.

The contingent consideration includes a $5 million payment to NewQuest management if Fund V surpasses $1 billion in fee-paying capital commitments and an additional $5 million if it surpasses $1.75 billion.

NewQuest was created in 2011 through a spin-out of Bank of America Merrill Lynch’s (BAML) Asia private equity team. A debut fund of $400 million was primarily used to acquire 21 private equity positions from BAML. Fund I invested $234 million in new capital and generated a 3.2x multiple and a net IRR of 37%, the prospectus states.

Fund II (2013 vintage, $310 million) and Fund III (2016 vintage, $541 million), which have yet to be fully realized, are marked at 2.3x and 1.8x. Fund IV is on 1.3x with a net IRR of 27%.

More than 40% of the $494.6 million valuation TPG placed on NewQuest is based on accrued and contracted carried interest.

TPG’s IPO comes at a time when the share prices of existing listed private equity firms are flourishing. The Blackstone Group is up 95% year-to-date, while KKR has gained 81%, and The Carlyle Group and Apollo Global Management are up 67% and 47%, respectively.

TPG’s global AUM is $109 billion, spread across large-cap and growth-stage private equity, impact, real estate, and market solutions. Its Asia funds have outperformed other strategies, generating a 2.2x multiple since inception compared to 1.9x for the entire platform.

Having entered the region in 1994 through Newbridge Capital, TPG has accumulated $22 billion in AUM across different products, including seven dedicated Asia funds. The Asia business alone is responsible for $17.8 billion.

The best-performing Asian fund is the firm’s fourth, raised as Newbridge Asia IV in 2000, which returned a 5.3x multiple on a $724 million corpus. It included investments in Shenzhen Development Bank and Japan Telecom.

TPG has been deploying its seventh Asia fund, which closed on $4.63 billion in 2019, supported by a $1 billion stapled secondary. The vehicle is now 84% deployed – in the likes of Kakao Mobility, Greencross, and Five Star Business Finance – and has generated a 1.9x multiple and a 37% IRR, almost all of it unrealized.

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• Topics
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• Asia
• NewQuest Capital Partners
• TPG Capital
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