KBRA Affirms Ratings for TPG Operating Group II, L.P.

KBRA affirms the issuer and senior unsecured debt ratings of AA- for TPG Operating Group II, L.P. (TOG II), a subsidiary of TPG Inc. (NASDAQ: TPG; "the firm"). In addition, KBRA affirms the subordinated debt rating of A+ for TOG II. The Outlook for the ratings is Stable.

Amid escalating trade tensions, tariffs, market volatility, and a possible economic slowdown, in the short term, KBRA views alternative asset managers—particularly those geared toward PE and private credit, such as TPG—as more resilient than other types of financial institutions. This resilience is primarily underpinned by a fee-based business model that ensures more stable and predictable revenue streams, as well as low liquidity needs, enabling such firms to better navigate more challenging conditions. Management fees tied to committed capital or invested capital at cost provide a cushion during periods of market stress or valuation adjustments. Should escalating trade tensions or broader geopolitical risks evolve into a protracted economic slowdown, asset managers will face potential headwinds, including delays in portfolio company exits, valuation pressures at the fund level, and a more difficult fundraising landscape. TPG’s globally scaled operations help to diversify from exposure to any one region. In addition, with substantial dry powder of ~$57 billion at YE24, TPG is positioned to take advantage of market dislocation. TPG’s ratings are reinforced by its advantageous market position, with growing scale and diversification further enhanced by the recent acquisition of Angelo Gordon, which added a scaled credit platform to the firm’s historically PE-focused AUM and extended its RE capabilities. TPG’s strong performance track record and extensive fundraising capabilities, including during more challenging market dynamics, have produced considerable growth in AUM, revenue, and EBITDA since inception. Revenues and EBITDA benefit from a high level of base management fees, particularly compared with traditional asset managers, as well as a strong track record of performance fee generation from multiple funds and investments. In addition, the firm has a significant cache of fee-earning AUM subject to step-up and AUM that has yet to collect fees ($28.1 billion at YE24). Meanwhile, AUM and fee levels are not susceptible to redemption risk as funds are predominantly closed-end with long life spans. While recent market volatility may impact the realization environment, TPG’s future ability to generate performance fees is considered robust given the large stock of unrealized performance fees and management’s ability to create value and generate returns above hurdle rates. A flexible cost base also augments cash flow resiliency in stressed conditions. In February 2024, TOG II issued $600 million senior notes and $400 million subordinated notes. Gross recourse debt/EBITDA was 1.3x at YE24, which is within rating category assumptions. Additionally, interest coverage is expected to remain sufficient over the medium term.

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