TPG seeks investment period extension

TPG has asked its limited partners to grant it an investment period extension on its Fund VI, one of the biggest private equity funds ever raised, according to three people with knowledge of the situation. 

TPG declined to comment. 

The firm, led by David Bonderman, is asking for a year extension, from February 2014 to February 2015, to continue investing the fund, according to one of the people, who is a TPG investor. The investment period on Fund VI runs out in February, the person said. 

TPG will not charge management fees on committed capital in the extension period, but only on invested capital, the person said, making it more palatable to investors. In fact, LPs likely are happy to give the firm more time to keep investing Fund VI, which has about $3 billion to $4 billion remaining to be deployed, according to one of the people. 

“It’s the right thing for investors, it’s the right thing for the firm, it gives them another year to put some capital to work,” the TPG investor said. 

Fund VI closed in 2008 on $19.8 billion, but the firm allowed LPs to reduce commitments to the fund, shrinking it by about $1 billion. While it’s not clear why TPG couldn’t get Fund VI deployed during the investment period, many private equity firms slowed their pace of activity in the wake of the global financial crisis. Deal flow ground to a halt after the collapse of Lehman Brothers in the fall of 2008 and didn’t start to pick up again until the latter half of 2009. 

The feeling among several people who spoke with sister title Private Equity International was that the investment period extension would lead TPG to push back launching fundraising for its seventh flagship fund into 2014. Several media reports last year said the firm was likely to launch Fund VII sometime in 2013, with speculation the firm could target between $8 billion and $12 billion. 

LPs saw a flood of investment period extension requests after the global financial crisis, but not as many in recent years. Investment period extension requests are not likely to increase given that vintages after 2008 were able to find solid deal flow as the markets grew more robust.

“We do expect to see more extensions come through, but I expect that the phenomenon will die out with the 2008 vintage year funds, as investing has increased dramatically for funds raised in 2009 and forward. In turn, for granting the extension, most LPs are negotiating for better terms, from fee reductions to European-style waterfalls,” according to Jamie Ebersole, managing director with SL Capital Partners.

Waiting to come back to market could be advantageous for TPG for a few reasons, including having the effect of clearing the fundraising field of mega-firms, making some room for TPG to work for commitments, one of the people said. This year, The Carlyle Group, Apollo Global Management, Kohlberg Kravis Roberts and CVC Capital Partners are out in the market fighting for commitments, and next year, at least a few of them should be finished.

The extension also would give TPG more time to realize investments from Fund VI and work to boost performance, the person said. TPG’s fundraising is expected to be challenging given the subdued performance of its last two funds. 

Fund VI was generating a 6.7 percent internal rate of return and a 1.15x multiple as of December 31, 2012, according to performance information from the California Public Employees' Retirement System.  Fund V, a $15 billion 2006 vintage, was producing a negative 2.9 percent IRR and a .88x multiple, according to CalPERS.