TPG Inc

Non-GAAP Financial Measures

Distributable Earnings. Distributable Earnings (“DE”) is used to assess performance and amounts potentially available for distributions to partners. DE is derived from and reconciled to, but not equivalent to, its most directly comparable U.S. GAAP measure of net income. DE differs from U.S. GAAP net income computed in accordance with U.S. GAAP in that it does not include (i) unrealized performance allocations and related compensation expense, (ii) unrealized investment income, (iii) equity-based compensation expense, (iv) net income (loss) attributable to non-controlling interests in consolidated entities, or (v) certain other items, such as contingent reserves.

While we believe that the inclusion or exclusion of the aforementioned U.S. GAAP income statement items provides investors with a meaningful indication of our core operating performance, the use of DE without consideration of the related U.S. GAAP measures is not adequate due to the adjustments described herein. This measure supplements U.S. GAAP net income and should be considered in addition to and not in lieu of the results of operations presented in accordance with U.S. GAAP discussed further under “—Key Components of our Results of Operations—Results of Operations” prepared in accordance with U.S. GAAP.

After-Tax Distributable Earnings. After-tax Distributable Earnings (“After-tax DE”) is a non-GAAP performance measure of our distributable earnings after reflecting the impact of income taxes. We use it to assess how income tax expense affects amounts available to be distributed to our Class A common stockholders and Common Unit holders. After-tax DE differs from U.S. GAAP net income computed in accordance with U.S. GAAP in that it does not include the items described in the definition of DE herein; however, unlike DE, it does reflect the impact of income taxes. Income taxes, for purposes of determining After-tax DE, represent the total U.S. GAAP income tax expense adjusted to include only the current tax expense (benefit) calculated on U.S. GAAP net income before income tax and includes the current payable under our Tax Receivable Agreement, which is recorded within due to affiliates and other liabilities in our Condensed Consolidated Statements of Financial Condition. Further, the current tax expense (benefit) utilized when determining After-tax DE reflects the benefit of deductions available to the Company on certain expense items that are excluded from the underlying calculation of DE, such as equity-based compensation charges. We believe that including the amount currently payable under the Tax Receivable Agreement and utilizing the current income tax expense (benefit), as described above, when determining After-tax DE is meaningful as it increases comparability between periods and more accurately reflects earnings that are available for distribution to shareholders.

We believe that while the inclusion or exclusion of the aforementioned U.S. GAAP income statement items provides investors with a meaningful indication of our core operating performance, the use of After-tax DE without consideration of the related U.S. GAAP measures is not adequate due to the adjustments described herein. This measure supplements U.S. GAAP net income and should be considered in addition to and not in lieu of the results of operations presented in accordance with U.S. GAAP discussed further under “—Key Components of our Results of Operations—Results of Operations.”

Fee-Related Earnings. Fee-Related Earnings (“FRE”) is a supplemental performance measure and is used to evaluate our business and make resource deployment and other operational decisions. FRE differs from net income computed in accordance with U.S. GAAP in that it adjusts for the items included in the calculation of DE and also adjusts to exclude (i) realized performance allocations and related compensation expense, (ii) realized investment income from investments and financial instruments, (iii) net interest (interest expense less interest income), (iv) depreciation, (v) amortization, and (vi) certain non-core income and expenses. We use FRE to measure the ability of our business to cover compensation and operating expenses from fee revenues other than capital allocation-based income. The use of FRE without consideration of the related U.S. GAAP measures is not adequate due to the adjustments described herein.

Fee-Related Revenues. Fee-related revenues (“FRR”) is a component of FRE. Fee-related revenues is comprised of (i) management fees, (ii) fee-related performance revenues, (iii) transaction, monitoring and other fees, net, and (iv) other income. Fee-related performance revenues refers to incentive fees from perpetual capital vehicles that are: (i) measured and expected to be received on a recurring basis and (ii) not dependent on realization events from the underlying investments. Fee-related revenues differs from revenue computed in accordance with U.S. GAAP in that it excludes certain reimbursement expense arrangements. Refer to “—Reconciliation to U.S. GAAP Measures” to the comparable line items on the Condensed Consolidated Statements of Operations.

Fee-Related Expenses. Fee-related expenses is a component of FRE. Fee-related expenses differs from expenses computed in accordance with U.S. GAAP in that it is net of certain reimbursement arrangements and does not include performance allocation compensation. Fee-related expenses is used in management’s review of the business. Refer to “—Reconciliation to U.S. GAAP Measures” to the comparable line items on the Condensed Consolidated Statements of Operations.

Fee-related revenues and fee-related expenses are presented separately in our calculation of non-GAAP measures in order to better illustrate the profitability of our FRE. The use of fee-related revenues and FRE without consideration of the related U.S. GAAP measures is not adequate due to the adjustments described herein.

Our calculations of DE, FRE, fee-related revenues and fee-related expenses may differ from the calculations of other investment managers. As a result, these measures may not be comparable to similar measures presented by other investment managers.

The following table sets forth our total FRE and DE for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Fee-Related Revenues

Fee-related revenues increased by $138.5 million, or 43%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The change was primarily due to additional management fees of $128.7 million and transaction, monitoring and other fees, net of $12.3 million, partially offset by a decrease of other income of $8.0 million.

The following table presents management fees in our platforms for the three months ended September 30, 2024 and 2023:

Management fees increased by $128.7 million, or 46%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

This change was primarily driven by the addition of $127.1 million in management fees from TPG Angelo Gordon, acquired in November 2023. During the three months ended September 30, 2024, we recorded $77.2 million in fees from TPG AG Credit, largely driven by MMDL IV, MVP Fund and Credit Solutions II, and $49.9 million from TPG AG Real Estate, largely driven by the Realty Value XI, Realty Value X, Asia Realty V and Net Lease Realty IV.

Management fees from our Capital platform decreased $12.9 million during the three months ended September 30, 2024 primarily due to higher catch-up fees earned during the three months ended September 30, 2023 as a result of additional capital commitments from limited partners in Asia VIII and TPG IX. Additionally, the actively invested capital base of TPG VII decreased after certain investments were fully realized.

Management fees from our Growth platform increased $7.8 million primarily due to Growth VI, which was activated during the fourth quarter of 2023, partially offset by a decrease in fees from Growth V primarily driven by a step down in fee basis from committed to invested capital during the first quarter of 2024.

Management fees from our Impact platform decreased $0.5 million during the three months ended September 30, 2024 compared to three months ended September 30, 2023.

Management fees from our Real Estate platform decreased $0.2 million during the three months ended September 30, 2024 compared to three months ended September 30, 2023.

Management fees from our Market Solutions platform increased $7.3 million primarily due to TGS as a result of additional fee earning capital raised during the three months ended September 30, 2024, partially offset by a decrease in fees from TPEP resulting from a decrease in fee earning AUM.

Certain management fees totaling $15.0 million earned during the three months ended September 30, 2024 were considered catch-up fees as a result of additional capital commitments from limited partners. Catch-up fees primarily consisted of $10.3 million for TGS, which had its final close during the three months ended September 30, 2024.

Fee-Related Performance Revenues

The following table presents fee-related performance revenues for the three months ended September 30, 2024 and 2023:

Fee-related performance revenues increased by $5.6 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to the addition of TCAP as part of the acquisition of TPG Angelo Gordon in November 2023.

Transaction, Monitoring and Other Fees, Net

The following table presents transaction, monitoring and other fees, net in our platforms for the three months ended September 30, 2024 and 2023:

Transaction, monitoring and other fees, net increased by $12.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This change was primarily driven by a $10.1 million increase in our Market Solutions platform as a result of capital markets activity among our portfolio companies involving our broker-dealer.

Other Income

Total other income decreased by $8.0 million, or 67%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to lower income from our former affiliate. As of April 2024, the contracts to provide services to such party have ended.

Fee-Related Expenses

Fee-related expenses increased by $103.8 million, or 63%, during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This change was primarily due to an increase in cash-based compensation and benefits, net of $74.9 million and operating expenses, net of $26.1 million.

Cash-Based Compensation and Benefits, Net

The following table presents cash-based compensation and benefits, net for the three months ended September 30, 2024 and 2023:

Cash-based compensation and benefits, net increased by $74.9 million, or 75%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This change was primarily driven by the acquisition of TPG Angelo Gordon in November 2023, partially offset by an increase in reimbursements.

Fee-Related Performance Compensation

The following table presents fee-related performance compensation for the three months ended September 30, 2024 and 2023:

Total fee-related performance compensation increased by $2.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to fees generated by TCAP, which was part of the acquisition of TPG Angelo Gordon in November 2023.

Operating Expenses, Net

Operating expenses, net includes general and administrative expenses as well as reimbursements for professional services and travel expenses related to investment management and advisory services provided to TPG funds and monitoring services provided to our portfolio companies. Operating expenses, net increased by $26.1 million, or 40%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This change was primarily due to the acquisition of TPG Angelo Gordon in November 2023.

Realized Performance Allocations, Net

The following table presents realized performance allocations, net from our platforms for the three months ended September 30, 2024 and 2023:

Realized performance allocations, net of $32.1 million for the three months ended September 30, 2024 were generated from realizations of $11.5 million from TPG VII in the Capital platform, $5.0 million from Growth IV in the Growth platform, $4.0 million from TREP III in the Real Estate platform, and $2.4 million from MMDL IV in TPG AG Credit. The activity consisted of realizations sourced from portfolio companies including Viking Cruises and CLEAResult.

Realized performance allocations, net of $43.4 million for the three months ended September 30, 2023 were generated from realizations of $38.9 million from TPG AAF and $3.8 million from TPG VIII in the Capital platform and $0.7 million from Rise Climate I in the Impact platform. The activity consisted of realizations sourced from portfolio companies, including Creative Artists Agency and DirecTV.

Realized Investment Income and Other, Net

The following table presents realized investment income and other, net for the three months ended September 30, 2024 and 2023:

The change in realized investment income and other, net of $8.2 million during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 resulted primarily from a decrease in realizations from certain investments in our funds, partially offset by a decline in our non-core expense. Our non-core activity includes costs related to the acquisition and integration of TPG Angelo Gordon, totaling $3.3 million for the three months ended September 30, 2024 and $9.2 million for the three months ended September 30, 2023.

Depreciation

Depreciation expense increased $3.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to the acquisition of TPG Angelo Gordon.

Interest Expense, Net

The following table presents interest expense, net for the three months ended September 30, 2024 and 2023:

Interest expense, net increased by $11.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to additional interest expense on our Senior Notes and Subordinated Notes issued during the first quarter of 2024, as described in Note 8 to the Condensed Consolidated Financial Statements.

Distributable Earnings

The decrease in DE for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to an increase in interest expense, net and a decrease in realized performance allocations, net. This was largely offset by an increase in Fee-Related Earnings.

Income taxes increased $5.7 million, or 52%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in distributable earnings allocable to TPG Inc. and an increase in statutory taxes in the three months ended September 30, 2024.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Fee-Related Revenues

Fee-related revenues increased by $497.5 million, or 57%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to additional management fees of $440.0 million and an increase in transaction, monitoring and other fees, net of $59.0 million, partially offset by a decrease in other income of $15.4 million.

The following table presents management fees in our platforms for the nine months ended September 30, 2024 and 2023:

Management fees increased by $440.0 million, or 56%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

This change was primarily driven by the addition of $383.0 million in management fees from TPG Angelo Gordon, acquired in November 2023. During the nine months ended September 30, 2024, we recorded $228.7 million in fees from TPG AG Credit, largely driven by MMDL IV, MVP Fund, Credit Solutions II and MMDL III, and $154.3 million from TPG AG Real Estate, largely driven by Realty Value XI, Realty Value X, Asia Realty V, Europe Realty IV and Net Lease Realty III.

Management fees from our Capital platform increased $44.4 million during the nine months ended September 30, 2024. Fee earning capital raised during the last twelve months ended September 30, 2024 resulted in additional fees from Asia VIII, THP II and TPG IX, partially offset by AAF’s invested capital base being fully realized in the third quarter of 2023.

Management fees from our Growth platform increased $13.0 million mainly due to Growth VI, which was activated during the fourth quarter of 2023, partially offset by a decrease in fees from Growth V, which primarily resulted from a step down in fee basis from committed to invested capital during the first quarter of 2024.

Management fees from our Impact platform decreased $2.7 million, primarily attributable to Evercare, which had a step down in fee basis from committed to invested capital during the fourth quarter of 2023, partially offset by additional fees from TPG NEXT, which was activated during the fourth quarter of 2023.

Management fees from our Real Estate platform decreased $9.1 million primarily due to TREP III, resulting from a step down in fee basis from committed to invested capital in the second quarter of 2023.

Management fees from our Market Solutions platform increased $11.3 million primarily due to TGS and NewQuest V as a result of additional fee earning capital raised during the last twelve months ended September 30, 2024, partially offset by a decrease in fees from TPEP as a result of a decrease in fee earning AUM.

Certain management fees earned during the nine months ended September 30, 2024, totaling $47.9 million, were considered catch-up fees as a result of additional capital commitments from limited partners. Catch-up fees primarily consisted of $21.9 million for Asia VIII and $8.7 million for TGS.

Fee-Related Performance Revenues

The following table presents fee-related performance revenues for the nine months ended September 30, 2024 and 2023:

Fee-related performance revenues increased by $13.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to the addition of TCAP as part of the acquisition of TPG Angelo Gordon in November 2023.

Transaction, Monitoring and Other Fees, Net

The following table presents transaction, monitoring and other fees, net in our platforms for the nine months ended September 30, 2024 and 2023:

Transaction, monitoring and other fees, net increased by $59.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This change was primarily driven by a $52.9 million increase in our Market Solutions platform as a result of capital markets activity among our portfolio companies involving our broker-dealer.

Other Income

Total other income decreased by $15.4 million, or 42%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to lower income from our former affiliate. As of April 2024, the contracts to provide services to such party have ended.

Fee-Related Expenses

Fee-related expenses increased by $303.9 million, or 62%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily comprised of higher compensation and benefits, net of $225.3 million and an increase in operating expenses, net of $71.6 million.

Cash-Based Compensation and Benefits, Net

The following table presents cash-based compensation and benefits, net for the nine months ended September 30, 2024 and 2023:

Total cash-based compensation and benefits, net increased by $225.3 million, or 76%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This change was primarily due to an increase in salaries of $101.7 million, an increase in bonuses of $85.6 million and an increase in benefits and other of $48.7 million, in each case a result of headcount growth due to the acquisition of TPG Angelo Gordon in November 2023.

Fee-Related Performance Compensation

The following table presents fee-related performance compensation for the nine months ended September 30, 2024 and 2023:

Total fee-related performance compensation increased by $7.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to fees generated by TCAP, which was part of the acquisition of TPG Angelo Gordon.

Operating Expenses, Net

Operating expenses, net includes general and administrative expenses as well as reimbursements for professional services and travel expenses related to investment management and advisory services provided to TPG funds and monitoring services provided to our portfolio companies. Operating expenses, net increased by $71.6 million, or 37%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This change was primarily due to the acquisition of TPG Angelo Gordon.

Realized Performance Allocations, Net

The following table presents realized performance allocations, net from our platforms for the nine months ended September 30, 2024 and 2023:

Realized performance allocations, net of $89.6 million for the nine months ended September 30, 2024 were largely generated from realizations of $13.9 million from TPG VIII, $11.5 million from TPG VII and $3.9 million from Asia VII in the Capital platform, $10.4 million from MMDL IV in TPG AG Credit, $17.8 million from Rise Climate I in the Impact platform, $5.0 million from Growth IV and $2.9 million from TTAD I in the Growth platform, $4.9 million from TREP III in the Real Estate platform and $3.9 million from Growth Capital Partners I in TPG AG Real Estate. The activity consisted of realizations sourced from portfolio companies including Nextracker, DirecTV, Viking Cruises, CLEAResult and Singlife.

Realized performance allocations, net of $55.0 million for the nine months ended September 30, 2023 were largely generated from realizations of $38.9 million from TPG AAF and $10.1 million from TPG VIII in the Capital platform, $4.1 million from TREP III in the Real Estate platform, $1.1 million from TTAD I in the Growth platform and $0.7 million from Rise Climate I in the Impact platform. The activity consisted of realizations sourced from portfolio companies including Creative Artists Agency, DirecTV and Alloy Properties.

Realized Investment Income and Other, Net

The following table presents realized investment income and other, net for the nine months ended September 30, 2024 and 2023:

The increase in realized investment income and other, net of $16.3 million during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 resulted primarily from a decrease in non-core expense, partially offset by a decrease in realizations from certain investments in our funds. Our non-core activity includes $16.2 million related to the acquisition and integration of TPG Angelo Gordon for the nine months ended September 30, 2024 and $35.2 million related to the Acquisition for the nine months ended September 30, 2023.

Depreciation

Depreciation expense increased $11.8 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to the acquisition of TPG Angelo Gordon.

Interest Expense, Net

The following table presents interest expense, net for the nine months ended September 30, 2024 and 2023:

Interest expense, net increased by $29.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to additional interest expense on our Senior Notes and Subordinated Notes issued during the nine months ended September 30, 2024, as described in Note 8 to the Condensed Consolidated Financial Statements.

Distributable Earnings

The increase in DE for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to higher Fee-Related Earnings and realized performance allocations, net.

Income taxes increased $6.4 million, or 20%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in distributable earnings allocable to TPG Inc., offset by certain compensation expenses that are not tax deductible during the nine months ended September 30, 2024.

Unaudited Non-GAAP Balance Sheet Measures

Book assets, book liabilities and net book value are non-GAAP performance measures of TPG Operating Group’s assets, liabilities and equity on a deconsolidated basis which reflects our investments in subsidiaries as equity method investments. Additionally, the book assets, book liabilities and net book value include the tax assets and liabilities of TPG Inc. We utilize these measures to assess the unrealized value of our book assets after deducting for book liabilities as well as assess our indirect interest in accrued performance allocations from our funds and our co-investments in our funds and third-party investments. We believe these measures are useful to investors as they provide additional insight into the net assets of the TPG Operating Group on a deconsolidated basis. These non-GAAP financial measures should not be considered as a substitute for, or superior to, similar financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may differ from the calculations of other alternative asset managers and, as a result, may not be comparable to similar measures presented by other companies. Refer to “––Reconciliation to U.S. GAAP Measures” for reconciliations of the Condensed Consolidated Statements of Financial Condition to the non-GAAP Balance Sheet.

The following table sets forth our non-GAAP book assets, book liabilities and net book value as of September 30, 2024 and December 31, 2023:

During the nine months ended September 30, 2024, net book value decreased primarily due to tax payments made on behalf of vested RSU recipients, RSU dividend equivalent payments, the amortization of intangibles and accretion of the contingent earnout related to the acquisition of Angelo Gordon. That decrease was offset by an increase in net accrued performance and investments in funds, primarily associated with TPG VII, TPG IX, Growth IV, Growth V, TPG AG Credit Solutions funds, and TPG AG Structured Credit & Specialty Finance funds.

Reconciliation to U.S. GAAP Measures

The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP to non-GAAP financial measures for the three and nine months ended September 30, 2024 and 2023:

Revenue

Net income

Balance sheet

The following tables reconcile the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP to non-GAAP financial measures as of September 30, 2024 and December 31, 2023:

(1)Certain amounts were reclassified to reflect how we utilize our non-GAAP balance sheet measures. We separately analyze our investments on a non-GAAP basis between accrued performance fees and other investments, which consists of co-investments into our funds and other equity method investments. Additionally, we reclassified U.S. GAAP financial statement amounts due from affiliates and certain amounts within other assets, net for non-GAAP purposes and reclassified U.S. GAAP financial statement amounts due to affiliates and other liabilities within accounts payable, accrued expenses and other for non-GAAP purposes.