Prepared remarks
Good morning, and welcome to TPG's Second Quarter 2026 Earnings Conference Call. Operator instructions: Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin.
Great. Thanks, operator, and welcome, everyone. Joining me today are Jon Winkelried, Jack Weingart, Jim Coulter and Todd Sisitsky as well as our new CFO, Axel Andre. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements, except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the second quarter, we reported GAAP net income attributable to TPG Inc. of $93 million and after-tax distributable earnings of $280 million or $0.69 per share of Class A common stock. We declared a dividend of $0.59 per share of Class A common stock, which will be paid on August 28, 2026, to holders of record as of August 14, 2026. With that, I'll turn the call over to Jon.
Good morning, everyone. Thank you for joining us. TPG delivered strong results in the second quarter, capping off a record first half for the firm. So far, 2026 has been defined by a series of inflections across AI, private credit, monetary policy and geopolitics that have reshaped the macro backdrop and investing landscape. As this environment drives a wider dispersion of performance across our industry, we believe TPG is well positioned to continue taking share given our proven track record and differentiated investment capabilities. We're actively capitalizing on an expanding opportunity set, and our clients continue to look for ways to deepen their engagement with us across our franchise. Turning to our results. Fee-related revenue grew 27% year-over-year to $628 million, driven by a step-up in management fees and our second highest quarter ever for transaction and monitoring fees. Our capital markets business continues to be a powerful revenue driver as we further embed our capabilities across each of our asset classes. Our strong top line growth and increasing operating leverage drove a 43% year-over-year increase in fee-related earnings to $350 million, including $315 million in the second quarter, resulting in a 50% FRE margin. Since becoming a public company 4.5 years ago, our LTM FRE has grown at a 31% annualized rate, and we've expanded our margin by over 1,000 basis points. We ended the quarter with $327 billion of total assets under management, up 25% year-over-year and have continued to set new records for capital raising and deployment on an LTM basis, which I'll highlight now. Starting with capital formation, we raised $16 billion in the second quarter, bringing our year-to-date total to more than $26 billion. Given our strong progress in the first half of the year, combined with our robust pipeline for the second half, we remain confident that we will meet or exceed our target of raising more than $50 billion in 2026. We maintained strong fundraising momentum despite various headwinds in the market, underscoring the strength of our franchise. We're further expanding our relationships with our existing client base as well as attracting new pockets of capital, which is a direct reflection of the differentiated returns we've consistently delivered. Across our private equity strategies, we raised $8 billion in the second quarter, up 39% year-over-year. For TPG Capital X and Healthcare Partners III, we raised $1.3 billion, bringing total capital raised to over $14 billion, including commitments that are signed but not yet closed. Our momentum remains strong as we work towards the final close for this important fundraise. In our Market Solutions platform, we held the first close of $1 billion for our 11th Peppertree fund. As a reminder, we acquired Peppertree, a leading infrastructure manager in the U.S. telecom tower market a year ago. Since then, we've made notable progress introducing the Peppertree strategy to our existing clients with nearly one-third of commitments in the first close coming from legacy TPG relationships. As a result, we expect to grow our fund size by 25%. In credit, we raised $5.6 billion during the quarter. As part of our strategic partnership with Jackson Financial, we received $2.5 billion in new multiyear commitments this quarter, bringing total commitments to $4.5 billion since the partnership began in February. As we deploy this capital into attractive opportunities, we're beginning to see the flywheel take shape, further expanding our origination capabilities and enabling us to more effectively serve a broad base of insurance clients. For our real estate platform, we're in the early stages of a multiyear fundraising cycle. We're currently in the market with all of our U.S. and Asia real estate equity funds, and we're experiencing strong demand ahead of first closes in the coming quarters. In the private wealth channel, while the broader industry has recently faced a deceleration in net flows across retail-oriented products, largely due to private credit concerns, our momentum continues to accelerate. We expect to gain share in the wealth channel, which is an important long-term growth driver for us. June marked the one-year anniversary of the launch of T-POP, our perpetual private equity product. Inflows across the T-POP strategy were approximately $450 million in the quarter, bringing total AUM to $2.9 billion at the end of June. We continue to successfully expand our global distribution footprint, adding a new international private bank platform during the second quarter and another already in the third quarter. As advisers become increasingly selective around new allocations, T-POP is a preferred solution given its strong track record with annualized inception-to-date returns of 34%. TCAP, our non-traded BDC, reported gross inflows of $193 million in the second quarter, which is consistent with the first quarter and reflects the durability of our strategy. Importantly, redemption requests were just 2.1% of total shares outstanding, well below the industry average. Our clients recognize TCAP's proven ability to generate attractive returns across cycles given its leading position in the lower middle market. TCAP's one-year total net return of 9.9% is among the highest for non-traded BDCs and represents approximately 420 basis points of outperformance relative to the leveraged loan market. Turning to deployment. Our investment activity continues to be very strong. We invested approximately $14 billion in the second quarter, up 33% year-over-year, bringing our total over the last 12 months to a record $62 billion. Looking ahead, based on our current investment pipelines, we expect to maintain a robust deployment pace through the back half of the year. Our private equity strategies invested $7.2 billion during the quarter, which increased 60% year-over-year. While the market has been largely focused on AI disruption risks, we've been equally focused on identifying new opportunities created by AI. We've been actively investing behind the AI evolution through direct positions in leading LLMs, including OpenAI and Anthropic. These investments give us unique insight into emerging technology and adoption trends, which have helped guide our strategy. Additionally, we're underwriting significant AI-related growth and efficiency initiatives across the areas we invest in. A powerful example of this is our role as the lead founding partner of the OpenAI deployment company. Together with OpenAI and a group of leading investment firms, we've committed more than $4 billion of initial capital to form a new AI transformation and services platform. DeployCo is built to address the implementation bottlenecks constraining AI adoption among large enterprises. Our investment in DeployCo was made through a collaboration between our TPG Capital, Tech Adjacencies and Hybrid Solutions strategies and leverages our extensive track record in technology and structuring corporate partnerships. We're seeing firsthand that effective AI deployment requires not only forward-deployed engineers, but also deep expertise in business processes and operational transformation. The combination of OpenAI's exceptional talent base and TPG's experience partnering with management teams is already unlocking value in our portfolio and creating new investment opportunities. For example, DeployCo has begun working with Conservice, a TPG Capital portfolio company and leading utility management service provider. Its AI transformation is focused on automating bill intake and exception resolution as well as improving quality control through machine learning, resulting in greater growth and efficiency. Beyond DeployCo, our internal AI and technology capabilities are becoming an increasingly important value creation driver for both our existing and new investments. In TPG Growth, just last week, we closed the acquisition of Smith + Howard, a top 50 CPA firm serving clients across the Southeast. A key component of our investment thesis is the operational transformation of the business through AI enablement, including AI-powered lead generation and workflow automation. Our credit business continued to be active in the quarter with $4.4 billion of capital deployed across our strategies. In Middle Market Direct lending, Twin Brook generated $2.3 billion of gross originations in the second quarter, bringing the year-to-date total to $4 billion, which is pacing ahead of our expectations. Add-on activity across our borrower base accounted for over 40% of our quarterly volume, highlighting our embedded origination engine, which has been a structural advantage for our platform. Twin Brook has also been an important sourcing channel for Advantage Direct Lending, our recently launched core middle market direct lending strategy. Nearly half of ADL's investment activity to date has originated from Twin Brook, either through co-led transactions or lending to existing portfolio companies that have graduated from the lower middle market. In Asset-Based finance, we deployed over $1 billion of capital in the second quarter, including residential home loans, equipment finance and commercial mortgages. In Credit Solutions, we deployed over $1 billion in the quarter, and our pipeline addresses balance sheet challenges. TPG's integrated platform combines scaled capital and flexible structuring capabilities to deliver tailored solutions where traditional lenders often cannot. During the quarter, we agreed to lead a financing for the carve-out of BMC Helix from BMC Software. We believe this transaction represents an important precedent as one of the first significant software LBOs this year. We were able to design a bespoke solution with strong covenants and downside protection that provides the borrower with execution certainty while securing attractive risk-adjusted returns for our investors. Additionally, our European team structured a GBP 900 million second lien facility to help Bally's Intralot's proposed GBP 2.2 billion acquisition of Evoke. This financing addresses Evoke's near-term maturity wall, materially de-risking the overall capital structure. The combination is expected to create a scaled pan-European operator in online gaming with meaningful synergies to improve cash generation and de-leveraging. Given the changes occurring in the structure of the lending market, we're also seeing opportunities to leverage our deep sector and operational expertise to recapitalize businesses and improve performance. We believe our proven ability to drive transformational change and inflect growth, combined with our full continuum of capital solutions, makes TPG a preferred partner for lenders, sponsors and management teams. Turning to real estate. We continue to see attractive opportunities given reset valuations, increased replacement costs, limited supply growth and improving fundamentals in the asset class. Activity has been accelerating across our real estate platform with $2.3 billion deployed in the second quarter, up 47% year-over-year. TAC+, our core plus real estate strategy, acquired control of ECHO Realty, a scaled grocery-anchored retail platform after taking an initial minority stake earlier this year. We believe this is a compelling investment made at a discount to market value in a sector defined by recession-resilient demand and attractive supply dynamics. Along with our acquisition of Quarterra in the multifamily residential space earlier this year, we continue to expand into lower cost of capital real estate, which represents a significant growth opportunity for us. Finally, we generated $5 billion of realizations during the quarter, bringing our year-to-date total to nearly $14 billion, up 28% from the first half of last year. While market conditions are temporarily impacting the timing of exits across our industry, our approach remains unchanged. We continue to be highly intentional in our monetization activity and see a healthy pipeline of exit opportunities across the portfolio. We expect the cadence of realizations to accelerate towards the end of this year and into 2027. Before I hand the call over, I wanted to address the leadership transition we announced in June. As most of you are aware, Axel Andre joined as our new Chief Financial Officer last week. Given the timing of Axel's arrival, Jack will discuss our financial results today, and he is working closely with Axel to ensure a seamless transition. I want to thank Jack for his leadership and immense contributions as CFO. When we were preparing to go public more than five years ago, I asked Jack to take on the challenge of building our public company finance function from the ground up. His deep knowledge of our firm and decades of industry experience have been instrumental in establishing our credibility as a public company and deepening the market's understanding of TPG. Jack is now fully transitioning into his role as CEO of Global Wealth Solutions, which he took on last year in addition to his CFO responsibilities. Jack's leadership has already been critical to our growth in the channel as evidenced by T-POP's success in its first year. As Jack begins to fully dedicate his time to the strategic growth area, we expect to further expand our wealth offerings and global distribution network. I'd also like to introduce and welcome Axel, who is here today with us. In our search for Jack's successor, we were focused on finding a proven leader who aligns closely with our collaborative and entrepreneurial culture while bringing deep public company CFO experience. Axel has served as CFO and led the financial strategy for a number of publicly traded companies, most recently Reinsurance Group of America. Given his deep familiarity with the insurance industry, Axel brings a set of skills that are highly complementary to our existing leadership team and expanding franchise. We're excited to have Axel join us, and we look forward to working closely with him to drive the next phase of our growth. I'll turn it over to Axel to say a few words.
Thanks, Jon. It's great to be here with all of you today. I'm incredibly excited to join TPG's leadership team and begin working alongside such a talented group of professionals. Over the past several months, I've had the opportunity to spend time with teams across the organization and have developed a deep appreciation for TPG's highly collaborative culture and entrepreneurial mindset. I'm fully aligned with the firm's strategic priorities and FRE-centric approach to driving continued scale and diversification. TPG's relentless focus on creating long-term value for our clients and shareholders, combined with the significant opportunities ahead, makes this an incredibly compelling time to join the firm and contribute to its next chapter. I also wanted to thank Jack for his partnership and the strong foundation he has established. I look forward to working closely with Jon and the entire leadership team and to engaging with our shareholders and the analyst community in the coming quarters. With that, I'll turn it over to Jack to walk through the financial results.
Thank you, Axel. I'd like to echo Jon's welcome and our excitement to have Axel join the firm. We're working together closely through the transition process and look forward to partnering to drive the next phase of growth for TPG. As Jon mentioned, we delivered a very strong second quarter. Our fee-related revenue of $628 million increased 27% year-over-year, driven by accelerating management fee growth as well as our second highest quarter ever for transaction and monitoring fees. Management fees grew 15% year-over-year and 9% sequentially as we continue to see the benefits of strong fundraising momentum as well as consistent deployment across our credit platform. We expect continued robust management fee growth for the remainder of '26 and throughout 2027. On the Capital Markets side, since we went public 4.5 years ago, our LTM transaction and monitoring fees have grown at a 31% annualized rate as we've successfully scaled, driven greater deployment and integrated our broker-dealer capabilities across each of our platforms and geographies. During the second quarter, our capital markets revenue was driven by more than 20 transactions across 14 of our strategies, including a growing contribution from our credit platform. We remain confident that our capital markets business will continue to be a meaningful driver of top line growth and margin expansion over time. Our strong second quarter results did benefit from a pull forward of certain transaction closes initially forecasted for the third quarter. Therefore, we expect transaction and monitoring fees to step down in the third quarter. We reported fee-related earnings of $315 million, up 43% year-over-year, resulting in an FRE margin of 50%. Our strong margin in the quarter was elevated as a result of the transaction and monitoring fees I just discussed. Looking forward, we remain confident in our ability to achieve an FRE margin of 47% for the full year with further expansion over time as we continue to drive growth and operating leverage across our business. Turning to PRE. We generated $35 million of realized performance allocations in the second quarter, driven by realizations in our growth and credit platforms. Despite a recovery in the public equity markets, a volatile macro backdrop has temporarily impacted the timing of realizations across the industry. Private equity activity declined during the quarter as buyers and sellers recalibrated for geopolitical uncertainty, changing interest rate expectations and AI-driven disruption. As we navigate through this period of market volatility, we've remained focused on building value across our portfolio and continuing to find opportunities to selectively monetize investments at attractive valuations. In our Capital Asia business, we recently announced the sale of Made Group, a leading better-for-you food and beverage platform based in Australia to a strategic buyer, Danone. This highly successful outcome adds to our long track record of partnering with founders and expanding domestic businesses internationally. Since 2023, over 40% of our exits in TPG Asia have been to strategic buyers in addition to significant secondary and public equity sales, demonstrating the breadth of our exit optionality. Additionally, just last week, we agreed to sell a large-scale luxury hotel property in Central Tokyo from our Asia real estate business. This is our largest transaction to date in this strategy, and we believe also represents one of the largest hotel transactions in the APAC region. The hospitality sector continues to remain robust, and we intend to continue capitalizing on this strength to drive highly attractive exits in our portfolio. Looking ahead, our monetization pipeline is strong. And assuming market conditions continue to normalize, we expect our realized performance allocations to step up toward the end of the year and into 2027. Given our unique portfolio construction and focus on corporate partnerships, a number of which provide enhanced visibility into exits, we're confident in our ability to continue generating attractive liquidity outcomes for our investors. Our effective corporate income tax rate during the second quarter remained low at 8% as we continue to benefit from the tax deductions generated by our annual RSU vesting in January. We expect our tax rate to remain in the high single digits in the third quarter and then step up in the fourth quarter after we fully utilize our deductions. Altogether, our after-tax distributable earnings were $280 million or $0.69 per share of Class A common stock. Moving on to value creation. The fundamentals across our portfolios remain robust, driving positive value creation across all our platforms in the second quarter. In private equity, the value of our portfolios appreciated by approximately 6% in the quarter, marking the second highest quarterly increase since our IPO. This robust value creation was driven primarily by continued strong underlying financial and operating performance. Across our capital, growth and impact platforms, LTM revenue and EBITDA grew in the mid- to high teens, continuing to outperform the broader market. More specifically, our software portfolio continues to perform well with year-over-year bookings growth in the mid-teens across TPG Capital and TPG Growth software companies in the first half. Additionally, we're actively implementing AI-enabled revenue and cost initiatives across our portfolio, which has resulted in tangible improvements to earnings growth. For example, TPG Capital's portfolio company, Boomi, a leading integration Platform as a Service provider, has developed an AI platform that instantly builds integration solutions based on a client's description of a problem in plain English. More than 60% of Boomi's new customers are adopting this solution. And as a result, the company is now generating over $100 million of AI-activated recurring revenue, which is expected to double by year-end. Our credit platform appreciated 3% in the quarter, and the credit metrics across our business remain healthy with no notable changes from the prior quarter or historical averages. In Credit Solutions, we saw continued strong performance across our strategies. Notably, our third credit solutions fund delivered time-weighted net returns of 7.5% in the quarter, meaningfully outperforming the U.S. high-yield bond index and bringing the fund's inception-to-date net IRR to nearly 40%. In middle market direct lending, our underlying portfolio companies continue to generate stable earnings growth with an average interest coverage ratio of approximately 2.4x. The benefits of our active portfolio monitoring and robust risk management are evidenced by a continued low nonaccrual rate of 1.4% and an annualized loss ratio since inception of just 2 basis points. In Asset-Based finance, our first ABC fund's net IRR since inception was 12% at the end of the second quarter, which remains at the top half of our target range. Additionally, our Mortgage Value Partners Fund with $7 billion of AUM generated net returns of 3.4% year-to-date, outpacing broader public credit indices. In real estate, our portfolio appreciated approximately 3% in the quarter, driven by continued strength in our data center, industrial, residential and office assets. As a result of our strong value creation during the quarter, our net accrued carry balance increased 15% to $1.4 billion at the end of June. Following our significant monetization cycle in 2021 and '22, our net accrued carry balance has doubled over the past 4 years, setting us up to generate meaningful PRE in the years ahead. We ended the second quarter with $327 billion of total assets under management, up 25% year-over-year. This was driven by $61 billion of capital raised and $26 billion of value creation, partially offset by $26 billion of realizations over the last 12 months. Fee-earning AUM increased 24% year-over-year to $181 billion. AUM subject to fee earning growth was $52 billion at the end of the quarter, which included $39 billion of AUM not yet earning fees. This represents a revenue opportunity of approximately $290 million on an annualized basis. Finally, turning to our fundraising outlook. We continue to expect our capital raising to exceed $50 billion in 2026. We've raised over $26 billion so far. And looking at the back half of the year, we expect the largest contributors to our fundraising to include the following: In private equity, the completion of our TPG Capital X and Healthcare Partners III campaigns by the end of the year, final closes for our Rise Climate private equity funds, TRC II and the Global South initiative in the third quarter and continued progress across our newer strategies, which include transition infrastructure, Peppertree, GP Solutions, TPG Sports and TPG Next. In credit, final closes for our sixth Twin Brook Direct Lending and second asset-backed credit drawdown funds, continuous fundraising across our evergreen vehicles, including Advantage Direct Lending, an initial close for our fourth essential housing fund and the formation of additional CLOs and SMAs. In real estate, we expect to hold first closes for all 4 of our U.S. and Asia real estate equity funds toward the end of the year. Finally, we expect continued momentum in the private wealth channel, where we see significant runway for growth. June 1, as Jon mentioned, marked our 1-year anniversary of T-POP. We're very pleased with what we've achieved in this first year. We've driven significant scale while delivering market-leading returns to our investors. T-POP is now distributed on 2 of the largest U.S. wire houses as well as 3 leading international private bank platforms. We're in active dialogue with several additional partners and expect inflows across the T-POP strategy to continue to accelerate. We continue to advance our new product pipeline and expect to launch a non-traded REIT next year that spans our equity credit and net lease real estate strategies. We're also developing a multi-strategy credit interval fund and pursuing strategic captive advisory mandates with several wealth platforms. Our goal is to create a flagship Evergreen product in each asset class and to complement those products with more targeted evergreen and drawdown funds. To close out my final earnings call as CFO, I want to take the opportunity to thank all of you for your engagement and partnership throughout the years. It's been a true privilege to help lead TPG in this capacity through our IPO and a period of extraordinary growth and transformation. I look forward to staying connected to many of you as I fully transition to leading our Global Wealth business. Now I'll turn the call back to the operator to take your questions.
Questions and answers
Operator instructions: Question from Alex Blostein with Goldman Sachs.
First off, Jack, I just want to congratulate you and thank you for all the engagement and the work you've done with the investor community over the years. It's been great and definitely looking forward to what's next in your newish role and Axel, welcome. So along those lines, and this is probably for Jon as well, it probably makes sense just to take a little bit of a step back and remind investors about TPG's insurance strategies, how Axel's background fits into your vision for how TPG will continue to kind of push forth forward in the insurance channel.
Yes. Thanks, Alex. Appreciate it. Our insurance strategy has been very consistent: we have focused on developing a series of partnerships with a number of insurers in the market. We have consistently emphasized relationship development and establishing those partnerships, and we have made meaningful progress over the last several years in building that business. The Jackson partnership is at a different scale, and when we structured it we made clear it fit with our FRE-centric, balance-sheet-light approach. As we spent many months bringing Axel into the firm, we discussed that extensively, and as he said in his prepared remarks, he recognizes the benefits that approach has brought to our franchise and how it creates value for our investors. The Jackson partnership continues to go extremely well in every respect, not only in productivity but also in the relationships we have established between Jackson and our asset management business at PPM. Jackson also reported earnings recently and highlighted their productivity across RILA, variable annuities, and the fixed annuity space; they continue to gain share and have strong momentum. We are very pleased with the partnership, and Jackson has said they are pleased with their partnership with TPG. As I noted in my prepared comments, this has created a flywheel effect for us in building origination capabilities and allows us to serve Jackson as well as a number of our other insurance partners. Jackson wants to participate in various tranches of what we create, which broadens the opportunity to distribute products across our insurance relationships. We are very much on track, slightly ahead of plan, with respect to our partnerships, and we will continue to develop these relationships broadly in the market. Over time I expect we will form other distinct types of partnerships with insurers, but we are aligned on staying the course with our approach to this space. I hope that is responsive.
Operator instructions: Our next question comes from Glenn Schorr with Evercore.
Okay. So you have your net accrued carry last quarter got marked down, say, over $100 million. This quarter, went up even more than that. I'm curious how much of that is an actual public reference impact. And then maybe more importantly, you could talk about your thoughts on the probability, likelihood and timing. You talked about a good backdrop and a good pipeline. I was just seeing if we can put some meat on that bone.
Thanks, Glenn. This is Jack. I'll start. Remember last quarter we kind of bifurcated the impact, with the markdowns being more than 100% driven by bringing our multiples down. This quarter, as I mentioned in my comments, we saw very strong continued earnings growth across our portfolios. In addition, there was some increase in market multiples. I would say the increase in our valuations this quarter was very balanced across earnings growth, multiple expansion and some debt paydown and leverage driven equity value appreciation, but it was really driven by continued strong earnings growth in the portfolio. On the outlook for monetizations, Todd, do you want to touch on that?
Yes. I'll just start. I mean, you heard the statistics from Jon. If you look across the industry, realizations, I think, are down sort of 46% quarter-over-quarter. For us, we continue to be very focused on monetization: $5 billion every quarter, $14 billion in the first half, so it's up 28% year-over-year. I think part of the reason for that is that we approached the realization process with the same rigor that we do the investment decision. So as President, I go through with the partners, the managing partners of each business, every company really once a month. And as we look forward, it's hard to be precise, but we do have a number of companies in a number of situations we feel like we have really good prospects for liquidity. And we are continuing to make progress. We announced the Made sale through a strategic transaction this quarter. We just priced an IPO in India, which brings the 5-year total to 17 IPOs launched in India. So we're very front footed when it comes to the liquidity side, and I agree entirely with Jon's comment that on the private equity side, we continue to see good prospects in the end of this year and the beginning of next year.
Operator instructions: We will move next with Dan Fannon with Jefferies.
So Jack, I was hoping you could expand upon your comments about management fee growth continuing in second half this year into 2027. Maybe provide a little bit more context and building blocks around that outlook.
Sure. Thanks for the question. I think it really relates to what we've been saying about FRR growth and management fee growth over the past couple of years. After a period of not raising as much capital for businesses that pay us on committed capital, throughout 2024 we began a series of fundraises that will drive management fee growth, and we also raised a lot of capital for credit that we expect to deploy over the next couple of years. We're still in the early to mid stages of those drivers producing continued management fee growth. As you know, we've been in the market with TPG Capital X and Healthcare Partners III. Those are our biggest fund complexes, but we have significantly diversified with many different funds in the market over time. Once this year is complete with the capital and impact funds I mentioned, next year we'll be in the market raising a significant amount of capital for our real estate franchise, which will drive further management fee growth. That growth, as with this year, will be amplified by accelerating deployment across our credit platform, where our backlog and pipeline of investment opportunities feel very strong. So on the management fee growth side, it's a combination of all of those factors, and we see a very strong outlook.
Operator instructions: We will move next with Ben Budish with Barclays.
Maybe a quick two-parter on the wealth channel. You mentioned that the TCAP flows were pretty consistent from Q1 to Q2. When we look at the individual months, it looks like June had quite a big step-up. Curious if you could unpack what you're seeing there. And what does that mean for the run rate kind of going into the next quarter? And then during the prepared remarks, I'm just curious, you mentioned some captive advisory mandates across the wealth channel. Just curious if you could talk a little bit more about what does that mean exactly. What does the timing look like, magnitude? Any other details?
Sure. On the second point, we don't have much more to disclose yet because the partners and we are still working through the details. Suffice it to say that there are partners who view our investing capabilities and the products we are creating in wealth as very differentiated and want to partner with us across those products on a captive basis. There will be more to share in the coming quarters when there's more to talk about. On the flows, I think it is consistent with the industry that during the redemption process others are going through there was more turmoil in April and May, and people are seeing some normalization in June. Our results at TCAP are a lot more consistent, but we did see the same impact of a slowdown in April and May and a pickup in June. Industry-wide, you are seeing signs that flows are resuming into credit products. The difference for TCAP has been on the redemption side. As Jon and I both mentioned, we have really seen none of the same pressure that others in the industry experienced with 1% redemptions in Q1 and 2% redemptions in Q2.
Operator instructions: We'll take our next question from Ken Worthington with JPMorgan.
Axel, welcome. Jack, thank you for everything over the years; it's truly been a pleasure. I'd like to go off the beaten path a bit and talk about the growth franchise. You had larger fundraising this quarter, about $2.7 billion, concentrated in the growth franchise. Could you discuss the drivers of that? And on deployment, while it may seem like an active period given the broader economy, the activity appears to be focused on TECA and TTAD with more limited deployment into Growth VI. Can you walk us through what is going on in the growth business?
Maybe I'll start, Ken, on the fundraising side, and then Todd will talk about deployment. But if you look at the second quarter fundraising in the Growth platform, it was driven by really multiple factors. As you know, we've been innovating in that platform and driving growth in fundraising across the new products, including, well, TTAD, continued inflows in TTAD; TPG Sports raising capital; TECA, the new growth business in Asia, raising capital. And we have a fund, a digital media fund that was purpose-built for a limited LP base that we effectively get a continuation vehicle on, which crystallized some carry but also let us continue to manage those assets going forward and continue to earn fees and carry on that. So pretty diversified drivers of the capital raising on the Growth platform.
Yes. I would also point out, as Jack described, two of those vehicles didn't exist a year ago. So it's not only strength in the existing platforms that we continue to innovate. The other observation I'd make, and I think it speaks to the fundraising and the underlying momentum in that business, is that if you look in particular at TECA and TTAD, they're benefiting from a very strong portfolio in place. These are now somewhere between 20%, 30%, 40% of the portfolio we've spoken for. The money that's coming in, in many cases, are folks not only liking the story, the team, and the strategy but also being excited about the portfolio that's in place and the sense of momentum in that portfolio. I'd say that's also, by the way, benefiting us very much. I know you asked about Growth specifically in the context of the TPG Capital raise. In all of these raises, we have some investors who came into earlier rounds and are thinking about upsizing, in part because, again, of the strength of the portfolio. So I'd say, in general, we feel like we're clicking on a lot of cylinders here. We have strong teams and strategies that seem to be working, and the portfolios we're building, I think, are quite differentiated in the markets in which we operate and the LPs, I think, are responding very favorably to that.
Operator instructions: Our next question comes from Steven Chubak with Wolfe Research.
Congrats, Jack and Axel. I look forward to engaging with both of you in your new roles. Maybe just to start, of course, on the FRE margin outlook, so FRE margins surprised positively in the first half. The incremental margin came in above 60%, really reinforcing that path to sustained operating leverage. And given the better-than-anticipated FRE margin leverage in the first half, the positive tone on second half business momentum, I was hoping we can get a mark to market on FRE margin expectations for this year versus the prior guide and looking beyond '26, whether an incremental FRE margin above 60% is, in fact, sustainable as the business continues to scale with the caveat, I recognize, mix will be a factor.
Yes. Good question. Look, if we were going to update our guidance of 47%, I would have done that in my prepared remarks. That being said, let me tell you how I think about it. We definitely continue to see the drivers of management fee growth that I talked about in the back half of the year and throughout next year and beyond, and the incremental capital raising in FRR flows through with a very high incremental margin, probably higher than 60% but at least 60%. So we see a longer-term opportunity to continue driving FRE margin expansion as we have been since the IPO. The question in the back half is that it's always hard to predict how it will play out quarter by quarter. I did mention that we pulled forward some capital markets revenue into Q2, and we do expect a step down in capital markets in Q3. It's harder to predict capital markets revenue than management fee revenue. We're currently not budgeting for a big rebound in Q4 either. So I would say what would cause us to increase our margin guidance for the year is if we start to have visibility on more robust capital markets fee growth in the back half of the year to complement what we know will be attractive management fee growth. So that's really a question of timing more than whether we're going to continue to expand the FRE margin.
Operator instructions: We will move next with Bart Dziarski with RBC Capital Markets.
I wanted to go back to the strong private equity performance this quarter, second highest since your IPO in sort of a more tumultuous software tech background. Could you just unpack the EBITDA earnings growth momentum that you're seeing in your underlying portfolio companies and then how you expect that to persist, particularly with your deployment of AI into the portfolio?
Sure. First, to give a little more granularity on what Jack shared: if you look at value creation, particularly for TPG Capital, it is roughly one-third from EBITDA growth, one-third from multiple expansion, and one-third from debt paydown cash flow. We saw very strong performance across the portfolio, with mid- to high-teens EBITDA growth on a last-twelve-months basis, very steady compared with prior quarters and LTM periods, and strong margin levels that have held up. So we feel very good about the underlying performance of our portfolios. In software in particular, which has been a focus for the market and everyone on the call, we continue to see good performance. As Jon mentioned, bookings grew in the mid-teens year-over-year in the first half across our Capital and Growth businesses. Focusing on TPG Capital, we estimate that over 75% of our software exposure comprises businesses we believe are extremely well positioned and will benefit from business acceleration and greater remote adoption given the competitive impact of AI. We described previously a mitigate category for companies we think are challenged by AI impact and disruption. In the fund with the most exposure, TPG VIII in Capital, about 5% of the portfolio falls into that mitigate category. Importantly, since we last shared that, we have not added any new companies to that category. We approach all this with humility and focus on the day-to-day. Jack shared one of many examples where we see a lot of opportunity coming out of AI. We want to be proactive in pursuing those opportunities while remaining sensitive to the risks. Overall, the portfolio continues to perform well, and that shows up both in our results and in value creation this quarter.
Operator instructions: We will move next with Devin Ryan with Citizens Bank.
Just maybe a more direct one on AI and DeployCo specifically. How much could the implementation become a differentiated sourcing advantage for TPG? Essentially, trying to think about helping win competitive investments or even additional strategic partnerships with companies looking for either capital or AI expertise and really just trying to get a better sense of how broadly you expect that advantage could extend beyond the initial DeployCo investment if all goes well over time.
I think that's a very good question. We're excited about the investment on its own merits and its structure. We believe there is a tremendous disconnect between the supply and demand for forward-deployed engineers as companies move beyond the low-hanging fruit and redesign business processes with AI. Your implied point is a good one: this has many implications for our broader business model. First, we are direct investors in several large language model companies, primarily through TTAD. This opportunity, together with our other engagements with these companies, has given us significant insight into AI and capabilities that benefit not only existing portfolio companies but also prospective companies we evaluate. In many cases we are reflecting the significant impact of AI in underwriting during our investment review process. As you said, this is one of those investments, as we've had before, that has an immediate impact. It creates a great opportunity and, we believe, a competitive edge at a time of considerable dynamism, when these insights and relationships materially affect our ability to support and accelerate the growth of our companies.
The only thing I would add is that, implicit in your question, one of the things we're actively observing as a result of implementing AI solutions and the technology within our portfolio is that it takes two important elements, in our judgment, to execute these transformations. The DeployCo investment is giving us both access and insight into the engineering side of these transformations, but it requires more than that. You know we talk a lot about our engagement with our portfolio companies and our operational capabilities; it's the ability to understand and execute transformations, which we've done for many years through engagement with management teams, implementing changes, bringing in engineering capability, and actually executing whether through go-to-market or product initiatives. We feel that our operational experience, combined with the engineering insight DeployCo can bring to bear, is a very distinguishing feature.
Operator instructions: We will move next with Brennan Hawken with BMO Capital Markets.
It looks like when you exclude catch-up fees, the fee rate compressed quarter-over-quarter, although I appreciate that volatility in marks can skew that. I was hoping you could clarify: did the underlying core fee rate move this quarter and, if so, what drove that?
That's a good question. We really haven't seen, as I've said, much change. As we expand in certain asset classes into other parts of the market, like asset-backed credit as we expand into investment grade, the investment-grade world is very value-added for us. It has a very high contribution margin as we scale in that business. That market does bring with it a lower average fee rate. We've discussed with the Jackson relationship a minimum fee rate of 50 basis points. On the other hand, the higher octane part of our credit business, Credit Solutions, has a much higher fee rate. As we scale up from lower middle market direct lending into Advantage Direct Lending, that also has a slightly lower fee rate. So as we expand the scope of some of our businesses into larger market opportunities, those opportunities generally sit lower on the risk-return spectrum and will generate very valuable fees but at a slightly lower fee rate. If there is any trend toward a slightly lower fee rate, that would be it. We don't see any systemic fee rate pressure across our businesses.
Operator instructions: We will move next with Brian Bedell with Deutsche Bank.
Great, and congrats to Jack on his new dedicated role leading private wealth, and welcome, Axel. Jack, if I can ask about developing that business over the next several years: do you see the growth trajectory from a fundraising standpoint being driven more by product rollout or by expanding distribution? You mentioned you’re on two wirehouse platforms — how should we think about expanding to more private banks, the RIA channel, and internationally versus product? And from a distribution cost perspective, as you scale more aggressively, do you view that as still margin-accretive or more of an investment to grow the business?
Good question, Brian. You did a good job summarizing why I'm excited about this. I'm spending all of my time in this area after really helping drive T-POP as a starting point and jumping into this role last year, as Jon mentioned. But the answer to your question is basically all of the above. If you start on the distribution side, I mentioned two wirehouse platforms as the anchors on T-POP. We're on more wirehouse platforms than that across our private wealth business for both evergreen and drawdown funds. We're seeing, in some cases, increasing demand from wirehouses and private banks for our high-performing, more focused strategies in drawdown format. So going forward, we continue to see both of those as drivers. On the distribution side, I would say we're early in expanding our distribution points of presence for T-POP itself. I mentioned we added a couple of two or three international platforms on top of those two U.S. wirehouse platforms. One was added last year. The two new ones are just now beginning to contribute to capital raising. So you'll see more of that flow next year. We're also in the U.S. market expanding in the RIA channel. We're adding an RIA distribution team alongside our wirehouse distribution team in the U.S. Internationally, we've already added a bit of a SWAT team across Asia. We're adding to that in Japan and Australia. So there's a lot for us to continue to do to expand our existing product set distribution points of presence across the U.S. and internationally. Also on the product side, I mentioned this in my prepared remarks, but T-POP is really the first flagship evergreen vehicle across the private equity asset class. We've obviously got other evergreen vehicles that are high performing and attracting great traction in the market like TCAP and MVP in the credit business, but we don't yet have a flagship T-POP-equivalent product in real estate and credit, and we're actively working on both of those. Once we have those, we'll have an opportunity to take the brand building we've been doing with T-POP and leverage that across more products. The final thing I'd say is think about those flagship asset-class-level evergreen products also flowing into what I think of as packaged solutions in the marketplace, with some of the intermediaries and partners we're talking about creating their own packaged next-generation fund of funds, where we already see T-POP being positively selected into those bundles as a high-performing, differentiated private equity solution. So hopefully you'll see that occur in a broader way across the different asset classes. It's kind of building the building blocks and growing the distribution at the same time. And then finally, on your cost question, there's no question we're incurring some costs to build out distribution. But given the amount of product we can leverage across that distribution system, this should be a margin-accretive business.
As Jack transitions all this time to the private wealth channel, we know, because of his history as CFO, that he's not going to go crazy. And he's going to be attentive to margin. So don't worry about it. We got him under control.
Operator instructions: We will move next with Arnaud Giblat with BNP.
I've just got a quick question on transaction fees. This quarter, near record transaction fee levels despite slower levels of exits versus previous quarters. I'm just wondering if you could unpack that a bit and especially when talking about the outlook because you did talk about a pickup in monetization to be expected yet a low level of transaction fees for H2.
Yes, good question. If you step back and think about the drivers of the capital markets business, it's much more correlated with new investment activity than with exit activity. Occasionally, when we sell a company, our capital markets team will work to pre-place the debt before we run an auction and structure it so it can port to any buyer, but that's the exception rather than the rule. It's actually unusual for us to attach much capital markets revenue to our exit activity. My comments about the back half of the year have more to do with the timing of our deployment, particularly in our larger private equity business where, as I mentioned, we pulled forward a couple of large closes. These days, given how we're capitalizing new investments, we typically work to raise the most attractive debt with our own capital markets business. The biggest drivers of capital markets fees, though not the only ones, are larger deals closing, and we had a couple of big ones close in Q2. As of today, we don't see those kinds of chunky additions to capital markets in Q3 or Q4. I wouldn't think about the correlation being with exit activity. Since the IPO, capital markets has been a significant opportunity for us; we've delivered on that by adding to the team and penetrating more of our businesses, building out our capital markets capability across asset classes, including credit, and we are seeing the benefit. It's just that predicting quarter-by-quarter remains difficult.
Operator instructions: Our next question comes from Mike Brown with UBS.
So really strong start to the year on the fundraising front and you provided some good color about the drivers for the rest of the year here. I guess I just wanted to ask a little bit more about real estate and credit. So in real estate, just curious if you're seeing any hesitation from LPs just given some of the market rate volatility out there. And then how could that potentially impact how fundraising flows in on your real estate strategies in terms of first close and then subsequent raises? And then on the credit side, really upbeat commentary or generally upbeat commentary on the deployment front. So maybe could you just add a little bit of color around that? What are you seeing specifically? Is that more kind of market driven or just as you're continuing to take market share and really expand your capabilities in credit?
Sure. Let's start with real estate. This has been an evolving asset class in terms of investor interest over the last couple of years. Changes in interest rates and the inversion between cap rates and financing costs have put pressure on office and other sectors, so real estate hadn't been getting much attention. Over the last 18 months, though, we've consistently seen a shift in the opportunity set driven by certain market players needing to sell, interesting opportunities such as take-privates from public REITs, and general market pressure that has created value opportunities. At the same time, we've been able to acquire quality real estate and platforms well below replacement costs. That narrative and dynamic are taking hold with limited partners. We’re also benefiting from a strong track record across our business, which, given the market’s experience in real estate, is not that common. Our teams have done a very good job navigating a difficult market. We’re seeing a robust level of interest across the platforms that Jack described where we’ll be raising capital. To give you a sense of why we’re confident, look at the level of engagement and deal activity: in the first half of the year we completed roughly four significant investments in our opportunistic business and attracted about $2.6 billion of co-investment. That co-investment came from both existing investors and new-to-fund investors, which is a real expression of size and interest from parties that had not been allocating to opportunistic real estate funds or, on the Core Plus side, had not been participating previously. We expect, with a lot of confidence, that many of these investors will join our fundraising process through the balance of this year and into next year, so we feel very confident about participation in our real estate capital formation. On the credit side, the market is starting to show dispersion for the first time in a long while. Looking at both the performance of our strategies and where we are participating, our platform is continuing to distinguish itself, which creates opportunity. We’re gaining more share of mind from investors when we discuss our strategies. For example, our lower middle market direct lending strategy in Twin Brook and our expanded ADL strategy, with different leverage levels and a focus on cash-flow lending, are attracting investors who want to diversify away from the upper-middle market where competition is intense and terms are compressed. Based on our pace of originations this year, we expect to perform better than we originally anticipated coming into the year in terms of transaction activity and market share. I also noted in my comments that our Credit Solutions platform is well positioned given broader market dynamics: many capital structures are somewhat stuck and there are refinancing walls coming in 2028 and 2029, so there is a strong need for solutions-oriented capital. We have the capacity and capabilities to fill that need. Hybrid Solutions and Credit Solutions are attracting a lot of attention as a compelling risk/reward area of the market. Overall, that is what we’re seeing.
It's Jack. The only thing I'd add to that, on your question about the timing of fees generated, Jon mentioned we're very, very confident in the LP support for these real estate businesses. We're not assuming that we activate any of those funds until close to the end of the year. So you'll see most of the FRR benefit from that fundraising kick in throughout the course of the year next year.
Operator instructions: We'll take our last question from Bill Katz with TD Cowen.
Jack and Axel, congratulations both. I look forward to as well working with you in new respective roles. Maybe just a big picture question. Just sort of think through the flywheel on the monetization opportunity, very good sequential growth in the net accrued carry, as you talked about earlier. Just looking through your disclosure, you have a bunch of different vintages where you saw some nice improvement. So I guess the first part of the question is, as you think through that flywheel of opportunity into 2027, which areas do you sort of see the best opportunity to drive that monetization. And then just a conceptual question. As you think through your operating leverage into 2027, how does that sort of quantum of compensation opportunity, which I know sits on the private side, how does that inform your compensation that sits within the FRE?
Yes, I'll start with the first part. I'd say it's actually pretty broad-based at this point in terms of where we see the opportunities. We're seeing a number of opportunities that we're excited about in the climate business in terms of monetization over the next 3 to 6 months. We actually see a number of opportunities that we're pushing on in the software space as well. As we mentioned, we've continued to be very active in Asia and have had one strategic sale and one IPO in the last couple of weeks alone and continue to see opportunities to drive that. We have a few public companies. There may be others that go public in the future. And we have stakes in some companies that have recently gone public, so there's some natural liquidity. And finally, we've referenced this in other calls and referenced it today: we have a healthy push of our business in private equity, particularly in TPG Capital, that relates to structured partnerships with corporate partners, in many cases repeat structured partnerships with corporate partners. When you look at the first quarter, we had really strong exits with Intersect Power to Google and our exit to Cencora of the business that we bought together, OneOncology, and both were very good exits that were contemplated in the original partnerships. In some cases, we have very clear structural time frames around all these things, but I think there will continue to be opportunities to fulfill the natural evolution of those structured partnerships, which would be for the corporates to take over and acquire the businesses. That will also be a portion of the exits that we see over the next year. So I would say it's not particularly concentrated. We see opportunities really across the board.
And Bill, on the second part of your question, I would just say I think I'm interpreting your question correctly. As we see the next wave of promote generated, we have a pretty well-established allocation process for that promote. We're going to continue to allocate 20% of it in a royalty format to shareholders and the remainder flows in the direction that you know. The fact is this year our promote is probably going to be a little below an average year, and our partners are comfortable with that. As we promote new partners, they come out of the FRE comp and into the carry pool, and that's what we'll do as we see the next surge of carry generated — we'll continue to allocate it in the same way.
This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks.
Thank you. Thank you all for joining us today. As always, if you have any follow-up questions, please feel free to reach out directly to the Investor Relations team. Otherwise, we'll look forward to speaking with you again next quarter.
Thank you, everyone.
Thank you. This concludes today's TPG's Second Quarter 2026 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.