管理層發言
Good morning, and welcome to the TPG's Third Quarter 2025 Earnings Conference Call. 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 this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. Our President, Todd Sisitsky, is also here and will be available for the Q&A portion of this morning's call. 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 third quarter, we reported GAAP net income attributable to TPG Inc. of $67 million and after-tax distributable earnings of $214 million or $0.53 per share of Class A common stock. We declared a dividend of $0.45 per share of Class A common stock, which will be paid on December 1, 2025, to holders of record as of November 14, 2025. I'll now turn the call over to Jon.
Good morning, everyone. Thank you for joining us today. TPG delivered strong results in the third quarter. Our total AUM grew 20% and quarterly fee-related earnings grew 18% year-over-year. The flywheels across our business continued to accelerate, led by robust capital formation across all asset classes and a record quarter for deployment. I'll spend a moment on each of these important areas. This was an outstanding fundraising quarter. We raised a near record $18 billion of capital, up 60% from the second quarter and 75% year-over-year. This was driven by a successful first close in our flagship private equity funds and strong credit fundraising, where we continue to experience a step function increase in capital formation. We've made substantial progress against our previous guidance of raising significantly more capital in 2025 compared to 2024. Year-to-date, we've raised over $35 billion of capital, which already exceeds our full year 2024 fundraising.
In private equity, we raised $12.3 billion in aggregate across our strategies. This was primarily driven by $10.1 billion raised in the first close for our flagship buyout funds, TPG Capital X and Healthcare Partners III, including commitments that are signed but not yet closed. We received strong support from our existing clients who increased their commitments by 12% on average over the prior vintage. These results reinforce our confidence that TPG is positively differentiated within the private equity market where fundraising has been perceived as challenging in the current environment. Our clients continue to lean in and look for more ways to partner with us in private equity given our distinct and highly disciplined approach and consistently strong performance. As a result, we believe we are outperforming in private equity fundraising relative to the broader market and gaining share.
In credit, after reaching an inflection point last quarter, we maintained our strong fundraising pace and closed $4.8 billion of credit capital in the third quarter. In middle market direct lending, we announced the closing of a $3 billion continuation vehicle, which we believe is the largest-ever private credit continuation vehicle. This unique transaction enabled us to extend the duration of our capital base for a portfolio of high-performing senior loans in collaboration with several strategic partners. In structured credit, we raised $1.4 billion across the strategy and launched our new liquid securities-focused open-ended fund. And in Credit Solutions, we continued fundraising for our third flagship fund, bringing the total capital raised to date to $4.3 billion. We expect to hold a final close in the fourth quarter and for the fund to be meaningfully larger than its predecessor. Year-to-date, we've raised nearly $12 billion of credit capital in what has been a breakout year for our franchise.
As a result of our fundraising momentum, we ended the quarter with record credit dry powder of over $16 billion. Credit AUM not earning fees stood at nearly $11 billion, which represents over $100 million of annual revenue opportunity that we expect to flow into management fees over time. In real estate, we held a final close for our inaugural real estate credit strategy, bringing total commitments across the main fund and related vehicles to $2.1 billion, which exceeds our initial $1.5 billion target by more than 35%. We raised approximately $1 billion of capital in the final close driven by the strength of TRECO's initial portfolio. TRECO adds to our long track record of expanding into adjacent strategies through organic innovation. Early in the current cycle, we identified a compelling opportunity to invest in real estate credit at attractive risk-adjusted returns given the significant contraction in valuations and available leverage.
We're seeing our thesis prove out with a fund outperforming its initial return projections and generating double-digit cash-on-cash yields. TRECO is an important extension of our investment capabilities in both real estate and credit, and we expect to scale this strategy over time. Additionally, our fundraising success has been amplified by our increasing penetration into the fastest-growing distribution channels, including insurance and private wealth. First, we've grown our capital from insurance clients by more than 60% over the last 2 years. Insurance represented 40% of TRECO's final close and over 25% of the capital raised for our credit platform in the third quarter. We're continuing to create innovative access points and cross-platform solutions for our insurance clients. For example, we've closed more than $600 million of insurance capital in our first rated note feeder for credit solutions, which we believe is one of the few rated access points for this type of strategy in the market.
Second, we're making strong progress in the private wealth channel, where we raised over $1 billion of capital across our drawdown and evergreen funds in the third quarter. T-POP, our perpetually offered private equity product, continues to gain momentum with approximately $900 million of inflows since its launch 5 months ago, including $250 million in October. This accelerated pace was supported by the launch of T-POP on a leading international private bank platform in September. We are experiencing strong traction in Europe and Asia and plan to launch on several additional domestic and international platforms over the next few quarters. Private wealth is an important growth driver for us, and we remain focused on further expanding access to our products across geographies and investor types, which Jack will touch on further. Moving on to deployment. As discussed on our last call, we expected our investment pace to accelerate into the back half of the year.
In the third quarter, we deployed a record $15 billion, up over 70% year-over-year, and our activity was well diversified across the firm. Our credit platform drove over half of the capital deployed during the quarter with $8.3 billion invested across our strategies more than doubling year-over-year. In structured credit, we deployed $3.6 billion of capital, half of which was driven by residential whole loan investments where we continue to be a market leader. In asset-backed finance, we closed notable transactions across several of our verticals, including non-bank credit card origination. We also completed a meaningful upsize of our joint venture with Funding Circle and Barclays in the U.K. In middle market direct lending, Twin Brook generated $2 billion of gross originations in the third quarter, our highest volume so far this year. Importantly, given the steady increase in overall M&A activity, 70% of our origination was driven by new investments, bringing the total number of companies in our portfolio to over 300.
Our pipeline remains robust, and we expect the fourth quarter to be our most active quarter of the year. In Credit Solutions, as spreads remain at historic tights, our flexible mandate continues to create opportunities to provide tailored solutions in the private market. As an example, last year, we formed a proprietary joint venture with Bluestar Alliance and Hilco Global to finance and acquire consumer brands and intellectual property. Our unique partnership brings together significant sector, operating, and financing expertise, enabling differentiated access to attractive opportunities. This was most recently highlighted by the JV's announced acquisition of the iconic Dickies apparel brand in September. Despite some recent concerns in the broader credit markets, including certain allegations of fraudulent activity, our portfolios continue to perform well. We've maintained a disciplined and highly selective approach to credit underwriting with a focus on fundamentals and risk management.
As a result, our annualized loss ratio since inception has remained stable at only 2 basis points for Twin Brook, 3 basis points for our private asset-backed credit business, and less than 40 basis points for Credit Solutions. We continue to uphold the same rigorous standards as we evaluate new investment opportunities, and Jack will share more details in his remarks. Across our private equity strategies, we maintained a healthy pace of deployment with $4.6 billion of capital invested in the third quarter, up nearly 40% year-over-year. At TPG Capital, we announced the carve-out of Proficy, GE Vernova's manufacturing software business. This transaction is a culmination of the relationship we've built with GE Vernova over 7 years across both our capital and climate strategies. Proficy aligns well with our expertise in corporate carve-outs and structured partnerships which comprise 11 of the 16 most recent investments in TPG Capital.
Additionally, just a few weeks ago, we announced the take-private of Hologic, a leading provider of diagnostic imaging and surgical products focused on women's health, for up to $18 billion. We're excited to partner with one of the premier scaled platforms in the women's health space, which has long been a thematic area of focus for us. In tech adjacencies, we closed minority investments into several leading large language model developers, expanding our exposure to Gen AI development and providing us with differentiated insights into this rapidly evolving area of the technology ecosystem. These investments follow the innovative debt financing that our Credit Solutions business recently anchored for xAI. We continue to evaluate opportunities to capitalize on the robust growth in the space and partner with leading AI companies across each of our asset classes. In Rise Climate yesterday, we announced the acquisition of Kinetic, a leading international operator of zero-emission transport and infrastructure based in Australia.
Kinetic aligns closely with our deep expertise in clean electrification and mobility and represents the second investment by our transition infrastructure strategy. In real estate, we had our most active deployment quarter so far this year with $1.9 billion invested across TPG and TPG AG real estate. During the third quarter, TREP completed the acquisition of the former Broadcom office campus in Palo Alto's Stanford Research Park. This investment is consistent with TREP's continued focus on selectively investing in office markets where we see compelling green shoots emerging, such as the San Francisco Bay Area. We believe the Bay Area is reaching an inflection point in demand driven by the growth in AI-focused tenants. In TBG AG real estate, we've maintained an active investment pace with nearly $2 billion deployed year-to-date across our dedicated regional funds. We're identifying and capitalizing on improving supply-demand dynamics in certain sectors, including senior housing and hospitality in the U.S. and office markets in Japan, Korea and London, which have low vacancy rates and attractive rental growth.
Before I wrap up, I want to share what I'm hearing from my conversations with our clients across the world and how it's shaping our business and the opportunities in front of us. In private equity, institutional clients continue to face liquidity constraints and are consolidating their relationships among fewer general partners. Against this backdrop, we believe TPG is gaining share due to the consistently strong returns we've delivered. This has been driven by our focus on investing in deeply thematic areas and partnering with our portfolio companies to drive growth. Over the past decade, across our TPG Capital and TBG growth funds, more than 80% of our value creation has come from earnings growth compared to less than half for the S&P 500, where over 40% of the value was driven by multiple expansion. This differentiation is resonating with our clients and driving continued fund-over-fund growth across our private equity strategies.
Additionally, we continue to see increasing allocations into private credit. Investors are diversifying their exposure into areas such as structured credit, lower middle market direct lending, and middle of the capital structure opportunities where we've built scaled investment strategies. Our clients are expanding their relationships with us across our credit platform, including through multi-fund partnerships and seeding new strategies. As a result, our credit AUM has grown 23% year-over-year and it continues to be one of the fastest-growing areas within our firm. And finally, in real estate, we are well positioned to play offense with over $12 billion of combined dry powder and continued positive value creation across our portfolios. Over the past 2 years, we've capitalized on the substantial market dislocation to acquire high-quality assets that are not typically available for sale. We believe the real estate market has stabilized and transaction activity is accelerating.
Our clients are expressing a growing interest in real estate as demonstrated by the success of TRECO's recent fundraise. Given the strength of our distinctive portfolios, we remain confident as we prepare to launch fundraising campaigns for several of our real estate strategies in the coming quarters. We made significant progress against our strategic priorities for 2025, and I'm pleased with the strength of our business across all key metrics. Our increased scale and diversification positions us well to deliver accelerated growth and generate long-term value for our shareholders. I'll now turn the call over to Jack to discuss our financial results.
Thanks, Jon, and thank you all for joining us today. As you can see from our strong third quarter results, we've been successfully executing on our growth strategy. On our last call, I discussed several key building blocks we've been putting in place to drive our next leg of growth. These include scaling our credit platform, launching our next series of private equity and real estate funds, and building on new products and businesses. Our Q3 results demonstrate that we're tracking well against these objectives. Our capital formation and credit is on pace for a record year in 2025 and credit deployment through the third quarter of nearly $17 billion already exceeds our full year 2024 total. Fundraising for TPG Capital X and Healthcare Partners III is off to a great start and with more than $10 billion raised in the first close. And we continue to expand through organic innovation. As Jon mentioned, we raised $2.1 billion of capital for TRECO, our opportunistic real estate credit fund, including related vehicles, and approximately $900 million today for T-POP, our new perpetual private equity product, which I'll expand on later.
Additionally, earlier this year, we launched fundraising for our second GP-led secondaries fund, which is tracking to be significantly larger than its processor. We ended the third quarter with $286 billion of total assets under management, up 20% year-over-year. This was driven by $44 billion of capital raised and $24 billion of value creation, partly offset by $26 billion of realizations over the last 12 months. Fee earning AUM increased 15% year-over-year to $163 million. These figures include TPG Peppertree, which closed on July 1 and added $8 billion of AUM and $4.5 billion of fee-paying AUM. As a result of our strong fundraising in recent quarters, our dry powder has grown to a record $73 billion. This represents a real strategic asset at a time when, as Jon indicated, our teams are sourcing very interesting investment opportunities. AUM subject to fee earning growth was $35 billion at the end of the quarter, which included $24 billion of AUM not yet earning fees.
This represents a revenue opportunity of more than $220 million on an annualized basis. Our management fees grew to $461 million in the third quarter, driven by the activation of TPG Capital X and the addition of TPG Peppertree to our Market Solutions platform. We generated $38 million of transaction and monitoring fees in the quarter and $163 million over the last 12 months. We continue to invest in building our capital markets franchise. And as we look to the fourth quarter and into 2026, we expect to drive further growth in transaction fees. We reported quarterly fee-related revenue of $509 million, fee-related earnings of $225 million and a 44% FRE margin, which tracks well against our previous guidance of exiting the year with a margin in the mid-40s. Our distributable earnings for the third quarter were $230 million, which included $30 million of realized performance allocations, driven by our full exit from Sai Life Sciences, which has traded up nearly 70% since its IPO in the India Stock Exchange last December and the full sale of Samhwa, a leading cosmetics packaging company in Korea.
This marks a strong first exit in TPG Asia VIII less than 2 years after our additional investment in the company and is a great outcome for our Asia franchise. I'd like to explain the relationship between our monetization activity and our generation of performance-related earnings for shareholders. During the quarter, we continued to drive strong realizations across our portfolio, which increased nearly 40% year-over-year to $8 billion. The reason that performance-related earnings did not increase commensurately relates to the timing of profit allocations early in a fund's life. In addition to Sai Life Sciences and Samhwa, realizations during the quarter included early exits in several other funds, such as our highly successful sale of Elite in TPG Capital IX. These exits drove attractive profits and distributions for our fund investors, but did not result in significant performance allocations as the gains went to repay fees and expenses, which is typical for the first exits in the fund.
Looking forward, this sets us up for increased performance allocations from the next series of exits in these young funds. On an LTM basis, we've generated $262 million of performance-related earnings for shareholders, which is a 140% increase compared to the prior 12-month period. Our clients recognize the differentiated distributions we've delivered and we've continued to drive monetization activity since quarter end. In October, we completed our first major liquidity event in our GP-led secondaries business, TGS through a partial realization of CR Fitness, a leading fitness franchisee at an attractive valuation. Since our initial investment, our sponsor partner, North Castle, and the management team have driven exceptional growth at the company, more than doubling both the number of active clubs and EBITDA. And just last night, our Rise and Rise Climate portfolio company Beta Technologies, which has developed electric aircraft capable of vertical takeoff, successfully priced a $1 billion all-primary IPO.
This IPO was very well received, allowing the company to upsize the offering and price above the filing range. Moving on to our balance sheet. We drew on our revolver during the quarter for several growth initiatives, including funding the cash consideration for Peppertree and seeding the portfolios for new businesses such as T-POP. We issued $500 million of senior notes during the quarter and used the proceeds to pay down our revolver. As a result, our net interest expense increased to $23 million in the third quarter. As of September 30, we had $1.7 billion of net debt and $1.8 billion of available liquidity, giving us ample flexibility to continue pursuing new growth initiatives. Given our increased diversification and strong financial profile, during the quarter, we did receive an upgrade in our credit rating from Fitch to A-. The fundamentals across our portfolios remained strong, and we delivered positive value creation in each of our platforms for the third quarter and over the last 12 months.
As Jon mentioned, there's been a heightened focus in the market on credit quality due to a few high-profile defaults. Importantly, we have no exposure to those events, and the underlying health of our credit portfolio remains strong. In aggregate, our credit platform appreciated 3% in the third quarter and 12% over the last 12 months. In middle market direct lending, our portfolio comprises exclusively first-lien loans with maintenance financial covenants. And we are a lead lender in nearly all of our transactions. We've built in significant downside protection and take an active approach to portfolio management. As a result, our portfolio of more than 300 companies continues to perform well. Non-accruals remain extremely limited at less than 2% and our average interest coverage ratio has remained very stable at approximately 2x. In structured credit, our asset-based credit funds' net IRR since inception remained above its target range at 13.5% and at the end of the third quarter.
In addition, our flagship structured credit fund MVP continued to outperform credit benchmarks and returned 3% in the third quarter. Recent stress in the structured credit market has been evident in the subprime auto space. Several years ago, we identified weakening fundamentals in auto finance and our structured credit funds proactively rotated out of the sector. As a result, we currently have zero exposure. Looking at Credit Solutions, our funds generated net returns ranging from approximately 5% to 6% in the quarter, which far outpaced the U.S. leveraged loan and high-yield bond indices. In addition, our second essential housing fund generated a net return of nearly 4% during the quarter and more than 11% year-to-date. Turning to private equity. Our portfolio in aggregate appreciated 3% in the quarter and 11% over the last 12 months. Overall, the companies within our capital, growth, and impact platforms continue to meaningfully outperform the broader market with revenue and EBITDA growth of approximately 17% and 20%, respectively, over the last 12 months.
TPG's real estate portfolio appreciated 3.5% in the quarter, nearly 16% over the last 12 months. We continue to see strong performance and value creation in our data center, residential, and industrial investments. TPG AG's real estate portfolio appreciated by 2% in the third quarter and 3.5% over the last 12 months. Our net accrued performance balance grew by nearly $200 million in the quarter to reach $1.2 billion, driven by our strong value creation in addition to $100 million of accrued carry acquired through Peppertree. Turning to fundraising. We raised more than $18 billion during the third quarter, including more than $12 billion in private equity and nearly $5 billion in credit. Year-to-date through the third quarter, we've raised more than $35 billion across our platforms, which already exceeds the $30 billion we raised in 2024. As Jon noted, private wealth is a strategic priority and an important growth driver for TPG.
I'd like to share some additional detail on our progress in increasing our penetration within this channel. During the third quarter, we raised over $1 billion of capital in the wealth channel and approximately half of these inflows came from our evergreen solutions, which continue to gain momentum as we widen our distribution partnerships globally. TCAP, our non-traded BDC, raised $235 million in the quarter and continues to grow, reaching over $4 billion of AUM at the end of September. TCAP is actively distributed by three of the largest U.S. wirehouses, and we recently launched on one of the largest independent broker-dealer platforms. Twin Brook's focus on the lower middle market, conservative lending standards, and high credit quality is continuing to differentiate TCAP relative to other credit options available to wealth clients. We're actively expanding TCAP's distribution network and expect inflows to continue to accelerate.
T-POP, our perpetually offered private equity vehicle, has been very well received in the channel, exceeding our high expectations. T-POP has raised approximately $900 million in its first 5 months, and we're experiencing increasing momentum as we grow our distribution footprint and investment portfolio. From its activation date in June through September 30, T-POP has delivered net returns of approximately 12%, and as of quarter end, provided exposure to 41 individual TPG portfolio companies. We're very focused on expanding our distribution for this strategy globally in 2026. Finally, we continue to expand our partnerships with global banks and wealth platforms, adding more than 20 new relationships in the third quarter. Additionally, we're actively structuring several innovative partnerships to extend our brand and increase the accessibility of our products for the wealth community, including in the RIA channel.
We look forward to providing updates here in the coming quarters. Before I wrap up, I'd like to provide an update on our fundraising outlook. During the course of this year, as we anticipated, we've been experiencing a step function increase in the pace of our capital formation with a particularly robust third quarter, driven by the strong first close for our TPG Capital and Healthcare Partners funds. Most of the remaining capital for these funds will be raised next year. Nonetheless, we still expect the fourth quarter to be an active period for fundraising across asset classes. Looking at 2026, we expect to have another robust year of fundraising similar to this year, driven by a number of ongoing and new campaigns. In credit, we expect continued capital raising across all of our existing businesses. In addition, we're working on launching several new strategies to further expand our credit platform.
In private equity, we'll continue to be in the market with our capital and climate campaigns. We expect to launch fundraising for the next vintage of our flagship Asia fund as well as our fourth Rise fund. On the real estate side, we expect 2026 to be an important and significant year for our franchise. We'll begin fundraising for the next vintage of TPG Real Estate's flagship fund and TPG AG real estate funds in both the U.S. and Asia. We also remain highly focused on diversifying our sources of capital and further penetrating the fastest-growing distribution channels. In Private Wealth, we expect to grow our distribution network in the U.S. and internationally and launch additional semi-liquid and yield-oriented products across asset classes. Additionally, we continue to organically expand our insurance relationships and evaluate broader strategic partnerships and inorganic opportunities.
Based on the increased cadence and consistency of our capital formation efforts over the last few years, we've clearly been successful in expanding and diversifying our business. We're excited to continue building on this momentum and delivering differentiated results for our clients and shareholders.
分析師問答
And we'll take our first question from Glenn Schorr with Evercore.
I appreciate the color you gave us on the relationship between monetizations and performance-related earnings and some monetizations early in funds life. What's interesting is 69% of your net accrued performance is now in funds that are 5 years or older. So I'm just curious, really good monetization backdrop according to the banks, brokers, you guys. So just how does that inform us about the realization pipeline that you're looking at given the age, timing, and all the other comments?
Yes, good question, Glenn. Let me start just by explaining that vintage page a little bit because I don't think we've done that in the past, and then Todd will expand a bit more on our outlook for performance-related earnings. But on that vintage chart, when we say vintage, the category vintage is before 2020 and earlier, that refers to the vintage of the fund itself not to the underlying portfolio of companies. So the biggest category there, for example, is TPG VIII, which is a 2019 vintage fund. So those investments were made largely in 2021, '22 before we raised TPG IX. And then growth 5, the 2020 vintage fund, that's another big category in that kind of aged vintage bucket. And that's a 2020 vintage fund where most of those deals were done in 2021, '22, '23. So despite 2020 sounding like an earlier vintage, the vintage of the underlying investments are actually still pretty young. So that being said, that's what that page means. And Todd will expand more on our approach to monetization.
Yes, I want to emphasize what Jack mentioned about our newer deals. We are concentrating on driving growth in those investments, which typically takes a couple of years. We believe we are at the right stage regarding liquidity in those funds. Without reiterating too much of what Jack stated, I believe that our approach to distributions and liquidity has truly set us apart. We approach this with great intention, applying the same focus and intensity to these decisions as we do with investments. This focus was part of our strategy, making us net sellers in capital and growth in 2021 and 2022, and then net buyers in 2023 when the market softened before becoming net sellers again in 2024. Looking ahead, I am optimistic about our liquidity prospects, and we currently have several assets we are considering for liquidity. Jon noted that most of TPG Capital's investments in the last fund have been structured as carved-out relationships.
In many cases, we already know who the buyers will be, and we have put-call agreements, which are interesting and somewhat rare opportunities. Most of the deals in capital over the past several years have been sold to strategic buyers, who are becoming more active. We recently had over 13 IPOs in India, taking advantage of those market conditions. Overall, we are positive about the momentum in our portfolio, the conversations we are having, and we remain optimistic about the liquidity environment.
Glenn, my comments on the call were meant to basically indicate that we are still aggressive on the monetization front. The timing issue I described is how that flows through to performance-related earnings. If the sales were made in more mature funds that had already had exits, it would have likely seen a much bigger impact on performance-related earnings.
And our next question comes from Craig Siegenthaler with Bank of America.
We also have a question on realizations, but aggregate realizations, not performance-related earnings. For the first time since you IPO-ed almost four years ago, it is once again raining IPO and M&A announcements. If this continues, can you help us frame the level of realization potential out of your private equity and growth capital businesses over the next year? And the reason I'm asking TPG this is the last time we had this backdrop in 2021; TPG was arguably the most active in the industry of monetizing. And it sounds like your commentary today is constructive, but maybe not super bullish.
Maybe I'll start on that, Craig. It's Jack. The way I think about that is we don't predict realizations and performance-related earnings for a good reason. We will sell companies when it’s the right time, and we have all the complicated waterfall mechanics I mentioned earlier. That said, I see that our accrued but unrealized performance-related earnings balance has now increased to $1.2 billion. We acquired some performance-related earnings from Peppertree, which accounted for half of that increase. The other half was from other sources, so we are starting to see that balance grow again. As you and I have discussed, one way to frame this is that over a cycle, we would expect to monetize that balance over a three- to four-year period. The more attractive the market becomes, the more we'll tend to focus on that. However, the most important questions are: What are the underlying companies? Have we achieved our value creation plan? Is it in the best interest of our funds and investors to sell that business? That will be our framework for considering each exit throughout the next year.
Craig, it's Jon. I think your understanding of this is somewhat incorrect. What we were aiming to convey is the intentionality behind our actions and decisions. When considering how we've structured our portfolios across Capital VIII, Capital IX, and now Capital X, Todd highlighted the strategic partnerships we have. In many instances, we have strategic partners working alongside us because they want the chance to acquire an asset. We have designed our portfolios to ensure multiple exit opportunities. We focus on the size of our companies and the value we create, including revenue and EBITDA growth. We're also deliberate about the timing in the value creation cycle when we consider selling or monetizing assets, ensuring there's more value to be realized by potential buyers. When looking at our portfolios, we align this with market valuation perspectives. You mentioned the years 2021 and 2022; during that time, we decided to sell our entire software portfolio based on our assessment of market valuations, which was ultimately a wise decision. Our aim is to convey that we are equally attentive to both our purchasing and selling decisions in the portfolio. I just wanted to clarify because I believe your interpretation may be a bit misaligned.
Just the last thing I would add and both Jon and Jack have referenced it. One of the reasons I think we're constructive on the exits is just the strength of the portfolio performance. We have a portfolio on an LTM basis across private equity that's growing EBITDA at 20% plus and none of the platforms on an LTM basis are below 15%. They're all really performing well. And that is, of course, when we think about the strategic exits, but also IPOs, that's the best leading indicator.
And we'll take our next question from Ken Worthington with JPMorgan.
We're seeing far more concern about AI disrupting certain parts of the software technology and business services area. Two parts here. One, as you think about your investment portfolio, do you see any risks in the investment as that theme plays out? And then maybe hopefully more interesting, how do you feel about being on the winning side of this technological shift either through Peppertree or elsewhere in your various business verticals?
Sure. Thanks for the question, Ken. We've been very early investors in AI. We started over a decade ago with C3 AI and had a number of the early predecessors to today's company as well as a number of the companies that are in the headlines today. And actually, some even limited to the equity side. Credit Solutions actually what I think is the first substantial debt investment in AI by leading the race for xAI last quarter. It helps that we're based in San Francisco. And with a good arm, you can probably hit more than half of the AI companies from our building. And we've invested significantly in AI capabilities. So we have an AI center of excellence in which our operations and business building team drive AI adoption on each of the portfolio companies. We have a lot of investments recently in AI specific human capital, the former Chief Technology Officer at Accenture, one of the co-heads of McKinsey's software business.
So AI is really part of everything we're doing now. It's moving quickly. It's part of every underwriting decision. Technology, in general, software, in particular, are certainly in our power alleys. I think you were specifically focused on the impact of AI there. Our software portfolio is growing earnings at 22%, 23%. And I do think it's having a meaningful impact, but that is having a meaningful in both directions. There's some real opportunities and net beneficiaries from AI. So for us, we've been spending time in areas like vertical market software, fintech, cybersecurity. We've seen that in a number of our recent investments. We've probably been a little more cautious on some of the broader horizontal themes in infrastructure software, where we see AI changing the landscape very quickly. And again, every single underwriting decision, not just in software, but particularly in software, has a high-intensity focus on the impact of AI.
Even in areas like health care IT, one of our major investments in recent years has been a business called Lyric, which we acquired from UnitedHealthcare. This company analyzes over 60 percent of the primary claims in the U.S. healthcare insurance sector. You might assume that, as an algorithm-based business, it would face significant challenges from AI. However, for many years, we've uniquely held a comprehensive view of all that data. Therefore, AI is not a threat; rather, it presents an opportunity for this business to grow beyond just primary claims editing. Each company requires a specific analysis, and in the firms we focus on, we genuinely see it as a chance for growth. As you mentioned, AI significantly impacts health care, as well as the credit side. We believe we have put together the right team and established the necessary internal rigor to ensure we assess AI dynamics thoughtfully and intentionally, positioning ourselves to benefit from AI while enhancing performance in our portfolio companies.
And we will take our next question from Alex Blostein with Goldman Sachs.
I wanted to spend a minute on credit. It feels like momentum in that business is finally starting to take off. We saw it with fundraising for the last couple of quarters, but it looks like deployment is also starting to catch up. So maybe spend a minute on how you see the growth evolving from here, where the incremental benefits on fundraising are coming from. And I think one of the items you highlighted also launch of new products when it comes to credit into 2026. And I was hoping you could expand on that as well.
Yes, sure. Thanks, Alex. It's Jon. Look, I think as we said in our comments, this has been the underlying thesis of when we acquired the Angelo Gordon business was that it was a platform that had a multi-strategy approach in terms of across lending, structured credit solutions, total return opportunities. And that inside of this firm, it would essentially step to the next level, both from the perspective of capital formation, but importantly, in terms of the overall ecosystem to originate and source transactions. And I would say that it's hitting on every cylinder in terms of the ability to scale the businesses. If you recall, one of the things that we said early on in the acquisition was that the businesses were out-originating the capital base, essentially being undercapitalized and that's fundamentally changing now. You can see it in the scale of our capital formation across all of those businesses.
You can see it in the uptick in relevance of our open-ended vehicles as well like TCAP that Jack talked about in terms of the acceleration. If you look at the inflows into TCAP, they are increasing significantly, indicating the growing importance of that product in the market. The same trend is occurring with MVP in our structured credit business. We have started to focus on the next level concerning the various costs of capital associated with different investment strategies, especially to benefit our insurance company clients. I highlighted earlier the notable rise in engagement with these clients, which has persisted into this past quarter and is ongoing. We are structuring various types of investment vehicles for our insurance company clients, including funds of one or separately managed accounts, and we are now expanding into investment grade risk to better serve them across a range of assets and returns, which is essential for effectively addressing that market.
One observation in that sector is the growing recognition among many life and annuity companies that lacking partnerships in the alternative side of the business can be a significant strategic risk. As a result, since we currently do not own a captive, we are seeing an increase in discussions regarding various partnerships with different insurance clients, both domestically and internationally. I believe that over the next several quarters and the coming year, we will continue to experience significant increases in our engagement within that market. Additionally, we are working on enhancing our capabilities in the retail wealth markets. Our focus is on accessing that segment more effectively, efficiently, and at a larger scale. Jack mentioned this in his comments, and I hope we will have updates to share in the next few quarters regarding our meaningful progress. For now, we are concentrated on delivering return streams that often combine liquid and illiquid or liquid and alternative products, positioning ourselves to enhance our capabilities in this area.
Lastly, I would like to mention that we see growth opportunities in various areas. We have a top-tier lower middle market lending franchise in Twin Brook. As a result of our strong sourcing capabilities in Twin Brook and through our relationships with Credit Solutions, we are starting to engage in larger, more customized transactions, often facilitated by connections from our private equity business. We are focusing on a concept we refer to as graduating companies, where we have more than 300 portfolio companies in Twin Brook. These companies typically begin with cash flows of $25 million or less and grow to achieve cash flows ranging from $40 million to $80 million. Having been their lender for three to five years, we have an in-depth understanding of these companies. This familiarity gives us a competitive advantage as we expand into this segment of the market. We are in the process of building this next phase of growth and have already begun establishing a portfolio, gaining traction with several limited partners who will help anchor this strategy. While it's still early to fully disclose details, we plan to share more information over the next couple of quarters. I hope this provides insight into our growth drivers.
I believe we are at the beginning of a significant growth phase for fee-earning assets under management in credit. As you mentioned, we are noticing an increase in deployment and fee-earning AUM. Additionally, our dry powder in credit has risen by over 35% in the past year. As Jon pointed out, we have several avenues for further fundraising and AUM growth that will contribute to fee-earning AUM. Therefore, we anticipate that the upcoming years will be promising for the growth of our credit business.
We can move next to Steven Chubak with Wolfe Research.
Can you guys hear me okay?
Yes. Can you hear us?
Yes, loud and clear. So I wanted to ask on FRE margin lever. It came in above expectations in 3Q, 69% incremental margin, certainly a market improvement versus a 51% in 2Q. So while you reaffirmed the mid-40s FRE margin exiting the year, thinking about this longer term, just given prior comments supporting meaningful upside to FRE margins as the business scales, whether that higher mid-60s incremental margin is, in fact, a sustainable run rate, even with all the investments you spoke of, and how it informs your outlook for the FRE margin trajectory next year and beyond?
Yes. Good question. We are reiterating our guidance to exit this year in the mid-40s. As I've said all along, that is not an end point for us. I think you're exactly right to be looking at the incremental margins in connection with growth in fee-related revenue. And we do see that to be well above the mid-40s. How far above will depend because we are investing and building what we want to grow in the next 5 or 10 years as a business. We're investing in things like building out our private wealth distribution business and many other areas. And we're going to continue to invest in our business. That being said, I would expect continued fee-related earnings margin expansion in the next couple of years. We have not yet given guidance on when we might get, for example, 50%. But 45% is a step along the way.
And we will move next to Brian Bedell with Deutsche Bank.
Great. I want to revisit your comments on the fundraising outlook. It's encouraging to see the strong momentum. Jack, you mentioned that 2026 is expected to be a strong year, similar to 2025. Regarding the new funds you're launching, I want to confirm that you believe 2026 may be even stronger than 2025. The reason I'm asking is that Asia is emerging, and real estate, which is a key component of Rise IV, is coming to market. You still have capital available, along with expected growth in credit and wealth. I’d like to clarify this. Additionally, how is the deployment with the Kinetic infrastructure fund progressing? Is this enhancing your ability to raise funds for the Rise Climate segment?
Yes, thanks for the question, Brian. Regarding the outlook, I was deliberate with my words. I believe next year will be another strong year, though there will be some fluctuations compared to this year. We had a significant initial close for TPG Capital and Healthcare Partners, and we anticipate raising additional funds for that in the fourth quarter. Therefore, next year will likely involve less capital risk since we expect to have raised over half of our target by the end of this year. On the growth side, we successfully closed a significant round for growth earlier this year, and our growth franchise in the U.S. will not be active in the market next year. Concerning real estate, my mention of our flagship real estate launch as an important one for next year might be misleading; we currently believe that most of that capital will likely be raised the following year, since we won’t expect our first close until the latter half of 2026. Additionally, we expect continued strong fundraising on the credit platform, as Jon pointed out. Overall, while there are some fluctuations, we don’t anticipate a decline next year, especially considering this year’s remarkable growth of over 50% compared to last year.
Regarding your question about deployment in transition infrastructure and climate, we are seeing truly unique deployment opportunities across our strategies and are optimistic about the potential for differentiated returns. We believe this is a generational and global investment opportunity, particularly in climate strategies such as private equity and infrastructure. This year, we have deployed $2.3 billion in capital across these strategies, with Kinetic being our second investment in transition infrastructure, which we are building alongside ongoing fundraising efforts. Given global trends in power demand, electrification, and storage opportunities, we are excited about the prospects on a global scale, and our strategy remains very active.
And we will take our next question from Michael Cyprys from Morgan Stanley.
I wanted to ask about M&A. You guys have done a number of inorganic transactions already over the last couple of years. So just curious, as you look at the platform today, what's left to fill in to accelerate one scale or presence? Where might inorganic activity be helpful? I'm just curious what you're seeing on that front.
Thank you, Michael. First, I want to emphasize that we have been very focused and intentional about our inorganic activities. Where we have engaged, we believe our execution has been exceptional. As we've discussed before, it all starts with the deal, but much of the work lies beneath the surface in areas such as execution, integration, cultural engagement, and fostering growth. We feel successful in these aspects and have invested considerable effort in mastering them. This will be a significant advantage for our growth moving forward. Additionally, given the current industry trend of larger companies acquiring smaller ones, we find that, due to our established credibility and successful track record, we are receiving numerous opportunities across various strategies. That is very helpful because we have a clear view of the current situation. We are discovering that many potential targets or counterparties prefer to engage with us on a proprietary basis, which allows us to assess whether such opportunities align with our goals.
If they do, we can proceed under terms that are beneficial. Our business development efforts are quite active as we look for and evaluate opportunities, and we will be discerning in our choices. There are areas in the market that are still appealing to us. We aim to expand our presence in Europe, for example, where we might encounter promising opportunities in the future. Although there is nothing immediate, this region interests us as a global firm. We may also identify opportunities that complement our credit strategy. Further, there are potential developments related to build and infrastructure that could be of interest since we currently have two components in that space: transition infrastructure and Peppertree. We want to explore how this market segment can grow for us. Additionally, as primary markets across various asset classes expand, secondary flows are likely to become increasingly significant in our market, which is an interesting area to watch.
We'll take our next question from Bill Katz with TD Cowen.
I appreciate all the guidance and discussion so far. Maybe just two areas of growth seem still being the wealth and the capital markets areas. So I'm wondering if you can maybe update us on maybe where you see the incremental spend. And then on the wealth side, in particular, just sort of curious, you mentioned a number of times, new products, new geographies, maybe unpack that a little bit in terms of where you see the greatest opportunity in the near term.
Jack, why don't you start with wealth?
Sure, Bill, thanks for the question. Wealth is something that we will be building on for several years. We began by launching T-POP in conjunction with our existing products like MVP and TCAP, and we've successfully introduced a key private equity product in the wealth channel. This product has already shown great potential, starting with $900 million in assets under management, and we anticipate significant growth through this year and the next. Thus far, nearly all of this growth has come from three platforms, where we are one of the most appealing private equity offerings, if not the most active. The response has been overwhelmingly positive, although we are still in the early stages of expanding to additional distribution partners. You can expect to see us broaden our partnerships and globalize the placement of T-POP next year. Additionally, we have more products that we believe will fit well in the market, the first of which may be a multi-strategy credit interval fund, especially considering the positive reception of TCAP as a direct lending BDC.
The other businesses we mentioned in credit through Angelo Gordon are also unique in structured credit, Credit Solutions, and similar areas. We're developing a credit interval fund that will draw from our private equity deal flow, benefiting from all activity across our credit platform. There's demand for this, and we're in mid-stage conversations with potential channel partners interested in this product. Additionally, in real estate, we currently do not have a nontraded REIT, but we operate an excellent real estate business that's diversified across various components. We are in active discussions with channel partners who want to see a real estate product from us. This outlines our near-term roadmap with more developments to follow.
I believe that our capital markets business is expected to continue growing. It's a transactional business, so the flow of opportunities will be linked to that. Over the years, you've likely noticed the trajectory of our revenue reflecting how we've integrated our capital markets capabilities into all our platforms and product areas. We are now involved as a capital provider and arranger in nearly all our businesses. With the introduction of our credit franchise, we have enhanced our ability to use the broker-dealer and our capital markets capabilities for distribution and sourcing. Therefore, our forecast indicates that as the firm expands, our capital markets segment will also continue to grow.
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.
Great. Thanks, operator. Thank you all for joining us today. If you have any additional questions, please feel free to follow up directly with the IR team.
This concludes today's TPG's Third Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.