TPG Capital raising up to $2 billion for bridge fund

Reuters – TPG Capital LP, a private equity firm that is behind some of the world’s largest leveraged buyouts, said on Wednesday it was asking some of its key investors for up to $2 billion to spend on deals until it raises a new $10 billion flagship fund.

Founded in 1992, TPG has been one of the private equity industry’s most successful firms, turning its founders, David Bonderman and James Coulter, into billionaires. But some of its bets went sour in the last six years, weighing on the performance of its funds.

TPG told a public meeting of one of its investors, the Oregon Investment Council, that it was seeking between $1.6 billion and $2 billion for an interim fund that was intended to serve as “bridge investment capital” until it starts raising its first major global fund since the financial crisis. It raised a $19 billion fund, called TPG Partners VI, in 2008.

Last summer, TPG received permission from its investors to extend the investment period of TPG Partners VI by one year to February 2015.

TPG Partners VI was valued at 1.25 times its investors’ money as of the end of September 2013, according to the Oregon Public Employees Retirement Fund. The previous flagship fund, the $15.3 billion TPG Partners V fund that was raised in 2006, was valued at just 1.06 times its investors’ money.

“You will, from time to time, make mistakes. The important thing is to learn from them,” Coulter told the meeting of the Oregon Investment Council on Wednesday.

TPG asked the Oregon Investment Council for a $700 million commitment to the bridge fund, which was approved. Dubbed the TPG Strategic Partnership Interim Fund, the bridge fund will be rolled into the next flagship fund that TPG is planning to raise, TPG Partners VII.

“Fund VII is ‘make or break’ for these guys,” Oregon State Treasurer Ted Wheeler told the meeting.

Coulter said he expected that TPG would raise around $10 billion for TPG Partners VII. The bridge fund would let the firm

delay fundraising for TPG Partners VII for six months and keep its focus, he added.

The bridge fund is the clearest sign yet that TPG’s fund performance has affected its fundraising plans.

“We think that it is right and proper that we go to our best partners and look for their support,” Coulter said, adding that TPG had turned to a couple of key investors besides Oregon’s public pension fund manager for the bridge fund.

TPG said the bridge fund will target its “sweet spot” – buyout transactions requiring $250 million to $600 million of equity capital, mostly in North America. Some deals in Europe and Asia are also within the bridge fund’s scope.

TPG, which has $55.7 billion of capital under management according to its website, made huge bets that went sour on companies such as Texas power utility Energy Future Holdings Corp, casino operator Caesars Entertainment Corp (CZR.O) and floundering bank Washington Mutual Inc. During the financial crisis in September 2008, federal regulators seized Washington Mutual and reached a deal to sell most of its operations to JPMorgan Chase & Co (JPM.N).

TPG is hoping that some recent lucrative exits from its investments, such as the $6 billion sale of department store owner Neiman Marcus Inc in October and the $2.9 billion sale of pharmaceutical company Aptalis Holdings Inc, announced earlier this month, will increase its appeal to skeptical investors.

“We had an extraordinary exit year, and we expect another one,” Coulter said, pointing to some initial public offerings of companies that TPG was planning.

The Oregon Investment Council also approved a $250 million investment in a TPG credit investment fund. Like Blackstone Group LP (BX.N), KKR & Co LP (KKR.N) and other peers, TPG has diversified beyond private equity, prompting speculation that TPG may one day seek to go public.

“We have no short-term desire to go public, but we will see what happens. There are advantages and disadvantages,” Bonderman said.

(Reporting by Teresa Carson in Tigard, Oregon; Writing by Greg Roumeliotis; Editing by Jan Paschal)