Large pensions back TPG Special Situations for $6 bln

  • Invests in deals that are “not a fit” for main special situations funds
  • Includes separate accounts with New Jersey, Pennsylvania Schools
  • Oregon, Wisconsin among TSSP Adjacent Opportunities LPs

TPG has raised about $6 billion for its family of TSSP Adjacent Opportunities funds, which the firm markets as sidecar vehicles to its special situations funds, according to a source familiar with the matter.

The firm’s special situations team, led by Alan Waxman, planned to raise around $2 billion when it officially began marketing Adjacent Opportunities funds roughly two years ago, according to an Oregon Investment Council memo. Early backers included the New Jersey Division of Investment and Pennsylvania Public School Employees’ Retirement System (PSERS), both of which set up separate accounts to invest in lockstep with the main adjacent opportunities fund. 

The asset management firm pitched the funds as a sidecar vehicle for “a limited and select group of founding limited partners,” according to Oregon documents. Oregon’s retirement fund committed $250 million to the strategy.

A PSERS investment memo noted the Adjacent Opportunities platform generated an 18.7 percent internal rate of return through June 30. PSERS re-upped $250 million to TSSP Adjacent Opportunities last year. 

Other recent LPs include the State of Wisconsin Investment Board, which committed $100 million in the fourth quarter, and the Florida State Board of Administration, which committed $200 million. 

TSSP Adjacent Opportunities funds can invest in assets ranging from medical royalties to infrastructure special situations and structured European loans, according to the Oregon memo. TPG structured the platform to capture investment opportunities that are “not a fit” for its main special situations funds, Oregon staff wrote.

In addition to those deals, TSSP Adjacent Opportunities co-invests alongside TPG’s third opportunities fund, which raised $3.2 billion for investments in distressed-for-control deals and non-performing loans in 2014. The platform can also acquire stakes in direct loans with the firm’s business development company.  

In recent years, limited partners frequently turned to asset management firms for customized investment accounts. Apollo Global Management, Blackstone Group and Kohlberg Kravis Roberts & Co, also manage large multi-strategy separate accounts on behalf of several major U.S. pensions and sovereign wealth funds.

In an October keynote interview at the PartnerConnect West conference, TPG Chief Investment Officer Jonathan Coslet cited the emergence of separate accounts as one of the industry’s main challenges moving forward.

“That’s the challenge that’s been put out there by many of the large LPs,” he said. “The problem is, the industry is still focused, still generally designed around single [commingled] funds that have fiduciary responsibility to just those funds and those LPs.”

Action Item: See the PSERS memo on TSSP Adjacent Opportunities:

David Bonderman, founding partner of TPG, speaks at the Milken Institute Global Conference in Beverly Hills, California April 29, 2014. REUTERS/Kevork Djansezian

(Clarification: The second and seventh paragraphs were updated to clarify how certain sidecar vehicles invest in lockstep with the main TSSP Adjacent Opportunities fund. The second paragraph was also changed to include information about TSSP’s leadership.)