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TPG, Sixth Street to End Partnership in Bid to Fuel Dealmaking

TPG, Sixth Street to End Partnership in Bid to Fuel Dealmaking

(Bloomberg) -- Buyout giant TPG and its credit platform plan to end a decade-long partnership, a move that will free the firms to pursue a wider array of deals.

TPG Sixth Street Partners and TPG told investors Tuesday that they will “pursue our respective next phases as independent organizations,” according to client letters seen by Bloomberg.

The decision to part ways was spurred by the rapid growth of the two firms, and a partnership agreement that limited them from getting into each other’s focus areas, according to people familiar with the matter.

That agreement called for TPG to stick to private equity deals and for Sixth Street to limit itself to credit and credit-related opportunities. But as the two firms expanded into new businesses -- like growth financing and real estate -- those lines became harder to define, said the people.

Representatives for the firms declined to comment.

The split may allow the firms to expand as yield-starved investors flood private funds with commitments, leading the biggest managers to widen their ambitions. The amount of dry power -- committed, unspent capital -- grew to a record $1.4 trillion last year. Many of TPG’s rivals have broadened their credit offerings. The credit unit at Blackstone Group Inc. now manages about $142 billion.

TPG, Sixth Street to End Partnership in Bid to Fuel Dealmaking

Sixth Street got its start in 2009 when TPG invested $2 billion of client money with the business. It now manages $33 billion in assets. While TPG has a minority stake in the credit shop, the firms have been autonomous. TPG will retain a stake after the separation.

The breakup will help the firms avoid overlap and confusion in the market and, for the next year, the companies have agreed not to build competing businesses. After that period, TPG may seek additional deals in credit using its existing business or potentially bulk it up through internal growth and acquisitions, the people said.

Investors were told more details would come when the firms reach a final agreement. The deal will include a “multiyear period to transition” the limited services shared with TPG, Sixth Street said in its letter. That includes some back-office services.

Sixth Street was founded by former Goldman Sachs Group Inc. partner Alan Waxman and nine others, including several members of his team from Goldman’s special situations group. At the time, the firm was called TPG Opportunities Partners. The firm sold a 10% stake to Neuberger Berman Group’s Dyal Capital Partners in 2017 in a deal that valued the firm at about $3.5 billion.

Sixth Street, which is based in San Francisco and has 250 employees, has had annualized returns of 20%, before fees, over the last decade.

While the two firms have had separate clients since 2011, TPG has included Sixth Street’s assets as part of its $119 billion under management. Going forward, that will cease.

--With assistance from Melissa Karsh.

To contact the reporters on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net;Jason Kelly in New York at jkelly14@bloomberg.net;Katherine Burton in New York at kburton@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Alan Mirabella

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