Sixth Street to renew $3bn-plus of Tao evergreen capital

Sixth Street is looking to renew more than $3 billion of a 2018-vintage contingent pool for use in its large, multipurpose Tao fund.

LPs that invested in Tao Contingent are being given the opportunity to roll or convert their commitments into other Tao interests, according to a Minnesota State Board of Investment report. The pension system is considering upping its commitment to $150 million.

Tao Contingent was launched in 2018 to provide Sixth Street with additional capital to invest in the event a then-robust market cycle went south, creating dislocation opportunities, sources told Buyouts. Activated in 2020, its investment period expired in March, the MSBI report said.

By rolling or converting their commitments, LPs would be able to continue to participate in the $26 billion Tao, a unique investment vehicle in the alternative assets world.

Formed by Sixth Street more than a decade ago, Tao is a cross-platform evergreen fund. Operating much like a balance sheet, it invests flexibly and opportunistically across a spectrum of deals originated by flagship funds or on its own.

For example, Tao often invests alongside Sixth Street’s growth funds in mid-to-late-stage companies in sectors like business services, data infrastructure, enterprise software, fintech and healthcare IT. Last year, the firm raised $4.4 billion for its latest growth flagships, Buyouts reported.

Tao will just as often invest alongside Sixth Street’s other strategies, including direct lending, opportunistic credit, special situations and a mix of sector-focused strategies.

One platform of particular interest is adjacencies. Much like Tao itself, it joins flagship funds in large deals or invests in niches outside of the scope of flagships. Sixth Street categorizes adjacent opportunities as defensive yield, stressed and distressed non-control, the MSBI report said.

Tao aligns with Sixth Street’s so-called “one-team” approach to investing, which allows professionals located globally to source and underwrite deals using multiple pools of capital.

From time to time, Sixth Street launches campaigns to raise fresh resources for Tao, as it did for the 2020-vintage Sixth Street Tao Partners, which secured $12 billion. The evergreen structure sets investment and opt-out periods for LPs, which sometimes involves replacing existing capital with new capital.

Tao has been pivotal to Sixth Street’s recent deals in the professional sports industry. In 2022, it invested in the TV rights and stadium operations, respectively, of Spanish soccer clubs FC Barcelona and Real Madrid, reportedly for about $900 million in total.

And this year, the firm led an investor group for a San Francisco Bay Area expansion team in the National Women’s Soccer League. The new club will begin playing in 2024. A Sixth Street portfolio company also backed the launch of Soccer Champions Tour, a US-based series of games featuring European teams like FC Barcelona and Real Madrid.

Tao Contingent was as of December 2022 earning a net multiple of 1.23x and a net IRR of 14 percent, according to the MSBI report.

Managing about $65 billion of assets, Sixth Street was founded in 2009 by CEO Alan Waxman and other partners, many of them former members of Goldman Sachs’ Americas special situations group. It declined to provide a comment on this story.