TPG sets $11 bln target on flagship, launches healthcare sidecar

  • Firm raising first-ever separate pool for healthcare
  • Fund VIII LPs invited into healthcare sidecar
  • TPG has been prolific healthcare investor

TPG set an $11 billion target on its eighth flagship fund and is raising a sidecar vehicle focused on healthcare investments, sources told Buyouts.

The sidecar fund is targeting $2.5 billion, the sources said. It will be TPG’s first separate fund raised specifically for healthcare investments. The firm has been a prolific healthcare investor over the years, deploying about $2 billion in the sector in the past year.

The sidecar will invest alongside the main fund, rather than make separate investments from the flagship pool, sources said. It will be open to investors in the flagship Fund VIII, sources said.

The sidecar is meant to expand TPG’s capital base for healthcare investments and is not meant to compete with the flagship fund, one of the sources said.

TPG announced the target and sidecar at its recent annual meeting, one of the sources, an LP who knows the firm, said.

In December, TPG agreed to acquire Kindred Healthcare along with Welsh, Carson, Anderson & Stowe and Humana in a deal valued at about $4.1 billion.

Earlier this year TPG also completed a take private of Exactech for $49.25 a share, or about $737 million. Exactech makes orthopedic-implant devices and surgical instrumentation for extremities and large joints.

The healthcare strategy is led by Jeff Rhodes, John Schilling and Todd Sisitsky.

TPG closed its prior flagship fund on $10.5 billion, including $400 million from the GP, in 2016. Fund VII had been in fundraising since 2014 and investing since 2015. At the time of final close, which TPG announced in May 2016, the firm had invested $2.1 billion in six companies.

Fund VII made a series of investments, including in McAfee, Vice, Cirque du Soleil, Mediware, Cushman & Wakefield, Life Time Fitness and Poundworld, among others.

How much capital Fund VII has deployed is unclear. Generally, firms need to deploy 65 percent to 70 percent of capital in the prior fund before launching a new fund into market.

Fund VII was generating a 21.18 percent net internal rate of return as of June 30, 2017, performance data from Public Employee Retirement System of Idaho shows.

Fund VII’s fundraising process was boosted as the firm rolled a $2 billion bridge fund into the vehicle. TPG raised the bridge fund in 2014 from a handful of LPs.

TPG launched the bridge fund as an interim vehicle before it went full steam into raising its seventh pool. At the time, fundraising for the seventh vehicle was expected to be challenging because of the weak performance of Funds V and VI.

Both funds had large, challenged buyouts that dragged down returns, such as Washington Mutual and the former TXU (now Energy Future Holdings).

Since then, both funds’ performance has improved. Fund V, a 2006 vintage that closed on $15.3 billion, was generating a 5.2 percent internal rate of return and a 1.46x multiple as of June 30, 2017, Oregon Public Employees Retirement Fund data shows.

Fund VI, a 2008 vintage that raised $19 billion, was producing an 11.5 percent IRR and a 1.6x as of that date, according to Oregon.

Update: This report was updated to clarify TPG’s bridge fund never made investments before it was rolled into Fund VII and that Fund VII started investing in 2015.

Action Item: Check out TPG’s Form ADV here:

David Bonderman, founding partner of TPG, takes part in the Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California, on April 29, 2014. Photo courtesy/Kevork Djansezian