TPG Unfazed by Weak Fund-Raising Market –

In general, the bigger the target, the easier it is to hit it. But in the context of private-equity fund raising, a bigger target often equates to a higher failure rate. However, for Texas Pacific Group- based in Texas, where bigger is almost always better-the daunting prospect of raising a $5 billion-plus buyout fund in today’s stingy market proved anything but, and the firm recently held its final close on TPG Partners IV at $5.3 billion.

Most of the fund raising for the vehicle was accomplished last year. TPG launched the fund in March and during the nine months leading up to 2004, closed on $4.7 billion, almost 20% of the buyout capital raised by a U.S. fund during that time. The firm did not use a placement agent for the effort.

“Institutional investors are increasingly discriminating and there are less dollars to go around,” TPG Partner Jamie Gates told Buyouts. “Our sense is that limited partners are more focused today on how the GPs are adding value to their portfolio companies, and they seem to be asking more questions about how general partners are building firms that will last over time.”

The $5.3 billion close represents a jump over past TPG funds. TPG Partners III, a 2000-vintage fund, had $4.5 billion of capital, while the firm’s 1997, second fund closed on $2.5 billion. The latest effort also marks a departure for Texas Pacific Group from raising an accompanying tech fund alongside the general buyout vehicle. “We will still invest in technology companies, we just put it all back together in a single fund now,” Gates said.

While the tight fund-raising market presented one hurdle, the firm also had to battle a number of other high-profile buyout shops that have also been in the market raising multi-billion funds, such as Hellman & Friedman, Kelso & Co. and Silver Lake Partners.

Perhaps giving itself a leg up on the competition, Texas Pacific Group benefited from having completed several successful exits last year, and in all, returned approximately $1.5 billion to its limited partners. Sales of Crystal Decisions and Hotwire contributed to that sum, as did the block sales of Punch Taverns, Petco Supplies, Denbury and others.

In this latest fund-raising drive, TPG also made an effort to procure new partnerships, and made a point to spread its name among the European investors this time around. “The last fund we had filled up so quickly that we didn’t have the opportunity to target European investors,” said TPG Founding Partner James Coulter. “This time, we started with select European investors.”

The latest fund saw 95% of the investor base from Fund III re-up, and in all TPG took in 39 new institutional partners, who contributed roughly 30% to the fund. The total capital coming from outside the U.S., meanwhile, increased from “the high teens [in the third fund] to just around 30% [for Fund IV],” Gates said. Some potential investors were even left out in the cold, according to source, who indicated the fund was oversubscribed by between $800 million and $900 million.

TPG did not likely have to spend too much time introducing itself to the European institutions, as the firm has been especially active in Europe recently. Last year, the buyout shop dominated U.K. headlines with acquisitions of Debenhams and Scottish & Newcastle’s managed pubs division. Other deals from last year include the acquisition of Kraton Polymers and a deal to buy Portland General Electric, which has yet to close.

While Gates would not comment on the firm’s new investors, limited partners in past funds include the University of Washington, Aetna Insurance Group, and the retirement trusts of Boeing Co., Gannet Co. and Eli Lilly & Co., among others.

TPG would not comment on the specific terms of Fund IV, although Gates did say they were in line with past funds from TPG, and noted, “Investors this time around were more focused on the allocation of transaction fees and the clawback mechanism.”

The firm expects to deploy the capital in the next four to five years, and has already made investments from the fund in two deals-the Debenhams and Kraton purchases.