Washington joins Oregon as major LP in TPG bridge fund

The Washington State Investment Board on February 20 approved a $600 million commitment to TPG Capital Strategic Partners Account. The fund is targeting $2 billion with a cap at $3 billion. The vehicle is a successor to the firm’s $19 billion sixth fund, but an interim vehicle to raising Fund VII, according to a spokesperson from Washington State Investment Board.

Washington has committed more than $2 billion to seven TPG-sponsored investment vehicles, including most recently $200 million to TPG Opportunity Partners (TOP) III last year, $200 million to TOP II in 2012 and $200 million to TPG Growth II in 2011.

TPG is likely to have a challenging fundraising for its seventh vehicle given the poor performance of its fifth and sixth funds, which are both in the fourth quartile for internal rate of return (IRR) and total value multiple (TVM), according to a recent performance report from the Oregon Public Employees Retirement Fund, an LP in both funds.

As of Sept. 30, Fund V (a $15.3 billion vehicle) was generating a 0.4 percent net IRR and a 1.02x net investment multiple, while Fund VI ($19 billion) was producing a 7.8 percent net IRR and a 1.18x net investment multiple, Oregon reported.

Oregon last month committed $700 million to the bridge fund, which is only being marketed to TPG’s largest and longest tenured LPs. Fund VII is expected to launch later this year or early 2015.

TPG LPs contacted by peHUB gave mixed views on the interim vehicle. One family office investor said the fund could be lucrative to those LPs who get in.

“I think the scarcity of capital for new investment activity will focus a much higher quality screen, which has been lacking in the past,” said the investor, who asked not to be named. “The returns might just work this time as the larger pools of capital have clearly proven more difficult for them.”

The investor was referring to some of the larger credit bubble deals that didn’t work out for TPG, such as Washington Mutual and the former TXU (now Energy Future Holdings).

Chris Witkowsky is editor of sister website peHUB