TPG Capital is offering investors discounts on management fees as it tries to raise a $10 billion buyout fund after investing in soured deals including TXU Corp. and Washington Mutual Inc.
Investors that commit to TPG Partners VII could get as much as a 25% reduction on fees, depending on the amount committed and whether they participate in the first round of capital raising, according to an offering document obtained by Bloomberg News.
TPG Capital, which controls more than $59 billion in buyout, credit and real estate assets, is dangling the incentives after disappointing returns from deals made during the buyout boom and financial crisis cast a shadow over more than two decades of investment success. The move follows rivals including Apollo Global Management, Carlyle Group, KKR & Co. and Warburg Pincus that offered similar breaks on recent funds.
TPG spokesman Owen Blicksilver declined to comment on fundraising and the fee structure.
To entice big checks, TPG is offering 5%, 10% and 15% discounts on commitments of at least $100 million, $250 million and $400 million, respectively, according to the document. It will give an extra 10% discount to investors that commit to the first round of capital raising. An investor could be charged around 1.1% annually on committed capital, less than the standard 1.5% fee structure.
TPG has told investors that it plans to avoid megadeals after experiencing losses during the crisis. Since 2009, the firm has made an average investment of $306 million and hasn’t participated in a consortium, or a takeover done by a group of buyout firms, the document said.
The firm is also offering investors the choice of a 1.5% management fee during the investment period, or a structure that reduces the drag fees have on performance early in the fund’s life, known as the J-curve, the document said.
TPG will take 20% of the profit, known as carried interest, according to the document.