TPG Inc. (TPG) Earnings Call Transcript & Summary

Good morning, and welcome to TPG's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin.

Great. Thanks, operator, and welcome, everyone. Joining me today are Jon Winkelried, Jack Weingart, Jim Coulter and Todd Sisitsky as well as our new CFO, Axel Andre. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the second quarter. We reported GAAP net income attributable to TPG Inc. of $93 million and after-tax distributable earnings of $280 million or $0.69 per share of Class A common stock. We declared a dividend of $0.59 per share of Class A common stock, which will be paid on August 28, 2026, to holders of record as of August 14, 2026. With that, I'll turn the call over to Jon.

Good morning, everyone. Thank you for joining us. TPG delivered strong results in the second quarter, capping off a record first half for the firm. So far, 2026 has been defined by a series of inflections across AI, private credit, monetary policy and geopolitics that have reshaped the macro backdrop and investing landscape. As this environment drives a wider dispersion of performance across our industry, we believe TPG is well positioned to continue taking share given our proven track record and differentiated investment capabilities. We're actively capitalizing on an expanding opportunity set and our clients continue to look for ways to deepen their engagement with us across our franchise. Turning to our results. Fee-related revenue grew 27% year-over-year to $628 million, driven by a step-up in management fees and our second highest quarter ever for transaction and monitoring fees. Our Capital Markets business continues to be a powerful revenue driver as we further embed our capabilities across each of our asset classes. Our strong top line growth and increasing operating leverage drove a 43% year-over-year increase in fee-related earnings to $350 million -- $315 million in the second quarter, resulting in a 50% FRE margin. Since becoming a public company 4.5 years ago, our LTM FRE has grown at a 31% annualized rate, and we've expanded our margin by over 1,000 basis points. We ended the quarter with $327 billion of total assets under management up 25% year-over-year and have continued to set new records for capital raising and deployment on an LTM basis, which I'll highlight now. Starting with capital formation, we raised $16 billion in the second quarter bringing our year-to-date total to more than $26 billion. Given our strong progress in the first half of the year, combined with our robust pipeline for the second half, we remain confident that we will meet or exceed our target of raising more than $50 billion in 2026. We maintained strong fundraising momentum despite various headwinds in the market, underscoring the strength of our franchise. We're further expanding our relationships with our existing client base as well as attracting new pockets of capital, which is a direct reflection of the differentiated returns we've consistently delivered. Across our private equity strategies, we raised $8 billion in the second quarter, up 39% year-over-year. For TPG Capital X and Healthcare Partners III, we raised $1.3 billion, bringing total capital raised to over $14 billion including commitments that are signed but not yet closed. Our momentum remains strong as we work towards the final close for this important fundraise. In our Market Solutions platform, we held the first close of $1 billion for our 11th Peppertree fund. As a reminder, we acquired Peppertree, a leading infrastructure manager in the U.S. telecom tower market a year ago. Since then, we've made notable progress introducing Peppertree strategy to our existing clients with nearly 1/3 of commitments in the first close coming from legacy TPG relationships. As a result, we expect to grow our fund size by 25%. In Credit, we raised $5.6 billion during the quarter. As part of our strategic partnership with Jackson Financial, we received $2.5 billion in new multiyear commitments this quarter, bringing total commitments to $4.5 billion since the partnership began in February. As we deploy this capital into attractive opportunities, we're beginning to see the flywheel take shape, further expanding our origination capabilities and enabling us to more effectively serve a broad base of insurance clients. For our real estate platform, we're in the early stages of a multiyear fundraising cycle. We're currently in the market with all of our U.S. and Asia real estate equity funds and we're experiencing strong demand ahead of first closes in the coming quarters. In the Private Wealth channel, while the broader industry has recently faced a deceleration in net flows across retail-oriented products, largely due to private credit concerns, our momentum continues to accelerate. We expect to gain share in the wealth channel, which is an important long-term growth driver for us. June marked the 1-year anniversary of the launch of T-POP our perpetual private equity product. Inflows across the T-POP strategy were approximately $450 million in the quarter, bringing total AUM to $2.9 billion at the end of June. We continue to successfully expand our global distribution footprint, adding a new international private bank platform during the second quarter and another already in the third quarter. As advisers become increasingly selective around new allocations, T-POP is a preferred solution, given its strong track record with annualized inception-to-date returns of 34%. TCAP, our non-traded BDC reported gross inflows of $193 million in the second quarter, which is consistent with first quarter and reflects the durability of our strategy. Importantly, redemption requests were just 2.1% of total shares outstanding well below the industry average. Our clients recognize TCAP's proven ability to generate attractive returns across cycles given its leading position in the lower middle market. TCAP's 1 year total net return of 9.9% is among the highest for non-traded BDCs and represents approximately 420 basis points of outperformance relative to the leveraged loan market. Turning to deployment. Our investment activity continues to be very strong. We invested approximately $14 billion in the second quarter, up 33% year-over-year, bringing our total over the last 12 months to a record $62 billion. Looking ahead, based on our current investment pipeline, we expect to maintain a robust deployment pace for the back half of the year. Our private equity strategies invested $7.2 billion during the quarter, which increased 60% year-over-year. While the market has been largely focused on AI disruption risks, we've been equally focused on identifying new opportunities created by AI. We've been actively investing behind the AI evolution through direct positions in leading LLM, including OpenAI and Anthropic. These investments give us unique insight into emerging technology and adoption trends, which have helped guide our strategy. Additionally, we're underwriting significant AI-related growth and efficiency initiatives across the areas we invest in. A powerful example of this is our role as the lead founding partner of the OpenAI Deployment Company. Together with OpenAI and a group of leading investment firms, we've committed more than $4 billion of initial capital to form a new AI transformation and services platform. DeployCo is built to address the implementation bottlenecks, constraining AI adoption among large enterprises. Our investment in DeployCo was made through a collaboration between our TPG Capital, [ tech adjacencies ] and hybrid solution strategies and leverages our extensive track record in technology and structuring corporate partnerships. We're seeing firsthand the effective AI deployment requires not only [indiscernible] forward deploy engineers, but also deep expertise in business processes and operational transformation. The combination of OpenAI's exceptional talent base and TPG's experience partnering with management teams is already unlocking value in our portfolio and creating new investment opportunities. For example, DeployCo has begun working with Conservice, a TPG Capital portfolio company and leading utility management service provider. If AI transformation is focused on automating bill intake and exception resolution as well as improving quality control through machine learning, resulting in greater growth and efficiency. Beyond DeployCo, our internal AI and technology capabilities are becoming increasingly important value creation driver for both our existing and new investments. In TPG Growth, just last week, we closed the acquisition of Smith + Howard, a top 50 CPA firm serving clients across the Southeast. A key component of our investment thesis is the operational transformation of the business through AI enablement including AI-powered lead generation and workflow automation. Our Credit business continued to be active in the quarter with $4.4 billion of capital deployed across our strategies. In middle market direct lending, Twin Brook generated $2.3 billion of gross originations in the second quarter, bringing the year-to-date total to $4 billion, which is pacing ahead of our expectations. Add-on activity across our borrower base accounted for over 40% of our quarterly volume, highlighting our embedded origination engine, which has been a structural advantage for our platform. Twin Brook has also been an important sourcing channel for Advantage Direct Lending, our recently launched core middle market direct lending strategy. Nearly half of ADL's investment activity to-date has originated from Twin Brook either through co-led transactions or lending to existing portfolio companies that have graduated from the lower middle market, and [indiscernible] base finance, we deployed over $1 billion of capital in the second quarter, including residential whole loans, equipment finance and commercial mortgages. In Credit Solutions, we deployed over $1 billion in the quarter, and our pipeline [indiscernible] balance sheet challenges. TPG's integrated platform combined scaled capital and flexible structuring capabilities to deliver tailored solutions where traditional lenders often cannot. During the quarter, we agreed to lead a financing for the carve-out of BMC Helix from BMC Software. We believe this transaction represents an important precedent as one of the first significant software LBOs this year. We're able to design a bespoke solution with strong covenants and downside protection that provides the borrower with execution certainty, while securing attractive risk-adjusted returns for our investors. Additionally, our European team structured a GBP 900 million second lien facility to help Bally's Intralot proposed GBP 2.2 billion acquisition of Evoke. This financing addresses Evoke's near-term maturity wall, materially derisking the overall capital structure. The combination is expected to create a scaled pan-European operator in online gaming with meaningful synergies to improve cash generation and de-leveraging. Given the change occurring in the structure of the lending market, we're also seeing opportunities to leverage our deep sector and operational expertise to recapitalize businesses and improve performance. We believe our proven ability to drive transformational change and inflect growth combined with our full continuum of capital solutions, makes TPG a preferred partner for lenders, sponsors and management teams. Turning to real estate. We continue to see attractive opportunities given reset valuations, increased replacement costs, limited supply growth and improving fundamentals in the asset class. Activity has been accelerating across our real estate platform with $2.3 billion deployed in the second quarter, up 47% year-over-year. TAC+, our Core Plus real estate strategy, acquired control of ECHO Realty, a scaled grocery-anchored retail platform after taking an initial minority stake earlier this year. We believe this is a compelling investment made at a discount to market value and a sector defined by recession resilient demand and attractive supply dynamics. Along with our acquisition of Quarterra in the multifamily residential space earlier this year, we continue to expand into lower cost of capital real estate, which represents a significant growth opportunity for us. Finally, we generated $5 billion of realizations during the quarter, bringing our year-to-date total to nearly $14 billion, up 28% from the first half of last year. While market conditions are temporarily impacting the timing of exits across our industry, our approach remains unchanged. We continue to be highly intentional in our monetization activity and see a healthy pipeline of exit opportunities across the portfolio. We expect the cadence of realizations to accelerate towards the end of this year and into 2027. Before I hand the call over, I wanted to address the leadership transition we announced in June. As most of you are aware, Axel Andre joined as our new Chief Financial Officer last week. Given the timing of Axle's arrival, Jack will discuss our financial results today, and he is working closely with Axle to ensure a seamless transition. I want to thank Jack for his leadership and immense contributions as CFO. When we were preparing to go public more than 5 years ago, I asked Jack to take on the challenge of building our public company finance function from the ground up. His deep knowledge of our firm and decades of industry experience have been instrumental in establishing our credibility as a public company and deepening the market's understanding of GPG. Jack is now fully transitioning into his role as CEO of Global Wealth Solutions which he took on last year in addition to his CFO responsibilities. Jack's leadership has already been critical to our growth in the channel as evidenced by T-POP's success in its first year. As Jack begins to fully dedicate its time to the strategic growth area we expect to further expand our wealth offerings and global distribution network. I'd also like to introduce and welcome Axel, who is here today with us. In our search for Jack's successor, we were focused on finding a proven leader who'll align closely with our collaborative and entrepreneurial culture while bringing deep public company CFO experience. Axel has served as CFO and led the financial strategy for a number of globally-traded companies, most recently, Reinsurance Group of America. Given his deep familiarity with the insurance industry, Axel brings a set of skills that are highly complementary to our existing leadership team and expanding franchise. We're excited to have Axel join us, and we look forward to working closely with him to drive the next phase of our growth. I'll turn it over to Axel to say a few words.

Thanks, Jon. It's great to be here with all of you today. I'm incredibly excited to join TPG's leadership team and begin working alongside such a talented group of professionals. Over the past several months, I've had the opportunity to spend time with teams across the organization and have developed a deep appreciation for TPG's highly collaborative culture and entrepreneurial mindset. I'm fully aligned with the firm's strategic priorities and FRE-centric approach to driving continued scale and diversification. TPG's relentless focus on creating long-term value for our clients and shareholders, combined with the significant opportunities ahead, makes this an incredibly compelling time to join the firm and contribute to its next chapter. I also wanted to thank Jack for his partnership and the strong foundation he has established. I look forward to working closely with Jon and the entire leadership team and to engaging with our shareholders and the analyst community in the coming quarters. With that, I'll turn it over to Jack to walk through the financial results.

Thank you, Axel. I'd like to echo Jon's welcome and our excitement to have Axel joined the firm. We're working together closely through the transition process and look forward to partnering to drive the next phase of growth for TPG. As Jon mentioned, we delivered a very strong second quarter. Our fee-related revenue of $628 million increased 27% year-over-year, driven by accelerating management fee growth as well as our second highest quarter ever for Transaction and Monitoring Fees. Management Fees grew 15% year-over-year and 9% sequentially as we continue to see the benefits of strong fundraising momentum as well as consistent deployment across our credit platform. We expect continued robust Management Fee growth for the remainder of '26 and throughout 2027. On the Capital Market side, since we went public 4.5 years ago, our LTM transaction and monitoring fees have grown at a $0.31 annualized rate, as we've successfully scaled driven greater deployment and integrated our broker-dealer capabilities across each of our platforms and geographies. During the second quarter, our Capital Markets revenue was driven by more than 20 transactions across 14 of our strategies, including a growing contribution from our credit platform. We remain confident that our Capital Markets business will continue to be a meaningful driver of top line growth and margin expansion over time. Our strong second quarter results did benefit from a pull forward of certain transaction closes initially forecasted for the third quarter. Therefore, we expect transaction and monitoring fees to step down in the third quarter. We reported fee-related earnings of $315 million, up 43% year-over-year, resulting in an FRE margin of 50%. Our strong margin in the quarter was elevated as a result of the transaction and monitoring fees I just discussed. Looking forward, we remain confident in our ability to achieve an FRE margin of 47% for the full year with further expansion over time as we continue to drive growth and operating leverage across our business. Turning to PRE. We generated $35 million of realized performance allocations in the second quarter, driven by realizations in our growth and credit platforms. Despite a recovery in the public equity markets, volatile macro backdrop has temporarily impacted the timing of realizations across the industry. Private equity activity declined during the quarter as buyers and sellers recalibrated for geopolitical uncertainty, changing interest rate expectations and AI-driven disruption. As we navigate through this period of market volatility, we remain focused on building value across our portfolio and continuing to find opportunities to selectively monetize investments at attractive valuations. In our Capital Asia business, we recently announced the sale of Made Group a leading better-for-you food and beverage platform based in Australia to a strategic buyer, Danone. This highly successful outcome adds to our long track record of partnering with founders and expanding domestic businesses internationally. Since 2023, over 40% of our exits in TPG Asia have been to strategic buyers in addition to significant secondary and public equity sales, demonstrating the breadth of our exit optionality. Additionally, just last week, we agreed to sell large-scale luxury hotel property in Central Tokyo from our Asia Real Estate business. This is our largest transaction to date in this strategy, and we believe also represents one of the largest hotel transactions in the APAC region. The hospitality sector continues to remain robust, and we intend to continue capitalizing on this strength to drive highly attractive exits in our portfolio. Looking ahead, our monetization pipeline is strong. And assuming market conditions continue to normalize, we expect our realized performance allocations to step up for the end of the year and into 2027. Given our unique portfolio of construction and focus on corporate partnerships, a number of which provide enhanced visibility into exits. We're confident in our ability to continue generating attractive liquidity outcomes for our investors. Our effective corporate income tax rate during the second quarter remained low at 8% as we continue to benefit from the tax deductions generated by our annual RSU vesting in January. We expect our tax rate to remain in the high single digits in the third quarter and then step up in the fourth quarter after we fully utilize our deductions. Altogether, our after-tax distributable earnings were $280 million or $0.69 per share of Class A common stock. Moving on to value creation. The fundamentals across our portfolios remain robust, driving positive value creation across all our platforms in the second quarter. In Private Equity, the value of our portfolio is appreciated by approximately 6% in the quarter marking the second highest quarterly increase since our IPO. This robust value creation was driven primarily by continued strong underlying financial and operating performance. Across our Capital, Growth and Impact platforms, LTM revenue and EBITDA grew in the mid- to high teens, continuing to outperform the broader market. More specifically, our Software portfolio continues to perform well, with year-over-year bookings growth in the mid-teens across TPG Capital and TPG Growth Software Companies in the first half. Additionally, we're actively implementing AI-enabled revenue and cost initiatives across our portfolio, which has resulted in tangible improvements to earnings growth. For example, TPG Capital's portfolio company, Boomi, a leading integration platform-as-a-service provider, has developed an AI platform that instantly builds integration solutions, based on the client's description of a problem in plain English. More than 60% of Boomi's new customers are adopting this solution. And as a result, the company is now generating over $100 million of AI activated recurring revenue, which is expected to double by year-end. Our Credit platform appreciated 3% in the quarter and the credit metrics across our business remain healthy with no notable changes from the prior quarter or historical averages. In Credit Solutions, we saw continued strong performance across our strategies. Notably, our third Credit Solutions Fund delivered time-weighted net returns of 7.5% in the quarter. meaningfully outperforming the U.S. high-yield bond index and bringing the funds inception to date net IRR to nearly 40%. In middle market Direct Lending, our underlying portfolio companies continued to generate stable earnings growth with an average interest coverage ratio of approximately 2.4x. The benefits of our active portfolio monitoring and robust risk management are evidenced by a continued low nonaccrual rate of 1.4% and an annualized loss ratio since inception of just 2 basis points. In asset-based finance, our first ABC Fund's net IRR since inception was 12% at the end of the second quarter which remains at the top half of our target range. Additionally, our Mortgage Value Partners Fund was $7 billion of AUM generated net returns of 3.4% year-to-date, outpacing broader public credit indices. In Real Estate, our portfolio appreciated approximately 3% in the quarter, driven by continued strength in the data center, industrial, residential and office assets. As a result of our strong value creation during the quarter, our net accrued carry balance increased 15% to $1.4 billion at the end of June. Following our significant monetization cycle in 2021 and '22, our net accrued carry balance has doubled over the past 4 years, setting us up to generate meaningful PRE in the years ahead. We ended the second quarter with $327 billion of total assets under management, up 25% year-over-year. This was driven by $61 billion of capital raised and $26 billion of value creation, partially offset by $26 billion of realizations over the last 12 months. Fee-earning AUM increased 24% year-over-year to $181 billion. AUM subject to fee earning growth was $52 billion at the end of the quarter, which included $39 billion of AUM not yet earning fees. This represents a revenue opportunity of approximately $290 million on an annualized basis. Finally, turning to our fundraising outlook. We continue to expect our capital raising to exceed $50 billion in 2026. We've raised over $26 billion so far. And looking at the back half of the year, we expect the largest contributors to our fundraising to include the following: in Private Equity, the completion of our TPG Capital X and Healthcare Partner III campaigns by the end of the year. Final closes for our Rise Climate Private Equity TRC II and the Global South initiative in the third quarter and continued progress across our newer strategies, which include transition infrastructure, Peppertree, GP Solutions, TPG Sports and TPG Next. In credit, final closes for our sixth Twin Brook Direct Lending and second asset-backed credit drawdown funds. Continuous fundraising across our evergreen vehicles, including Advantage Direct Lending and initial close for our fourth essential housing fund and the formation of additional CLOs and SMAs. In real estate, we expect to hold first closes for all 4 of our U.S. and Asia real estate equity funds toward the end of the year. Finally, we expect continued momentum in the private wealth channel where we see significant runway for growth. June 1, as Jon mentioned, marked our 1-year anniversary of T-POP. We're very pleased with what we've achieved in this first year. we've driven significant scale while delivering market-leading returns to our investors. T-POP is now distributed on 2 of the largest U.S. wire houses as well as 3 leading international private bank platforms. We're in active dialogue with several additional partners and expect inflows across the T-POP strategy to continue to accelerate. We continue to advance our new product pipeline and expect to launch a non-traded REIT next year that spans our equity credit and net lease real estate strategies. We're also developing a multi-strategy [ creditable ] fund and pursuing strategic captive advisory mandates with several wealth platforms. Our goal is to create a flagship evergreen product in each asset class and to complement those products with more targeted evergreen and drawdown funds. To close out my final earnings call as CFO. I want to take the opportunity to thank all of you for your engagement and partnership throughout the years. It's been a true privilege to help TPG -- help lead TPG in this capacity through our IPO and a period of extraordinary growth and transformation. I look forward to staying connected to many of you as I fully transition to leading our Global Wealth business. Now I'll turn the call back to the operator to take your questions.

[Operator Instructions] We will take our first question from Alex Blostein with Goldman Sachs.

First off, Jack, I just want to congratulate you all the engagement and the working with the investor community over the years. It's been great. And definitely looking forward to what's next in your wish role and Axle, Welcome. So along those lines, and this is probably for Jon as well, it probably makes sounds there to take a little bit of a step back in remind investors about TPG's Insurance strategies. How Axle's background fits into your vision for how TPG will continue to kind of push forward in the insurance channel?

Yes. Thanks, Alex. Appreciate it. Look, our insurance strategy has been very consistent in that we have focused on developing a series of partnerships with a number of insurers in the market. And I think we've talked about that consistently from the perspective of our focus on our relationship development there, establishing those partnerships, and we've made really meaningful progress over the last number of years with respect to the build of that business. The Jackson partnership, obviously, is at a different scale, and when we did the Jackson partnership, we had talked about it being consistent with our FRE-centric balance sheet-light approach to what we're doing. And I will say that as we spend time with Axel over many months of the process of bringing axle to the firm, we talked a lot about that. And I think that as he mentioned in his prepared remarks today, I think he sees the benefits that that's had with respect to our franchise and how we're building value for our investors. The Jackson partnership, I will say, by the way, continues to go extremely well in all respects, not only just the productivity but also the relationship that we've established between the organizations at Jackson at their asset management business at PPM. And Jackson, I think you probably saw announced their earnings also, I think they released them last night. They talked about their productivity in the annuity space across RILA, across VA, across the fixed annuity space, and they continue to gain share and have a tremendous amount of momentum. And so we're very happy with our partnership with Jackson. I think they're very happy. As [indiscernible] said in their earnings call, they're very happy with their partnership of, TPG. So as I mentioned in my prepared comments, that's created a bit of a flywheel effect for us in terms of building our origination capabilities and allowing us to serve not only Jackson, but a number of our other insurance partnerships because Jackson obviously wants to be participating in various tranches of what we're creating, and so it creates an opportunity set to distribute the products more broadly within our insurance relationships. So we are very much on track, I would say, slightly ahead of track with respect to our partnerships. We -- we're continuing to develop these relationships broadly in the market. I expect over time that -- we'll do -- we'll have other what I would call distinct-types of partnerships with insurance companies, but I think we're all aligned in terms of staying the course with respect to how we've approached that space. So hopefully, that's responsive.

Our next question comes from Glenn Schorr with Evercore.

Thanks very much. Okay. So you have your net accrued carried last quarter got marked down, say, over $100 million. This quarter, it went up even more than that. I'm curious how much of that is an actual public reference impact? And then maybe more importantly, you could talk about your thoughts on the probability likelihood and timing. You talked about a good backdrop and a good pipeline. I'm just seeing if we can put some meat on that bone.

Glenn. This is Jack. I'll start. But remember, last quarter, we kind of bifurcated the impact that caused the markdowns being more than 100% of it driven by bringing our multiples down. This quarter, we saw, as I mentioned in my comments, really very strong continued earnings growth across our portfolios. And in addition, there was some increase in multiples in the market. And I would say that the increase in our valuations this quarter was very balanced across earnings growth, multiple expansion and some debt pay down leverage driven equity value appreciation, but really driven -- continue to be driven by strong earnings growth in the portfolio. On the outlook for monetization. Todd, do you want to touch on that?

Yes. I'll just start. I mean you heard the statistics from Jon, if you look across the industry, realizations, I think, are down sort of 46% quarter-over-quarter. For us, we continue to be very focused on monetization, $5 billion every quarter, $14 billion in the first half, so it's up 28% year-over-year. I think part of the reason for that is that we approached the realization process with the same rigor that we do the investment decision. So as President, we go through -- I go through with the partners, the managing partners of each business, every company really once a month. And as we look forward, it's hard to be precise, but we do have a number of companies in a number of situations we feel like we have really good prospects for liquidity. And we are -- we make progress. We announced our -- the Made sale to a strategic this quarter. We just priced an IPO in India, which brings to the 5-year total to 17 IPOs launched in India. So we're very front footed when it comes to the liquidity side, and I agree entirely with Jon's comment that, on the private equity side, we continue to see good prospects in the end of this year and the beginning of next year.

We will move next with Dan Fannon with Jefferies.

So Jack, I was hoping you could expand upon your comments about management fee growth continuing in second half this year into 2027, maybe provide a little bit more context and building blocks around that outlook?

Sure. Thanks for the question. I think it really relates -- I think if you step back and think about what we've been talking about on FRR growth and management fee growth for the past couple of years is really we will enter after a period of not raising as much capital for businesses that pay us on committed capital throughout '24. We saw ourselves entering a series of fundraises that would drive management fee growth in addition to having raised a lot of capital for credit that we expected to deploy in the coming couple of years. And I'd say we're still in the early to mid-stages of those drivers driving continued management fee growth. Obviously, you're aware that we've been in the market with TPG Capital X, Healthcare Partners III, that's our biggest fund complex, but we really, as you know, have significantly diversified to lots of different funds being in the market over time. The next big wave of once this year is complete with the ones I mentioned, the capital funds, the impact funds. Next year will be in the market with a significant amount of capital raising for our real estate franchise, which will drive continued management fee growth next year. And like this year will be amplified by the acceleration of deployment across our credit platform, where we really do see our backlog, our pipeline of investment opportunities across the credit businesses feels very strong. So it's really a combination of both on the management fee growth side, a combination of all of that. And we just -- we see very strong continued outlook for that.

We will move next with Ben Budish with Barclays.

Maybe a quick two-parter on the Wealth channel. You mentioned that the TCAP flows were pretty consistent from Q1 to Q2. When we look at the individual months, it looks like June had quite a big step up. Curious if you could unpack what you're seeing there? And what does that mean for the run rate kind of going into the next quarter? And then during the prepared remarks, I'm just curious, you mentioned some captive advisory mandates, across the wealth channel. Just curious if you could talk a little bit more about what does that mean exactly? What does the timing look like magnitude, any other details?

Sure. On the second point, we really don't have much more to disclose yet, but because the partner we and the partners I'm talking about are still working through the details. But suffice it to say that there are partners who view our investing capabilities and the product we're creating in Wealth to be very differentiated that they want to partner with us across those products on a captive basis, and more to come on that in the coming quarters when there's more to talk about. On the flows, we -- I think it's consistent with the industry that during the redemption kind of process that others are going through there was a little more turmoil in April and May, and people are seeing a little normalization in June. I'd say our results at TCAP are a lot more consistent than that, but we did see the same impact of a little bit of a slowdown in April and May and a pickup in June. So I think industry-wide, you're seeing the signs of the fact that flows are resuming into the credit products. The difference for TCAP has been on the redemption side. As I think Jon and I both mentioned, we've really seen none of the same pressure that others in the industry have seen with 1% redemptions in Q1 and 2% redemptions in Q2.

We'll take our next question from Ken Worthington with JPMorgan.

Axel welcome. Jack, thank you for everything over the years. It's truly been a pleasure. I wanted to go maybe off the beat and pass a little bit and talk about the growth franchise. You had a bigger fundraising -- you had bigger fundraising this quarter, I think $2.7 billion highlighted in the growth franchise. So maybe talk about the driver there? And then in terms of deployment, it might seem like an active period given what we're seeing broadly in the economy, but the activity that you're seeing seems to be focused on [indiscernible] and TCAP and more limited deployment in Growth VI. So maybe walk through kind of what's going on in that growth -- the growth business.

Maybe I'll start, Ken, on the fundraising side, and then Todd will talk about deployment. But if you look at the second quarter fundraising in the Growth platform, it was driven by really multiple factors. As you know, we've been innovating in that platform and driving growth in fundraising across the new products, including while TTAD -- continued inflows in TTAD, TPG Sports raising capital, [ TCAP ], the new growth business in Asia, raising capital. And we have a fund, a digital media fund that was purpose-built for a limited LP base, that we effectively get a continuation vehicle on which crystallized some carry, but also let us continue to manage those assets going forward and continue to earn fees and carry on that. So pretty diversified drivers, of the capital raising on the growth platform.

Yes. I mean I would also just point out, as Jack described it, two of those vehicles didn't exist a year ago. So it's not only, I think, strength in the existing platforms that we continue to innovate. The other observation I'd sort of make and I think it speaks to the fundraising and it also speaks to the underlying momentum in that business. If you look at -- in particular, if you look at [ TICA ] and you look at TTAD, they're benefiting from a very strong portfolio in place. These are now somewhere between 20%, 30%, 40% of the portfolio we've spoken for. And so the money that's coming in, in many cases, are folks not only liking the story, liking the team and the strategy, but also being excited about the portfolio that's in place and the sense of momentum in that portfolio. I'd say that's also, by the way, benefiting us very much. I know you asked about Growth specifically in the context of the TPG Capital raise. And all of these raises, we have -- we have some investors who came into earlier round and are thinking about upsizing in part because [indiscernible] of strength portfolio. So I'd say, in general, we feel like we're clicking on a lot of cylinders here. We have strong teams and strategies that seem to be working. And the portfolios that have -- we're building, I think, are quite differentiated in the markets in which we operate and the LPs, I think, are responding very favorably to that.

Our next question comes from Stephen Chubak with Wolfe Research.

Congrats Jack and Axel. I look forward to engaging with both of you in your new roles. Maybe just to start, of course, on the FRE margin outlook, so FRE margins rise positively in the first half. The incremental margin came in above 60%, really reinforcing that path to sustained operating leverage. And given the better-than-anticipated FRE margin leverage in the first half. The positive turn on second half business momentum. I was hoping we can get a mark-to-market on FRE margin expectations for this year versus the prior guide? And looking beyond '26, whether an incremental FRE margin above 60% is, in fact, sustainable as the business continues to scale with the caveat that recognize mix will be a factor.

Yes. Good question. Look, if we were going to update our guidance of 47%, I would have done that in my prepared remarks. That being said, let me tell you how I think about that. we definitely continue to see the kind of drivers of management fee growth that I talked about in the back half of the year and throughout next year and beyond, and the incremental capital raising an FRR does flow through with a very high incremental margin, probably higher than your 60%, but at least 60%. So we definitely see an opportunity longer term to continue driving FRE margin expansion as we have been since the IPO. The question in the back half, it's always hard to predict how it's going to play out 1 quarter at a time. I did mention that we pulled forward some Capital Markets revenue into Q2 and we do expect a step down in Capital Markets in Q3. It's harder to predict Capital Markets revenue than it is to predict Management Fee revenue. We're currently not budgeting for a big rebound in Q4 either. So I would say what would cause us to increase our margin guidance for the year is if we start to have visibility on more robust Capital Markets fee growth in the back half of the year to complement what we know will be attractive of Management Fee growth. So that it's really a question of timing more than whether we're going to continue to expand the FRE margin.

We will move next with Bart Dziarski with RBC Capital Markets.

I wanted to go back to the strong Private Equity performance this quarter. Second highest since your IPO in sort of a more tumultuous software tech background. Could you just unpack the EBITDA earnings growth momentum that you're seeing in your underlying portfolio companies? And then how you expect that to persist, particularly with your deployment of AI into the portfolio?