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TPG Next GP Playbook in partnership with Calpers

GP Playbook

Keys for Next Generation Managers

Launched through an anchor commitment from CalPERS, TPG NEXT provides strategic minority capital and custom operational support to help emerging managers establish, build, and scale their firms. We want to use the power of our platform – including our capital, network, and 30-plus year track record of business building – to accelerate the growth and de-risk the success of the next generation of alternative investment managers.

Launching a fund isn’t easy. It’s even harder when you don’t have access to the circles, networks, and pathways that have traditionally defined success in the alternatives space. We designed this open-source playbook to demystify GP formation, providing investor entrepreneurs with a behind-the-curtain look into the strategies and tactics that go into launching a business.

Scroll down for centralized expertise, best practices, and actionable insights.

Managerial Best Practices

Define your Strategy

When you can define A and B, they combine to deliver C: your differentiator. Launching a fund begins with a clear articulation of your strategy – know your capabilities and mandate, and develop a concise and compelling message for what makes you unique.

Investors will seek to test your differentiation to assess what will ultimately sustain your competitive advantage. They will also compare your strategy to their existing manager relationships to gauge how complementary and/or additive your fund is to their other investments.

AExperience

What is your background? What are your capabilities?

BThesis

Where are you seeing opportunities? What is your investment strategy?

CCompetitive Advantage

What is the market opportunity and why are you well positioned to capture it?

Operational Best Practices

Build your Firm

01/01
Investment Capabilities

Sector-Based Domain Expertise

What are the key differentiators of your knowledge and understanding of the industry in which you invest?

  • Develop top-down, thematic sourcing
  • Insights from operational experience
  • Access derived from executive network
Investment Capabilities

Post-Investment Value Creation

What are you doing to enhance the value of the business you acquire?

  • Implementation of cost controls
  • Augmentation of sales and marketing
  • Upgrades in management and board talent
  • Identification of acquisition candidates and other growth levers
Operating Capabilities

Organizational Infrastructure

How are you setting up your GP?

  • Timeline of infrastructure set up should align with fundraising plans, target size, etc.
  • Evaluate the trade-offs of outsourcing versus building dedicated capabilities
  • Consider legal firm selection, support construction, fees, and ancillary services
  • Milestone considerations for hiring in-house counsel
Operating Capabilities

ESG

How are you set up to assess impact?

  • Instill measurement and monitoring practices
  • Consider when to hire dedicated resources and job descriptions thereof
Y Analytics is an independent organization where evidence and capital converge for public good. Organizations like Y Analytics help capital allocators better understand, value, and manage ESG, increasing the effectiveness and reach of invested capital.


Operating Capabilities

Capital Formation

How are you set up to raise capital?

  • Fundraising: Timeline for when to hire a placement agent, when to build internal IR talent
  • Marketing: Consider what constitutes high-quality offering materials
Operating Capabilities

Information Technology

How are you set up to streamline and automate systems?

  • CRM utilization can be critical for sourcing and vetting deal flow
  • Consider and prioritize vendors for capital formation, accounting, reporting, and other core firm functions
Operating Capabilities

Network Building

How are you set up to build your brand?

  • What is your story – how and where are you communicating it?
  • Website and social media
  • Events, including remote and in-person connectivity

Capital Formation

50 Questions to Answer and 10 to Ask in LP Meetings

Download PDF

Team

  1. Who is on the leadership team?
  2. Who owns the management company?
  3. Who are the full-time professionals (investors, operators, administrators)?
  4. Who are the part-time professionals (advisors, executive network)?
  5. How is everyone compensated?
  6. What is everyone’s prior work history together?
  7. How are the team members’ skill sets complementary to one another?
  8. What outstanding hiring needs remain?
  9. Where is everyone based?
  10. Have there been any key departures?

Seeding Considerations

Customize Your Partnerships

Historically, managers relied on primary or direct LP commitments to raise their funds. As the alternatives industry has grown, new strategies and tools have emerged. Today, GPs and LPs have multiple avenues for accessing and investing capital.

Primary or Anchor Commitments

LP invests directly in your fund

Co-Investments

LP invests in specific asset alongside you; success can help lead to fund commitments and longer-term partnerships

Secondaries

Liquidity tool that involves purchase of existing asset or interest

GP Stakes / Seeding

Partnering with a third party that takes a minority ownership stake in your GP

More than half of large private equity firms have engaged in GP stakes, with third party ownership outpacing the rate at which new firms are launching. In addition to capital, these partnerships – often referred to as seeding in the case of new managers – provide emerging GPs access to their Partner’s brand, network, relationships, and expertise. Conversely, it’s an opportunity for a Partner to invest in innovative investor entrepreneurs and shape their stories from the beginning. Seeding partnerships have become even more attractive amid a challenging fundraising environment.

GP Stakes
Market

Source: Dyal Capital via Buyouts Insider, GP Stakes Market Growing Faster than Funds Can Invest: Blue Owl’s Rees (August 2022).

In exploring a seeding partnership, some key considerations include:

  • Working capital needs to support…
    • GP commitment, including long-term planning for multiple funds and broad ownership across the partnership
    • Operating expenses, including but not limited to hiring plans, office space, technological enablement, and other expenses
  • Strategy expansion plan
  • Succession planning efforts

The building blocks of seeding or staking a manager include:

  • Entitlements: gross or net of operations, inclusive of management fee and/or carried interest
  • Discounts on fund commitments
  • Duration and terms of equity investment
  • Restrictive covenants
  • Long-term partnership planning
  • Liquidity rights and other investor protections

Contact Us

To learn more about TPG NEXT, including submitting your fund for consideration, please email next@tpg.com.

The information found on this website should not be construed as an offer to sell, or a solicitation to buy, any security or instrument in, or to participate in any investment strategy with any funds, vehicles or accounts sponsored or managed by TPG NEXT or any of its affiliates (“TPG”) or any portfolio company in which TPG has invested. In addition, other third parties that have relationships with, or knowledge of, such portfolio companies may not necessarily share the same views, beliefs, or opinions about the portfolio companies as those expressed in these videos and case studies. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained herein, and nothing shall be relied upon as a promise or representation as to the future performance of any investment.

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