Goldman Sachs has released an in-depth research report on TPG Inc. (TPG.US), focusing on its long-term strategic partnership with Jackson Financial, a US provider of retirement and life insurance services. This collaboration not only provides TPG with stable asset management and fee income but also lays a solid foundation for its future growth. Goldman Sachs rates TPG as a "Buy" and maintains its 12-month price target of $80.
According to the research report, TPG will be responsible for managing an asset portfolio worth up to $12 billion for Jackson Financial. The investment scope is broad, encompassing both investment-grade bonds and potential asset-backed financing (ABF) instruments, as well as direct lending businesses. It is projected that this Assets Under Management (AUM) will steadily expand to $20 billion over the next five years. In return, Jackson will receive $150 million worth of TPG stock, while TPG will invest $500 million in Jackson.
Goldman Sachs analysis indicates that TPG expects this transaction to begin contributing positively to its Fee-Related Earnings (FRE) per share starting in the fourth quarter of 2026, with a positive impact on Diluted Earnings (DE) per share commencing from 2027. Goldman Sachs' illustrative pro forma analysis suggests that by 2028, TPG's FRE per share is projected to increase by 1.2% to 2.1%, while DE per share is expected to grow in a range of -0.2% to 1%.
Although the near-term growth in diluted earnings per share might be modest, Goldman Sachs believes that over the long term, the net present value (NPV) from the entire $20 billion AUM will have an approximately 2% to 3% positive impact on its estimated 2027 DE per share. Regarding the fee structure, TPG will charge a management fee of at least 50 basis points on Jackson's assets.
Goldman Sachs anticipates that as the proportion of the direct lending strategy increases, the effective fee rate could range between 60 and 75 basis points. Furthermore, TPG's incremental FRE margin is expected to remain high, between 85% and 100%, primarily benefiting from the partnership's limited capital requirements.
Goldman Sachs also notes that this partnership not only provides TPG with a long-term, stable source of capital but also aligns with its strategy of maintaining a light balance sheet. TPG's management has emphasized that this partnership is non-exclusive, leaving room for future collaborations with similar institutions.
Additionally, TPG plans to raise approximately $20 billion in credit funds in 2025, with an expected $8 billion raised in the fourth quarter, which will further drive the growth of its credit management fee income. From an investment perspective, Goldman Sachs rates TPG as a "Buy" and maintains its 12-month price target of $80, which is based on a sum-of-the-parts (SOTP) valuation of TPG's various business line cash flows.
Goldman Sachs believes that TPG's strong growth potential in asset management and credit, coupled with the stable income stream from the Jackson Financial partnership, will create long-term value for its shareholders. However, Goldman Sachs also cautions investors to be aware of potential risks, including rising employee equity incentive costs, a slowdown in fundraising progress, and reduced fundraising demand in the "impact investing" and renewable energy sectors.
Nonetheless, Goldman Sachs considers TPG's overall business model and growth prospects to remain robust, with its stock price having approximately 20% upside potential from Wednesday's closing price of $65.965. Overall, Goldman Sachs is optimistic about TPG's strategic partnership with Jackson Financial, viewing it as a catalyst for stable revenue growth and capital sourcing for TPG, while simultaneously enhancing its overall profitability and market competitiveness.
For investors seeking long-term, stable returns, TPG undoubtedly represents an investment target worthy of attention.
Comments