Rising Regulations And Crowded Private Equity Markets Will Undermine Outlook

Key Takeaways

• Rising regulation and stricter ESG standards will increase costs, limit investment options, and constrain future management fee growth for TPG.
  
• Demographic shifts, market saturation, and persistent high interest rates threaten asset growth, deal flow, and stability of TPG’s revenues.
  
• Diversified growth across asset classes, strong fundraising, and stable long-term capital position TPG for resilient earnings, predictable revenues, and enhanced global expansion opportunities.

Catalysts

Operates as an alternative asset manager in the United States and internationally.

• Intensifying regulatory scrutiny of private equity and alternative asset managers worldwide is expected to restrict TPG’s fund structuring flexibility and drive up compliance costs, which will erode net margins and limit future earnings growth as the regulatory landscape becomes more complex.
  
• Global demographic shifts, including aging populations in key developed markets, threaten to reduce long-term demand for growth-oriented alternative investments, restricting TPG's ability to attract new capital and shrinking its addressable client base over time, negatively impacting asset growth and revenue forecasts.
  
• The accelerating momentum for stricter ESG standards across all regions is likely to limit TPG’s investment universe and force the firm to avoid certain higher-yield but controversial sectors, which will hinder feasible assets under management expansion and increase reputation risk, putting long-term management fee growth at risk.
  
• As the private equity market becomes increasingly crowded and competitive, with rising competition for deals, acquisition valuations are likely to become elevated and returns structurally lower, leading to diminished performance fee generation and making future revenue less reliable.
  
• Sustained higher interest rates and tighter credit markets threaten the economics of leveraged buyouts and direct lending, causing lower deal flow and weaker performance for TPG’s credit and private equity platforms, undermining both revenue and earnings stability well into the future.

TPG Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on TPG compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming TPG's revenue will decrease by 11.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.0% today to 21.8% in 3 years time.
• The bearish analysts expect earnings to reach $553.8 million (and earnings per share of $4.38) by about June 2028, up from $1.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 46.9x on those 2028 earnings, down from 6522.5x today. This future PE is greater than the current PE for the US Capital Markets industry at 27.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

TPG Future Earnings Per Share Growth

Risks

• TPG’s consistently strong fundraising momentum, including significant inflows from both institutional and private wealth channels, suggests that assets under management and fee-based revenues are likely to grow, supporting higher revenues and stable or expanding net margins.
  
• The diversification across private equity, credit, real estate, infrastructure, and digital infrastructure (with the acquisition of Peppertree Capital Management) positions TPG to capture secular growth trends in alternatives, which can drive earnings resilience and revenue growth even during periods of market uncertainty.
  
• TPG’s focus on “sticky” long-duration capital, including evergreen fund structures, strategic partnerships, and private wealth products, is likely to increase the predictability and stability of management fee streams, improving earnings visibility and potentially supporting stronger net margins over time.
  
• Strong investment performance and above-market realization rates, with consistently high DPI (distributions to paid-in capital) and robust portfolio company revenue growth, help underpin client loyalty and fund re-ups, reducing the risk of redemption-driven revenue volatility and supporting overall profitability.
  
• TPG’s expanding global footprint and ability to capitalize on regional opportunity sets, particularly in real assets, credit, and climate strategies, enhances its ability to capture secular tailwinds and scale AUM globally, thereby strengthening long-term earnings power and supporting continued organic and inorganic revenue expansion.

Valuation

• The assumed bearish price target for TPG is $46.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of TPG's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $46.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $553.8 million, and it would be trading on a PE ratio of 46.9x, assuming you use a discount rate of 7.7%.
• Given the current share price of $52.01, the bearish analyst price target of $46.0 is 13.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.