TPG will halve China investments in new US$5 billion Asia fund

TPG will soon close its eighth Asia buyout fund at around US$5 billion, with the new portfolio set to slash its China allocation by more than half from prior regional funds, according to a source familiar with the matter.

The investment firm plans to put about 10 per cent of its Asia VIII pool in China, down from around 25 per cent of invested capital in previous funds, according to the source, who asked not to be identified because the information is not public. TPG will allocate more than 80 per cent in Australia, India and South-east Asia – up from 70 per cent in the predecessor fund, the source said. The rest will go to South Korea.

About US$2 billion of the pool has already been invested, with zero investment in China so far. That has helped give the fund a strong start with a net internal rate of return of 129 per cent, according to its earnings presentation last month. Around 70 per cent of the initial spend has gone in India and Australia.

TPG’s exposure to China through the new fund will likely be among the lowest for global asset managers as Wall Street rivals from Carlyle Group to Warburg Pincus diversify away from China amid economic growth concern and escalating political tensions with the US. Japan and India are among the countries benefiting as capital flows to where returns are expected to be higher.

TPG early next month plans to announce the final close of the Asia VIII fund. A spokesperson declined to comment on the details.

Greater China, the region’s private equity powerhouse, suffered the biggest contraction in deal activity in 2022, contributing to a 53 per cent drop in volume from a year earlier. That shrank Greater China’s share of Asia-Pacific deals to a nine-year low of 31 per cent, according to a Bain & Co report.

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TPG’s US$4.6 billion Asia VII fund has a net return of 14 per cent, dragged by China investments, according to the source and public filings. BLOOMBERG