When TPG raised $500 million from the California Public Employees Retirement System for its TPG NEXT fund two years ago, CEO Jon Winkelried touted the effort to “bring financial and operational capital support to diverse-led firms.”
The San Francisco- and Fort Worth-based asset manager subsequently disclosed plans for a whole line of “NEXT” investment vehicles, including an equity fund and a fund of funds.
With TPG NEXT raising only an additional $64.5 million more over more than 24 months, TPG didn’t even issue a press release. The fundraise, with a total of 14 investors, was disclosed in an SEC filing last week. A TPG spokesperson declined to comment.
The lackluster fundraise and low profile reflects a dramatically changed environment, where political threats and attacks have many investors scrubbing their websites of mentions of diversity, equity and inclusion.
Institutional investors, led by US public pension funds, still want access to emerging managers with fresh investment theses that could deliver overlooked alpha; just don’t call them diverse or underrepresented. TPG’s website now refers to “next generation managers.”
In a presentation to CalPERs board as recently as last July, TPG had heralded the NEXT initiative as part of the $246 billion asset manager’s broader DEI efforts, including a 14-person DEI council with representation across all geographies.
When CalPERS trustees met this month to discuss the hiring of their own DEI consultant, the fund’s outside counsel said it was important to understand “how much things have changed,” according to Responsible Investor.
“The political paradigm has shifted, but also the law has shifted, and there are over 161 pending litigation matters in federal courts right now,” said Tiffany Reeves, a partner at Faegre Drinker.
Doubling down
If fund managers are treading carefully, some of their LPs are going full steam ahead. CalPERS, for its part, has touted DEI at recent presentations. The $500 billion pension fund committed $2 billion to emerging managers and $6.3 billion to diverse managers in the 2023-24 fiscal year.
At the same time as its TPG NEXT commitment, CalPERS committed $500 to GCM Grosvenor’s Elevate Fund, which in January closed at $800 million. The Elevate fund makes seed investments in small and emerging private equity firms, including Tony Miller’s Excolere Equity Partners and Jo Natauri’s Invidia Capital Management.
CalPERS and its sister fund the California State Teachers Retirement System, or CalSTRS, are hosting an Emerging and Diverse Investment Manager Forum in May in Sacramento.
The Teachers Retirement System of the State of Illinois is recruiting an investment officer for its diverse and emerging managers division. The $72 billion pension manager has touted its “commitment to diversity and accessibility in asset management.”
Diverse investment teams have proven to outperform their less-diverse counterparts, research shows, unlocking access to differentiated deal flow and enhanced portfolio diversification.
“Throughout our portfolio, investment firms owned by people of color and women are among our best performing managers,” said New York City Comptroller Brad Lander in a recent update. Some $23 billion of the city’s retirement system assets, or 13%, are invested with minority or women-led managers, at the end of 2024.
Diverse-led managers
TPG initially launched TPG Next in March 2021 to build on an investors-in-residence program the private equity firm designed to help emerging managers, including women, people of color and LGBTQ+ individuals, to establish first-time funds.
The ambitious fund marshalled a full spectrum of capital and support for emerging GPs, including LP commitments, working capital, and co-investments, warehousing and secondary purchases. As part of its partnership with CalPERS, TPG offers a GP Playbook, an open-source guide to demystify fund formation and capital raising for emerging managers.
Among the managers TPG NEXT backed early on were diverse-led venture firm Harlem Capital, Latino-led early-stage tech investor VamosVentures, and Black-owned real estate firm LandSpire Group.
New additions to the portfolio include Cohere Capital Partners, a Boston-based private equity firm targeting lower-middle-market services businesses looking for their first institutional check; New York-based Demolis Equity Partners, a Black-led buyout firm that invests in lower-mid-market tech businesses in North America; Maryland-based Caro Investors Management, a Black woman-led firm that manages a commercial real estate debt fund; and New York-based Visualize Group, which hunts for middle-market public and private market investment opportunities in “under-followed, under-researched and under-invested” services companies (see, “TPG NEXT anchors Black-led private equity strategy“).
On an earnings call in 2023, Winkelried said, “We believe there’s a significant market opportunity and are committed to backing and supporting underrepresented managers in our industry.”
