Friday Letter Moment for liquidity

What a recent hire by TPG tells us about the way the big guns of private equity are approaching this market. 

News this week that TPG Capital had hired a senior real estate professional plugged into private capital markets tells you that this is the time to be creating liquidity and tooling up for the next installment of the giant distressed opportunity.

The Fort Worth-based firm, which used to be known as Texas Pacific Group, has tapped Robert Weaver to help build out its real estate investment capability. So far, TPG has not settled on the way it wants to communicate its plans for real estate to the world at large, but the latest hire in its real estate team provides an important clue.

Weaver has been heading Morgan Stanley’s private capital markets group in the US, Europe, Asia and Australia. It is a team that develops investment products, as well as serving up advisory and restructuring services to GPs and LPs on issues of recapitalisations. In a sense, he is the embodiment of what experienced investment firms are doing in the space: putting into place the pegs necessary to build liquidity in order to invest in distress and hiring those used to a conciliatory approach when things have gone wrong.

Make no mistake about it, however, at the bottom of this lies the belief among large private equity firms such as TPG that distress is a theme. Indeed, TPG believes in distress so much that it has launched its first dedicated discretionary fund – a $1.5 billion distressed, credit and special situations fund dubbed TPG Opportunities Partners II to be run by former Goldman Sachs executive Alan Waxman. In the past, TPG has invested in special situations and credit through its main private equity funds, so this is an important departure.

Whether TPG goes the whole hog in real estate by launching its first dedicated fund for the asset class is not yet known for certain, but the way it is building out a team, including former General Growth Properties chief executive Adam Metz and former Westbrook Partners managing principal Avi Banyasz, the indicators sure are pointing that way.

Tom Barrack of Colony Capital put it well last month in his Chairman’s Corner remarks: “This is a moment to create liquidity, prepare silos of investible capital and await the inevitable ‘Tap Out’ in an asset class in which you have expertise.”

It seems TPG shares this view.