TPG, Angelo Gordon can remain two separate parts of a whole

There are multiple reasons against the two firms’ real estate businesses consolidating after their merger closes later this year.

TPG announced this week that it plans to buy Angelo Gordon, a New York-based credit- and real estate-focused investment firm, for $2.7 billion.

Following an anticipated deal close in Q4, the San Francisco and Fort Worth, Texas-based alternative asset manager will see its assets under management swell to $208 billion with the addition of the $73 billion AUM Angelo Gordon.

The transaction, which is TPG’s first since becoming a public company last year, also brings together two real estate heavyweights. Angelo Gordon is 17th on the current PERE 100 ranking, with $10 billion raised over the past five years, while TPG is 24th, with $8.2 billion raised over the same period.

There has been much industry speculation about how the transaction will affect both real estate teams. For multiple reasons, keeping two real estate platforms separate parts of a whole would be the most logical outcome.

Let us look at the two real estate businesses. Both are similar in size in terms of real estate AUM – TPG has $20 billion to Angelo Gordon’s $18 billion. Both have been investing in real estate for many years – TPG since 2009 and Angelo Gordon since 1993. Both have raised successful series of funds – TPG closed on $6.8 billion for TPG Real Estate Partners IV in October, while Angelo Gordon’s real estate team is currently in market with its 11th US fund, its fourth European vehicle and its fifth Asia fund, according to PERE data. It would be difficult and complicated for real estate platforms with such long and extensive fund histories to combine and rebrand at this stage.

The real estate businesses also have relatively little overlap. Angelo Gordon’s real estate strategies include value-add and net lease, while TPG’s existing business lines target opportunistic and core-plus real estate. Angelo Gordon also has an Asia real estate business, which TPG does not. And although both platforms focus on the US and Europe, Angelo Gordon primarily invests in real estate at the asset level, while TPG does so at the entity level. Both invest in commercial real estate debt, but Angelo Gordon deploys capital through closed-ended funds while TPG does so through its commercial mortgage real estate investment trust, TPG Real Estate Finance Trust.

As one M&A adviser told us this week, “if there’s little overlap, you don’t have to integrate and consolidate.” One precedent comes from Brookfield and Oaktree, whose real estate businesses have maintained their separate identities since the Toronto-based alternative asset manager acquired a controlling stake in the Los Angeles-based alternative investment firm in 2019. Like TPG and Angelo Gordon, Brookfield’s and Oaktree’s real estate platforms have distinct identities, with the former known for platform investments and the latter for distressed credit investing.

A major test for whether two platforms are integrated following an acquisition is when both businesses finish deploying capital from their existing funds and hit the fundraising trail again. Do they maintain the branding of each platform, or do they combine their formerly separate funds into one larger real estate fund?

In Brookfield and Oaktree’s case, it has been the former. Brookfield is currently in market with Brookfield Strategic Real Estate Partners V, the follow-up to the $17 billion BSREP IV, which was the largest private real estate fund to close last year. Meanwhile, Oaktree has just launched its latest real estate debt fund, Oaktree Real Estate Debt Fund IV, with a $3 billion target, and also is looking to raise $6 billion for its ninth distressed real estate vehicle, Oaktree Real Estate Opportunities Fund IX, according to PERE data.

One former Angelo Gordon employee believes TPG will keep the two platforms running as separate businesses for the time being to gauge investor reaction and monitor any potential team fallout. “From a management perspective, they don’t need to make that decision today,” he said. Still, TPG has no driving incentive to integrate the two businesses. Instead, it has compelling reasons against doing so.

The big keep getting bigger. But that does not necessarily mean heads will roll.