TPG Chief Investor Shares Insights on Growing a Private Equity Giant

Over the course of a 25-year career at TPG Capital, Chief Investment Officer Jonathan Coslet has played a leading role in steering the company to the heights of the private equity industry.

Keynoting the 2017 Darden Private Equity Conference at the University of Virginia Darden School of Business, Coslet described a career at TPG that began as “four guys in a room” trying to raise the money to buy Continental Airlines out of bankruptcy and progressed to CIO of a company with more than $70 billion under management; a headcount in excess of 1,000; and businesses in credit, real estate and a hedge fund.

According to Coslet, the company formed at the leading edge of the transformation of the sector, as an industry that largely thrived on deal skills and clever financing increasingly gave way to one focused on deep, specialized industry knowledge and instilling operational excellence in companies.

The imperative is now to fix problems at a struggling company or take a high-functioning company and make it exceptional, Coslet said.

“This is the hardest part of our business,” Coslet said of instilling operational excellence to grow a company.  “Very few companies have gotten this right consistently.”

Although the initial private equity boom was associated with a host of negative connotations in the broader popular press and culture, the CIO said the industry had matured into a key  — albeit niche — part of the wider capital markets, with about half the capital of public equity and roughly double venture capital.

“Private equity is an investment approach,” Coslet said. “I think of ourselves as fringe capital that takes risk and creates change.”

It’s also an investment approach that is increasingly in demand, as huge pools of capital from pension funds — which provide the lion’s share of U.S. private equity dollars — and sovereign wealth funds seek higher returns on investment.

At TPG, Coslet said the company works hard to cultivate a “think different” mindset and ferret out the rare occasions where the consensus view is mistaken.

Noting the metaphorical fork in the road, Coslet said seven out of 10 will follow the consensus view, a path that will typically be correct.

“We try to force ourselves to find the one or two times out of 10 where everyone wants to go to the left and we go to the right,” Coslet said. “You have to have the discipline to let the other seven go down that path, and when you find the one or two, the conviction to pursue them.”

As the company has honed its investment thesis, the macro environment and state of the industry are now viewed as being of far greater importance than ingredients such as price.

“We have increasingly become  very keen students of macro,” Coslet said. “In our company, we spend as much time talking about the industry and how it’s changing as we do about the company.”

As to the current broad macro environment, Coslet described TPG as “cautious” as it surveys the economic landscape. He juxtaposed the relative positives of a long-simmering economic recovery appearing to have taken hold — with solid job improvements and companies beginning to invest capital — with the concerns surrounding high corporate debt levels, rising interest rates and the uncertainty surrounding actions being pursued by a new U.S. presidential administration.

“I feel like volatility has been too low and valuations are too high for the uncertainty and probability that it will be a bumpy road,” Coslet said.

Darden Alumni Examine Latest in PE

In addition to Coslet, the conference featured a host of industry experts as panelists and speakers, including many Darden alumni who have risen to the top of the field, such as Bear Albright (MBA ’90), John Loverro (MBA ’00), Chris Stringer (MBA ’01), Courtney McCarthy (MBA ’94) and Alex Whittemore (MBA ’00), among others.

At a fundraising panel, McCarthy, who recently left Summit Partners to found CMC Strategic Investor Relations, and Albright, the managing director of private equity investor relations at Bain Capital, described the difficulty in sustaining success in the fast-growing and rapidly evolving private equity landscape.

“The perfect PE firm has yet to be developed,” McCarthy said. “You always have to be improving process and structure and how you’re finding deals.” McCarthy was also one of four Darden alumnae to speak to UVA Today about the growing influence of women in private equity.

Similarly, Albright, who has helped raise 12 private equity funds at Bain Capital, said successful firms develop a culture of relentless self-improvement.

“There is no sustainable competitive advantage in financial services,” Albright said. “It’s hustle and innovation.”

Video Insights From the Sidelines

University of Virginia Investment Management Company CEO and CIO Larry Kochard and CMC Strategic Investor Relations CEO Courtney McCarthy joined Darden Private Equity Club President Felix Wibergh (Class of 2017) on the sidelines of the conference to offer insights into trends in the marketplace and how students can break into the competitive field of private equity.