CPP Investment Board takes 29% hit on TPG VI

According to a Reuters report (via Altassets), TPG VI wrote down their current portfolio by 29% as at the end of December 2008. It is very early days in the fund’s life, however, as TPG VI had only invested US$780 million of their US$19 billion fund. CPP Investment Board has a US$750 million commitment to TPG VI, up from their 2006-vintage US$500 million commitment to TPG V. With 4% of the fund, CPPIB’s loss in the first six months of Fund VI works out to be about US$22 million for CPPIB’s own account, at least on paper.

This loss shouldn’t come as any surprise (see prior post “New accounting rule adds to LBO pain” March 2-09), although it is far more driven by TPG’s untimely investment in Washington Mutual than any changes to fair market value accounting rules. Some will wonder if this is the beginning of a trend, or just a TPG-specific situation. Given CPPIB’s doubling down on PE (see prior post “Doubling Down on Private Equity at CPP Investment Board” Feruary 20-09), let’s hope it’s the latter.

TPG is a leader in private equity, so pensioners shouldn’t lose any sleep over this news. What was most interesting was the sidebar that TPG had unilaterally reduced their management fees by 10 or 15 basis points (to 1%-1.5%). Which means TPG will have to get by on something like US$225-$250 million in fees per year, just for Fund VI alone.

MRM