One of the vanguards of economic theory, John Maynard Keynes proposed multiple revolutionary concepts, consistently meeting a torrent of skepticism from his colleagues. Yet his principles serve as the benchmark for thought leadership in the underlying discipline, so wide reaching is his legacy.
Among Keynes’ enduring theories is the concept of “sociological and psychological forces that dominate in uncertain times” to explain financial instability, especially in stock markets, per professor Michelle Baddeley, a leading expert in behavioral economics and finance. She added, “Keynes's psychological forces include not only the propensity to consume from income and the desire to hold money but also the waves of optimism and pessimism that affect stock markets, and the animal spirits that propel entrepreneurship.”
But like any academic work, challenges arose as people learned more. Under the competing rational expectations theory, this concept proposed that “independent, atomistic and self-interested agents are rational in the sense that they do not make systematic mistakes and use all available information efficiently.”
For both the investor and the intellectually curious, the upcoming initial public offering (IPO) of private-equity firm TPG Inc. is a much anticipated one. Primarily, the new listing may determine the validity of rational expectations or provide a tip of the hat to Keynes’ memory.
When Is the TPG IPO Date?
For the benefit of those just starting their investment journey, an IPO is the first time a private enterprise distributes its equity shares to retail investors, thus making the transition to the public sphere in the process. To help with the proceedings, under a traditional IPO, financial institutions serve as underwriters that actually buy shares in primary-market transactions and sell them to their choicest clients. From there, shares hit the secondary market to retail investors.
In most cases, companies choose to debut their equity securities in a public exchange to support burgeoning growth dynamics. To be succinct, private enterprises can only raise so much from accredited or institutional investors. Opening access to the general public allows a business, in exchange for a stake in the company, to access the widest pool of capital possible.
For TPG specifically, Reuters mentioned that with “interest rates at record lows and the global economic recovery from the COVID-19 pandemic turbocharging the buyout industry's profits and driving a rally in the shares of its peers, TPG decided to pull the IPO trigger.” Both the timing and the motivation are curious.
First, TPG will ink its name on the IPO calendar on Jan. 13, with shares listing on the Nasdaq under the ticker symbol TPG. The debut coincidentally competes with another high-profile debut, Justworks Inc. However, the former will have the edge in terms of the potential raise amount — and by a country mile. The global alternative asset manager intends to offer 28.3 million shares at an estimated price range between $28 and $31 per each. At the top end, TPG will raise $877.3 million, affording a valuation of $9.5 billion.
This figure contrasts with Justworks, which is targeting a $224 million IPO raise, translating to a $2 billion valuation. Still, the journey ahead may not be an easy one.
On the motivation front, Reuters mentioned that TPG was “trying to recover from a string of poor investments in the 2000s and diversify its private equity platform into growth and social impact investing.” However, the low borrowing costs and unusually favorable trends for certain industries post-pandemic sealed the deal. Still, a “string of poor investments” indicates that at least some psychological catalysts — as opposed to pure rationalism — bolstered those decisions.
Finally, the timing concern is obvious. With U.S.-based IPOs tallying up a valuation over $301 billion and global totals exceeding $594 billion, favorable synergies must remain robust to power yet another similar new listing spree. Yet the Federal Reserve is signaling the opposite sentiment with a hawkish monetary policy, which again lends more credence to Keynes’ economic philosophies.
TPG Financial History
Although economists may disagree sharply on certain policy measures in the face of large-scale difficulties, most would presumably agree that, under an ambiguous headwind, it’s better to distribute risk across a wider canvas than it is a narrower one. Similar to the principle of an exchange-traded fund (ETF), your winners can counteract your losers, thus keeping the boat afloat.
Still, this risk-distribution principle requires that, all things being equal, either more winners than losers exist or that the total magnitude of wins exceeds that of the losses. But that’s also what investors may find comforting about TPG stock. Undergirding the investment is a collective wealth of business professionals and analysts, leveraging the best in brains and resources.
On paper, you couldn’t find a better proponent of rational expectations theory. In other words, individual investors could attempt to beat the market on their own. But they’ll never have access to the deep-seated knowledge that TPG and companies of its ilk so effortlessly deploy.
Further, an initial look at the company’s financials provides confirmation to that concept. From TPG’s Form S-1 filing with the U.S. Securities and Exchange Commission (SEC), the private-equity firm generated total revenue of $3.9 billion in the nine months ending Sept. 30, 2021. Moreover, it posted a net income attributable to controlling interests of $1.7 billion.
In sharp contrast, TPG delivered $564 million in top-line sales and $319.4 million in net income attributable to controlling interests in the year-ago comparison. Thus, the surge in business activity during the initial post-pandemic recovery period, along with extremely favorable monetary dynamics such as benchmark interest rates slipping into subterranean territory helped skyrocket TPG’s portfolio.
Although the numbers are certainly encouraging, investors must be aware — not only for TPG stock but for any other venture — that analyses during the new normal may be greatly flawed because of various unusual or unique circumstances that may not repeat in the future.
For instance, special purpose acquisition companies (SPACs) represented a new-for-the-time platform for various financial institutions, including TPG, to enhance their income stream. However, SPAC-based IPOs post-business combinations have conspicuously underperformed benchmark equity indices over the trailing year.
As Harvard Law School asserted, SPACs are often disadvantageous for retail investors because of their dilutive structures. It’s then possible for the public to wise up, thereby removing the once-lucrative revenue stream that these shell companies previously provided. And in a similar manner, other income sources that TPG depended on in the past year could face restrictive challenges moving forward.
Although a topic that arouses much debate from the many convoluted nuances involved, social influencers have targeted private-equity firms as public enemy number one regarding the housing supply crunch and its profiteering. The binary nature of American politics facilitates the advantage of disseminating stark cause-and-effect relationships, eschewing accuracy for conclusiveness.
Still, an element of truth exists in that private-equity firms leveraged their resources for acquisitive pursuits unavailable to the common household. Though perhaps odious to some investors, others may find that the best way to fight a bully is to forge allegiances with an even bigger bully.
Nevertheless, the motivation for TPG going public should at least give some pause to prospective buyers. From its history, it’s notable that not all of the asset management firm’s capitalistic endeavors were efficient nor rational. Thus, the IPO’s timing indicated that some emotional urgency is at play, necessitating increased due diligence for retail investors.
How to Buy TPG IPO (TPG) Stock
For interested investors acquiring shares of TPG at the open, you must know how to buy stocks. Below is a quick refresher.
Step 1: Pick a brokerage.
Because the best brokers compete on similar financial incentives, take time to understand which platform ideally suits your needs.
Step 2: Decide how many shares you want.
Since IPOs involve myriad unknowns, it’s usually best to approach new listings with a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
TPG Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
For more information about TPG’s pre-IPO (initial offering price) opportunity, visit EquityZen.
Laughing With You or at You?
On the surface, joining forces with one of the world’s top private-equity firms seems a surefire way to navigate the troubled waters facing investors this year. However, prospective buyers of TPG stock must be aware that you don’t rise to the peak by being altruistic.