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TPG Faces Paper Losses on Biggest Investments

TPG is sitting on billions of dollars in paper losses on some of its biggest investments during the buy-out boom, according to a report sent to its investors.

The private equity firm's paper losses on just four buy-outs—of Energy Future Holdings, the former TXU, Freescale Semiconductor, Harrah's Entertainment and Univision Communications—amount to nearly $2.9 billion.

TPG invested $4.7 billion in the deals.

The estimated value of the investments was detailed in a report dated May 28 sent to investors in the TPG Partners V fund. Overall, the performance of the fund during the quarter ending 31 March was "relatively flat", with an overall paper gain of $42 million, the report said.

The paper losses on the investments in TXU, Freescale, Harrah's and Univision make it unlikely TPG will be able to cash out of these holdings and return any proceeds to investors soon. However, TPG will have many years to turn round the fortunes of the companies before it is obliged to reward investors.

The firm has returned about $8 billion to investors since the beginning of last year.

TPG declined to comment.

At the time that TPG made the four investments, the total enterprise value of the companies—including equity and net debt—stood at about $110 billion. It bought TXU, a power company, for $48 billion; it paid $31 billion for Harrah's, a casino owner; $17 billion for Freescale, a semiconductor manufacturer; and $14 billion for Univision, a Spanish language media company.

In the report sent to investors and seen by the Financial Times, TPG said it had marked down the value of its equity in the former TXU from $1.5 billion to $758 million, in Harrah's from $1.4b billion to $759 million, in Freescale from $1 billion to $200 million and in Univision from $837 million to $293 million.

KKR and Goldman Sachs were TPG's partners in the TXU deal.

TPG bought Harrah's with Apollo Management. The Freescale and Univision transactions involved several other private equity firms.

A person familiar with TPG said the firm marked its investments conservatively.

As the firm is private, "there is no urgency in changing the marks on the portfolio every quarter," the person said.

However, if the paper losses in the Partners V Fund do not improve, they could limit TPG's future options.