And as we’ve talked about before, as companies grow and move out of the lower middle market into their next stage of life and the next — and to their next owner, we have the ability to move with them in terms of what we think of as kind of companies that are graduating out of our portfolio. So I think that business has a lot of scale in front of it, both sourcing from institutional sources as well as from sourcing on the channel. The other piece of our business is on the structure — flipping to the structured credit side. When you go around and you talk to sources of capital in credit right now, there is a lot of focus on how to continue to diversify exposures away from EBITDA-based credit. How do we think about our fixed income allocations and our private credit allocations moving from exposure to EBITDA-based credit, we’re naturally, at some point, there will be some kind of a credit cycle to non-EBITDA-based credit, particularly given the constraints that we’re seeing in the regional banking system and the lack of liquidity there.
So I mentioned that in my prepared remarks in terms of some of the flow arrangements and the joint venture arrangements that we’re creating. If you look at what’s happening in the regional banking system, what we’re seeing right now is we’re at the part — we’re at the stage in the market development where people are trying to sell their highest priced assets and better assets to continue to work on capital levels within their businesses. We expect that to continue systemically. And so the opportunity to finance, do asset-based financing to finance nonbank lenders and having the factory that we built over time positions us to, I think, really continue to scale that business. So — and again, we’re out originating our capability there in terms of our embedded capital base.
So we expect that we’ll continue to grow both through asset base through co-mingled funds, SMAs and structured arrangements with clients as well as the opportunity potentially to take that to the wealth channel as well. And we’re seeing people obviously think now evolve semi-liquid structures and permanent capital structures around non-EBITDA based credit opportunities. And then in Credit Solutions, looking at the opportunity in front of us there in terms of private market solutions. Just to give you an idea of the flow that we’re seeing in that business. As I mentioned in my prepared remarks, we’re shifting toward private market solutions and the — from kind of public opportunities just because of the compression in spreads. If you look at the number of levered capital structures and the compression in things like interest coverages, the significant backlog of companies trying to be sold or refinanced.
This is going to be a really interesting source of bespoke return opportunities. And to give you an idea, in the first quarter, I think we signed something like between 60 to 70 NDAs with sponsors and companies to work on bespoke capital structures. And what we’re doing is we’re basically where appropriate, we’re bringing together our private equity expertise where we’ve seen these companies before or we have industry expertise or sector knowledge with the tactical knowledge that we have on the credit solutions side and working on essentially these bespoke capital structure solutions. And there — as you would imagine, given the size of some of the companies that are sponsor-controlled now, these opportunities are very large. So we’re looking basically to raise more capital in the wake of those opportunities, partner with LPs in terms of co-invest opportunities.
And we think that, that will continue to require more capital, and it’s a big opportunity to grow into. And then we also have the essential housing business, where we originated that business and started that business with Lennar, first is our first partner, and we’ve now added 11 other homebuilders to the strategy. So that has the ability to continue to scale in a pretty major way. So that all — you should put all of that in the context of at some point, will probably flow into a credit cycle managing through that credit cycle and being smart about deployment and how we deploy capital will be important not only to us but everyone in the market. So — but anyway, that’s the frame of reference that we have on the growth of the business going forward.
Operator: Our next question comes from Dan Fannon with Jefferies.
Dan Fannon: Jack, I wanted to follow up on your comments around transaction fees and maybe separate the near-term based upon activity levels and then the longer-term opportunity as you get the benefit fully from Angelo Gordon. And then also maybe if there was a split between the revenue contribution of the two businesses in this quarter to maybe get a sense of how that’s tracking?
Jack Weingart: Sure. Let me start with the last question because it kind of frames the rest of it. The transaction fees in Q1 were almost entirely associated with legacy TPG businesses. Think about almost nothing coming from AG because that requires a little bit of work. We’re in the process of integrating the broker-dealer into their businesses, requires a little bit of new hires. It requires a little bit of work on their fund documents to allow for more capital markets business. So that will be a growth driver going forward. The baseline in Q1 was a little higher than we indicated on our last call, we thought it would be because we didn’t see a big enough new deal closing pipeline to get to the kind of levels we got to. As I mentioned in my remarks, that ended up being amplified by some opportunistic refinancing as credit spreads tightened, and we’re able to improve the capital structures of many of our private equity portfolio companies.
As I think about it, the current quarter represents a decent kind of average run rate for TPG’s existing business in capital markets. We’ve — we’re expanding our — and then from there, the growth will come from a couple of things. Number one, expanding that capability across more of TPG’s business, as we grow in climate, as we grow in climate infrastructure. There are a lot of ancillary capital markets needs around those businesses and we intend to build a capital markets business to service those needs more broadly than just our private equity focus today. And then secondly, the AG opportunity, which I think you should expect to kick in really late this year and into next year as we keep doing the work that I outlined. So that — those two elements on top of the current quarter, of course, you’re going to see fluctuations quarter-to-quarter.
But as you think about kind of the baseline for that business, over the coming couple of years, those two opportunities will create kind of two steps up in the average opportunity in that business.
Operator: Our next question comes from Brian McKenna with Citizens JMP.
Brian Mckenna: So a follow-up on AG Credit. How should we think about the change to fundraising and how that flows through into fee earning AUM? I’m assuming this will be more driven by deployment activity, but is there a way to think about the ramp of fee earning AUM inflows throughout 2024 for the segment, specifically? And then I know there can be some noise quarter-to-quarter on fee rates, but are the first quarter fee rates for AG Credit and AG real estate, good starting points for 2Q and beyond?
Jack Weingart: I’ll start on that, I guess. I think the way I think about kind of the credit business flowing into FAUM is, first and foremost, deployment because almost all of the capital in that business pays fees on deployed capital only. I think all the fundraising you see us talking about in doing this year, the more than $10 billion is really setting us up for the second leg of growth next year. Most of the funds we’re raising this year, some will be deployed this year, but it’s hard to — in your modeling, it’s hard to draw a direct connection between this year’s fundraising and 2024 FAUM and FRR, that’s more driven by deployment pace in the near term. And I think on the average fee rate question, there’s nothing abnormal in the first quarter there.
As we talked about at the analysts, I guess the only thing I’d say is that there are obviously three or four different — very different businesses within AG Credit, and the average fee rate will be driven more by the deployment mix across those businesses than it will be by some kind of macro factor.
Operator: Our next question comes from Adam Beatty with UBS.
Adam Beatty: I want to follow up on the wealth management channel, focusing on your existing product set and your existing distribution relationships. I know there’s a lot more to come on both those dimensions. But just trying to get a sense of among your distribution partners in wealth right now, how many of the products, Jon mentioned several products, out there targeting wealth. How many of those are on a given platform, what’s kind of the average or what have you. What I’m trying to get at is maybe the near term, maybe next 12 months opportunity where you have a distribution relationship in wealth, you already have one or two products on there, but maybe not all of them. So how you could maybe roll more of those into those relationships in the near term.
Jon Winkelried: I think, as I mentioned in my comments, I think that what we have progressively over the last several years, it’s not — this is not a new phenomenon this year continue to be disciplined about establishing distribution arrangements and wealth arrangements for essentially every strategy we bring to market through various partners of ours. And of course, as you would imagine, we have multiple relationships and multiple partners, which we highly value. And that those products, in some cases, are being distributed through, in some cases, one partner. And in some cases, a particular strategy is being distributed actually through multiple partners depending on the sequencing of when we’re launching and then frankly, the calendar schedule that our partners have as well in terms of kind of queuing up various strategies.
And those are for sort of the traditional fund structures that we’ve historically brought to market. And we’re continuing to do that, and we’ve ramped that over last year and now into this year. So to the extent that you see products of ours that are in the market that we’re fundraising for, there will be a private well strategy around essentially all of them. We are, as we said before, and obviously, all of the important partners in the market are partners of ours as a result of our brand and our performance and the relationship that we’ve established with those partners over time through multiple interactions at different levels of these organizations. And I spend time, Jack spends time, Todd’s spends time, Jim spends time with meeting with these partners, both in terms of the strategic relationship at the top of the house as well as on the key people that are driving those distribution relationships into private wealth and marketing our brand, marketing our strategies, meeting with advisers, et cetera.
So we’re well into that process in terms of how we’re approaching it. So you should expect, I think, that we’ll continue to kind of up-ramp the overall level of distribution and the amount of capital we’re raising and that over time, the pie chart of distribution for our capital will continue to inflect more and more towards wealth as we do that. We’re obviously now focused on the next stage of that, which is these continuously offered products, which are very important. Jack mentioned that and emphasized that in the channel now, the ability for advisers to recommend to their clients to allocate into various strategies is requiring alternative products to be available on a continuous basis. So just like mutual funds are or other products are in the market.
And so we’re actively working on structuring and preparing our semi-liquid private wealth product that Jack already talked about, and we will be launching that into the channel. We have our BDC from our Twin Brook business that’s actively being marketed in the channel. Over time, I think you — what you should probably expect to see from us is other continuously offered product maybe in the form of nontraded REITs for parts of our business as well. So I think that’s what you should expect. And we know that it is a significant source of capital on a go-forward basis and the relative allocation in that channel is certainly less than what we see on the institutional side. So the ability to kind of have a multiplier effect in terms of growth is clearly present.
Operator: Our final question comes from Bill Katz with TD Cowen.
Bill Katz: So maybe a question on your longer-term FRE margins sort of heard the affirmation of sort of getting to that 40% plus margin for this year. But as you think about the step function of the scaling of the credit platform, the scaling of your capital solutions footprint. I was just sort of wondering, as we look beyond ’24 into ’25, maybe ’26, how do you sort of see the profile of the Company? Can you realign with some of the bigger peers? Or is there a different sort of glide path from here?
Jack Weingart: Yes. Good question, Bill. We have not provided any longer-term FRE margin guidance other than to say that we do believe we’ll be expanding back to 45% and eventually higher, which was our initial TPG target margin. As you think about our margin profile and the reason we reiterated 40% for this year, think about a lot of the FRR contributors and the fundraising activity we have this year, our current assumption is that the biggest fundraises we’re in the market with right now that have fees on committed capital, that being across all the climate strategies, we’re assuming those probably turn on in the third and fourth quarter of this year, that means that FRR from those businesses doesn’t really pick up meaningfully until I call it the fourth quarter.
