Lately, however, the legendary firm’s performance has been pedestrian. And it raises some questions about how TPG will fare in the fundraising market, when it begins trying to raise its next flagship fund in late 2013.

The issue is with TPG’s two most recent flagship buyout funds, a $15.3 billion pool raised in 2006 (TPG Partners V) and a $19.8 billion pool raised in 2008 (TPG Partners VI). According to May 31 data from The University of Texas Investment Management Company (UTIMCO), Fund V has an IRR of -4.54% while Fund VI came in at just 1.36%. Both figures are below those of comp funds from rival firms like Apollo Global Management, Bain Capital, The Carlyle Group, The Blackstone Group and Kohlberg Kravis Roberts & Co.

Both Carlyle and KKR remain in market with flagship fund offerings, while both Apollo and Bain are both returning to market now. TPG doesn’t plan to begin fundraising until the second half of 2013 at the earliest — with a certainty of extending in 2014 — but it risks being the odd man out with certain public pension systems that have been seeking to reduce their number of mega-buyout fund relationships.

The pressure, therefore, is on TPG to explain its performance. Here’s my basic understanding of how it does so:

TPG readily admits to investors that its fifth fund was a mess, with massive craters like TXU and part of its Washington Mutual investment (the rest lies in Fund VI). But, at the same time, it apparently believes that most of the fund’s bad news is already out. TXU is being carried at just around five cents on the dollar, while WaMu was written off ages ago. In other words, things can’t get any worse. Moreover, the firm has told investors that the majority of active Fund V portfolio companies have been on an EBITDA upswing over the past year, thus causing it to believe that there could actually be some surprises on the upside (save, perhaps, for a shock recession if Washington politicians can’t discharge their duties in the next few weeks).

As for Fund VI, TPG believes that the meager IRR is largely a result of portfolio immaturity. According to The California State Teachers’ Retirement System (CalSTRS), TPG had only called down around 57% of its commitment through  March 31. That’s much “younger” than the comp funds, and a decent amount of that came in late 2011 and early 2012 (TPG has since slowed down its investment pace). In fact, there is a decent chance that TPG would ask its LPs for an investment period extension once the current one expires. One longtime TPG limited partner also told me that the firm has a reputation for valuing its portfolio companies more conservatively than do some other mega-buyout firms. Also worth noting that no TPG VI portfolio companies include participation by another mega-buyout firm, thus reversing a Fund V “club deal” strategy that didn’t seem to work.

In other words, TPG is offering investors a number of silver linings to counteract the dark performance clouds.

As for whether or not it will work, the jury won’t come back for at least 18 months (fundraising is expected to begin in late 2013, and bleed into 2014). To be clear, TPG will manage to raise Fund VII. And the target will certainly be smaller than its last two efforts, based on both a changed macro environment and its recent tendency to do smaller transactions. The issue will be how much the firm ultimately tries to raise (as we previously reported, no decisions have been finalized) and if it is then forced to change targets in midstream (i.e., Providence Equity Partners).

In the past, TPG has simply handed out a number and then doled out oversubscribed allocations. It won’t be so easy this time, even if the smaller fund means that it succeed without retaining all of its existing LPs. Perhaps the determining factor will be the next 12-16 months of portfolio performance, which could show LPs if the silver linings are legitimate or just a mirage.

TPG declined to comment for this story.

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