Partners Group expects long-term value assets to account for a greater proportion of its private markets portfolio.
The Zug-headquartered firm has started to hold portfolio companies for longer periods and will own assets for up to 15 years in some cases, up from the standard industry average of around five years, executive chairman Steffen Meister said in its first-half results presentation on 11 September. The move comes amid increased focus on value creation to generate stable cashflows.
It will target businesses that operate in sectors unlikely to undergo major disruption within the next 10 to 15 years, or that would be in a position to lead such changes and gain additional market share.
“If that’s the case we want to keep on owning, holding these assets,” Meister said. “Clients like that proposition because they see it really as achieving private market returns with a risk characteristic which resembles public market portfolios much more.”
The strategy shift particularly applies to Partners Group’s mandate business, with some clients having agreed to alter their mandate structures to allow for 10- to 15-year holds, Meister noted.
“We’ve never been a Wall Street firm, but if anything we’ll probably even move away more from being a financial firm in the way we operate … to being more of an industrial partner. It will not have any significant impact on our financials in the next one or two years, but in the long-run, the next five to 10 years, we can get additional market share and AUM relative or at the cost of public markets with this long-term investment strategy.”
Long-hold private equity vehicles could significantly outperform traditional fund strategies, according to research from Bain & Company. The consulting firm’s Global Private Equity Report 2018 projected long-hold funds could generate double the post-tax investment multiple of typical buyout funds over a 24-year period.
A number of large firms have already launched long-hold vehicles. CVC Capital Partners is seeking €4 billion for its second strategic opportunities fund, while KKR announced in February it had amassed $8 billion for its Core Investment strategy, which will target deals with an expected hold period of 15 years or more and does not have recycling provisions.
Apollo Global Management also intends to launch a long-term equity and credit vehicle, while BlackRock is reportedly planning a $10 billion perpetual capital fund targeting minority stakes in family-owned business and corporate spin-outs. In March, Aberdeen Standard Investments snapped up Francesco Cosulich, former head of Southern Europe at asset manager AMP Capital, to help lead its long-term fund joint venture.
Partners Group’s latest move follows news that partner and head of private equity David Layton is to replace Christoph Rubeli as co-chief executive from 1 January. The firm is in the midst of a hiring spree to match its anticipated AUM growth for the year, potentially making up to 150 hires by the end of the year.
Its AUM climbed €6.2 billion to €67.1 billion in H1 2018, of which €34 billion was in private equity.