Partners Group lowers expected investor demand by $3bn

The private markets firm expects to raise up to $15bn from LPs this year, lower than its projection in January, due to the impact of covid-19 on new commitments.

Partners Group expects gross client demand this year to reach between $12 billion and $15 billion due to the covid-19 pandemic, a reduction of $3 billion from its estimate early this year.

André Frei, partner and co-chief executive at the firm, noted on its H1 2020 AUM call on Tuesday that the adjustment was due to “timing and not based on any one asset class or specific offering”.

“In private markets, this is a long-term cycle, you talk to clients for six-to-12 months. It does take three-to-nine months to really convert a ticket and covid-19 basically prolongs that cycle.”

He added this is due to the pandemic making it more difficult to raise capital, rather changing demand for private markets. “Some investors – not all, but many – decide to pause. Maybe they are slightly hesitant to underwrite a 10-year investment programme. But we see this demand is not lost but postponed to the second half of 2020 or 2021,” Frei said.

Partners Group received $8.3 billion in new commitments across its private markets strategies in the first half of the year, according to a statement. Of total inflows, 55 percent stemmed from traditional closed-ended private markets programmes, 20 percent of client demand came from customised mandates and the remaining 25 percent of fundraising was driven by the firm’s evergreen programmes. Private equity accounted for $2.9 billion or more than a third of the firm’s H1 2020 fundraising efforts.

It invested $4.3 billion invested in H1, compared with $6.9 billion in the equivalent period last year. Direct transactions worth $3.1 billion made up the majority, while the reminder ($1.2 billion was in portfolio assets), which include secondary investments and primary commitments to other private markets managers.

On the reduction in investment volume in the first half of the year, co-chief executive David Layton said this was driven by a slower market and was partly attributable to resource allocation. He noted a “meaningful part” of the firm’s resources was dedicated to driving performance in its existing portfolio to mitigate the impact of the pandemic.

He added: “We’ve observed many investors adopting a more cautious approach in Q2 due to the shutdowns. From our vantage point, a good portion [of transactions] have been signed or materially advanced before the crisis started at fair and full prices.

“We did not see a lot of value being unlocked or extracted from a transactional perspective over the last few months, particularly in PE. We have experienced a lot of discussions but relatively few handshakes due to higher bid-ask spreads compared to prior periods.”

Asked whether the firm could tap opportunities from distressed sellers, Frei noted it will likely take a year for transactions to materialise at the right price.

“There have been secondary transactions, but these are truly distressed sellers, which are a small group of investors that need to dispose portfolios of assets during the worst of times,” he said. “There will be opportunities, but it’s probably going to happen in the second half or in 2021. It will take up to one-and-a-half years before secondaries can happen.”

The firm reported total AUM of $96.3 billion as of 30 June. Close to 50 percent or $45 billion of its assets are in private equity, 23 percent or $22 billion in private debt, 16 percent or $15 billion in real estate and 14 percent or $14 billion in private infrastructure, according to a statement released Tuesday morning.