Partners Group: Strong carry and higher fees meet in revenue record

Covid-19 catch-up and high demand for quality assets lifted carried interest to a record 39% of revenue in the first half of the year.

Partners Group has ridden the wave of covid-19 dislocation to record performance- and management fees.

The Zug-headquartered firm anticipates carried interest to comprise 40-45 percent of its overall 2021 revenue, it said on its interim earnings call this week. The firm received 39 percent of its revenue from performance fees through 30 June – its highest since listing in 2006.

Just under 20 percent of 2020’s revenue and 30 percent of 2019’s revenue respectively came from carry.

This mark was “exceptionally strong” thanks to a favourable exit environment, according to chief financial officer Hans Ploos van Amstel. In March, the firm said it had sold US digital engineering services company GlobalLogic, for an enterprise value of $9.5 billion, among other large-scale asset disposals.

Van Amstel cited catch-up realisations for assets whose exits were delayed by the pandemic, coupled with high demand for market-leading companies and real assets, as  reasons for the favourable environment. Some 2022 realisations could be dragged forward into this year, he added.

These drivers are likely to dissipate after year end: “2022 performance fees are expected to return to the traditional 20 to 30 percent of revenue,” Van Amstel added.

On the call, chief executive David Layton addressed the tension between regulatory tightening and growth in the Chinese market.

In response to an analyst question about regulation, particularly in the IT and educational sectors, he said that while “China is important to provide our clients exposure to given the size and importance”, restrictions need to be “navigated carefully and thoughtfully”.

The firm is focused on sectors less impacted by the tightening, he said.

The overall high valuation environment, which is a boon to sellers, poses a challenge when deploying capital, Layton added.

Partners Group has been able to underwrite returns that are “relatively consistent” with recent returns by focusing more on making operational improvements at portfolio companies.

“We’re banning the word ‘deal’ from our corporate vocabulary,” said Layton, in line with the change in approach.

In the first half of the year, Partners Group deployed $13 billion, raised $12 billion in fresh commitments, and made $10.5 billion in realisations. The firm expects to raise between $19 billion and $22 billion for the full year.