Partners Group saw performance fees rise by 57 percent in 2016 to hit a record SFr294 million (€273 million; $295 million) on overall revenue of SFr973 million, an increase of more than SFr350 million on 2015, the firm said in its annual report.
The firm said the “considerable” increase in performance fees was a result of “several mature portfolios passing their return hurdles during the period based on the performance achieved over the last six to nine years.” It said that the financial crisis resulted in a “shift in the timing” which had delayed the payment of performance fees.
“Certain assets in programmes launched before the financial crisis have experienced longer holding periods, which has resulted in a shift in the timing of anticipated performance fee payments from these programmes from 2010-2015 to 2016 onwards. At the same time, other assets in programs launched after the financial crisis have had shorter holding periods, which has brought some of the performance fee payments forward.”
Strong contributors to performance fees included Partners Group Direct Investments 2009 and Partners Group Secondary 2008, and a handful of the firm’s evergreen private equity vehicles, a spokeswoman told PEI.
Partners Group Direct Investments 2009 is a €650 million vehicle focusing on direct investments globally. It is invested in companies such as Grupo Santillana, a publisher of educational text books in Spanish, and Kaffee Partner, a German coffee provisions supplier.
Partners Group Secondary 2008 closed in late 2009 on €2.5 billion to invest in the secondaries market. The fund acquired a portfolio of assets from a bank at a discount of over 70 percent to net asset value in 2009, according to the firm’s website.
Alongside the record growth in performance fees, the investor saw management fees increase by 22 percent on 2015 levels to SFr679 million.
Despite record fee growth, the firm forecast an expected net return rate on the equity component of a private equity deal in H1 2017 of 9-13 percent, down on its expected average net return rate of 11-16 percent.
The firm said there would be “headwinds stemming from high valuations”, but that their “impacts on lower prospective future returns are less intense for private markets where returns can be enhanced through different sources of value creation”. The firm said private markets should be well-placed in comparison to capital markets which are likely to see increased volatility from “modest top-line growth, lofty valuations, the prospect of rising rates in the US and uncertainty following the Brexit vote”. Based on these factors the “historical outperformance of private over public markets should persist”, the report said.
Overall the firm invested $11.7 billion last year, $2 billion more than in 2015.
Of this amount, $7.6 billion, 65 percent of all investments, was deployed in direct transactions across all asset classes, primary fund investments made up $2.3 billion of investments and secondaries $1.8 billion, a $400 million drop on the previous year.