Partners ramps up directs

The firm – which this week reported a 29% year-on-year revenue increase driven by performance-related fees – has identified the lower mid-market as an area for good opportunities as it continues to expand its direct investment activity.

Partners Group’s direct investment activity rose more than 70 percent in 2012, compared to 2011. 

Last year, 41 percent of the Swiss-headquartered firm’s investment activity was devoted to direct investments, compared to 24 percent in 2011, the firm said.  

In its annual results released this week, Partners Group said it plans to do more than 20 direct investments per annum. The firm’s chief executive, Steffen Meister, said during an earnings call on Tuesday that the lower middle market was a particularly good place for global investment opportunities in the next three to five years.

“There is consistent deal flow in all the regions and it is less cyclical than the large-cap [segment]. It has much more discipline in pricing and very importantly it is the area where we can add the biggest value,” Meister said. 

In 2012, the firm’s primary fund commitments were approximately the same as the year before, comprising 35 percent of overall investment activity compared to the 33 percent in 2011. The firm’s secondary activity seems to have dropped, however. Secondaries amounted for 24 percent of overall investment activity in 2012; secondaries accounted for 43 percent of the firm’s activities in 2011. 

The mezzanine market is quite robust. This is because it is catering to the middle and the lower middle market. In Europe there’s strong competition by high yield which means the mezzanine volumes can shift quite a bit

Steffen Meister

“It’s a tough discipline to buy secondaries and price them accurately,” Meister said during the call. “Secondaries are becoming more cyclical because the market has relatively matured,” he added. In December, the firm reached its €2 billion hard-cap for its Partners Group Secondary 2011. At the time, the fund had already deployed approximately one-fifth of its capital. Partners Group plans to invest approximately $1 billion to $2 billion in the secondaries market between 2015 and 2020, according to its annual results statement. 

In the next few years, Partners Group also plans to further expand its investments in private debt, particularly in the US. “The mezzanine market is quite robust. This is because it is catering to the middle and the lower middle market. In Europe there’s strong competition by high yield which means the mezzanine volumes can shift quite a bit. The [private debt] team will probably grow by 50 percent, maybe even double. We have a strong team in the US, but looking at the volumes we see in the lower middle market, that’s where we can make more efforts,” Meister said. 

Partners Group reported a revenue increase of 29 percent in 2012, CHF 447 million (€365 million, $473 million) compared to CHF 346 million in 2011. EBITDA also grew by 29 percent to CHF 275 million compared to CHF 212 million in 2011. The firm said the revenue increase was supported by an increase in the performance fees, which rose to CHF 43 million from CHF 13 million, and reoccurring management fees, which increased to CHF370 million from CHF 317 million.  

The firm’s assets under management grew to €28.6 billion from €24.8 billion in 2011. Cyrill Wipfli, Partners Group’s chief financial officer, described 2012 as a “very strong year”. He said 2013 “will be just as strong on a net growth basis”.  

Public and private pension funds remain the most important clients of Partners Group, the annual results showed. In terms of capital raised last year, 40 percent was provided by public pension funds and 33 percent came from corporate pension funds, with 10 percent coming from insurance companies, 6 percent from privates, 2 percent from banks and 9 percent from Sovereign Wealth Funds, endowments and others.