Side Letter: Partners Group’s portco support fund, McKinsey on institutional investors, DPE’s €1bn

Partners Group staff are pitching in to support portfolio company staff. Plus: why it pays to think about institutional investors' missions; DPE's €1 billion fund; HIG hires; and more. Here's today's brief, for our valued subscribers only.

They said it

“I think in very general terms, leverage levels within private equity-backed portfolio companies have long been a concern of ours as, on the whole, they have steadily crept up post-financial crisis. You can see that when looking at the average net debt-EBITDA disclosure by the funds”

Matt Hose, an equity research analyst at investment bank Jeffries, give his take on “five burning questions” for the listed private equity sector in a podcast

Just happened

Pitching in

More than four months in and contributions to Partners Group‘s Portfolio Employee Support Fund have reached around $10 million, said co-chief executive David Layton on the firm’s semi-annual results call this morning. Of the roughly SFr 6 million ($6.5 million; €5.5 million) saved by the firm in travel expenses in H1, SFr 5 million was contributed to the fund, according to a statement. Partners Group senior executives in April said they would forgo 100 percent of their salaries for the next six months to support portfolio company employees affected by the covid-19 crisis. Employees will also be voluntarily forgoing a portion of their salary or contributing directly to the initiative, it is understood.

Nearly $8 million of the fund had been allocated to specific companies and over 70 percent was used to support stakeholders in the US, where there were “fewer safety nets” than in other investment geographies, Layton added. A “good portion” of the funds was spent on supplementing lost income from furloughed or quarantined employees, and the remainder on supporting housing costs, medical expenses, child and family care as well as funerals for people who died as a result of covid.

Other takeaways from the firm’s H1 results call:

  • Revenues: Revenues from performance fees slumped 57 percent in H1 to SFr 56 million, from SFr 130 million in the same period last year, as market volatility and the weak exit environment led to delayed exits. Total revenues decreased by 9 percent to SFr 623 million during the period.
  • Fundraising outlook: Investors have not amended long-term allocations to private markets, said co-chief executive André Frei. He added that covid-19 has led to postponements but has not affected the firm’s asset-raising potential, and demand remains intact for its evergreen programmes and separate account mandates. Partners Group expects gross client demand this year to reach between $12 billion and $15 billion.
  • Secondaries activity: The firm’s secondaries dialogues with sellers were disrupted in H1 due to volatility in public markets valuations. Layton said it was “difficult to walk a straight line with regards to negotiations on some of these portfolios”. More activity is expected as valuations stabilise in the coming months.

Read about Partners Group’s longer-term plans for stakeholder engagement here.

The keys to institutional outperformance

An institutional investor that looks after its employees and ensures everyone aligns around a clear mission is statistically more likely to produce better investment returns. This is the claim made by executives at McKinsey & Company, which surveyed nearly 5,000 employees at 23 institutions with nearly $4 trillion of assets: “Our research showed that the degree to which employees believe in their fund’s organizational mission and the quality of its talent-management practices were even stronger statistical determinants of investment performance than financial incentives.” The consultancy gives examples of investors creating a connection with their core mission: “One institutional investor held ‘meet and greet’ sessions among investment staff and retirees and displayed the thank-you notes they received afterward throughout the investment office.” McKinsey has not published any of the data, but you can read an article summarising the findings here.

DPE’s fund close

DACH-focused growth firm DPE Private Equity has almost doubled its deployment power via a one-and-done close on its fourth flagship fund, raising €1 billion and hitting the vehicle’s hard-cap. The fund took three months to raise, the firm said.

HIG hires

HIG Europe – an affiliate of HIG Capital – has added two execs to its LBO team. Rohin Jain was healthcare lead at Triton Partners (LinkedIn profile) and joins as an MD. Nishant Nayyar (LinkedIn profile), formerly of Apax Partners’ TMT team, joins as principal.


Africa report

It’s worth taking a long-term view when looking at the case for African private equity – that’s one key takeaway from our Africa Report 2020, out this week. We examine everything from deal-making to exits and fundraising to the rise of venture capital hubs and the shift towards investments in the technology and consumer sectors. For a quick synopsis, check out the seven key trends shaping African PE, with more to come later this week.

What you’re reading

Here’s what caught our readers’ attention last week:

Today’s letter was prepared by Toby Mitchenall with Adam Le and Carmela Mendoza.

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