Why Partners Group is underweight Asia-Pacific

The firm has been focusing on more institutional-quality opportunities in the region, according to its co-chief executive.

Fewer institutional-grade investment opportunities in Asia-Pacific has resulted in Partners Group being underweight the region in recent years, the firm’s head of private equity has said.

Speaking on the firm’s AUM update on Thursday, David Layton, who is also co-chief executive officer, said the region accounts for around 17 percent of the firm’s investment activity – below industry averages of around 20 percent of overall transaction volumes.

“When our clients come to us, they’re generally looking for institutional quality opportunities,” Layton said. “Many of the opportunities that we’ve seen in Asia-Pacific historically have been in non-institutional situations [such as] investing behind a founder or in a non-institutionally controlled situation.”

Partners Group has adjusted its Asia-Pacific activities in line with the rest of its platform to focus on institutionally owned and controlled situation, Layton said. Although this may limit the firm’s opportunity set, it provides its clients with the “same global standards for our content across regions” he said.

General partners became more cautious last year as recession fears prompted greater scrutiny on asset quality and pricing, Sunil Mishra, a Singapore-based partner at global fund of funds Adams Street Partners, told Private Equity International in October.

Private equity spending in Asia fell 26 percent to $148 billion last year, according to S&P Global Market Intelligence.

Asian M&A spending remained broadly level, with $840 billion deployed across 11,000 transactions, compared with $844 billion over 12,390 deals the previous year, according to Dealogic. This is despite an 11 percent decline in China amid tighter lending controls, trade tensions and investor concerns over tech exposure.

Partners Group’s only disclosed private equity investment in Asia-Pacific last year was the September acquisition of a majority equity stake in BCR Group, a Chinese retail display firm. The firm purchased the stake from BCR’s founder and chief executive who continues to hold a sizeable minority equity stake following the transaction, according to a statement about the deal.

Capital for the BCR deal came from dozens of eligible funds and mandates, a spokeswoman confirmed.

Asia-Pacific accounted for the highest number of Partners Group’s hires last year at 103, compared with 85 in Europe and 74 in the Americas, according to data from the firm. It has eight Asia-Pacific offices, its most recent being Manila which opened in 2016.

The firm reported $16.5 billion in fundraising across its four asset classes – private equity, real estate, debt and infrastructure – for 2019. Non-private equity strategies have grown to account for more than half of the firm’s $94 billion in AUM for the first time.

Switzerland-listed Partners Group added 262 professionals last year and expects to hire an additional 200 this year.

It expects to raise between $15 billion and $19 billion in 2020. Direct equity should contribute “significantly” to fundraising over the next 12 months, Philip Sauer, co-head of group finance and corporate development, said during the presentation.

Layton noted that return expectations from clients overall have come down.

“In terms of absolute performance, it’s safe to say that the mid-20s returns that we’ve been able to generate for our clients in [private equity] is not their expectation today and we don’t guide them towards that today,” he said. “We do have a number of instances where that is possible, but I’d say high-teens, mid-teens on a net basis is generally where investors’ expectations are.”