What is Partners Group strategy for investment in private equity funds?
Other than in cases of focused funds or mandates, the firm usually invests globally, based on a relative value investment strategy. Whereas many private equity asset managers are restricted to a particular segment of the private equity market, we adjust the allocation of investments toward the vehicles, geographic regions and financing stages that Partners Group believes offer superior value at a given point in time. We invest diversified mandates and funds using the full range of private equity investments: primaries, manager secondaries, financial secondaries, direct investments, and listed private equity investments. By combining strategic asset allocation decisions with relative value analysis and a rigorous investment selection process, we believe we are well positioned to achieve attractive returns for investors (see chart 1).
What legal or cultural issues are holding back institutional investors in your experience?
Generally, it can be said that investing in private equity is a bigger administrative effort for the investor (compared, for example, to public equity). This is mainly due to the LP structures of the investments. If an institutional investor wants to do it by himself he has to allocate the necessary human resources. This is especially true if post-investment he wants to monitor and control his private equity exposure.
In the UK it is very common to invest into private equity, which is evidenced by the high strategic asset allocation. In Continental Europe on the other hand, the private equity allocation is much lower than in the UK. One reason for this gap may be the fact that institutional investors in Europe lack the necessary knowledge to invest into private equity.
How do you assess the risks associated with firms you have never dealt with before?
Risk management is done at several levels within the firm.
Investment team: a thorough investment due diligence is key to recognise and therefore properly assess the investment risks.
Investment committee (IC): risk management of individual investments on the basis of the periodic investment monitoring reports (post-investment risk management). Where concerns arise in respect of a specific investment, the IC decides about actions such as intervention at general partner level or disposal.
Risk consideration group: risk and quantitative management of client portfolios on the basis of the Partners Group quantitative model. The models allow for a variety of scenarios and simulations concerning cash flows, IRRs, multiples, foreign exchange exposure and allocation. Specific quarterly risk management reports are produced for most of the large mandates and structured products.
Investment steering group (ISG): risk management on the basis of allocation recommendations. The ISG proposes on a half-yearly basis allocation for client portfolios. Risk management of allocations means the avoidance of over-concentration in markets and sectors with substantial capital overhang and generally sectors or segments of low relative attractiveness or subject to material investment risk.
What, in your view, are the most important characteristics for a good fund manager?
When assessing a manager, we look for a strong and consistent track record, a professional management team with a broad and comprehensive background and a continuous history of working together, and an attractive target market coupled with a strong competitive position.
How do you source your funds? And how do find the best performers?
Partners Group has developed a multitude of sources for its broad deal flow. The most important of these is the firm’s global industry network, based on more than 150 partnership investments, more than 50 advisory board seats, and the personal relationships of Partners Group’s 80 private equity professionals.
The typical sources of deal flow are direct contacts with existing (and selectively new) partnerships, established at conferences and events, or as a consequence of trade publications or articles in reputable industry publications. Also, first contacts are often the result of an analysis of specific deals by a manager or referrals from other reputable business partners within the firm’s private equity network. Repeat investments in follow-on funds represent a major share of primary investments. Contacts by new partnerships are often based on the firm’s high standing among professional investors (comprehensive due diligence, broad global network, deal flow etc.) and its reputation, which means that a commitment by Partners Group to a manager often triggers additional commitments from other sources.
What is your attitude towards investing in Asia and the emerging markets?
Entry multiples in Asia are well below those in Europe and the US. Debt financing is readily available at attractive terms. The underlying industry growth of the target companies is often in the 10% to 40% pa range. Exit conditions in most markets are feasible by way of IPO or trade sale. These factors continue to offer excellent investment opportunities. As the Asian private equity industry has matured significantly in the recent years, we expect an increase in the amount of funds raised. However, as investment levels are in excess of the total of funds raised and deal flow remains robust, the opportunity/capital ratio remains favourable.
What are Partners Group’s plans for the next year?
In addition to private equity and hedge funds, Partners Group has also moved into the field of private debt. We have built up a business unit to deal with these opportunities and have launched two dedicated mezzanine funds (Partners Group European Mezzanine and Global Mezzanine.) Next year, the further development of this strategy will be one focus of the company. In addition, after successful fund raising and a very fast investment pace, we are ready to launch our second secondary fund. A direct investment fund and a global fund-of-funds targeting the whole private equity spectrum are in the pipeline.
About Partners Group
The three former Goldman Sachs professionals Marcel Erni, Alfred Gantner and Urs Wietlisbach established Partners Group in January 1996 in Zug, Switzerland. Partners Group’s debut private equity offering was a private equity fund-of-funds listed on the Zurich and Luxemburg Stock Exchanges. One of the group’s most renowned products is Princess, a double-A rated convertible bond, which offers the full upside potential of a private equity fund-of-funds portfolio while benefiting from capital protection arrangements with Swiss Reinsurance Company.
In 1999, Partners Group opened its first foreign office in Guernsey, followed by an office in New York to facilitate the firm’s significant investment activities in North America and to further the group’s ambition to become a global alternative assets manager. Offices in London and Singapore have also been opened as the investment team has grown.
Prior to joining Partners Group, partner Erik Kaas worked for eight years at Goldman Sachs & Co. He spent his first five years at Goldman Sachs in London, New York and Tokyo before relocating to Zurich, where he was responsible for the institutional products business in Switzerland and Austria. He started his career in finance in the swaps and OTC bond options group at Liberty Eurobrokers in London. He holds a dual degree in business administration from the European Partnership of Business Schools in London and Reutlingen, Germany.