Partners Group cautious on PE, overweight RE in H2

Partners Group anticipates secondaries pricing will remain elevated in private equity, while it sees attractive opportunities in real estate, according to an outlook report for the second half of the year released on Monday.

Pricing for private equity secondaries continues to rise, with a considerable market premium being placed on high-quality assets and large transactions, according to the firm.

“We are cautious on mature assets as limited value growth can be expected globally,” it wrote in its Private Markets Navigator report.

“We currently focus on inflection assets where we see some pockets of growth and value creation opportunities driven by operational improvements, particularly in the emerging markets as well as on the venture/growth side.”

But considering such aggressive pricing and public markets cooling down from a return point of view, Partners Group has downgraded its view from positive to cautious on growth and venture secondaries in the US. It is also maintaining an overall cautious view on Europe.

Regarding real estate secondaries, the firm is seeing a notable increase in demand. This is resulting in a rise in deal flow, but also in higher pricing expectations from sellers, as well as a larger disconnect between secondaries pricing and underlying real estate fundamentals.

Partners Group also sees attractive opportunities in non-traditional real estate secondaries transactions such as spin-outs and formal tender offers, mainly because a wave of maturing funds of 2005 to 2008 vintages has started this year. These funds will likely seek to extend their life-spans to maximise the value of remaining portfolio properties.

“Term extension are now often the rule rather than the exception and some investors are likely to become fatigued and motivated to sell out these programs,” the firm wrote.

In infrastructure, the investment manager said it focuses on proprietary situations where it can execute quickly. It is also developing its tail-end strategy, moving from single line acquisitions to more complex liquidity solutions.

“Pricing for mature secondaries has continued to pick up recently, reflecting the healthy exit environment and more oprtimistic expectations,” it said. “We are therefore becoming cautious with regards to the funds seen most often on the secondaries market, especially the European ones, as they are achieving high prices from a wide range of market participants.”