Partners Group is the latest alternatives manager to develop products appealing to retail investors and respond to a shift by one of the industry’s prime funding sources – US public pensions – towards defined contribution (DC) benefit models.
“Historically, DC pension plans have been unable to invest in private equity and private markets due to the illiquid structure of traditional private equity vehicles,” Partners Group co-CEO André Frei said in a statement. “These funds will change the status quo.”
The firm said it had developed private markets offerings for the world’s three largest DC markets – the US, UK and Australia – noting it had secured its first (undisclosed) client for the US fund, which launched in August. Its Australian fund was “in ramp-up phase” and expected to start taking commitments in early 2016, while its UK fund was readying for a first-quarter launch amid final regulatory review.
“This is a hugely important milestone in the development of suitable private equity and private markets offerings for the DC market, which is a key strategic initiative for Partners Group,” Steffan Meister, president of Partners’ board of directors, said in the statement.
Partners did not give specifics on the evergreen DC vehicles’ relationship with its traditional alternative investment funds, but said the DC products were meant to be adopted by professionally managed DC-plans and would “provide access to private markets investments, while at the same time providing daily liquidity and pricing and fulfilling the highly standardised purchase and redemption procedures that are requirements of the defined contribution system”.
Meister noted that pensions’ traditional defined benefit (DB) model had statistically outperformed DC plans to date because of “the ability of DB pension plans to include more illiquid and long-term investments in their investment portfolios. DC has to-date been unable to do this, despite the long-term investment horizons of most plan participants.”
Frei added that over the next decade, Partners expects “private markets will become as important a performance driver for DC schemes as they are today for many DB portfolios”.
The $47 billion Partners Group is not the only firm to have developed products suitable for retail investors – KKR, Blackstone and Carlyle are among those to have experimented with various offerings. Pantheon notably hired a ‘head of US defined contribution’ in 2013 and recently launched a retail investors’ fund in partnership with AMG. A Partners spokesperson noted that, unlike what’s been launched by many peers, Partners’ DC funds are not publicly traded.