Partners Group‘s performance fees rose by more than half last year to hit a record SFr 294 million ($295 million; €273 million) on overall revenue of SFr 973 million, driven in part by its 2007-vintage secondaries fund.
The increase in performance fees was a result of several mature portfolios passing their return hurdles based on the performance achieved over the last six to nine years, the Zug-headquartered investment firm noted in its 2016 annual report.
The global financial crisis of 2007-2008 had resulted in a shift in timing which had delayed the payment of performance fees, while other assets in programmes had shorter holding periods, bringing fee payments forward.
The firm’s €2.5 billion Partners Group Secondary 2008 fund as well as its Partners Group Direct Investments 2009 were strong contributors to the firm’s performance, a Partners spokeswoman told Secondaries Investor.
Partners had brought a tail-end portfolio of stakes held in its Partners Group Secondary 2008 fund to market last year, with Goldman Sachs Asset Management emerging as the buyer of the roughly €800 million bundle in September, as Secondaries Investor reported. The firm then sold a second portfolio worth under $1 billion to Goldman toward the end of last year.
Stakes Partners Group Secondary 2008 acquired include a portfolio of assets from a bank at a discount of more than 70 percent to net asset value in 2009, according to the firm’s website.
While the firm recorded record-high performance fees, its secondaries investments declined to a four-year low despite it assessing more secondaries opportunities than ever before. Partners screened $129 billion worth of secondaries deals across private equity, real estate and infrastructure and invested in less than 2 percent. The $1.8 billion invested in 25 transactions is the lowest dollar amount invested since 2012, when it invested $1 billion. In 2014 the firm screened $107.5 billion and executed on $2.9 billion worth.
Commenting on the secondaries market in its H1 Navigator publication in January the firm said there has been “a general decrease in the quality of assets available.”
In its annual report Partners also forecast an expected net return rate on the equity component of a private equity deal in H1 2017 of between 9 percent to 13 percent, lower than its expected average net return rate of between 11 percent to 16 percent.
While high valuations will create headwinds, this impact on returns will be less intense for private markets where returns can be enhanced through different sources of value creation, Partners noted.
Private markets should be well-placed compared with capital markets which are likely to see increased volatility from modest top-line growth, lofty valuations, the prospect of rising rates in the US and uncertainty following the Brexit vote, according to the report. Based on these factors the historical out-performance of private over public markets should persist, the firm wrote.
Overall the firm invested $11.7 billion last year, $2 billion more than in 2015. Of this the firm deployed 65 percent in direct transactions across all asset classes; secondaries accounted for $1.8 billion of investments and primary fund investments accounted for $2.3 billion.