Partners Group Private Equity Ltd (LSE:PEY) Q2 2024 Earnings Call Transcript Highlights: Strong Returns and Strategic Distributions

Release Date: August 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Partners Group Private Equity Ltd (LSE:PEY, Financial) achieved a total return of 4.1% for the first six months of 2024.
• The company paid an interim dividend of EUR0.355 per share, aligning with its objective to distribute 5% of the previous year-end NAV in semiannual payments.
• The share prices witnessed a total return of almost 14%, closing the reporting period at EUR11.45 per share.
• Significant distributions totaling EUR103.7 million were achieved, driven by exits from portfolio companies like SRS and Civica.
• The company has a robust capital allocation policy that prioritizes dividends, ongoing fees, expenses, and debt repayment before share buybacks.

Negative Points

• The exit environment remains challenging and subdued, impacting the company's ability to achieve higher distributions.
• Transaction activity recovered more slowly than expected, affecting the pace of new investments.
• The company discontinued its FX hedging policy in early 2023, exposing it to currency risks.
• The average holding period for portfolio companies has increased, weighing on portfolio IRR.
• The portfolio's technology sector exposure is relatively low compared to benchmarks like the MSCI World Index.

Q & A Highlights

Highlights of Partners Group Private Equity Ltd (LSE:PEY) Earnings Call

Q: Could you please talk more about how you source deals?
A: (Cyrill Wipfli, Advisory Partner) We have a domestic sourcing team with full-time employees dedicated to sourcing investments. We look for established business models with meaningful margins and strong management. About half of our investments come from our integrated platform and the other half from internal networks. The process is proactive, often starting one to three years before a sale is intended.

Q: In the report, you state that you have EUR125 million of unfunded commitments. Could you provide some comments around what these are?
A: (Federica Cazzaniga, Senior Portfolio Manager) Of the EUR125 million, EUR35 million are pre-2015 commitments, mostly unfunded commitments to fund holdings now in the harvesting phase. Approximately EUR50 million are unfunded commitments to active Partners Group flagship private equity funds, expected to be called over the next two to four years.

Q: Could you give us more color on the FX management in the portfolio?
A: (Federica Cazzaniga, Senior Portfolio Manager) We discontinued our FX hedging policy in early 2023 and are not actively hedging the FX exposure of the portfolio. We report the currency breakdown of the portfolio monthly for investors who wish to hedge the currency risks on their side.

Q: Do you have any numbers on portfolio company EBITDA or revenue growth across the portfolio?
A: (Cyrill Wipfli, Advisory Partner) The average EBITDA growth over the last 12 months as of June is 9%, the EBITDA multiple is 17 times, and net debt as a percentage of EV is 35%. These figures exclude public companies, infrastructure companies, and exited companies.

Q: Could you provide some insights on portfolio-level debt?
A: (Federica Cazzaniga, Senior Portfolio Manager) We closed the first half of the year with no drawn facility within the portfolio. We used proceeds from the SRS distribution sale to fully repay our outstanding facility. Going forward, we will use the facility to bridge short-term mismatches between cash inflows and outflows, staying around 0% to 5% of NAV in terms of facility utilization.

Q: Why did your currency exposure change in June?
A: (Federica Cazzaniga, Senior Portfolio Manager) The exit of SRS, which represented approximately 7% of the portfolio, changed the regional composition and currency exposure. The balance between dollar and euro currency exposure shifted, with the portfolio now standing at approximately 47% in euros.

Q: Are you underweight on technology as a sector?
A: (Federica Cazzaniga, Senior Portfolio Manager) Yes, compared to the MSCI World Index, which has a 40% technology exposure, we are underweight. However, we are aligned with the small-cap public investment universe, which has around 11% technology exposure. Our technology segment is newer and younger, and we expect it to grow over time.

Q: Could you provide some comments on liquidity and share buybacks in light of the capital allocation policy?
A: (Andreea Mateescu, Investor Relations) The capital allocation policy respects the liquidity positions and waterfall of the company. Dividends, ongoing fees, expenses, repayment of outstanding indebtedness, and reserves to meet existing investment commitments will be provided for before excess free cash flow is used for share buybacks. As we see more exits and distributions, free cash flow is expected to turn positive, allowing for potential share buybacks.

Call Participants:

For the complete transcript of the earnings call, please refer to the full earnings call transcript.