Release Date: September 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fundraising for the first half of 2024 was up 39% from the same period in 2023, reaching $11 billion.
- Management fee growth was in line with average assets under management growth, maintaining a solid management fee margin at 1.27%.
- EBIT margin was strong at 62%, demonstrating effective cost management and alignment of employee compensation with performance fees.
- The company has a globally diversified client base, which provides stability in a volatile market environment.
- Partners Group Holding AG (PGPHF, Financial) continues to innovate, particularly in private wealth and US-defined contribution markets, positioning itself as a leader in bespoke solutions.
Negative Points
- Performance fees were light during the period, impacted by delayed and postponed exits.
- Total revenues decreased by 7% to CHF977 million due to lower performance fees.
- The appreciation of the Swiss franc against other currencies negatively impacted financials, particularly management fees.
- Headcount decreased, raising concerns about future AUM growth and deployment opportunities.
- Exit activity was light, with only two significant realizations (SRS and Civica), impacting performance fee potential.
Q & A Highlights
Q: Why has the pure management fee margin declined, and how should we think about it going forward?
A: (David Layton, CEO) The decline is due to a disproportionate fundraising within credit, which has lower fees, and the timing of fee activation for new programs. We expect the margin to stabilize and potentially increase as new infrastructure and secondary programs come online.
Q: What drove the notable step down in headcount, and can you maintain the 62% EBIT margin?
A: (David Layton, CEO) The reduction was driven by cultural shifts, increased performance management, and outsourcing some services to more sophisticated providers. We believe we are well-resourced and can maintain the EBIT margin while continuing to invest in growth areas.
Q: Can you provide an update on portfolio company earnings growth and valuation multiples?
A: (David Layton, CEO) Portfolio performance is in line with expectations. Valuation multiples have come down by about 15%, which we believe is necessary to absorb higher financing costs and lower debt availability.
Q: What are the catalysts for accelerating the defined contribution market in the US?
A: (David Layton, CEO) We have our first win in the defined contribution market through a pooled employer plan. While the market is developing slowly, we are focused on creating case studies to unlock future potential.
Q: How do you view the sustainability of the non-management fee income, such as late management fees?
A: (Joris Groeflin, CFO) We expect late management fees to remain strong, supported by treasury management services and the activation of fees from new infrastructure and secondary programs.
Q: What is your outlook for performance fees in 2024 and 2025?
A: (David Layton, CEO) We expect performance fees to be around 20% of total revenues in 2024, with potential for higher fees in 2025 as exit markets recover.
Q: How do you see the competitive landscape in the US wealth market, and what are your plans for distribution?
A: (David Layton, CEO) The US wealth market is growing, and we are investing heavily in distribution resources. We aim to ensure that private clients have a positive experience with private markets, even if it means growing more slowly to maintain quality.
Q: What is your appetite for M&A to accelerate growth, particularly in the US?
A: (David Layton, CEO) We have more appetite for M&A than historically, especially in areas like private credit where scale is needed. We are also open to joint ventures and other strategic partnerships to enhance our distribution capabilities.
Q: How do you plan to invest in brand development in the US market?
A: (David Layton, CEO) We are investing in brand development to ensure that wealth advisers and their clients recognize and trust Partners Group. This includes workshops, marketing efforts, and enhancing our online presence.
Q: What are the key factors needed to execute on your $20 billion exit pipeline?
A: (David Layton, CEO) The key factors include narrowing bid-ask spreads and increased fundraising security among buyers. We are seeing improved financing conditions and risk appetite, which should support transaction activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
