Earnings call: Partners Group outlines robust private market growth strategy

Partners Group, a global private markets investment manager, conducted its 2023 earnings call, revealing a strategic focus on transformational investing and the growth of private markets. Executive Chairman Steffen Meister discussed the future investment landscape, emphasizing the transformative potential of next-generation technologies like AI.

The company reported strong performance in 2023, with $18 billion in assets raised and an 8% growth in asset center management, despite challenges in the real estate sector. Partners Group reaffirmed its fundraising guidance at $20 billion to $25 billion and expressed confidence in leveraging its differentiated offerings and client relationships to capture market opportunities, particularly in private equity and infrastructure.

Key Takeaways

• Partners Group held a successful Annual General Meeting in Miami, attended by clients representing over $10 trillion in assets.
• The company is focusing on an investment paradigm influenced by macroeconomic reset, geopolitics, labor and demographics, and new technologies.
• Steffen Meister outlined three transformative technology phases: business process transformation, intelligence as a service, and self-learning autonomy.
• The firm stressed the importance of understanding and adapting to industry transformations to stay relevant.
• Partners Group is well-positioned to benefit from the growth in private markets and plans to build a royalties platform.
• The company aims to raise between $20 billion and $25 billion in the coming year and sees potential in private equity, infrastructure, real estate, and credit.
• Investments made between 2015 and 2019 are still in the value creation phase and expected to generate substantial future value.
• Despite a 2% increase in total operating costs, the company maintains a focus on cost control and aims for a 60% EBIT margin.
• The firm plans to grow its market share in the U.S. private equity market and may report royalties as a separate asset class once it reaches critical mass.
• Partners Group differentiates itself through strategic guidance and alignment with management in portfolio companies.

Company Outlook

• Partners Group is confident in its business model and the shift towards private markets.
• The firm is focused on growth opportunities in private equity, infrastructure, real estate, and credit.
• They plan to capture more market share in the U.S. private equity market and the European mid-cap debt market.

Bearish Highlights

• The real estate market faces challenges due to rate changes.
• The strengthening of the Swiss franc had a negative translation effect on the operating margin.
• The company expects an increase in its tax rate to 18-19% following OECD Pillar two implementation.

Bullish Highlights

• The company raised $18 billion in assets in 2023 and saw an 8% growth in asset center management.
• Strong new mandate growth and resilience in private equity, infrastructure, and private credit businesses.
• The firm is differentiated with bespoke client solutions and a diversified platform with 350 live investment vehicles.

Misses

• No specific details regarding layoffs or restructurings as part of their transformational activities were mentioned.

Q&A Highlights

• The company is not the same as a turnaround investor; they focus on building businesses and revenues.
• They see more opportunities in the mid-cap space and may consider organic growth or acquisitions.
• Performance fees are expected to contribute significantly to total revenues in the coming years.
• The wealth management space is valued at $170 trillion, with private markets becoming a more traditional asset class.

In summary, Partners Group (PGHN.SW) showcased a strong year and a clear strategy for capitalizing on the dynamic changes in the private markets. With a focus on transformational investing and a robust pipeline for growth, the company remains optimistic about its prospects, despite some challenges. As the industry evolves, Partners Group's differentiated approach and commitment to innovation position it to potentially benefit from the expanding private market landscape.

InvestingPro Insights

Partners Group's strategic focus and positive outlook are complemented by insights from InvestingPro. With a market capitalization of $37.82 billion USD and a high Price/Earnings (P/E) ratio of 29.24, the company trades at a premium, reflecting investor confidence in its future earnings potential. This is further underscored by a P/E ratio for the last twelve months as of Q2 2023 at 30.76, suggesting that the market expects continued growth.

InvestingPro Tips indicate that Partners Group (PGPHF) has demonstrated a strong commitment to shareholder returns, with a track record of increasing its dividend for 14 consecutive years and maintaining dividend payments for 17 consecutive years. This consistent performance in shareholder returns could be a sign of financial stability and prudent capital management, aligning with the company's confident outlook and growth strategy in the private markets.

InvestingPro Data also reveals that the company has a robust gross profit margin of 66.25% for the last twelve months as of Q2 2023, which is indicative of its operational efficiency and ability to generate profit from its revenues. Additionally, the company has shown a high return over the last year, with a 1 Year Price Total Return of 85.02%, reflecting the market's positive reception to its strategic initiatives and growth prospects.

For readers interested in a deeper analysis, there are additional InvestingPro Tips available that could provide further insights into Partners Group's financial health and market performance. To explore these tips and make more informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - Partners Group OTC (PGPHF) Q4 2023:

Philip Sauer: Good morning, everybody. Dear shareholders and media representatives, we would like to express a warm welcome that you came to listen to our 2023 Annual Results Presentation. My name is Philip Sauer. I'm heading the Corporate Development Business Unit at Partners Group, and all of us today are very excited to share with you some of our highlights and achievements from the past year. Over the weekend, we returned from Miami where we held our Annual General Meeting for our clients. This was a great event with a new record, over 300 clients from over 35 countries worldwide participated. In total, the clients in attendance represented more than $10 trillion of assets under management. We saw 45% representation from North America. We welcomed this, because we aimed to gain further market share in that region. We also dedicated substantially more time in our agenda for our private wealth solutions and our distribution partners. Listening to their ambition to further increase the private market allocations of their private wealth clients provides us with enormous confidence about the future growth of our business. This is one of our more important growth segments. At the AGM, Steffen Meister, here on my right side, our Executive Chairman, took clients on a journey of what truly shapes the private market investment paradigm over the next decade and that the only constant in our economy is the acceleration of change. Today, he is with us and shares with you the same perspectives as he shared with clients last week. Thereafter, we listen to Dave. He will provide us with a business update of 2023 and also with an update on the IOM outlook for 2024. Last but not least, we would like to welcome our new CFO, Joris Gröflin. Welcome. He will explain our 2023 financials and give you more insights in our performance outlook for the future. So, without losing any more time, Steffen, the floor is yours.

Steffen Meister: Thank you, Philip. Good morning, everybody. It's great to have you. We really appreciate your time here. As Philip said, I'd like to kick this off with some perspectives on what's ahead of us in the next 10 years. What's the game changers for the investment paradigm in the next 10-15 years and what are not game changers? I can assure you that last week in Miami, that is something very, very high on the minds of our investors and I assume also shareholders at this inflection point in this environment. So, the four considerations that typically come up are around the macro economy reset, geopolitics and what are the potential implications on deglobalization, labor and demographics and the next generation of technologies. Let me walk you a little bit through that. I'll do this somewhat briefer than in Miami. We don't have quite as much time, so bear with me. I'll not go through all the numbers, but you've got the materials. So the first question about the macro economy resetting, what you see here is on the left-hand side, the gray bars is fundraising that has been relatively insulated from market cycles and also returns, that's the top line you see is actually relatively independent. There's a simple reason for that and this is in the valuations. So, if you look on the right-hand side, what you see is a little math exercise here. If you take a, let's say, low double-digit growth asset that creates 20% returns with a 50% leverage at 5% cost of capital, so it's a bit of bull market kind of asset financing, you bring down now the finance to 40%, double the cost to 10%, that creates a return of 17%. Now you fix the exit price, but you enter the asset at a valuation which is one turn lower, you'll be back at 20%, okay? And that's exactly what happened over the last 12 months. It's actually probably more than that. If you look at assets like Velvet CARE, that's a specialist hygiene product business we bought at less than 9x or ROSEN, ROSEN is an infrastructure inspection business. Think of it as robotics and combined with software, okay? That would have probably dealt like 15x, 16x like two years ago. So we've seen a massive normalization of the valuations and that is why we actually think the resetting is actually a very helpful thing. It's clearly not a game changer for us. What about geopolitics? What you see is clearly that so far there is no deglobalization. Everybody talks about it, but just measured by global trade, it's not there. No one knows what's ahead of us, but I mean at least at the moment, this is not what's happening. What we clearly see is also from the headlines, there is issues around technology restrictions, there's issues around nationalism in consumer sentiment. So, companies like Apple (NASDAQ:AAPL) see a little bit of that in Asia these days, Huawei for quite some time. But I would tell you that that's probably not something that is a challenge for the broader private markets for smaller businesses, unless they're super specialized in maybe certain high-tech fields. The bigger topic is probably the supply chains, okay? And what we have clearly seen is a rebalancing from, I would say, a pure focus on efficiencies towards efficiency combined with more independence and diversification. And this comes with reglobalization going from one low-cost place to another one or near-globalization coming back to home or near to home. And if you take a step back and if you think about it from a private market perspective and also from our portfolio perspective, that is anywhere between, I would say, neutral and in some cases positive. A company like Form, that's our metal component engineering business, they had a little bit of, I would say, a demand by their customers to be a bit more diversified. They just opened a new fab in Vietnam. But then you have also business like Sterling. It's a pharmaceutical contract development business and they benefit from the fact that a lot of the large pharma firms for whom they operate want to really reduce some of the exposure to Asia, bring it back to Europe and the U.S. where they have a very strong foothold. So is geopolitics, is deglobalization a topic? Absolutely. Asset by asset, we have to look at it very, very carefully. But I would say at the larger scale, it is not something which we would see as a game changer at all. What about labor and demographics? If you take a step back and if you measure economic success by GDP, which is crude but probably the best we can do, I mean you see that labor supply at the broad level has become less and less relevant. And what you see in terms of outlook here for the next 10 years, I mean it will actually be relatively marginal impact. Now this is, in fairness, masking a little bit the fact that in some businesses, labor is actually a real issue. We had certainly one or the other company in our portfolio, physician practice management in healthcare in the U.S. for instance, where we clearly see challenges with labor. But again here, if you look at the overall picture, overall in power markets but specifically in our portfolio, I will tell you that by large it's much more a positive theme to be played by companies. It's positive for the portfolio, not negative. Because a lot of businesses that we own, Version 1 in digital services or Ammega, our belting businesses, they're exactly playing this theme of labor supply challenges, specialist labor workforce challenges. For instance, Ammega, our belting business, they really sit in the middle of this entire manufacturing automation theme that helps companies to actually be less dependent on specialist labor in factories. So again here, it's something that we are very focused on, especially when we do due diligence of new themes and the new assets. But I would certainly not tell you that this is something which is a real game changer, certainly not to the negative. So that leaves us with the next generation of technology and I'm sure you get every day 20 or 30 headlines and you see their span usually in the whole range from this is the end of the world to this is saving the world and some of them, like the FT quote here, feel that it has no relevance. That quote reminds me a little bit of Paul Krugman's quote in '98 when he compared the Internet with the fax machine and also the economic impact. Now the thing is, there's a lot of noise here but if you cut through that noise, and I'll keep that a little bit short in this round here, we come clearly to the conclusion that for private markets and for the economy overall, certainly also for private markets, certainly also for Partners Group, the next generation of technology is a real game changer. And that's sitting -- this hypothesis is sitting on four pillars. One is we are convinced that technology, the next generation, will actually mean the next transformation of the economy and I'll talk to that and we believe that comes again with a reconfiguration of winning business models, that comes to a redistribution of profit pools, and that's probably quite key, we believe a lot of that is happening in the next 10 to 15 years, okay? So that's a pretty bold assumption, and let me walk you through some thinking here why we believe it's not without merits but also how we think that could unfold and what we could do about it. So I want to start maybe by addressing a myth here. When people talk about change, and I'm sure you see that quote every day 5x, people always refer to this like the only constant is change. We think this is highly misleading, if not wrong actually, because it suggests some form of a linearity in change that could translate into visibility and forecastability, but that's simply not there and we have seen this on and on and on. Economic transformation in the world, industrialization took 100 years, service economy to be established 50 years; first digitization, we talk about that 25 years. In all kind of technology advancement areas, PC adoption 20 years, Internet 12, mobile six years, there's an assumption that AI co-pilots will probably be broadly adopted in the next three years and even if you go into AI, and AI is not the only of that technology that is relevant for the next 15 years, but even in AI you see a similar path from speech recognition to image to code generation to reading comprehension, it was essentially halving the development times in the last 20 years overall. So if we believe there's some merits in that assumption that we see that change continuing with further acceleration and a shortened timeframe, how does this look like? What does it mean actually for the economy, but then specifically also how should we think about it with our investment horizons that typically five, six, seven years? And I want to start maybe by looking a little bit back the last 25 years, because we feel that we can actually learn a lot. It doesn't give us a crystal ball, but we believe we can get a good sense of maybe a certain structure of how we should look at the next 10, 15 years. 25 years ago, we had two events coming together. We had the connectivity, democratization of the Internet, and we had computation power that was affordable. So suddenly every business, even small businesses, they had a server in their basement, they ran software, they connected to other businesses, customer supply chain, all of us had our devices. First, they were not mobile, over time they were mobile. So suddenly, the whole systems got connected. Every number that was shared was essentially digitized, okay? That was the first digital integration. But the amazing thing was not just what happened on the technology side. The amazing thing that was unforeseeable if you look at all the other sectors, what happened there? Now if you look back in the last 25 years, there was a bit of a structure to it, because a lot of these steps, they came in waves, in waves that depended on the actual technology advancements we've sown over the last 25 years. And we think that's not a bad model to think about the future. So what we've seen very recently is something similar, like 25 years ago, we saw the connectivity being replaced or added to by AI democratization. And AI isn't new as Internet wasn't new 25 years ago. And we see a new generation of computation as a service, and if you take this together, it's really intelligence as a service. So a bit like electricity that comes out of the power outlet, you have intelligence as a service that is sent to your laptop, your mobile phone, your car, your washing machine, whatever. So these systems will be better in not just supporting a lot of things we do in the economy, but in some ways, they will actually run these things in a more autonomous way. And you will see very soon that these systems are pretty good in kind of self-correcting. So I think directionally, we go a little bit to this self-learning autonomy that is driven by the digitization next 10, 15 years. We believe there will be, again, three phases, and we believe it's very, very important to distinguish them, especially as we look at businesses and themes and understand what is actually ahead of us. So the first of these phases we call business process transformation and that is essentially around co-pilots in all kinds of applications. So, co-pilot for coding, co-pilot for a customer chatbot, co-pilot maybe to draft legal agreements, things like that. Some of that stuff is already okay today. Some of that is still not yet that advanced, but it's probably making good progress next one or two years. Now, when people talk about AI applications, 80% of their comments you see is around process transformation. Now, that's important because that's really what's happening in the first wave, but the reality is that's not a big deal. This isn't going like from the type writing machine to MS Word. Productivity gain is maybe 2x. Everybody will do it. You cannot afford not to do it because otherwise you just give up margin, but I don't think you get actually much advantage over peers if you do it. It's just if you don't do it, you probably just are left behind, okay? So what's a bigger deal is probably the second topic that people don't talk so much about, business performance transformation, and why is this not so widely covered? There's a simple reason. While there's a lot of activity, there's not a lot of finished products. There's not a lot of results. But don't be wrong here. If you look at the few finished products that are out there, they're pretty breathtaking, and I don't have time for too many details here, but I want to just point to one here, Eko Health. Eko Health is an AI stethoscope that was approved by the FDA, and it saves you $2,500 six-month waiting time for a heart condition assessment procedure in the U.S. It comes with a prescription for medication without the need for a further specialist, something completely unthinkable like three, four years ago. So these are the kind of things that are being developed. Now, they are much more relevant because they come with productivity multiples of 3x, 4x, 5x, could be more than that, and they can make a real change to a business and certainly to the way the economy will work, not just in healthcare, but in many, many other fields. But the third one is probably the biggest one, and that's probably where people least talk about, business innovation transformation. What becomes more and more evident is that these tools, new technology, and AI is part of that, are extremely effective in helping scientists. I'm on the Board of ETH Foundation here in Zurich, and I can tell you, I mean, I have literally every few weeks a discussion with a professor, and the big thing that's always coming out is how much the new tools have tremendously accelerated their phase. There was recently an example, Ribosome Research, the project was designed to happen for five to 10 years, was finished after six months, mostly because of AI. So, there's amazing things happening. So if you think about 10 million scientists today that drive innovation on this planet, and if you suddenly have a multiple of 4x, 5x, 6x, 7x, you increase that to 40 million, 50 million, 60 million scientists suddenly, and by the way, much, much faster scientists. So that's the highest densification of research we've ever seen. We've never experienced anything similar. So, why is this so important? Well, people don't talk much about it because you don't see so much about it, but it will probably change a lot of the business in many ways, and I want to give just one example here. In this round, this is material science. In material science, we have, in the last 50,000 years, cooked things. So, for instance, if you think about energy markets, solid-state batteries, you have your anode, your cathode, you're separating and embed this in an electrolyte, and the electrolyte is usually today liquid. That's dangerous. The density of electricity is not that great, so we think about these solid-state batteries. That's ceramics or glass. These things today are cooked by a system, and you can essentially test thousands of them in a few days. So you get much quicker to the actual final test phase in these things. So that comes with a proliferation of new materials. There is application in literally every manufacturing business, every energy business, from synthetic fuels to decarbonization assets, everything you need energy storage, or everything needs energy storage. Now, why don't you hear so much about it? Because there is a certain timeline until that actually hits the market. So if you look at the last example here, it's, I think, another good example in the pharmaceuticals industry. These tools are very effective to design, for instance, new proteins, new peptides, okay. And the thing is now it takes maybe half a year instead of four years to design them, many more, actually. But you still have the in vitro phase, and then you have the clinical phase that's three, four, five years. So the fact is, until you see medication on the market, that still takes five, six years. That's why you haven't heard all about that. But think of it in a metaphoric sense, really, of a tsunami. It's under the surface. There's a tremendous amount of activity. All these new innovations, they travel like shock waves under the ocean surface. But when they hit the industries in four, five, six years, in some cases, this will be absolutely dramatic, okay? So, this is a little bit how we have to think about what's happening, and this is how we tackle on the investment side the different themes and try to understand whether we can create a hypothesis or not in these different fields. And I'll come back to that. So, going back to the question of what that means then for the economy, because you might say, well, it was always like that. Now, it's a bit faster. It's not a big deal. Good companies will always be good companies. I think that's a bit more complicated. Looking back last 25 years again, what we said is the economy changed, and you see all these headlines about change. The problem is that change is something very abstract. Some people feel associated with something maybe worrying. Some people feel it's something positive, but it's very abstract. But it's a very easy way to make change visible, and that's profit pools. So just take any kind of particular area you're interested in and just run the profit pools over the last 25 years, and you see very similar pictures across all sectors. So, for instance, music industry over the last 25 years, you see five waves, complete change in profit pools. What's also interesting is profit pool comes down before it goes up again. So change and the working economy doesn't always mean that the profit pool goes actually up. The margins might go up, but the profit pool might not always go up. The question with the profit pools is then, is it the same companies? How much has it really changed the leadership position of companies? Now, I'm sure you have looked at this first part of this slide before. What's the top 10 companies in the S&P '98 and today? And you see that everything has changed except for Microsoft (NASDAQ:MSFT). Now, the argument typically made is, well, that's because technology has essentially had such a good run, and that's why all technology companies are up there. But to be honest, that's too simplified. Look at different sectors at the lower part. Communication services, top five companies, completely changed. Insurance, that most people would actually associate with something that is relatively resilient, a little bit more boring maybe than technology or pharmaceuticals, and take out Berkshire. They don't really belong in that. That's a technical thing. Their non-insurance business is so big, they would not be part of that actually. Insurance has completely changed. And now, interesting, Materials. Everybody talks about the fact that Materials is at an inflection point. It was boring so far, now it's changed. Well, but already last 25 years, it has completely changed. There's no firm left out of the top 5 of '98. So, there has been a massive change, but that was 25 years, a bit long period, and that's why we tend to forget about these things. What's the natural reaction? If you feel like something like that or similar could happen in 10 to 15 years, the reaction often, even last week, I've heard this a few times from investors, is duck and cover. We go for the resilient areas. We go for where growth is, but no change. And it's a very charming idea. I wouldn't dismiss that, but the problem is the following. It's a little bit hard to hide. This is an overview of our so-called mega themes. Mega themes are ecosystems, private equity and real assets, where we see significant growth and profit pool growth potential ahead of us, where we believe that there's something interesting happening that will create returns for investors. And I'm sure many of you have a very similar way of looking at interesting sectors. Now the problem is, if you look at these in more detail, you'll see that many of them have this little red-white wave attached to it. That means that they will probably be subject to a major transformation in the next 10, 15 years. There's actually hardly anything that will have no transformation. Maybe a few of those have a little bit less than that. So the idea to actually try to just bet on the other things is probably a little bit of a naive idea. Now going to -- that's my segue, I guess, on the investment side here, going a little bit to the investment approach and why this is now so relevant also for our investors and for us is the following. If you look at the top line here, what you see is these 25 years, okay, in this timeline. And the color code change essentially describes a little bit this economic transformation last 25 years. Typical investments in that period were like Odlo 25 years ago, VAT, our vacuum valves business that we bought 10 years ago, we hold for four, five, six, seven years and we sell it. In both businesses, we had done quite a bit of transformative work actually. But if you look at the change of the color code in these holding periods, there's not a whole lot happening. So the reality was that the economic change during that holding period wasn't that significant. So transformation investing was really an optional thing that produced in both cases maybe a 4x instead of a 2x, but it wasn't absolutely necessary. That is very different going forward. Now, if you look at the new timeline here, if you assume there's some merits in that hypothesis, 10 to 15 years, look at a business like Cloudflight we bought last year, that's a digital service businesses. We have to assume, that's our assumption actually in our underwriting, in our modeling, in our hypothesis, that Cloudflight's clients in '28 will be different to some extent. They will have different needs, different products, they have different clients, we will operate with them differently and our own supply chain, meaning how we produce products at Cloudflight, will also look quite different. So, in other words, Cloudflight will go through a massive transformation, it has to, to stay relevant in the next five, six, seven years. So to do that, you have to be very clear at the outset about a hypothesis of what's the winning business model, where this industry is going. And of course, you never have a crystal ball. You have to just do this directionally as good as you can and you have to pace this development of the firm, because five, six, seven years is actually not an awful lot of time, if you assume there's a lot of change. So if you feel there's some merits in our hypothesis here, I think you easily come to the conclusion that the times when you just bought resilience or bought defensiveness, that's probably over, it's not going to work anymore. So, you have to buy businesses, anchor businesses that allow you to develop them according to your hypothesis of what's the winning business model, at least directionally. That's why you have to go. And this brings us to what was the big topic last week in Miami, that's the other two days we spent there after my introduction, transformational investing. That is a very thematically-oriented sourcing approach, where we define these ecosystems, where we believe we understand them well enough to actually build a hypothesis for the industry, for the winning business model, and then once we own the asset, I mean, through this entrepreneurial ownership, being very active in pacing the value creation initiatives and the steps to actually go through that winning business model journey. So that was kind of the main part of the introduction. I want to add maybe a few considerations on the scope of the industry and maybe some of the public-private market dynamics that play a little bit into that to some extent. Private markets today account for about $15 trillion of assets under management. You see the split between the different asset classes. This is just the latest information that's up from about $12 trillion when we talked about this the first time in this round two years ago. We have last year given a little bit of a journey or shown a little bit of a hypothesis of where we believe the additional money in the next cycle is coming from, and I think we clarified that not only existing investors, but maybe even more so new investors, new type of insurances, traditional investors, money market firms, traditional large asset managers will probably contribute quite a bit towards that $30 trillion maybe of the next cycle. But there was always a question in the room, can we actually invest 30 trillion or is the industry actually, from an asset perspective, significant enough to actually provide opportunities here? And I think the answer is very clearly yes, and I want to just give you, just very directionally here, some numbers. So private equity, we assume that growth will come down a bit actually, but that's also from a relatively high base in the meantime, about $10 trillion. It's clearly still more than GDP, and why is that? We think there's three reasons here. One is businesses that don't see a future as a $6 billion, $7 billion, $8 billion business in the midterm, they don't do an IPO anymore. They should stay private in most cases. Even those businesses that see themselves being on a track to maybe 6 billion, 7 billion, and they would actually do an IPO at one stage, they might IPO 20%, stay for a while, maybe the asset is still owned by private markets in the majority for three, four years, so the whole process is much slower in the meantime. And third, you see clearly a next wave of divestitures. In this environment that we just talked about a minute ago, you will clearly see a lot of pressure on many mid-sized firms, $20 billion, $30 billion, that cannot afford to have four areas of focus. The world is just too complicated and too fast for that, and very often private markets will be the beneficiaries here. In infrastructure, it's a bit of a similar picture, maybe a bit a different driver. We see that infrastructure today, or next generation infrastructure as we call it, these new platforms, whether that's social decarbonization or digital data centers, for instance, is typically built in private markets. It's not done by the government. But at one stage, of course, I mean they will have a certain size when they will eventually go to the public market again, because that's the better holders for some of these assets after a certain size. But in the meantime, there's so much need for the building that we believe that the growth will actually stay quite high in the infrastructure higher than in private equity. In real estate, it's a bit of a similar picture. The growth will probably stay relatively high. It might surprise you because you have probably seen last year was a very tough year for real estate, and we'll talk about that. We had in our portfolio great operational results, but the pure valuation side of things, cap rates and so have clearly gone up, so valuations have come down. Now the thing is, there's a reason for that, because there's the biggest ever transformation in real estate going on. That's driven by three things. One is the new workforce transformation, it's new living trends, you know, people cannot afford houses anymore, all of these things. I don't go into details here, and there's certainly a lot on the logistics side that is not yet done. So all of these three will mean a lot of transformation in real estate. That transformation historically has never been done in the REIT market or in pension portfolios. That's usually happening in private markets that serve a bit as a conduit for these changes before these assets are sold again to REITs or to portfolio pension funds over time. And then finally on the credit side, again here we believe that the growth will probably stay relatively high. One reason is simply because it grows with the private equity context, but there's two other areas here. That's market share wins, market share wins from the banking side, we believe especially in Europe actually next 10 years, you know, which is very bank heavy on the lending side, but then also from the public market side, which will add to that higher growth of credit. So last work on public markets, I mean there has been also in the last year from our investors a lot of questions around how should we think actually about the role of public markets and kind of the interaction between private and public markets, you know, because we talked a lot about the fact that small businesses stay private and these kind of things. So I think we have an interesting inflection point here where you see actually a new area of, I would say, a little bit of a co-existence, a very synergetic co-existence between public and private markets. I don't think it's a competition anymore actually. Small businesses, $1 billion, $2 billion,$3 billion, they simply stay in private markets unless they have a clear valuation arbitrage in public markets, maybe for growth capital here and there, for some fancy spotlight company, but that's probably more the exception than the rule. But there's a certain size, you know, and forget now about the bull market 21 when even $10 billion, $15 billion private market businesses were sold in private markets. In a more normalized environment I think we see that companies that will eventually go to that $5 billion, $7 billion, $10 billion, $15 billion kind of size, they will start with an IPO. Maybe 20%, 30%, as I said before, they will do it slowly, carefully. The interesting thing is that IPO will often, even if it's primary issuance, need or will the capital will be used to repay the debt on the private market side. So it's not the public markets will actually finance the real economy, that happens actually in private markets, but it's just the ownership structure is much, much better in public markets for some of these assets of that kind of size. And then you have, as we said before, you know, a lot of the large companies that will divest and the assets might end back in private markets. So very, very synergetic going forward. The kind of ironic thing about that is, you know, if you think about where private market comes from four years ago, I think the public market IPO activity will be driven by a very large extent by private markets, we see growth capital and buyouts on that path. And then very similarly discussed before, infrastructure next generation will be built in private markets at $10 billion, $15 billion. We have, for instance, data centers that have now the second funding round, 10 billion, so they will eventually be like $20 billion assets. The private market is not a good place for that, so they will eventually be put in some form of REIT. I think there's a bit of like a new generation of large-scale utilities actually coming. So we saw a lot of utilities spinning off, disappearing or being reduced in size, becoming more consumer businesses. I think now you see actually a next generation of infrastructure utilities that will be brought to the market next 10 years. And then we discussed about this day before. So I guess what I want to leave with you is, first, private markets continue to outgrow public markets. We didn't go through the numbers here, but you might have seen that yourself. IPOs were down to about 10% of 21 levels. Private market, we'll talk about it, down maybe 50%, so much, much more active actually. Fundraising in private markets last year was 3x as much as global equity issuance. So we see that gap actually widening last year. We believe the big thing ahead of us, certainly from an investment perspective for private market firms like Partners Group, is actually this change that's coming with technology. So it's not about the technology per se, it's like the last 25 years about what's happening on the economy overall with that trigger through that next generation of technology. We believe transformation investing is the only answer to that and we are not worried about the investment opportunity set with $30 trillion. So we should probably have enough interesting assets that we can invest in the next years. So I realized I was relatively fast, but I thought we want to give you a little bit of that overview too, that drives a lot of our thinking, how we think about businesses, our teams, maybe on the companies, consolidation, all of these things. So thanks for bearing with me.

David Layton: Thanks, Steffen. And you can see from those remarks why we've put so much emphasis over the last number of years on transformational investing. This is not a passive investment activity. This is truly finding businesses that we believe that we can transform to maintain or to obtain leadership positions. You'll note that we have a little bit of an updated look and feel as a firm. We use that client event that Philip talked about last week as a catalyst to launch this update. Same firm, but one of the things that we found is the people that spent time inside of our walls, the clients that really knew us, many of you that have known us for a long time, you know, walk away from those visits and say, that is a different kind of organization. And as we looked at our company materials, they could feel perhaps a bit corporate and a bit one of many. And so we have updated our look and feel to reflect the differentiation that is in fact present within our organization. We are built differently, have a different origin, have a different mindset, have a different organizational structure. And that gives us the ability, we think, to transform these businesses in a way that we've outlined. It gives us the ability to solve problems for clients in a way that's unique and special. And we also build careers in a very different way than many of our peers. So you'll see that reflected in many of the things that we talk about. 2023 was a down year for our industry. And indeed, if you look at activity levels this last year versus peak activity in 2021, across the different categories of performance for our industry, generally measured by capital raised, investment activity, and exit activity, we saw things were down meaningfully from the peak. At the same time, it also hasn't fallen completely off a cliff. Today, we have activity levels that are on par with the activity levels that we saw in 2018 and 2019. And we, in fact, have taken market share again this past year from public markets. One area, though, that is a meaningful point to note is that distribution activity, cash sent back to investors this last year, was at a trough point, unlike many years that we've seen in the past, comparable really only to what we saw in 2008 and 2002. Now, it's not the case across asset classes. Our experience was infrastructure and credit was much less dramatic than that, but private equity and real estate certainly followed that pattern. This was the driest year from a distribution perspective that our industry has seen in some time. And indeed, that did have an impact on things like performance fees. However, we continued, I think, to demonstrate a lot of resilience. We raised 18 billion in assets last year, had 8% asset center management growth. The vast majority of assets under management that we hold today are in Bespoke client solutions, something that's very unique to us. And in fact, the incremental funds raised this past year, where it's 72% of our new asset mix, was in Bespoke solutions. I think that's an important point of our differentiation. And this past year, we actually had the strongest year that we've ever had for new mandates. These are all important factors that have helped fuel, I think, our historical growth rate, and we think our growth rate moving forward, which as we look into the future, we see every bit of opportunity that we've had in the past to continue to grow our asset base at between 10% and 15% per year. This past year, in addition to the 18 billion in funds raised that we talked about, we invested $13 billion into new portfolio companies. We also had about 12 billion in exits. Now, the vast majority of investment activity that we undertook this past year was direct investments. This is a type of market environment where we really want to own the underwriting process and own the risk assessment. We felt that that was the right thing to do. And we do think that that investment activity has the potential to generate some really attractive and strong returns. We've had somewhat of a correction in valuations. We talked about that on our last call, and Steffen referenced that in his remarks as well. And we feel like the entry points into many of these new platforms that we've invested into in 2023 are quite attractive. And so we think that 2023 has the potential to be a very strong vintage year. Many of these new positions that we put into the portfolio this past year were born out of these thematic efforts where our team has spent a year, two years, three years digging into a particular subsector, getting really, really savvy, really, smart, and coming up with a thesis on the best way to play that space. And we think that these are some really attractive parts of the portfolio. Within our private equity business, we had a solid year from an operating results perspective. We saw double-digit revenue and earnings growth this past year, relatively stable margins. If you look at the distribution of outcomes for our exited investments, they've historically generated strong returns. We've had 91% of our exits that have generated north of a 2x return for clients. And indeed, it's an up-and-down market environment, but we feel like if we can consistently compound earnings at a double-digit rate, we can earn solid results across the cycle, regardless if it's raining outside or not. Infrastructure has a slightly different return profile. We give up some upside for some downside protection. In fact, we've never had an exit on the infrastructure side below a 1.5x result. Now, we're not investing into treasuries. We're earning double-digit returns here, and we are taking risks. And so I'm sure we'll see losses in the portfolio at some point in time. But this is just to illustrate a slightly more capital-protected investment philosophy, where we really focus on downside protection. You give up some upside in order to have those contracted revenues. Again, strong operating results out of infrastructure portfolio this past year, 150 different value creation initiatives that are going on across those platform builds. Within private credit, we're not trying to be everything to everyone. It's actually quite a selective process for us. We decline about 90% of the opportunities that come through our door, and we focus on picking the gems out of the opportunity set that we see. As a result, we have, I think, a very attractive underwriting outcome, very, very low loss rates. We've had solid outperformance versus the U.S. loan index and solid returns in that part of the business. Real estate this past two years has been challenging for the real estate market. Indeed, there's no segment of the private markets that's more sensitive to rate changes than the real estate market. It is the most capital-intensive of private markets' asset classes. And while we're quite pleased with the underlying portfolio performance, we've had NOI growth and we've had occupancy improvements across the portfolio, we mark these assets as if we were going to sell them today. And we had a 13% loss in the real estate results as a result of those updating the marks on those portfolios. Now, I think that this, we tend to under-promise and over-deliver, and this kind of take the pain this year and then build back from there is what we've done in that, and I think it's the right thing to do. If you look at the growth that we've had historically, okay, we have had a unique approach to growing our business. We have largely done that by providing custom solutions for our clients. Our Bespoke solutions, which include mandates and evergreens, has grown disproportionate to the rest of our asset base. Traditional fundraising has grown at about a 6% growth rate historically. Mandates grew at a 19% growth rate and evergreens at a 20% growth rate. Okay, that means over the past 10 years, mandates and Evergreens have increased by six-fold and traditional funds have increased in two-fold. We are one of the most diversified platforms out there within the private markets. We have today 350 live investment vehicles running with, I think, one of the most diversified offerings out there in the market. This truly is a differentiated profile of programs, and that diversification comes through in performance fees. We had over 90 different programs that contributed to our performance fees this past year, and also with regards to track record diversification as well. Now, on the mandate side in particular, I mentioned that this was one of the strongest years we've ever had from a conversion perspective on mandates, and why that's important is because a mandate relationship is a very sticky, very embedded relationship. A new mandate client that just signs up with us, we would expect to grow by about 3x over the life of that relationship. Indeed, that's what we've seen happen historically, and that happens a couple of ways. Number one is their portfolios grow. They tend to consume more services from us. 81% of our mandates have multiple asset classes housed within their mandates, and it's not uncommon for us to start a mandate relationship with maybe one or two asset classes, and then to expand that relationship over time. We've been doing mandates since 1998. We have over 100 mandate relationships, and we build differentiated mandates. A lot of people who talk about custom solutions, but they largely use their limited partnerships from the different parts of the business as the building blocks for those mandates. We do line-by-line allocations for our mandate clients, and we give them the ability to steer their portfolios in a more dynamic way. It really is a differentiated solution. In addition to that, we're a pioneer in democratizing private markets with Evergreen solutions. We have a longer track record in doing that than just about anybody, and we have more coverage within Evergreen solutions and within the Wealth Channel than just about anybody. We think that this is a great tool for individual investors to get broad diversification and to get their capital at work and their capital compounding, and if you look at the growth opportunity within Evergreens, we think we're very, very well positioned to capture more than our fair share of that. In addition to the asset classes that we've built Evergreen solutions in historically, one new topic that we're excited to build new Evergreen solutions in is around royalties. Private credit has been such a huge topic the last number of years. There's been a lot of interest, a lot of capital flow into it, good returns where you could get that capital to work, but I think a lot of people have realized they have a lot of undrawn commitments within private credit. Transaction activity has been at a relative low point, even though demand for credit has been high, and so you start to see capital looking for alternative yield or alternative credit options. I think infrastructure is a big beneficiary of that, and royalties has the potential to be a big beneficiary of that as well, and so we're going to build a royalties platform in true partners group style that's unlike other offerings that are available out there. If you want to invest into royalties today, you're largely investing into niche products, a music royalties fund here or a pharmaceutical royalties fund there, and we're going to build our clients the ability to get relative value exposure across royalties topics, and we're going to do that with direct positions where we can drive alpha in the portfolio. We use secondaries to get interesting exposures built for them over time, and primary business in order to cover all the bases within that category. We think that this is going to be a highly differentiated Partners Group style offering within the royalties market, not a niche offering, but a broad relative value play, and we're excited about launching that. We launched that last week with our clients in Miami, and I think there's going to be a lot of demand for that. As we look out into the future, we reaffirm our fundraising guidance that we shared a little while ago that we expect to raise this year between $20 billion and $25 billion. As we look across the fundraising results from this past year, highly diverse from a geographical perspective, and indeed when we look out into our pipeline of opportunities, similarly diverse. We are not a one-trick pony who has one set of clients in one region that we're dependent upon. We really do have a broad set of clients that span categories of investment and span geographical location, and that gives us a lot of comfort in our ability to meet our objectives. As we look out for this 20 billion to 25 billion in client demand, we also provide guidance on tail downs. We have a lot of visibility around tail downs. We expect for that to be between $8 billion and $9 billion this next year. We're no longer going to provide guidance around redemptions. I think in doing so in the past, number one, we didn't have that much perspective on it anyway. In a really rocky economic environment, redemptions will be high. In a benign environment, they'll be relatively low, but also I think it created a misperception in some people's minds. Some people looked at the redemption guidance and felt like there was some form of decay rate on these assets. In fact, that is not the case. As their name suggests, these are Evergreen structures that tend to compound over time. What we found is that performance and redemptions largely net themselves out, and we have not seen any form of material decay within those Evergreen solutions, even through some pretty volatile times over the last couple of years. We're going to, moving forward, not provide guidance there and just assume that the two net themselves out over the long run. We think that's largely the right way to think about it. We don't talk much about sustainability and our ESG initiatives in this session. We do have a separate presentation for that. Our sustainability report comes out on April 24th, and we'll have a separate call for those of you that are interested in that topic. With those messages, I'll hand it over to Joris for the financials.

Joris Gröflin: Thanks, David. It's a great pleasure to be here with all of you today. Let me quickly also introduce myself. I have started at Partners Group in January this year. I have 20 years of professional experience, mainly in consulting, but also in the industrial and energy sector. Over the last 13 years, I've been working as the Chief Financial Officer at Axpo and at Rieter. I'm humbled, but I'm also very much excited to have joined Partners Group and to be able to stand in front of you today. That said, let me walk you through the Partners Group's 2023 financial results. Let me start with the assets under management. As you have heard, these are diversified across asset classes and regions. In U.S. dollar, they grew 8% year-over-year. However, in average AUM in Swiss franc, this translated into growth of only 1%. This was mainly driven by the strengthening of the Swiss franc against the euro and also the U.S. dollar. Total revenues increased 4% to CHF1.9 billion. Performance fees contributed meaningfully and represented 19% of total revenues, up from 14% in the last year. EBIT followed revenues, increasing 5% and the margin increased to 61%.This is testament to our strong profitability and is in line with the firm's 60% margin target, even after the impact of higher inflation and exchange rates. As a consequence, we propose a CHF39 dividend per share or a 5% increase. The proposal reiterates the Board's confidence in the strength of our business, the solidity of our balance sheet, and also the structural shift we continue to see towards private markets. Let's look at our revenues in more details on the next slide. We have two sources of revenue, management fees and performance fees. Let me start with management fees. They represent most of our revenues and are recurring in nature. They generally follow AUM growth. However, this year they decreased by 2%. After a strong 2022-2023 management fee growth, it was impacted by two factors. First, an unfavorable FX development, which negatively impacted growth by around 5%. And second, lower late management fees. The reason is that we did not hold material closings of closed-ended programs. However, we are currently fundraising for a number of programs and therefore expect to again generate higher late management fees in 2024. So let me talk about the management fee margin on the next slide. Since our IPO in 2006, our management fee margin has been stable at an average of 1.26%. Slight variances between years are driven by the timing of when fees are activated in an investment program. We expect the stable development to continue as we stay focused on pricing, discipline and offering innovative value-adding solutions for our clients. Let's look at the performance fees on the next slide. More than 90 investment vehicles diversified across vintage years contributed to performance in 2023. Private equity was the largest contributor to performance fees. Their contribution, however, decreased 21% year-on-year as we decided to postpone several exits of our businesses due to a slower-than-anticipated recovery of the transaction environment. The main drivers of performance fees were our large diversified evergreen programs, which demonstrated solid performance. These programs typically pay fees on a quarterly basis after reaching a previously agreed high watermark performance level. Infrastructure increased sevenfold as several mature vehicles entered performance fee paying mode during H1, resulting in a catch-up effect. These programs were mainly from the 2015 and 2016 vintage. Infrastructure has historically not been a strong contributor as many programs were still in their value creation phase. This will change going forward. Performance fees from private credit doubled. Credits in private markets are almost exclusively floating rates and hence benefited from an increase in base rates and the scarcity of debt availability. Real estate was the lowest contributor to performance fees as the industry continues to be in a state of transition as they've already elaborated on. Let us move to the performance fee outlook on the next slide. Over the last eight years, performance fees represented 27% of total revenues on average. In 2023, they represented 19% of total revenues. During this period, H1 performance fees accounted for 72% of total performance fees and were mainly driven by catch-up effects from the firm's private infrastructure programs that reached their hurdle rates. H2 performance fees accounted for 28% of total performance fees as we postponed several exits as mentioned on the previous slide. As such, performance fees in H2 were primarily driven by our evergreen programs. For 2024, we don't share the optimism on the speed of recovery of exit markets. 2024 is more uncertain than 2025. Based on our assessment today, we remain more cautious with regards to performance fee contribution. However, we believe that the operational performance of our portfolios continue to build the foundation for significant future performance fees. We therefore remain confident that they will account for 20% to 30% of revenues in the next one to two years, assuming a normalizing exit environment. For the years thereafter, we see further upside in the range of 25% to 40%. The next slide will explain, why? We base this additional upside on the increasing proportion of the firm's maturing portfolio that consists of direct investments, which entail a higher performance fee. Performance fees are ultimately a reflection of the value we create for our clients. The greater the value we create, the higher the performance fees. Direct investments provide for the greatest value creation potential within our transformational investing framework. Most of the 56 billion in direct assets we deployed between 2015 and 2016 and 2019 are still in the value creation phase and are expected to generate substantial value in the coming years. Importantly, we will not only see more private equity performance fees, as the asset class has consistently grown, but we will also see private infrastructure contributing to the overall mix. This will ensure that our performance fees will not only be more diversified, but also more stable going forward. So let's move to costs on the next slide. Profitability, as mentioned, remains strong with an increased EBIT margin of 61%. Total operating costs increased by 2%. As you know, 80% of our total costs are personnel expenses, and as you can see, the increase in performance fee revenues also triggered an equal increase of variable performance fee-related personnel expenses. This is because we allocate a fixed proportion of up to 40% to our employees. Regular personnel expenses decreased by 5%, which was below average FTE growth of 12%. These costs were positively impacted by foreign exchange effects. They also included a lower bonus accrual compared to the prior period given. Our operating expenses increased by 3% during the period and are expected to roughly stay in line with management fees going forward. On the next slide, you see the overview on the distribution with our currency. We are a global business reporting in Swiss francs. However, most of our revenue comes from U.S. dollar and euro denominated funds. Unsurprisingly, as Swiss francs strengthened, this created a negative translation effect of approximately 0.6% on our operating margin. So let us move to the next slide. Irrespective of the macroeconomic environment, our longer-term track record supports the discipline of our cost management approach. We have consistently grown our business at around 60% target margin, as again demonstrated in 2023. So let us turn to the next slide and look at the items below EBIT and on the balance sheet. We invest around CHF1.1 billion alongside our clients across various programs. In 2023, these investments generated a positive performance of 8% or 64 million. The net financial income translated into 16 million as most of the positive returns were offset by foreign exchange hedging and other effects driven by a higher interest rate differential that relates to our treasury management services for clients. Our tax rate amounted to 17% in 2023 within our previous guidance. The comparison to the previous year is challenging as 2022 was impacted by a one-off recognition of goodwill which created a tax benefit at the time. For 2024 onwards, we anticipate the tax rate to increase to 18% to 19% following the OECD Pillar two implementation. This leaves us with a profit of 1 billion similar to our profit in 2022. So let's move to the last slide of the presentation. The Board proposes a dividend of CHF39 per share representing an increase of 5% as mentioned already at the beginning. It based the proposal on the solid development of the business and its confidence in the safe sustainability of the firm's growth. Over the last 16 years, we have distinguished ourselves as a leader in continuous dividend growth. Only four out of 210 companies listed at the six have surpassed our history of consecutive annual dividend increases and out of those four, none of the companies have a higher dividend growth than we have. Following this dividend, Partners Group will have generated the dividend growth of 17% per annum since our IPO and will have paid back 4.4x the price of the IPO share price in the form of dividends. This brings me to the end of the presentation. I would like to open up for questions for those in the room and on the phone webcast.

David Layton: If there's any questions here in the room, we've got a microphone over there and then we'll go to phones afterward.

Daniel Regli: Good morning. This is Daniel Regli from ZKB. Thank you for taking my questions. I have three questions, if I may. The first is on kind of the state of private markets, which are how is the state currently? Obviously, the normalization has taken more time in 2023. Maybe if you could give us some color, what exactly has slowed down this normalization? Is it bid-ask spreads? Is it availability of debt capital? And then, as I said, where do we stand today? And then my second question is on your newly founded business line with royalties. We're talking about a 1 trillion market. Is this kind of the full 1 trillion accessible for private market investors or is this only a share? And what kind of market share do you hope to get there? And then my third question is on the EBIT margin. Obviously, you have performed quite well from an EBIT margin perspective in H2 despite several headwinds. Can you name specific measures you have taken and how should we think about the EBIT margin from here to recover slightly or is it more or less stable? Thank you.

David Layton: I'll take the first question, Steffen will take the second, and Joris will take the third one on margins. You know, if you look at the state of private markets as shared, we're on our second consecutive year of declining volumes and exit activity. In terms of what can we expect for the coming years, I do think that there is reason to be optimistic. And we've said this now for going on six months, we have felt that there's reason to believe that we should see an increase in activity. With regards to financing, we have largely been able to finance our acquisition activity either through private lenders, even with ROSEN more recently, a 1.2 billion financing that we actually did with the banks. The banks came off of the sidelines and financed that. And during the syndication, we had two downward flexes in pricing. So there is, I think, a healthy appetite for attractive debt financing opportunities. And so we have reason to be optimistic in that regard. The bid-ask spreads were a topic for some time, I think continue to be a topic in some of those categories that got particularly frothy during the, you know, 2019, 2020, 2021 time period from a valuation perspective. But we've seen about a 15% reduction in valuation multiples in the assets that we're looking at. And as Steffen mentioned, that oftentimes is enough of a price adjustment to make up for the higher cost of capital and indeed lower quantums of debt capital in some instances. So we believe that there's reason to be optimistic. At the same time, it's been slow, and it's been slower than even we expected to see in the second half of this last year. And so we believe that the foundation is in place for increased activities, but we're yet to see it really come through.

Steffen Meister: Yes, let me maybe spend one or two words quickly on royalties. I'm not sure how much you're familiar with royalties. I mean, the concept is a simple one. As an investor in royalties, you become the owner of an asset, you buy an asset, could be, for instance, the IP right on, let's say, a medication in pharma and healthcare businesses. And you give that asset for use, commercialization, for distribution to someone else. And in return, you get a share, usually off the top line, okay? So effectively, it's some form of financing that is a little bit of a hybrid between private equity and credit. But with a very high credit cushion, because you essentially get a top line access, so you're essentially not exposed to operational results, for instance, cost of a firm in running the commercialization of medication. So that's the whole principle. You have this in pharma, you have this in renewables, you have this in carbon credit, that's a big growing asset class, actually. And you know that for many, many years, we have it in sports and using these areas. The trillion dollars, I couldn't really tell you, whether that full trillion dollars is exactly accessible or not. But I think the more important point is it's growing. It's growing quite strongly. And I want to maybe give you an example that connects a little bit to my pharma example and my introduction. What you see, for instance, in the pharmaceutical space is that with all these new development tools, there's a proliferation of medication. And very often, that medication comes with a revenue potential of, let's say, 50 million, 100 million a year. That's too low for big pharma, because they usually go for the blockbusters. The organization is not meant to distribute an asset or medication with that kind of revenue potential. Some of you might be more pharma experts than I am. So what happens here, there's specialty pharma firms coming in. So it's companies that are essentially set up to buy these things, to finance them and do the commercialization. And as you see this proliferation of medication in that segment, there's a very high chance we see increasingly a need to finance the purchase of these IPs from biotech or from large companies, from large pharma firms, and give that right to these commercialization firms. In return, we get that share, this royalty. So it's probably something we see quite heavily growing, very similar in decarbonization assets. We have hundreds of projects globally these days where there is some form, it could be forestation, it could be all kinds of other techniques, where people effectively do something very similar, and the financing works actually through a brand new share of, for instance, carbon certificates, very similar way. So why we're excited about it is that royalty sits not only between private equity and credit in terms of DNA. The credit protection is actually much even better than credit, but there's also a bit of this upside involved. But it's also, it sits really in our themes. So when we talk about, for instance, pharma assets we work on right now, we do this with our sector team in pharma. When we think about decarbonization royalties, we work with our infrastructure renewables team. So it really sits in the middle. It reminds us a little bit of credit 20 years ago. You know, credit started out of special situations in private market and has then become an individual or separate as a class and had a phenomenal growth. And I will tell you one thing. If anything, in credit, I think in hindsight, we were not growing strong enough. You know, we had this tremendous focus on equity control infrastructure. We are very credible credit player, but there's clearly players that are much larger than us. I think in royalties, I mean, I can assure you, we'll make it internally very clear and they're very dedicated to become a real significant player in royalties and benefit from that growth going forward. So think beyond that $1 trillion.

Joris Gröflin: With regards to the questions on EBIT, I think we have costs. We're very closely looking at costs and we're disciplined and we've also been last year disciplined because we compensated also part of the FX impact, but also the effect was due from the bonus accrual. So the target for this year is clearly to keep 60% EBIT margin that we have over the long run.

Daniel Regli: One follow-up question on the royalties business. So will you report the royalties business going forward within the different sectors or is it part of private equity or will you start to report a new line for kind of royalties?

Steffen Meister: I assume we report a new line. I mean, give us a bit of time to build this up, but that's what I assume, yes. Once we have critical mass, that'll be our fifth asset class.

Daniel Regli: Okay. Thank you so much.

Unidentified Analyst: Thank you. My name is Daniele Brupbacher [ph]. I'm a Journalist and I have a few straightforward questions. The first one is I would like to understand why I consider America is the by far largest and most important private equity market in the world. I guess assets in American private equity market represent 80% or even more of the global asset private equity investments. So what I can see from your figures is that you are far below that American proportion and I would like to understand why all the more that I consider that the American private equity industry is the most competitive and the most professional private equity industry worldwide. So they should see to which extent you provide excellence to this business. That's my first question. The second question is why is it good for Partners Group to be a public company? And the third question is, can you say something on your transformational activities? That sounds a bit dry as a word. I imagine as a journalist, when I hear such expressions, also there are people involved in such transformations like employees losing jobs, et cetera, et cetera, companies are being restructured. Maybe you can give us some, how do you say, some color on layoffs and restructurings, et cetera., that are being generated by Partners Group in order to improve performance for investors? Thank you.

David Layton: I'll take the first one. Indeed, the U.S. is the largest market for private capital in the world. And when we were getting our start here in Switzerland, and we do have routes that are outside of the United States, it was already a competitive market back then. And so I think as a firm, we focused on winning market share in areas that weren't as trod by our competitors in the U.S. When I stepped into my current role as the first American executive that we've had within the firm, we had only about 16% of our client mix from U.S. investors. And over the last couple of years, we have indeed been investing resources to grow that share. And we're up well north of 20% of our mix, about 24% of incremental capital raising actually from the U.S. market. And you're seeing us continue to be better known there. The U.S. market is a very brand-driven market. You can think about people consuming financial products there like you consume consumer products, right, where you don't always consider a decision from the ground up. You have a product that you've used in the past. You have a brand that you know. And you continue to, just like you push your shopping cart up and down the aisle and you don't read the back of the box every time you buy a food product, you have a brand that you recognize and you put it in your cart and you keep moving. There are some consumers of financial products in the U.S. that do the same thing. They have brands that they know, largely U.S. brands that have been very loyal to the firms that they've used for years and years. But we do see increasing numbers of U.S. clients that are starting to think differently. They're starting to look at their allocations differently. They're starting to say, how can I use private markets more strategically? And our U.S. mandate activity shows a lot of promise. Even though we're not the biggest brand in the U.S., we are one of the biggest providers of wealth solutions. If you think about private equity wealth offerings, we're a multiple the size of our next largest competitor in the U.S. market, where we're not the biggest brand or the biggest firm in that market. So we do have segments of that market that we do have a lot of differentiation in. But I think that also provides us upsides. That it provides us a tremendous amount of safety and diversification. Many of those U.S. firms are 70% U.S. and they're largely concentrated with the big state plans. And when the big state plans have a good year, they have a good year. And when they have a not great year, they don't have a great year versus us with our geographical diversification. I think it's actually an asset for us, an upside. It's not something that we're --

Steffen Meister: That's a good segue to the third question. I'll come back to the second question in a second. I think the DNA of the firm is building businesses, building revenues. It's hiring people. And so I want to just be sure that we don't confuse transformation investing with turnaround investing. We are not a turnaround investor. I don't know that we are good at it. It's certainly not the focus of the firm. It's maybe a fraction of the portfolio at each point in time where maybe we have, in some instances to reduce stuff, to survive maybe as a company. Maybe that's in one out of 20, 30 portfolio companies. But it's never the main plan. We don't approach the business and don't buy companies with the view to essentially trim stuff and therefore reduce cost. There's other firms who do this for a living and they're probably also better at it. Transformation investing means really something different. It means to have that hypothesis of when industry is going. So we talked a bit about pharma today, so maybe let me stay with that to make it a bit shorter. Pharmaceutical supply chains are in a massive transformation since about 2010 and this has to do with a change in profit pools from the chemical products, the small molecules, to large molecules, to peptides, to larger proteins. This is where money is made and that's why biotech's make more money these days than the large pharma firms altogether, okay. Now the production of this is very different. A chemical product, a small molecule, is usually starting with maybe a setup in China or India and then it's probably a second kind of, development of that, maybe still in Asia, and then it's shipped over Europe, US, for some dosing, packaging, things like that. That is very different for the biologics because it's not a chemical product in itself. So we started a place in 2016, the first business we bought was PCI Pharma Services, a business we bought with a view to actually play that pharmaceutical supply chain transformation. Since then we bought another two businesses, Sterling, I quickly mentioned today, that's a contract development business. That's always with the view that we believe we have a hypothesis where this is going and we try to position the company in exactly that direction. These businesses have in common, or the business plans, that these companies grow. Revenue, staff growth, so that's not maybe the kind of transformation that I think you might have implied with your question that you see somewhere or elsewhere maybe in the economy. Your question around public, I think that's a simple answer. I think we're just too big for private markets. As with our own portfolio companies, as they approach the 4 billion, 5 billion, 6 billion, we see there's a path towards the $10 billion. I mean, private markets are usually the wrong format just to hold these companies. There might not be any financing needed anymore, like we have never taken financing from public markets since our IPO, but it's just a better format. Investors, there's liquidity, in partners groups, everybody, every employee is still a shareholder, and so at one stage some people want to sell shares. That's very hard in private markets when you have, let's say, three or four some wealth funds holding your stock. That's all not achievable, so that's why it's just a better format for us.

Mate Nemes: Good morning. Mate Nemes from UBS. Thank you for the presentation. Two questions, please. The first one would be on private credit or credit in general. You mentioned a couple of things on that business during the presentation. One was certainly the opportunity you see for private credit to take perhaps further share from the banking sector in the next couple of years, but I think you have also mentioned that maybe you have not grown as fast or as much as you could have or could have hoped for in the past couple of years. So my question is, could you give us your assessment on your private credit business? Do you have the scale? Do you have the capabilities to capture this opportunity? Do you have the ability perhaps to accelerate that growth by organic or inorganic means? The second question would be a financial one, and it's on performance fees. The 20%-30% contribution to total revenues in '24 and '25 is based on a normalizing market environment. Could you elaborate what that exactly means and how we should think about that? Also, are there a number of assets ready to transact in the pipeline that have, those transactions have to happen in order to hit on the lower end of the midpoint of the guidance? Anything along those lines would help. Thank you.

David Layton: So maybe I'll start on private credit and you can add to it, Stephan. So within private credit, I think there has been a big opportunity. We're a firm that has, I think, really focused on being an alpha provider within our offerings. There is a beta play that's been going on across categories. Indeed, we have the ability to scale our secondary business much larger than we did, but to do so at effectively buying the market, and that's not what we've done. We have the opportunity to scale our credit business in kind of a beta style play, but that's not what we've done. Instead, we focused on differentiating ourselves and using these components to support alpha-driven strategies. And so as those segments of the market have commoditized, perhaps, we have kept them small but beautiful, I would say. That's been part of our philosophy. But indeed, there's probably more opportunity there than we're taking full advantage of. Maybe you can speak to the plans moving forward on that.

Steffen Meister: Look, if you look at the business today, I mean, we're effectively a mid-cap player in debt, and that's kind of where we probably see more alpha than maybe in the large cap part or on the high yield part, which is a little bit more public market expertise. I would tell you, I mean, it's a bit hard to give you a good answer like where do we exactly stand in the next five years. I would tell you that on the mid-market side, because the market is growing, we want to take a bit more market share. I think part of that can be organically. I would not completely exclude that we do something in an organic way. There's clearly companies out there that look a little bit for a home that are a bit more worried than we are about the maybe conservation industry, maybe new preferences by investors, some of these new investor classes coming in. So I think there's opportunities. Probability that we do something probably higher in the next 10 years than it was in the last 10 years. But I don't think we depend on it. For us, the hurdle is always high. These things really need to work out. Whenever we would come back here to you and present you something, I can tell you this would only happen if you is super creative, makes total sense for shareholders. There is clearly parts of credit that will probably structurally gain market share. I mean, I know in Europe that's a discussion for many years, and you might now all say, well, in Europe, nothing has changed in the last 10 years. If you speak to bank CEOs, I think you get a sense that they're really under pressure to change something. And that in the European lending market, I mean, you see additional share the private market is taking. I'm saying that because a lot of that will be in the mid-cap space. This is not so much in a large cap side. This is probably more in the 20 million EBITDA to maybe 50 million EBITDA space. And I think we are in Europe probably better positioned than pretty much anyone else actually to take advantage of that. So that's why, I mean, you see us despite the fact that we are clearly not the biggest ones in that space, and I think we could have done probably better. I think you see us reasonably optimistic about that going forward.

Joris Gröflin: Yes, maybe with question regards to the performance fees. So Dave has shown you the distribution level of 10% as it has been over the last year. So I think normalizing means we go back step-by-step back to 20% to 25% of distribution levels. And we are now working on a pipeline which will translate itself over the next one to two years more. That's why we guide for 20% to 30% there, and then thereafter 25% to 40% as we see more upside, as I explained before, from the value creation from the vintages to 2015 to 2019. And the good thing really there is that it's also the private infrastructure part which has in the past not been the case as it was mainly focused on private equity.

Philip Sauer: I would suggest that we move to two more questions on the phone out of London because they are in the queue. There are more. We call all the people back which are not coming and can ask questions and all technical questions on the webcast will be answered in writing. So I would hand over quickly for two calls more, two questions more on the phone, and then we finish.

Operator: The first question from the phone is from Nicholas Herman with Citi. Please go ahead.

Nicholas Herman: Yes, good morning. Thank you for the presentation and taking my question. Can I just check that you can hear me okay?

David Layton: Yeah, okay.

Nicholas Herman: Perfect. I have three questions, please, if that's okay. Firstly, on performance, I understand that the business mix has structurally shifted more to direct. You've got new asset classes coming online and then there's value creation. Can you explain what it is that gives you confidence in the 25% and 40% from 2026? I guess particularly that is when you would expect to see the 2021 vintage coming through, and I guess that was characterized by a business beat cycle? Secondly, on evergreen, so it sounds like you'll report one number going forward of evergreen net performance or net redemption and that the two should probably offset over the longer term. I guess, I was under the impression that NAV effects on evergreens are about 10% per annum, but does this guidance effectively say that NAV effects going forward will be lower than that, so mid-high single digits, or that redemptions will be higher going forward than in the past, so 10% per annum and more consistent with what we saw in 2023? Then finally on cost, the point that I'll ask is to again clarify how you're thinking about cost and the glide path and cost income from here. I guess firstly, you just need to have on the non-performance related side have bonus accrued compared year-on-year. Then secondly, it feels like the group is relatively well-staffed at present, certainly relative to current activity. Your large efficiency drive with estimates of headcount appears to have broadly created 2% points of cost income headroom, a weaker quick rank is also helpful. I guess my question is, how long will it take you to fully invest this additional headroom, if at all, if you will fully invest it? Or would you prefer to buffer to the 60% compared to where you were before, given that the group is highly exposed to FX volatility? Thank you.

David Layton: I think we'll do our best to answer. We had a real tough time, it was a choppy line coming across, but I think we got the essence of some of the questions. With regards to performance fees, new asset class is coming online, what gives us comfort in the 25% to 40% performance fees moving forward? It's quite simple. We do the bottom-up calculations and the big driving force there is, if you go back in time to when we went public, we only had about 10% of our mix that was direct origination, and the rest of it was partnership investments, secondaries and funds and co-invest and the like. There's higher performance fees in direct-style transactions, we've shifted that mix from 10% back then to 60% over time. It can take a few years for performance fees to develop, it takes six, seven, eight years for performance fees to come through. But if we look back in time, six, seven, eight years ago, that was right when our direct investment activities were becoming more prominent, and indeed it's going to lead to higher performance fees in the future than what we've experienced in the past. I think there was a slide in the deck that did a very good job of articulating both that mix shift towards direct investments and the higher performance fees that are going to be flowing through over the coming years as a result of that. I think that slide answers your question very well.

Philip Sauer: If I may add to this, Nick, quickly, is this doesn't mean performance fees structurally move to 40%. This gives us, just when these performance fees are coming through, a bigger bandwidth in which we can operate. And what it meant to be is that the midpoint has increased. We believe that there is more performance fees to come with certain swings to the up and down side. Yes, there are included some years like 2021 when they come, but that is not a structural move towards the 40%.

Steffen Meister: If I may just add another quick perspective. So it's not -- it could suggest we move from management fees to performance fees, which is not the case. We don't change our management fee margin. I think that's very key. I'm saying that because I know that other firms, they have discussed and some decided that they want to actually move a little bit these components, management fee and performance fees. With Partners Group, I think what you get is unchanged, a relatively high recurring management fee, but we have not reduced the performance fee that we pay out. We stick to the 60% that we have where maybe other firms have said, okay, 40%, 50% in addition, so we now give to our staff and only maybe give 25% or so to shareholders. We haven't done this. That is also, I guess, a bit of reflection of, let's just say, additional upside there. There was a question open in the funds. Do you want to take that one?

Joris Gröflin: I think that was with the costs, right. So the question with regards to how we are looking at cost and the margin, and again, it's the 60% that we're aiming for. We're also looking at growth, but with a similar amount of FDEs without growing the FDEs so much. That's how we manage cost. Of course, understanding that we cannot influence the ethics environment, as last year has shown.

David Layton: And there was also a question embedded in there somewhere, I think, about evergreen developments and NAV and redemptions. Are we changing our outlook on redemptions? No, we're not. We're just simply looking at the reality of the fact that we don't know how to predict performance a year out, and we don't know how to predict redemptions a year out. If we look back in history, the two have netted themselves out. It's actually been slightly weighted to the positive. So we assume that's going to be the case moving forward, but there's no structural shift in our thinking around what is NAV development going to look like or what a redemption is going [indiscernible].

Operator: The next question comes from the line of Hubert Lam with Bank of America. Please go ahead.

Steffen Meister: We have a bit of a hard time to understand the questions.

Hubert Lam: Firstly, Steffen talked about the huge opportunity in technology investments. On this, can you talk about competition for these assets, what you bring to the table, potentially more than others, and would you start looking more at venture or growth type investments within technology? That's the first one. The second question is on competitive dynamics within the wealth channel. In the U.S., you've seen a lot more competitors, a lot more products now competing in the same space. Do you see this squeezing part of your flows as well as your market share, and what's been the flows like year-to-date within Evergreen, absolutely on performance-speed guidance, the 25% to 40%. Can you talk about what your assumption is for performance or IR on the funds or assets based on driving these assumptions? Do you expect the same type of performance as in the past, or do you assume lower just given the change in the environment? Thank you.

David Layton: If you look at our market, it is indeed a competitive market environment. I often look at the public markets with a lot of envy. You guys find a sector that you like, you find a stock that you like, you hit the buy button, and you create that exposure for your clients. In our space, we find a space that we like, we find a company that we like, we have to track it for two, three, four years, and we have to go head-to-head with 30 of the most aggressive individuals that you'll ever come across in your life, and there's only one firm that gets to come away with that exposure for their clients. It is a highly competitive industry, but Partners Group has always, I think, won more than its fair share of transactions by being a different kind of owner. An owner that genuinely rolls up their sleeve and gets on the same level with our portfolio companies, aligns interest with the management team, does a tremendous amount of thematic work, and so when that company comes up, we're not the Wall Street guys that are coming in and, masters of the universe, telling them the things they need to do differently. We embed ourselves in the companies, and we genuinely try and have an impact and steer those companies strategically, and there are many mid-cap companies, right, that are quite impressed by that approach, and where there's, a tie between us and other firms, it tends to go our way, I think, because we're a different kind of owner, and indeed, on the technology side, it's no different, but I think with the thematic research that we're doing to position ourselves early for those opportunities, we're going to continue to be well-positioned for those companies.

Steffen Meister: Well, quickly on the wealth side, I mean, yes, I mean, there is, significant dynamics here at work. I mean, the wealth management prime marketplace is changing fundamentally, but I think to the positive, think back maybe 15 years, and we had maybe 4 billion or so in open-ended funds at that time. Our market share at that time might have been maybe 25% or so. Today, we have 40 billion, and the market share is 10%, but I prefer the 10% with the 40 billion, right? That was quite a significant growth, and I don’t think that avenue will go, or that journey will go in a similar direction. If you take a step back, I mean, this is a $170 trillion space, the wealth management space. About 1% is investment-powered markets, but that's mostly with ultra-high net worth, so with very, kind of, very affluent clients. The way that we've see now is, with this whole, change of roles, public-private markets, private markets become this much more traditional asset class, so significant allocations, investor portfolios of institutional investors, you see more demand by the private banks and by wealth management clients, and make your own maps, but if out of the $170 trillion, I mean, there's a few percentage points more invested, you easily talk about $5 trillion, and we showed that graph before, right? I mean, how we believe that's actually stacking up in the next few years, so this will be a very significant driver, I mean, this will be very comparable to what happened between the 90s and 2000s, from the institutional side of things, and clearly, with that in mind, I mean, you see every large firm in private markets trying to come up with some offering. Now, I think some of them will be more and some less successful. That comes with different factors and drivers. One is, you have-to-have the comprehensiveness of the platform to have different offerings, you need to have the flow of assets, because many of these portfolios, if you manage them in an open-ended format, you need actually a lot of assets in there for diversification, to handle liquidity, all of that thing, so it comes with a certain complexity, and I would say that 99% of the industry is actually not set up for that, but still, there are, of course, 20, 30 larger players that will be active in that space, and so my assumption is that 10% market share is probably hard to hold, that would be amazing, but I don't think that's realistic, but even if that's coming down to maybe some middle, single-digit, whatever, with an industry that will very quickly go from 400 billion to a trillion and above, and eventually $2 trillion, $3trillion, I mean, I do think, actually, with mandates, that's by far, for us, the most significant field of growth. So, in that sense, I mean, the pie is growing so much more than the loss of market share, and so you see us actually smiling at this growing competition in that space.

David Layton: And I think the question might be rooted in the fact that some of our competitors are treating wealth like a loss leader, right? They're investing significantly into distribution, hundreds of people that are, selling their products, call it first mover advantage, but that will not be our strategy, so wealth is not a loss leader for us. It's as profitable, as sticky as any of our other segments.

Philip Sauer: I think with this, we would close today's Q&A. I think it was a bit longer in the presentation, but hopefully you had the right insight into our industry, and we will have another great update next year, around this time, but until then, I think we will report intermediate steps, how the year is progressing into 2023, and with that, Dave, do you want to?

David Layton: Yeah, thank you very much for your attendance. Those of you here in person and those on video, it's a pleasure to spend time with you. Thank you very much. Thank you very much for your attendance. Thank you.

Philip Sauer: Thanks, bye.

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