Partners Group Holding AG (PGHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the annual results 2019 conference call and live webcast. I'm Sarah, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or webcast. At this time, it's my pleasure to hand over to Steffen Meister, Executive Chairman. Please go ahead.

Thank you, Sarah. Good morning, everyone. Welcome to this 2019 annual results conference call. And let me first say thank you for your flexibility in honoring our social distancing measures that we have put in place given the current COVID-19 situation. I'm here with a few of my colleagues with our 2 Co-CEOs, Andre Frei here in Zug; Dave Layton based in Denver. Thanks, Dave, for late stay today. We have also our COO with us, Andreas Knecht, who is also steering our business continuity efforts in our firm. So we felt if maybe questions arise in that direction, it's good to have him with us. And ultimately, Philip Sauer, our Co-Head of Finance and Corporate Development. The topics we want to cover today are severalfold. We will talk certainly about 2019 results. It was a strong year. The results are very representative for a normal year, and 2019 was a normal year, so we'll talk about that. Today, the situation has changed, as everybody is clear about. And 2020 will be different year. We don't know yet how different it will be, but we'll give you some idea how we see the current situation as of today. We will then also talk about a major new strategic initiative, which is around stakeholder impact and it's actually notwithstanding the current situation. I would rather say it's especially in the current situation that this is actually a very appropriate topic, something which will be very relevant for us in the next years ahead of us. And so it's something we want to start sharing with you today. We'll allow for some Q&A, as Sarah introduced, and we'll do this actually in a couple of chapters with different dimensions. We'll start first with the investment side of things, so talk about 2019, but also look at the current situation. The same on the client side, financials before we move to this new strategic initiative and conclude with a Q&A session. So with that, it's a pleasure for me to hand over to Dave to cover the investment side of things first.

Thank you, Steffen. To kick things off today, I'll spend some time discussing the investment side of our business, starting on Page 3. Investment and divestment volumes within many areas of private markets were lower in 2019 than in 2018 and in some of the prior years. The first quarter of 2019, in particular, was soft. However, we had a reasonably solid market backdrop during the back half of 2019. And overall, we were able to execute on our investment and divestment activities at acceptable levels relative to our plans. Our origination strategies have been working, and we've been able to win our fair share of transactions in the market. We invested $14.8 billion in calendar year 2019, and we were able to generate $11 billion in gross underlying portfolio realizations during the year. On Page 4, we provide some incremental examples from last year's deployment. The majority of these investments, 68% by volume, were direct investments, and we had a reasonably balanced deployment year across asset types. Private equity continues to be the largest of our investment asset classes. We invested $6.4 billion into private equity opportunities last year. Each of the examples highlighted here, Confluent, Blue River and Schleich were opportunities that we worked to develop over very long periods of time, months and years in some cases. We have thematic research projects ongoing to identify and to pursue target assets in areas that we believe are structurally attractive. We also invested $1.6 billion in private infrastructure last year, $3.8 billion in private debt and $3 billion in private real estate opportunities. On Page 5, looking at liquidity events, we had a number of successful divestments from the portfolio last year particularly in the second half of the year. Despite the challenges presented in the first few months of 2019, when, as previously discussed, we elected to postpone a number of liquidity events, for the full year, we were able to meet our clients' expectations in terms of return on invested capital and we created substantial value through our client portfolios over the last decade. And we're proud that this contributed to solid realizations and the strong increase in performance fees in 2019. Now in private markets, we have the luxury of not being forced to sell assets. The market conditions are not right. We held off on sales in the first part of 2019, and we're obviously holding off on asset sales right now as well. We've worked hard to create value in these assets, and we don't feel pressured to sell into a bad market. On the next slide, given the volatility that we're all observing today, we wanted to provide you all with some additional transparency into the average debt levels of our underlying portfolio companies. I think this is important. There are different strategies for generating returns in private markets. Our strategy has been focused on rolling up our sleeves in middle-market companies, identifying, driving and realizing meaningful value-creation initiatives. Debt is a part of the equation, and we have used debt to finance most all of our acquisitions. However, we have generally elected not to take the maximum quantum of debt available to us in the marketplace. Our investment teams, our investment committee, our capital markets team looks at the resiliency of acquisition targets and designs a capital structure that appropriately balances upside enhancement with downside protection. The result of this approach is that we have a portfolio that is more conservative and less leveraged than what I would imagine to be the case in some other portfolios in the market. We don't have a perfect transparency into the current debt levels within the private markets community overall. However, we provide here a comparison of new debt issuance of the U.S. buyout market, not a perfect proxy, but a directional indicator for the types of leverage levels that are out there. And we show how that contrasts with our portfolio. The lion's share of our portfolio company, 72%, have debt levels that are less than 6x earnings. And on the next slide, because we're not just doing long-leveraged equity, we've had to work extremely hard to transform assets in order to generate the types of returns to which our clients have become accustomed. We govern assets with what we call an entrepreneurial governance approach. What we mean by that is we want to lead the Boards of our portfolio companies like a founder, like an entrepreneur, focused on strategy and vision and winning in the marketplace. We've added meaningful resources to help drive our portfolio initiatives. And today, we have one of the largest teams of in-house operators focused on middle-market companies anywhere. About half of our value-creation initiatives are focused on growth and the other half of our initiatives are focused on margin, financing and strategic positioning. In 2019, we saw meaningful, measurable results from these activities. On average, our companies grew top line and bottom line by double-digit percentages, and we saw an increase in over 20,000 new jobs in the portfolio over the course of last year. At a time like this, we also feel fortunate to have such a large team of operators to help us manage our assets during these times. Now we've all watched the coronavirus situation unfold since the start of the year. And on the next slide, we really started feeling the impacts on the portfolio in Asia in late January when travel restrictions started. We hit bottom in our China portfolio, the week of February 17, in terms of revenue and traffic and production capacity. The indicators in our China portfolio have been climbing up since then. One of our China assets has fully recovered back to pre-coronavirus levels, and others are still building back to where they were before the crisis started. And while this started as a China and an Asia topic, today, it's obviously a global concern. In an industry which is judged by relative performance, I think we've been fortunate to have only a very modest exposure to some of the areas hardest hit during the early phases of this pandemic. We have under 4% NAV exposure to China, 1% exposure to Italy. We're meaningfully underweight in sectors like tourism, aviation, hospitality, commodity oil. However, in the last 2 weeks, we started to feel the impacts in wider segments of the portfolio. We have school assets, for example, that are partially closed. We have restaurant assets that have seen footfall fall. And we've had to move many of our locations to delivery or takeout-only models. We have industrial assets that have had to close or partially close production facilities for a season. And we've communicated the same message to our investment leaders responsible for our portfolio investments as we've been using with our leadership team within Partners Group. And that is, first and foremost, ensure the health and safety of the employees that we have within our stewardship. We have a meaningful presence in Singapore, and we've leveraged and borrowed some of the observations and insight gained from how that situation was managed there from a very early phase as we've rolled out social-distancing initiatives across Partners Group's other offices. Next, we've been ensuring our continuity plans are regularly refreshed to make sure that we're constantly looking at how we safeguard the interest of our clients for new information that emerges. Later today, we'll again have members of our global team on a conference call going asset-by-asset through our plans. We've been laser-focused on liquidity management as well with this sudden slowdown in economic activity that we're either feeling or anticipating, we will see revenue shortfalls in many portfolio assets and we need to manage liquidity very, very closely. I've been on with many of our investment leaders discussing liquidity plans. This is perhaps our most frequent conversation at the moment. We have revolving credit facilities in place in most assets and delayed draw loans in place in a few. We've drawn many of those lines down at the asset level out of caution, and we have over $15 billion of dry powder available at the fund level. We've also tried to anticipate and -- to get out ahead of factors that could disrupt value chains. We haven't encountered any supply chain issues yet that our assets haven't been able to navigate, but we're still in the early innings. As you may be able to tell, much of our direction and our leadership time right now is focused on our existing portfolio as it should be. We'll likely have some rocky terrain to navigate in the future, but we believe that we've been reasonably on top of things to date. The economic impact of this disruption will depend on the duration and the severity of the pandemic. It's also probably a reality that once consumer patterns change over time, in the next few weeks and months, consumers will find new, more home-based routines. It will likely take time to reengage them into what was previously observed as regular economic activity. And so it's completely premature to project any -- with any accuracy, the broad economic implications that this event could have on our portfolio at this time. We're underweight in some of the problem areas, as mentioned, like leisure and oil. We've never been big investors in those areas. We've targeted investments into solid companies that we believe have fundamental reason to exist, and we'll bring the resources of Partners Group as a large, responsible, capable owner to help our management teams face whatever lies ahead. At the same time, we still have our eyes open for investment opportunities. Periods of economic turbulence have historically been attractive times for private market firms to make new investments, even though we often observe relatively low levels of transaction volume during periods like this. On the next slide, we outlined some of the advantages of operating in the private markets at a time like this. First of all, our funds have a long duration. We can be focused and see past some of the near-term volatility and by businesses that we believe are fundamentally solid, businesses that will be more relevant 20 years from now than they are today. In addition to having long-term money, we also have dry powder, which, as you all know, is capital that's been sitting on the sidelines waiting for attractive opportunities to emerge. The entrepreneurial way we run Boards helps us to maintain focus on long-term objectives and strategies, even if we have short-term events that impact numbers. We're responsible owners. We celebrate the jobs that we've been able to add to the portfolio over the past number of years, and we're focused on being good, responsible partners to our stakeholders. And that matters even, I would say, and especially, in a time like we're experiencing today. We continue to emphasize long-term convictions around ESG and stakeholder inclusion. We'll speak more about that in a little bit. It's important to us. It's strategic. That doesn't go away just because of fear in the public markets. We also have capital markets expertise, resources and relationships to help our assets with their financing needs. Private markets firms, we believe, are particularly well suited to today's challenges. We've seen crises in the past. And following each one of those prior events, we found ourselves more relevant to our clients than before. And we'll have some tough sledding in the portfolio, I'm sure, but we also have seen some bright spots. One of our portfolio companies, PCI, serves as a bridge between life-changing therapies and patients. Our people at Partners Group and PCI have had a sense of purpose and meaning intensified over the past few weeks as we've been able to play a critical role in bringing necessary treatments to those suffering from acute respiratory conditions and septic shock triggered by this virus. And in some even harder-hit situations, like our casual dining restaurant chain in China called Green Tea, where we've had meaningful temporary store closures, our team in China, while working remotely out of their homes and apartments, have been negotiating down rent payments, pushing supplier terms out, extending terms, obtaining incremental financing to support the company, and our management team volunteered to forego a number of overhead expenditures. And even over this turbulent time, we've been able to stabilize liquidity for the past few weeks, and we've really seen our team rally around situations like that. On Page 10, we highlight the fact that private equity returns have historically developed in a cyclical pattern. It's not a coincidence that the cyclical highs for private equity returns for new pools of capital occur during period of marked economic turbulence like we're experiencing today. Many sale processes will be shelved right now for sure, and for good reason. You can expect relatively low private market transaction volumes in a market like this. But we are widening our origination efforts into areas that were closed up until now. We've had a list of public targets, for example, which were previously interesting to us in areas consistent with our thematic research but prohibitively expensive. Those may look more attractive today if valuations remain at these levels. We've lost competitive processes in the past to other private investment firms that may not have a capital base sufficient to support those companies through difficult times. It's a little bit early, but I wouldn't be surprised if you see us approaching owners of overleveraged solid assets with capital solutions. We're not looking for B and C quality assets right now, we're not looking for fire-sale assets, but we are open for business for A quality assets if the current environment forces them to raise equity capital for some reason or if we can provide liquidity solutions. We're looking for category winners, consolidators, companies positioned to benefit from long-term structural trends. Priority one right now is the existing portfolio. But we have a large investment engine and we've onboarded a number of new professionals over the past few years, and we'll do our best to take advantage of having long-term capital in a year like this. And with that, I'll hand things over to my partner and Co-CEO, Andre, who will speak about the client side of things.

Thank you, Dave. Good morning, and welcome also from my side. I would like to give you an update about client activity in 2019 and 2020. And actually, we have a tradition to start this update with a summary of our client AGM, which was scheduled to take place last week in Denver. You'll not be surprised to hear that we have decided to postpone this event to later in summer. In my update today, I will talk about how coronavirus could impact our 2020 fundraising, but I would like to start with a very solid update about 2019. Actually, 2019 fundraising was strong, we attracted $16.5 billion of gross client commitments through a number of programs and mandates. Private equity was the largest contributor to assets raised, representing 43% of all new commitments or about $7 billion. Private debt saw strong inflows as well, representing 30% or about $5 billion. And real assets contributed 27% to our asset raising last year. On Slide 13, you see that our client base is really broadly diversified across regions and types of clients. We count around 900 institutional clients all around the world, and the 2 charts here do show split of our assets under management as of the end of 2019. So let me give you some color on the drivers of demand by country and type of clients. North America accounted for 19% share of gross client demand, U.K. at 17%, Switzerland at 17%. Australia was notable and represented 10% of total inflows. In this part of the world, we had launched a private debt-focused listed investment trust, which is strongly oversubscribed and kept at the size of AUD 550 million. The chart on the right-hand side illustrates the split in terms of types of clients. You see that 80% of our assets stem from institutional investors, such as pension funds, insurance companies, sovereign wealth funds; and about 20% was contributed by distribution partners, which provide access to our products to private individuals and to smaller institutional investors. Slide 14 illustrates how our assets under management is diversified across a number of programs and clients. And we have been talking about this in the past, a key strength and differentiator of Partners Group is to manage complex private market portfolios, for example in tailored mandates as well as in evergreen structures. We currently manage around 300 diverse private market portfolios at different stages of the life cycle and across all private market asset classes. The 2 largest programs account for 12% of our assets under management, that is a U.S. evergreen and European evergreen structure. The pie chart on the right-hand side reminds us of client diversification. You see, as in the past, that our largest client only accounts for about 3% of assets under management. Partners Group does offer traditional and tailored private market programs. Traditional programs, such as limited partnership structures, it's a classical or historical way how investors access private markets. So the Partners Group does offer traditional private market programs, which account for about 34% of assets under management. Our nontraditional programs account for 66% of assets under management. And these range from evergreen programs for individuals and smaller institutions, to bespoke mandates for large institutional clients. Let me quickly zoom in on the 26% of our assets under management contributed by evergreen programs. We call these programs evergreen because it has no contractual end. That means they typically reinvest distribution from the portfolio. Now of the 26% of our assets under management in evergreen programs, about $22 billion are subject to potential redemptions. For example, the 2 large evergreen structures that I just described before have the option for limited inflows and limited outflows. Both of them are more than 10 years old and have seen strong traction over the past decade with various distribution partners. We expect inflows to slow down a bit in this market situation and redemptions to pick up from levels we have seen in the past. Not in Q1 actually, but potentially or likely in the quarters to come. Net redemptions in these programs are often limited to around 20% per annum. Now it's currently too early to tell how much liquidity will be used off over the quarters to come. Many investors actually use these offerings to invest like the strategic long-term investors, and they expect them to remain invested. So some will redeem, but many will actually go through this crisis by remaining invested in private markets with Partners Group. Slide 15 is here to illustrate what we do on the mandates side. As I mentioned before, Partners Group has a key strength to create bespoke mandates for our clients and to manage complex private market portfolios. On this slide, we illustrate 3 examples. One each in the Americas, Europe and Asia, all 3 feature more than one asset class, as you can see, with private equity offering the largest asset allocation. Given that they have been launched and invested at different times, their portfolios will only partially overlap. And I can say that I'm really happy about our capability to customize such mandates to meet our client-specific objectives. For example, we have achieved a net return of 12%, 14%, 24% in 2020, which I think is a solid result and clients are really happy about that performance. Of course, in the 2019 bull market, where, for example, public technology stocks were an important driver of value creation, private markets could not fully keep up with returns of public markets. Our portfolios are often composed of more defensive assets safety set, and that is why I would also expect our drawdowns to be more moderate than for public markets in difficult markets like we are in today. I'd like to move on to Slide 16 regarding our guidance for 2020. Actually, for the full year 2020, we had previously guided that we expected gross client demand of about $15 billion to $19 billion, together with client tail-down effects and redemptions of about $7.5 billion to $9 billion. What I can say is that we had a strong start in 2020, and I expect to receive around $5 billion in gross client demand for our private market solutions in the first 12 quarters of 2020. Now with COVID-19, of course, there's additional uncertainty in the market. We do not know the duration or depth of this crisis, and the corrections in public markets these past days have been almost unprecedented. We anticipate that future client commitments may be somewhat delayed by the current market volatility and the general disruption caused by COVID-19. We have, therefore, chosen to withhold from confirming our guidance as of today. Instead, we will provide an update on the expected growth client demand and potential tail-down effects and redemptions in our next assets under management announcement on July 14. Please allow me, however, to underline that the client feedback in the last days and weeks have been really encouraging. And I'm strongly convinced that private market is a strategic asset allocation for many investors, we do not anticipate material and lasting impact on the growth trajectory of Partners Group's assets under management. With this, I'd like to end by talking about ESG impact and sustainability. That's a topic that is on the mind of investors and shareholders alike. The Partners Group has been consistently recognized as a leader in that field. We do receive very positive feedback how we translate responsible investment concepts into practical tools and approaches to create lasting impact in a very hands-on manner. The GP in private markets, we take a unique, often quite operational approach to ESG. We looked at our investments and ask ourselves which environmental, social, governance topics are most material to the businesses and then drive operational improvements in those areas, with a real focus on results. And we will provide a lot of examples actually in our corporate sustainability report that will be published soon. I invite you to read it. It's a very comprehensive report. It provides a lot of insight. You will see how seriously we take these topics, including climate change, by the way. And given the importance of these topics, we have decided to have a separate call on our ESG and CSR initiatives on April 2, and you'll be invited to participate. With this, I'd like to hand over to Philip.

Thank you, Andre, and good morning from my side. On behalf of the whole firm, I'm looking forward to present you our full year results. I would like to also provide you some sensitivities and potential outcomes in our P&L and the balance sheet, in particular to the current year. So let us start with a quick overview on Page #20. In general, we had a very strong year in 2019. Our average AuM increased by 14%, management fee followed, and that confirmed the continued strong fundamental growth of AuM in private markets. Overall revenues increased by even 21%, mainly due to a strong increase in performance fees in the second half. Our accelerated build-out of our platform and successful onboarding of 260 employees led to an increase in EBIT of 17% for the first time in the firm's history to CHF 1 billion. Based on these strong financial numbers, the Board proposes a dividend of CHF 25.50 for the financial year 2019. It's an increase of 16% and in line with the profit development. With that, I would like to provide you some more color on the 2019 numbers and give you a bit of an outlook for 2020. With that, please move to Page #21, where I would like to talk about the revenue composition. I would like to talk about management fee first. Management fees are contractually recurring. They are based on long-term client contracts. 74% of our AuM, and therefore, our management fees, are in long-term closed-ended structures, often with an initial term of 10 to 12 years for equity and 5 to 7 years for debt offerings. There are no redemption possibilities. Management fees are paid on a quarterly basis in advance. So the visibility on those fees are very high. 26% of our AuM, and therefore, our management fees, are coming from evergreen programs. They allow, as Andre elaborated, for quarterly subscriptions and redemptions and their management fee basis is the NAV development, which is significantly less volatile than traditional public market funds. Based on the contractually recurring nature of these management fees, we would like to remind our shareholders again that we do not expect management fees to deviate much from the AuM development, which is in itself very sticky. Now let us move to performance fee. Performance fee amounted to CHF 473 million in 2019 and amounted 2.5x the amount in the second half than in the first half. This was mainly due to a combination of strong underlying portfolio performance and successful divestment activity in the second half. With that, I would like to provide you more color on Page #22. It shows that out of our 300 vehicles we currently manage, more than 85 investment programs and mandates were contributing to performance fees. They were driven by dozens of underlying assets. Each asset is part of many private market programs and mandates, and the largest contributing investment program contributed 16% of the overall performance fees in 2019. With that, I would like to move to Page #23 and take a mid- to long-term view and zoom in a bit on 2020. Now if we look at some years out, we can say that management fee will be continuing to drive our revenues for the long term. They are expected to make up around 70% to 80% of our total revenues in a calendar year. As such, performance fee as a proportion of total revenues should be 20% to 30%, but that assumes a market which is favorable for exits. And this assumption is always our base case, and it excludes dislocations like we see at this point in time. Now if we zoom in into 2020, I would like to highlight that for the same reason as we have chosen to withhold from confirming our guidance on the full year, we also expect most exit activities in our portfolio to be postponed. If anything, this leads performance fee in 2020 to be significantly skewed to the second half of the year. Depending on how the current situation develops, performance fee will likely fall below our long-term guidance of 20% to 30% and potentially shift some of the performance fees in 2021. Despite the very solid investment performance of our programs, we are dependent on liquidity events for our assets. If they are pushed out, our performance fees are pushed out. But this is important to note, they are not canceled. With that, I would like to page to #24 and talk about performance fee potential. Now this slide basically shows that our historic investment activities translated into performance fees after a time lag of 6 to 9 years. Between 2007 and '12, we invested $25 billion in private markets, which generated the majority of the performance fees we have shown you between 2016 and '19. In sum, they were around CHF 1.5 billion. Now let me give you an example how this works. One of the largest single exits contributing to performance fees in 2019 was the sale of our stake in Action, a leading European nonfood discount retailer. It started as a relatively modest investment in 2011, but significantly compounded value over 8 years. Today, Action operates over 1,300 stores in 7 countries and employs 46,000 employees, and that was a fraction in 2011. In November, we signed the agreement to sell Action for a transaction value of EUR 10 billion. We will close the transaction in May this year. This exit accounted for 24% of our performance fee and this performance actually was part of many different programs. So irrespective of the current situation, I would like to switch to the next page and talk about future potential. Although performance fee cannot be estimated reliably, we expect significant potential ahead. As you can see, since 2012, we invested $84 billion in high-quality private market assets, where the majority of the embedded performance fee has not yet been recognized. So when markets will become favorable to exits again, this value creation within our portfolio will translate into significant mid- to long-term performance fee potential. On Page #27 (sic) [ Page #26 ], I talk about the management fee margin. The management fee margin has dominated our overall margin since the IPO. Historically, it ranged between 118 to 133 basis points, and we don't expect a material change to this range going forward. On Page #28 -- 27, sorry, let us have a look at the costs. I talked a lot about revenues, but now let's switch to costs. Personnel costs represent about 80% of our costs, and that's why they are the main cost driver. They increased by 30% in 2019 and were increasing at a higher rate than revenues, and that's why we need to look a bit deeper into these costs. So we actually separate personnel expenses into 2 categories, one is regular and the other one is personnel fee related. So personnel -- regular personnel expenses increased by 24% and slightly more than our average number of employees, which grew by 20%, and that was mainly due to our accelerated hiring activities in 2019, in particular on the investment side. So we talked about that several times that 2019 was a catch-up year of hiring. For 2020, we expect our hiring activities to slow from our targeted level, but this is mainly due to a hurdle on our execution side -- or from our execution side. Our interview process are quite extensive and require us to spend a substantial amount of time with our candidates. Now we typically invite them into our hubs and conduct detailed case studies, and without these prerequisites, we cannot hire effectively as it is right now in the market. The performance fee-related personnel expenses increased in line with performance fee. So we typically allocate around 40% of the performance fee of the firm to our professionals through our compensation programs. So personnel expenses, which are performance fee-related, highly depend on actual performance fee generation. So that makes these personnel costs highly flexible. Now on this chart, you also observe a change in our accounting policy, which resulted in a reclassification, mainly rent related, from operating expenses to depreciation and amortization. This change deflated OpEx and inflated depreciation and amortization. Going forward, please assume that our operating expenses as well as depreciation and amortizations grow broadly in line with AuM. And overall, this resulted in an EBIT increase of 17% to CHF 1 billion. Now I'm moving on to Slide #29 (sic0 [ Slide #28 ]. We continue to target an EBIT margin of around 60% for newly generated management fees as well as performance fees. It stands at 63% in 2019 and due to our hiring and some shifts in FX, it was a bit lower than 2018. Our target margin assumes a constant FX rate. And with that, I would like to give you some sensitivities on FX on the next page. On Page #29, you see our currency exposure of our AuM as of year-end. Our management fee, like our AuM, predominantly derive from euro and U.S. dollar-denominated programs. 38% of our cost base is Swiss francs, but we expect the Swiss franc cost base to slightly decrease over time in relative terms due to the further internationalization of the firm. In 2019, the FX movements of the U.S. dollar and the euro against the Swiss francs led to a negative impact of the EBITDA margin of 1 percentage point. So if we look into 2020, and see what the FX impact could be, then everybody of you can actually make the calculation themselves. So if all non-Swiss franc-denominated currencies depreciate or appreciate against the Swiss franc by 1%, we expect the EBIT margin to decrease or increase by 50 basis points. That said, if you look at the current situation of the FX rates right now, we could expect, if they stay as long as year-end like that, that we'll see another drop of 2 to 2.5 percentage points in EBIT margin. With that, I would like to go to Page #30 and talk about items below our EBIT and some balance sheet items. The financial result contributed roughly CHF 60 million in 2019 and was the largest contributor to -- below the EBIT. Now we, at Partners Group, invest typically 1% alongside our clients. Now -- and depending on these -- and these amounts currently -- or these investments alongside clients amount currently to CHF 700 million, CHF 600 million of that they are subject to performance measures. For instance, last year, they had a great performance of 10%. Now that was an up-market. If you assume, for instance, a down-market, whatever the percentage point is, if this is 10% minus, then this would have a negative contribution of CHF 60 million. Overall, we ignore these fluctuations as they are all noncash relevant. Our focus remains on realizations. Now our tax rate is 13%, and we expect no material change to it. The profit increased 17% in line with EBIT. And as you can see, our balance sheet remains strong with a net liquidity position of CHF 1 billion. With that, I would like to move on to the dividend on Page #31. On that slide, we show our dividend development over the last 14 years. And allow me to say some words on our dividend policy. It is based on, first, the overall development of the business in all asset classes; it is, second, based on the operating result of the firm; and third and most importantly, on the confidence in the sustainability of the firm's growth in the future. And this is why the Board has proposed a dividend increase of 16% to CHF 25.50 per share, which represents a 76% payout ratio. And with that, I would like to conclude my presentation and hand over to our Chairman, Steffen Meister.

Thank you, Philip. Thank you, Andre and Dave. Let me maybe, as this third crisis in our last 25 years unfolds, make a few comments about the preparation of the firm of our industry for that crisis. The first comment I would probably make as maybe a difference this time around compared to last time in 2008, '09 or 2001, is the level of understanding of our clients how private market can actually outperform in this kind of situation. I think it's fair to say that especially in Europe, our clients in 2001 or even 2008 or '09, were somewhat uncertain around the measures that can be taken, the resources that can be invested, the capital that's available to actually help portfolio companies and actually strengthen portfolio companies in this kind of situation. I think many clients in hindsight, after the global financial crisis, were surprised to see relatively decent IRRs, not at the level of regular IRRs, but decent IRRs even out of worst [ vintage ] years like 2007, 2008. We, today, see that clients clearly have understood the potential of private markets in that situation. That's why I think Andre talked a little bit about that confidence that we actually encounter in our daily interactions with clients, that our client team actually pursues on a regular basis and see relatively positive feedback even when it comes to new commitments this year or during that crisis. I would probably mention a couple of other areas here. One is that we have over the last 25 years as a leadership team, and many actually of the senior leaders are still the same as over the last 2 crises, we learned a lot about how to actually maneuver through that crisis. We have certainly the best understanding today when it comes not only to our own operations and dealings with clients and investment programs and some of the structural features that Andre had talked about, but maybe, more importantly, I think we have a very clear idea how we actually spend our time, our vast internal resources but also external resources, and our capital to make the best out of the potential of our portfolio companies. And let's not forget, this becomes sometimes a bit of a relative exercise relative to other companies in private markets and in public markets. And as such, you probably see us quite confidently talking about long-term potential not only of our portfolio, but also the strategic initiative that I want to now talk about that really is about precisely that stakeholder impact that we want to better build actually in the next few years. So that brings me to Slide #33, which is around the context of this new initiative. And you have seen similar slides before, we have seen private markets systematically outperforming public markets. You see that for the long term. You see it for the bull market over the 5 years. And maybe interestingly, you don't see that on the slide, but especially also in down periods like today. And with that and turning to 34, I mean, we have seen this tremendous success of the industry growing very substantially at a time when actually the number of listed companies have come down. And sometimes people ask the question, why would businesses below a certain size, like 5 billion, 6 billion, 7 billion enterprise value, still be in the public market. But there's a but. And the but is on Page 35, we clearly see that all that investor excitement that we have seen and that you see actually in some of these quotes on that slide, does meet some more mixed public perception in that meantime. And this is really what brings us to that question on 36, I mean what will it take to sustain that growth also in the future, so to bring the industry from $7.5 trillion to $15 trillion or to $20 trillion to truly rival the public markets. And I think the answer is twofold. The first one will not surprise you. It's continuing with our outperformance, to preserve the outperformance in the environment that we have. But the second one might be a newer answer and a more relevant answer going forward, it is around creating more impact for stakeholders, creating also returns for employees, for instance, in our portfolio companies. So this is what we talk about when we talk about being better owners in private markets, it's really in both dimensions. It's around the beneficiaries, but it's also about the employees of the firms. So let me just very briefly talk about the first part because that's something we have extensively covered in the last few years. Actually, about a year ago in our annual results presentation, we talked about what we believe are key developments for the next decade that we should be aware of. It's around economic challenges. It's around disruption that comes with risks but also opportunities. It comes with public market dynamics that can help us actually, but also our own challenges in private markets. But we have presented to you in the past, that's Page 38, showing to you our answer to this. This is the investment formula, which is a very extensive process that starts with research around transformational themes and sectors. The thematic sourcing, many years ahead sometimes of buying assets. It's the actual value creation that is at the core of owning assets. And it's, of course, leveraging the platform like the best conglomerates have done in the past 2, 3 decades when it comes to being very effective in working with our assets. And the second pillar that Dave talked about is the ownership excellence, the governance, the entrepreneurial governance of these assets. And let's just recall here this unfair advantage that we have, the pool of operating directors and the management team members that we can actually assign to these companies with a value of 1 billion, 2 billion, 3 billion, 4 billion enterprise value. That is unusual for these kind of businesses and give us a very, very big differentiation through many of the other assets in family businesses or in public markets. Now let's move to the second question, which might be more relevant as a differentiation going forward, the stakeholder impact. And so, it's on Page 40, I tried to allocate these quotes in a more systematic way between the beneficiaries and the stakeholders or the wider public. I mean you see some pretty controversial questions around our industry these days. And of course, we have constantly -- I mean we've taken the most controversial ones we could find. And so it does lead to that question on Page 41, I mean, is private equity as bad as some people feel or fear? And I have to really confidently tell you, no, that's absolutely not the case. There have been a vast amount of steps around growth of businesses, sales and EBITDA, job growth. Actually, we have, on this Page 41, presented our own numbers for the first time, the outperformance of job growth of our own portfolio companies compared to public markets using the Standard & Poor's sectors as a proxy here. This advanced our performance, and I would be very surprised if that looks very different for many other players in the private market industry. But also, if you move on Page 42, on the soft [ side ], there is a more social consideration. Our industry is maybe not as vocal as, for instance, public markets, but I think very, very focused actually on these activities. At this point in time, we have dozens of ESG initiatives that we pursue on engagement side of things, develop and financial access, diversity, a topic for many years in portfolio companies, health and certainly also family support. The one question that we started to ask ourselves, though, and I'm moving to Page 43, is if we compare our activities, what we believe is maybe benchmark companies in the public markets or also with our own activities, actually as Partners Group in these different dimensions, can we still claim that we actually outperform? And I think this is where we probably have to take a step back and agree, no, we cannot. I don't think we can claim today that we do outperform actually if we take the best benchmarks that we find in these categories. So what is the difference? It's certainly not like -- of willingness. I don't think it's the lack of intention. It's actually quite straightforward, it's cost. Ultimately, many of these initiatives in these dimensions, they will come with cost that today, I think the private market industry, is often not spent for the benefit of stakeholders. And that brought us over the last year after a lot of considerations internally and discussions with other stakeholders, with operating directors, with CEOs of portfolio companies, management teams, to a new consideration. It's a paradigm shift that we're suggesting here. So what we'd like to do is discussing with our LPs to systematically allocate, going forward, a portion of value that is created between the firm, the management teams, but importantly, the employees of these portfolio companies, and actually allocate that value or percentage of that for such stakeholder initiatives that go beyond what we always do on an ordinary basis in terms of ESG initiatives. So these benefits, they could range from educational initiatives. They could have an environmental component. They could be in a broader social universe of initiatives. They can just mean financial support. Or sharing, actually, at the exit a part of the value creation with employees of the firm. All of that means that what we suggest is systematically using some of that value that has been created for the benefit of those, the employees, who have been at the core of actually creating that value. Now we're talking about percentages of that value creation, which means that it will not change massively the EBITDA numbers or growth numbers for the portfolio companies, but it could actually come with a lower EBITDA growth. Hopefully, in some cases, we will also see some higher valuation for these kind of assets, given that we build, we're absolutely convinced of that, better firms with these measures. You see on the right-hand side, I mean in a systematic way, how this would over time unfold in a typical ownership situation. So if we buy a new investment, we will typically start with the board-building and value-creation definition measures before the value-creation project starts. The ESG initiatives start quite early on. And as we gain visibility over the EBITDA growth, the crystallization of that value creation, we would make these funds available. There's a second consideration that was developed over the last 12, 18 months, and this is around the financial protection downside case. We have asked ourselves a number of times how are we going to react in a real bad situation if we ever had a real bankruptcy situation. So far, we didn't have that. But if you think about situations like Toys"R"Us and others that have been somewhat widely publicized in the press, there is a legitimate question as to what is the right reaction in terms of severance payments and so forth. And we came to the conclusion that we should consider carefully to provide hardship funds that are sponsored by a kind of an insurance premium of our portfolio of assets with some participation of our own firm, hardship funds that can be used if there should ever be a case where these payments are needed to make severance payments, to make hardship payments to employees, which we believe will be the right answer to make sure that also, in this aspect, we really can claim that we can be better owners than what you would find elsewhere in the industry. Now as I said, this is a consideration which will be discussed with LPs. And we have a pretty strict conviction that we want to go there, but there needs to be details to be discussed with LPs in the future. So if you move on Page 45, you see somewhat of a journey that we will go through in the near term through the long term in this project. We will broaden the discussion that we already started with investors, with operating directors and management teams, and we will have that structured dialogue, certainly, with a goal to have a very clear understanding by our next big investor meeting that is scheduled for June. We'll develop, in parallel, the concrete initiatives, we quite progressed in that. And very importantly, a reporting framework because our investors will want to understand what kind of impact they actually create and what the actual cost, if there was a cost on a net basis, was actually incurred. And we'll then formalize, implement the initiatives. And as important as always in private market, it's about accountability, so we will hold ourselves, our Boards accountable for these initiatives. That's new thinking, that's a new approach, exchanging some upside for the benefit of employees. We are convinced this is the way industry should go. We are convinced that our investors, they very largely subscribe to that proposition. And we clearly hope that our industry also largely follows that new concept of how we should think about the stakeholder impact. As Dave said before, it's exactly the time to think about stakeholders. And because it's a long-term initiative that is dear to our heart, we will pursue that independent of the or notwithstanding the environment or maybe even more so because of the environment as it feels very opportune and timely to talk about these things. So with that, we conclude on the formal part of the presentation, and I would suggest we open up for Q&A for some time.

[Operator Instructions] Question is from Arnaud Giblat, Exane.

It's Arnaud Giblat from Exane. I've got 3 quick questions, please. Firstly, could you talk maybe a bit about the investor appetite in the context of a potential denominator effect? If I remember well during the financial crisis, the mark-to-markets taken by the private equity players were generally quite low when equity markets came down 50% and the consequence was a lot of appetite dried up because, mechanically, the allocation to private equity rose. So how -- what was the feedback from investors on that point? Secondly, on your guidance in terms of on-fund or your [ withdraw of ] guidance with regards to AuM development and growth this year. I'm wondering how should we think about a slowdown in realizations. I mean, clearly, if you have low realizations, you probably have a higher invested capital, and therefore, lower levels of tailwind then in your funds. So could you maybe go through that dynamic? What proportion of AuM is now based on -- has passed its investment phase and is now on invested capital at cost? And my third question is with regards to how well your portfolio companies might be doing. Could you maybe give us a bit of an indication in terms of what proportion of your portfolio might be coming a bit close to covenants? Maybe could you give us a bit of an indication what proportion of your deals have been done on a covenant-light basis?

Thank you for your 3 questions. Maybe I'll take the first one, Philip second and Dave third. So the denominator effect is really a phenomenon that we have observed and probably also will observe in this correction. And you accurately described how this works, right? So some clients will potentially postpone like some of these investment decisions because they want to see how this crisis works. That's a certain portion of the clients. But I believe many, many large institutional clients, like sovereign wealth fund, for example, they don't really do that math. They will continue in my expectation. They will not really kind of like have the denominator effect as a steering variable to guide the private market allocation. The third answer is that I believe many clients are still building up. If they have the confidence that Steffen described that they will start to allocate potentially more sizable amounts going forward. But the denominator effect does not affect those clients that are building up their portfolio. And there's a fourth answer, which is maybe my personal lesson learned from when TMT bubble burst and I had joined Partners Group back then, like back then, there was quite a bit of stop and go. A number of institutional investors have decided to stop committing, wait for a few years and then reenter the asset class. I believe over the past 2 crisis, many institutional investors have learned that a stop-and-go policy is just not they're -- not an ideal way to build up, diversify exposure to private market across calendar and vintages. So if institutional investors remind themselves of the disadvantages of a stop-and-go policy, then I believe the impact of this denominator effect is going to be much less substantial than you might worry about. That's question one. Philip, you want take -- answer?

Maybe, Arnaud, here -- Philip speaking. Absolutely, yes, in this market environment. And this is what -- as Dave said, our realization is slow. Now that has or can have several impacts. But for one, and this is what I would like to stress again, the majority of our AuM is based on so-called close-ended, long-term structures, and they have no -- they don't react based on realizations but on tail-downs. And we give you guidance on tail-downs and they come irrespective of years where we have high realizations or low realizations. The tail-downs are a mathematical formula, which will come every year. Now realizations have an impact on some of our evergreen structures, right, if there are lower realizations, right, then you keep on and hold on longer to these assets. But I'm maybe not getting your point right here. On performance fees, it has a direct impact because we need realizations in order to show performance fees. And if -- that's why we also give the guidance that performance fees are shifted towards the second half of the year. And the third question, maybe Dave.

Yes. And to answer your specific question around how many assets do we have that are close to covenant issues. We have 2 portfolio companies, in particular, that we're working very closely with and have been working with them actually for some time to help them mitigate some performance issues that they've been having. It's very normal percentage of a portfolio, relatively small percent of AuM, less than 1% of our companies are in that situation. And fortunately, we have the vast majority of transactions, particularly vast majority of transactions completed in the last 3 years, that have covenant-light packages.

The next question from the phone comes from the line of Andreas Venditti from Vontobel.

Maybe on the performance fee potential, which you showed on the slide, the question of postponing versus canceling the realization. And maybe you could give us some feel on how long this situation, this downtrend need to be once the potential might start to be impaired? Second one on distribution partners, i.e., private individuals, so the semiliquid part of the AuM. This part has, again, gone up from 16% in the first half to 18% at the end of the year. Obviously, this is the part where redemptions might go up. Have you seen any signs there already? And can you maybe discuss how these redemption procedures actually work for such semiliquid offerings?

Yes. Andreas, maybe, unfortunately, I don't have a real answer for you. It is simply too early to tell. I'm very sorry about that. We are 2 weeks into kind of a severe uncertainty now what we have seen in the stock market. And it really depends how the markets react and how we solve this whole COVID-19 situation and how fast we can get over it. Sorry.

Semiliquids, these are products and programs that are really focused on portfolio construction. So they have cash positions. They have like syndicated loans, for example. They have listed equities. And generally, these products do offer for liquidity over time. Now for many of them, like the first quarter or even the first half, has passed. So like the redemptions in 2020 might be more moderate than what you might hear. But this portfolio has been constructed in a way to really accommodate this liquidity over the quarters to come. Now the feedback so far is really very quiet. I believe this correction is new to everyone. We have not seen like a pickup yet in terms of redemption by clients.

The next question from the phone comes from the line of Máté Nemes from UBS.

I have 2 questions, please. First of all, on the private debt side of things. Can you share your views on the current situation in the private debt markets? Where do you see risks to your portfolio? Is this CLO strategies, perhaps syndicated deals or rather direct lending? And on the flip side, where could the current situation create some opportunities to use? Could this actually lead for a bit more rational behavior in some pockets of the market? That's question one. And second question is just a follow-up on allocations and perhaps the denominator effect. Could you be a bit more specific and maybe highlight the client types or segments where you see, let's say, elevated risk of perhaps somewhat higher redemptions or lower allocations, that would be helpful.

This is Dave, I'll cover the private debt side of things. So obviously, over the last couple of weeks, we have seen spreads increase by 200, 300 basis points within the debt markets. And we have, I think actually on the CLO side of things, been a big beneficiary of that. We've been one of the only CLO managers to have priced CLO in both Europe and U.S. this year, one of a very handful. We're, I think, in good company there. And we priced those CLOs very tight in the market, and we've been deploying that capital into -- over the last couple of weeks. And I think those strategies are going to perform very well for us. Now we do have to watch for liquidity issues within the debt portfolio, the same way that I described we're watching it in the equity portfolio. And where we have our debt -- largest positions in the debt business, that we're going to be running through later this week, 45 assets where we're going line by line talking about where each one of those stands from a liquidity perspective and really managing that asset by asset. I think what you really have to watch out for on the debt side of things are defaults and events of loss. We're long-term investors. We're not traders, by and large. We do have a broadly syndicated loan portfolio. But for the most part, we're holding those loans through to maturity. And so we really have to watch the liquidity side of things. And I do think that there are opportunities that continue to exist. Obviously, spreads have increased. We have some capital that is available to be invested into those situations. I don't see any new issuance activity happening at the moment. And I wouldn't expect for any new issuance activity to happen until things calm down.

In terms of response to the denominator effect, on Slide 13, we had visualized like our split of assets under management in terms of types of clients. If I just go through the slide, I believe sovereign wealth funds, as I already mentioned, they have very strategic long-term allocation to private markets. I believe they will almost respond slowest or latest to potential denominator effect. If I look at insurance companies, they really count on, for example, infrastructure to generate yield. So I believe here, the argument might actually be the opposite, and I expect continued demand in private markets, for example, by insurance companies. If I look at family offices, these are often risk -- they have a risk-taking mindset. I believe they will naturally just observe opportunities and might move very nimbly in terms of private market allocations. And by no means, it is certain that it will go down. Then we have 50% of allocations to public and corporate pension funds. And what I can tell you from the last crisis is that in these times, especially to pension funds, you need to really intensify communication and reporting. Partners Group is very transparent in terms of like position or portfolio reporting, risk metrics. It is precisely this communication and the transparency that has helped institutional investors like pension and corporate funds, public pensions, to keep up their exposure to private markets.

The next question from the phone is from the line of Lam, Hubert from Bank of America.

I just got a couple of questions. Firstly, on your liquid and semiliquid funds, can you give us an update in terms of performance year-to-date? Given that you're charging the fee -- management fees on NAV, I assume that there is an NAV that you've updated. Also, another question is on the breakdown in terms of your investment portfolio. I think Dave alluded to the relative exposures by sector, but I was just wondering if you have the exact breakdown by industry and sector.

So the first question is about the performance. I will leave this question, again, is just too early. We are updating valuations. I cannot provide you an answer how this will look like in March. But certainly, we're going to run our valuation procedures in a very professional manner, and things will then be released in April. Dave?

And we do indeed have a detailed breakdown of our portfolio. Maybe I'll just highlight the largest 2 exposures, and then happy to follow up with any follow-up questions. But software is the largest exposure outside of real estate, which we have as a separate classification, which is 14.7% of our exposure. Software is 11.3%. And health care, health care services is 8.9%. Those are the largest exposures.

And oil and gas, do you have a percentage there?

Yes. So oil and gas is 1.4%. Oil and gas services is 2.2%.

The next question from the phone is from Gurjit Kambo from JPMorgan.

Just a couple of questions. So just in terms of the market, I guess there's quite a lot of opportunities there given where valuations have fallen. Partners clearly has, I guess, a significant amount of dry powder. I think you have roughly about a year of dry powder. Just what's the sort of strategy at Partners? How quickly do you think to move? Or do you see how this progresses over the next few months? Just sort of understanding how Partners sort of behaves perhaps in the global financial crisis. That's the first question. And then secondly, just in terms of the impact investing, that's clearly a focus for Partners Group. I get the implication of that one potentially could lead to perhaps slightly lower net IRRs if you've got to invest a little bit more into that business. But is this something you're seeing from your investors? And are the LPs saying that we want to see more ESG approaches and impact investing from their asset managers?

Great. I'll cover the opportunities in the market because we are a long-term, long-duration investor and I do think that with the amount of short-term thinking that exists in the market today, we will see opportunities. As mentioned, there's a couple of areas where we're focused at the moment. The first is for public to private situations in sectors that we've previously identified as being structurally attractive through some of our research. And we do have a list that we've been working off of historically but never found quite the right window to invest, and we are dusting that off and starting to spend some time on those opportunities. The second is around opportunities that we have pursued in the past, businesses that we know really well, businesses we've been through due diligence on, but been beaten by competitors in the marketplace, but maybe those competitors don't have enough capital to support those businesses during periods of -- period of market dislocation like this. And we're currently preparing to approach several of those owners with proposals for capital if they should need it during this period of time. But we are focused on really high-quality businesses, so A assets. We're not looking for -- we're not bottom-fishing. We're not looking for distressed or troubled businesses. We're really looking for high-quality businesses where we can make a long-term investment. Steffen, do you want to take the second?

And maybe I can take -- yes, sure. So let me quickly talk about the clients' perspective on this. I think what's fair to say is actually 2 things. First of all, I mean, ESG sustainability impact has become a very, very significant topic, I would say, across the investment universe. And that's certainly also true for our investors. At the same time, it is also fair to say that people invest in private markets, first and foremost, because of the returns, okay? So unless we can create still that outperformance and very significant returns compared to public markets, it will not be good enough to just demonstrate good actions with respect to employees. So what we're suggesting here is clearly that we absolutely do not compromise on our, I think, ability we have shown over the last years to actually provide these outperforming returns compared to public markets. The amounts we talk about for these stakeholder benefit programs are percentages of EBITDA growth. So it might, in some instances -- for instance, to give you a little bit of directionally a sense to, for instance, bring a net multiple on investment from, let's say, 2.6 to something like 2.4, 2.45. So that's the kind of dimension. That will be in a situation where the valuation would not be adjusted for the fact that we have built actually a better business. So we're not talking about very substantial changes. But the discussion with the investors is still important because we have fiducial responsibility towards these investors. And so it's only in a dialogue with LPs that we can ultimately ratify, I mean, the precise performance of these programs. I'm absolutely convinced, I mean, with what's happening in today's society, in the world, especially to the younger people, I mean I would be very surprised if our investors would not clearly support any such program as long as we can actually keep up the outperformance at a very good margin compared to public markets.

Next question from the phone comes from the line of Thomas Beevers from Stockviews.

I had a question on accrued income, which has increased quite substantially above 600 million I calculate. I just wondered why that balance has increased to such an extent and if that implies that a lot of the performance fees are coming from unrealized as opposed to realized. But I wonder if you could comment on that, please.

Yes. In private markets, you typically have 2 events, right, you sign a transaction where you want to exit and then you close typically 3, 6, 9 months later. And that is the case also for Partners Group. So we had a lot of realization, especially in the second half of 2019, and that brings forward a lot of closings into today's market. With whether or not our transactions we have a net clause embedded or not, unfortunately, they are part of the negotiations and we cannot disclose these facts.

But we feel very confident.

Yes. But we feel very confident that we will close these transactions.

And I presume Action is a large part of that given that it is due to close in May, I think you said?

Exactly. Yes. Look, there's more than Action. Because especially when you have the 6 months delay between closing and -- signing and closing, there -- that you have a bit more assets which are about to close than in Q1 and Q2. But we are pretty sure that they will happen.

[Operator Instructions] The next question is from Chris Turner from Berenberg. I'm sorry, Mr. Turner just removed his question. There are no questions so far from the phone. Gentlemen, would you like to proceed with the questions from the webcast?

The first question comes from [ Daniel Albrecht ], and he was asking if we could please comment on the risk profile of various international, in particular, Asian investments in connection with the new virus development and how this will be influenced?

Dave?

Yes. So I'll -- I'd be happy to cover that. So we have watched the current portfolio that we have in place. And again, it's not huge exposures in China, for example. It's 3.8% of our portfolio. But we have watched very carefully over the last number of weeks since end of January as the virus has had an impact on the portfolio and then the recovery that we have since seen. As mentioned, one of our holdings there has fully recovered to pre-crisis levels and we have a few other assets that are still building back to those pre-crisis levels. And so we have not been actively looking at new investments in some of those particularly hard-hit geographies. I think we're still waiting to see how the environment develops over the next coming weeks and months.

The next question came from Shamoli Ravishanker from Morgan Stanley. She asked if there are any -- is there currently any clawback risk? And if not yet, how far down the line does it become a concern assuming current environment extends?

Yes. Shamoli, it's me Philip here. We apply very conservative tests on our portfolio, which need to go -- or the portfolio needs to develop far, far, far more worse in order to trigger any clawback right now. So there is right now, even though you have seen this drawdown in the public market, we don't expect any clawback risk.

So the next question comes from Rod James from PEI Media. He's asking if there are any contingency plans in place to delay live fundraising processes, if necessary. And how do we think that coronavirus will impact your secondaries investment program?

Well, in relation to fundraising, like what we've learned like from the global financial crisis is that, of course, like as a GP, you want to be mindful of the constraints on the LP side. For example, at this point in time, you don't want to issue too many capital calls or too substantial capital calls because maybe actually also staff of clients is working from home. So at Partners Group, we are very mindful of like these lessons we have learned from the past. I believe that our business continuity is in place to make sure that we can process all the client interest and also the investment deals that are on the horizon. But we are confident that also on the client side, it will be smooth weeks to come.

And with regards to opportunities in the secondary market, I think our secondary team is ecstatic about these market developments. As many of you are aware, volatility very much plays into the favor, the opportunity set for secondary buyers. As liquidity needs increase, the relevance of that asset class and investment type increases. And our secondary team is anticipating a large spike in opportunities at attractive levels coming their way and so we're preparing for that. We haven't seen a huge increase yet. I think it's a little too new, but there's certainly that potential embedded in this market environment.

Good. I think that actually closes our call. I think this was the last question. And as always, of course, I mean, Philip and his team, they are ready to answer any further questions that come up. And surely also Dave and Andre in some of their bilateral meetings and calls. Thank you for your time. Thank you for your interest. And we hope to have some discussions, maybe not physically, but over the telephone in the next few days and hope to give you as good of a sense as we can to tell you about our feeling of the current situation, how we are ready for this situation. But just to mention, this is -- again, it's confidence, I think, that we go into the next few weeks and months. And we are obviously convinced that we will actually get out of this crisis in a strengthened way as we have done so in the last 2 ones. And with that, I guess, we wish you all good days, and talk to you soon. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.