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

Ladies and gentlemen, welcome to Partners Group's Annual Results 2022 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Philip Sauer, Head, Corporate Development. You will now be joined into the conference room.

Thank you. Good morning, everyone, dear investors and media representatives. A warm welcome from our side, Partners Group, to the 2022 annual results presentation. We are very happy to present you our results. And with us today is Steffen Meister, our Executive Chairman, who will provide you an overview on the industry and our perspective on private markets in the future; and Dave Layton, who is virtually with us, who is actually presenting the business development in 2022 and also provides an outlook on fundraising for 2023; and of course, Hans Ploos, who will show us how Partners Group's financials have developed in 2022 and provides also an outlook for 2023. And with that, I would like to hand over to Dave. Over to you. Thank you.

Thank you very much, Philip. Maybe before we kick off. I wanted to just start by providing you all with a little window into our investor conference from last week. We gathered over 500 attendees in Vienna, investors, prospects, portfolio company executives. This is a changing world, and we've got a very strong sense that investors appreciated the opportunity to sit down and strategize. This was the strongest demand that we've ever had for such a conference. Investors today are looking for prospectives, for detailed performance updates and for ideas. And it's sufficient to say that, despite the noise and volatility in the market, and last week was certainly an eventful week, we came away with a very strong sense and continued confidence that our clients remain fully committed to us and to our space. And one of the main reasons is performance. The underlying performance of the sectors, the businesses and the assets in which we are invested is strong. And we've been investing in subsectors that we believe have disproportionate growth, and we've been steering those companies with a firm hand on the wheel. And that seems to be a pretty good formula for this market and it continues to be well received. And even though it's a slower environment, we feel good about our clients' demand over the coming quarters and years. Now at this event we also shared with our clients our views on how various market segments will evolve. We articulated how we see opportunities emerging and how we're positioning ourselves to take advantage of those opportunities. And we have a similar approach for building a vision and a thesis for our own industry, which we shared. The private markets is a landscape that's changing, is evolving. And we'll start today's annual results call by sharing our views on this evolving industry. Steffen, over to you.

Thank you, Dave. And good morning, everybody, again, from my side. It's great to have you with us this morning. So I'm happy to start sharing some broader perspectives on the -- what we believe is the outlook for the private market industry. And I will actually share some of the materials that we have presented to our investors in Vienna last week at our investors' conference. Now I don't have the same time budget like last week. I have to warn you. I'll do this in a slightly summarized way, but I'm sure we have some time for Q&As at the end of all the sessions and maybe bilaterally if need be afterwards. So I think the starting ground is this discussion we commenced about a year ago about the change of roles between public and private markets; a change of roles, as far as the financing of the real economy is concerned. And what we mean by that is this change of what public markets did 40 years ago when IPOs financed a big part of the real economy through IPOs of bedrocks of the economy in their growth. And an IPO was something which was a very strategic corporate development event at that time, versus today where IPOs are mostly unprofitable businesses, more hype kind of companies. IPOs serve more as an exit window for venture and growth capital. There's a bias to tech and some other sectors, so it's fair to say that today IPOs actually do not meaningfully finance the real economy. And you see pretty much the opposite development last 40 years in private markets. That started as a very leveraged play in buying undervalued large consumer and industrial businesses. You would break them apart and make some money. There was no financing of the real economy involved. It was more like maybe cleaning up public markets in some way. And this has completely moved to the other side of the equation. And private markets today are very long-term financing assets and businesses across the whole economy, all the sectors. They do this very long-term focus with a focus on value creation. These are mostly profitable businesses. [ There's a ] professional venture and growth community. And I would tell you that actually an investment by Partners Group and the development efforts in a business is probably today more strategic than an IPO for a business, so in that sense, I think the roles of public and private markets have changed. And we've earlier indicated some explanation for that. What we believe what happened over last 40 years is a change of preferences in the IPO market versus the private markets. And this is where this notion of foundational versus spotlight businesses, I think, is quite helpful. Think of a foundational business as a business that is producing or helping to produce a product, a particular service, a process. You can see a few examples here in one of our theme clusters, the modern food value chain, where you see that everything from the starting activities in agriculture to different steps of food processing, food packaging and then going to restaurants and retailers plus the whole supporting industry, this is something that we call very, very foundational. Opposed to that, spotlight businesses are businesses that are a little bit different. Spotlight businesses are either, I would say, taking something existing through some form of platform approach, delivering this. So for instance, a company like DoorDash in the food value chain. It could also be a business that is developing something new like a new IP that has no real application in today's ecosystems, okay? So that's a little bit the distinction, not judgmental. I mean both can have fantastic businesses, but what is very remarkable is that, in the last few years, the IPOs gave much better valuations to these spotlight companies. This is where some explanation could be this "winner takes it all" hope of IPO investors, but there is clearly a preference between the IPO market for these businesses relative to private markets and the public markets relative to private markets. Now the foundational business, in contrast, they tend to be $2 billion, $3 billion, $4 billion, $5 billion businesses. They can easily be financed by private markets today. They don't get better valuations in IPO market. They get probably about the same. I don't think they get less than that. This is why they have increasingly stayed in private markets. And this is where you see this bifurcation between IPO markets and private markets. And it's very easy to actually give some evidence to this by either looking at the actual IPOs in the last 30, 40 years. You see the numbers coming down massively, especially in last 20 years, but maybe more importantly, if you go through the actual IPOs, and this is all public information, you'll see that these IPOs are typically either very large businesses, $30 billion, $40 billion IPOs. And that's why they cannot be financed by private markets. And/or they're more these spotlight companies. A good way, I think, of trying to distill this in a very easy way is looking at this profitability ratio. So looking at the number of IPOs in a particular year that were actually profitable at the time of the IPO. And you'll see how that number has come down to about 20% in the last few years, essentially providing evidence that the IPOs are typically these spotlight unprofitable businesses. We are making this claim that the new economy is much more built in private markets than in public markets. Let me explain that. So what you see here on this chart for private equity but also for real assets is an overview of what we believe are maybe the most interesting thematic ecosystems or transformational theme clusters in the economy, okay? If you look on the left-hand side, private equity, top right, you'll see the modern food value chain. What we have seen on the chart before is that, in the modern food value chain, most of these activities and businesses are actually highly foundational. There's actually relatively few that are spotlight kind of companies. And this is why we have marked this area with an iceberg that is filled at the lower end that should suggest that this is more foundational, okay? We have done this exercise for a lot of the other theme clusters in private equity but also in real assets. And I think what you'll see is that this is actually true for most of these theme clusters. So a lot of the, I would say, new businesses, activities that will evolve in the new economy next 10 years will be very foundational. And that's why we believe they will be financed in private markets. And that's why, in our wording, private markets will become the new traditional asset class. So let us build on that. And we do this by sharing what we call 10 hypotheses, 10 views, I would say, or perspectives, of what we believe will be the next steps for private market and how this will also evolve maybe the activities of private market firms. And you see already a couple of claims here that might be thought -- worthwhile to think about in this context. So the first hypothesis is around the, I would say, lasting or sustainability of this rise of private markets. Some people might question, has this rise of private markets been more cyclical because of different reasons? We believe there's a very, very strong structural element; and this is going to last. I'll share quickly a couple of perspectives why we think that's the case. What you see here with these gray bars, the large bars, is fundraising in the last 33 years. And you see that, by the way, since 2016, that's exceeding public market equity issuance. So private markets have actually overtaken public markets since 2016 and have been higher in their amounts since then. What you clearly see is that there is a strong cyclical element, absolutely, but I think equally what you see is that the trend line is actually much stronger than the cyclical element. And also, if you look at this profitability ratio, so the red line, that we've just seen before, you see that this profitability ratio has started to come down mid-'90s, so this is not a very recent event; again a very strong cyclical element, especially in 2000, but this is something that is a trend for a while. Some people might argue and say, "Well, is this because leverage has always gone up in the system?" And so if you have a profitable asset or business, you would rather stay in private markets to leverage the asset and not do an IPO, but then if you look at the leverage ratio, which is this green line here, that leverage ratio has consistently come down. Actually it has been more like, lately, at 30% to 40% in most of these assets. And by the way, if leverage will be the primary reason, you would have seen many more public-to-private market transactions. Then some people look at rates and say it's because of 0 rates, but then again here 0 rates, I mean, were only the case for a number of years in the last 33 years, so all of that may be not sufficient-enough explanation. Whatever is the reason for that change in habits, there's a lot of people that research about these things. They talk about the change of the IPO investor. I'm not a specialist in this field, but it sounds plausible. But I want to leave you with one maybe last chart here to talk about this development last 10 years. What you see on this chart is a return, total return, composition or allocation between what has been driving returns between actual underlying growth of businesses versus just valuation changes like multiple expansion. And you see this for the public market and you see this for the private market using our direct portfolio. And at 100%, I mean, we have outperformed, but that's not the point of this chart. It's at 100% because it's the return allocation to 100%. What you clearly see is that public markets in this 10-year bull market between '11 and '21 were about nearly 2/3 driven by valuation uplift. That number is massively low for private markets, so if the assumption is that this development in last few years was much more of a tactical shift between public and private markets, you would expect that actually private markets would have benefited much more from inflows and from valuation increase. And I think what that chart shows is that the public equity market has probably benefited more from the environment in last 10 years than most other markets, including the private market. So this is why -- it's not a scientific proof by any nature, but that's why we believe there is much more of a structural pattern here, so where do we go in private markets? And we talked in the first few slides more about the content where we see the investment opportunities which will be massive actually, but let's talk a bit about investment firms and investors' maybe patterns and what that means for the industry. And the starting point should be the democratization of private markets. I think that's a very important starting point. What we mean by that democratization is investment activities by individuals that can be done in 3 formats. That's the wealth management side that's about $80 trillion. That's the DC businesses, about $30 trillion; and retail, about $40 trillion. All of them are very early, early innings in their investment activities, very small allocations but actually most of them growing very massively. Why is this relevant? I mean they combined about $160 trillion, so much larger than the institutional space actually. And so if you think about 6%, 7% allocation, that's $10 trillion. That's as sizable as the entire industry in private markets today. So if you want to try to understand what could that mean for changes in patterns and the investment firms, I think it's important to look at who are actually the largest players in that field. That's the large global asset management firms and asset management businesses of banks, of course; and they have 2 things in common. All of them have 2 things in common. One is they have all been explicit or implicit about their ambitions in private markets to have substantial allocations. Some of them have explicitly target 20% or more in the long run, like 10 years over the next cycle, but the second thing they have in common is that, if you look at these little circles there that are filled, that they have allocations between 0.5%, 1%, 2%, no one is above 5%, so they are very early actually in their approaches. We believe that new entrants or entrants that come with very significant amounts in this industry might change the industry because we believe it will change somewhat the DNA. If you talk about DNA, it's important to recall that, a lot of these large firms, they're not only focused on public markets primarily, but they are also fairly passive actually, very index-oriented in their approach. So their DNA is actually much, much more a public market passive DNA than an active investor DNA. It's the more -- the smaller firms actually that are more active typically in that space. So if you want to maybe do a little bit of a scenario here of how private markets could build up in the next cycle. And what I means with DNA: The starting point is the first line here on the right-hand side. That's today's market, $10 trillion in size. The money is managed primarily by firms like Partners Group, by KKR and others; specialist private market firms with a private markets kind of DNA. There is an assumption by a lot of houses, research houses, like Preqin and others that institutional investors today will probably put another $10 trillion or so into their allocations in the next cycle, so we are a little bit more conservative. Let's say $5 trillion to $10 trillion coming from the same base of investors, probably with -- mostly managed by the existing firms but here and there some of the large firms. They will use their own team actually to do some investments, maybe some easier investments, core type of investments, so there's a little bit more of public market DNA coming in, but a big change is probably coming from some of these newer entrants in this asset class. The 25 largest global asset management firms and wealth management units in banks, combined about $70 trillion, if they spend 10% to 15% on their allocation to private market, that is about 10 -- or let's call it $5 trillion to $10 trillion. They will not give all of that money to firms like Partners Group. I mean we have a share of that. Today, we already manage about $40 billion between the wealth management businesses and DC businesses of some of these firms also, but it's I think unrealistic to assume that, if it's about $5 trillion to $10 trillion, this will all end up with the existing firms. So a lot of these firms -- and they don't have any of these resources today. They don't have the DNA. They don't have an operator's mindset, will probably somehow try to be active with their existing [ team ], somewhat existing approaches in the asset class. Why is this relevant? Because we believe that this change of DNA -- and so you see that, at the end of that cycle, you might see an industry with USD 30 trillion. That's what a lot of people estimate is kind of the next number here in 10 years or so. That has shifted much more towards a, let's say, balanced DNA between traditional private market and public market. And this is relevant because that might change the investment approach. The investment DNA and investment approaches, I mean, in our organization nearly are bit of a synonym sometimes. We believe it will grow the bifurcation between a more passively oriented versus a very active approach in the industry. To very quickly recall what we mean by passive. That's something very different than in public markets. So passive in private market means essentially that an investor or a group of investors is buying an asset. They see the role more as a financial investor. There's a transactional mindset. They might control the board, but there is not a directing governance by the board. Think of it as, for instance, a couple of institutions that own a pipeline together, an airport. You have this actually in all parts of the world, but they really let the management be done by the management team. Active is very different. Active is not starting with a strict academic [ set allocation ]. Active investing is about looking for these ecosystems across businesses that will see a lot of tailwind transformation coming up, where you can build new winners in these ecosystems by a very hands-on, engaged cooperation between companies like ourselves, our boards, the management team, bringing in vast resources in most cases. This is an active approach. And so what we believe what we could see in the next 10 years is also a change here from today's certainly more actively oriented approach. And everybody is similarly active for the -- at the same level of activity, I would say, but it's certainly more active in the overall context. And you could see that, maybe with the next 10 years' flows, you'll see that moving more to a passive approach, especially with some of these new entrants. Why is this relevant? Because -- and I do this very summarized. See, there's a lot of information on that slide. We believe that you could see somewhat of a change in private markets, where some areas in private markets will look, as of today, even become more actively oriented, even more industry kind of oriented. That's the first line. That's the active investing in what we call noncore assets. Noncore assets are assets in need of transformation where you build businesses that are different businesses than today that's very active. It's very differentiated from public markets. It's completely different in terms of resources, but there are probably areas like the more passive approaches, whether that's more core assets. That's in real estate, for instance, quite familiar to people today, but then also in the other asset classes or passive investing in noncore businesses where we could see that, what you find, it's still private market activities, very different private markets, but the DNA and the approach is maybe a little bit more similar to public market. And this is also relevant because we believe that's the area that could be much, much riskier than people actually perceive it to be. And this is for 2 reasons. 1 is this crowding risk and 1 is disruption or obsolescence because of disruption. So why the crowding risk? A lot of these organizations that will deploy very significant amounts in the industry without their teams, they will go for what they believe or perceive as the easier assets, the core type of assets. So that will certainly come with a -- I would say, a certain degree of valuation pressure on the upside, makes it a little bit less attractive, but maybe as important, if not important, is the second point. The next 10 years ahead of us will come with phenomenal transformation across pretty much all the ecosystems. And I think it's largely, largely underappreciated. And that's just not only private equity; same in infrastructure, same actually also in real estate in many areas. This is because you have these 3 -- what we call the giga drivers. There is this enormous change of profit pool distribution because of digitization, automization, these new client habits and preferences, sustainability, but it's not just how businesses make money but also how businesses are operated actually with AI, with the new engagement platforms, the new visual engagement platforms. We call this metaverse. We don't mean that metaverse by that. New decentralized [ ledger ], operational backbones that we will see, so that will come with massive change. This is very different at the opposite side of the spectrum, where you probably don't see many more active firms than today, but the asset pool of assets that need transformation is probably expanding vastly in the next few years. And that's why we believe there will be a major bifurcation between this core passive relative to noncore active industry. Well, in other words, core has probably been for the last, I don't know, 4, 5, 6 decades a synonym of resilience, of defensiveness. We don't believe that this is the case anymore in the future, so what is actually defensive in the future? We believe it's offense. That is the new defense. It's the what we call transformational investing approach. That means a very significant degree of agility how you constantly adjust businesses. That will actually provide for the [ defenses. Then it's for the resilience ] given all the changes we see ahead of us. Now transformational investing, and you've heard this before most likely, [ is built and are affirmed on ] 2 pillars. It's thematic investing. It's a very structured approach with lots of resources and a lot of time actually to spend time on these ecosystems, the transformational things we see in these ecosystems and what kind of businesses we want to build. And then the actual execution is entrepreneurial governance. This is not something that you learn actually in private markets. Private markets has its roots in Wall Street. What we are talking about is actually a highly industrial type of activities in our private market context. And this is why Partners Group, since 10 years, is moving from -- or a -- I would say a financial investor organization to something which is much more industry-type organization. You learn this from the best industrial firms. There's these [ 3 ] key, I would say, dimensions: the strategic rigor in what [ he do ]. It's the decentralized but very managed governance. Asian conglomerates, by the way, are a better example here than the Western conglomerates. The third one is the value creation, [ not ] big M&A. The fourth one is the playbooks and how you actually scale your portfolio. And in the fifth one is talent management. So this is what's driving since a number of years our development. This is also why we hire a number of these operators, like for instance our new Head of Private Equity, Wolf Scheider, who has been running ZF Group's 150,000 people, a business that, if you look at Partners Group including its portfolio companies, is actually very similar to what he has run before. Some people ask us, of course, about the outlook for the returns in this maybe more challenging period ahead of us next 10 years. We don't have the crystal ball to be clear about that, but we also shared one perspective last week which we find important. And this is about looking at returns in unbiased way, meaning without any impact from valuation changes. So what you see here is 5 years returns, public markets, real assets. We use infrastructure for that. And the corporate equity market. Public market -- and we use private market. We use our own direct programs, infra and private equity as a proxy. And what you see is that, in the 5 years between '17 and '22, the returns without valuation uplift was about 30% overall, about 5% per annum in public markets, which is not a bad return. That's about 2x GDP or so in these jurisdictions. What you do see clearly is that the active investing we have seen in the last 5 years, for instance, in our portfolio has outperformed this massively. This was about 3x the return in real assets and about 4x or about 15% per annum in real assets, about nearly 20% in private markets. That's not a return that our clients have observed that way in the last 5 years. That's very important because you have seen so much uplift from valuations. So the outperformance was not that strong. We believe the next 5 to 10 years will be the years where you'll get much, much more rewarded for the actual performance in the underlying assets; and a little bit less for the performance of, I would say, the market EBITDA, the valuation changes. One word about ESG, which has also become in this whole journey of private markets a very significant topic. And I would like to split maybe in 2 discussions. 1 has to do with transparency reporting. 1 is the actual impact on businesses. On the first one, it's fair to say, in the last few years, I think the confusion in the industry in private markets but also outside has risen significantly. A lot of regulators in Europe, in the U.S., I mean, have like every 2, 3 months come up with new regulation and changes. It's a little bit hard to keep track with what's going on, so take a step back. And what I would tell you is what's happening at the moment between public and private markets is a convergence, which I think is the right thing, by the way. So we see public markets coming a bit more from the governance side, ESG a little bit more driving -- or I would say climate-related questions will be a little bit more driving the private markets governance, but at the end of the day, we're actually seeing a convergence here. So as of today, we are probably more regulated and more transparent with our portfolio than public markets, but in 2, 3, 4 years from now, I think you will see a perfect convergence, which is the way to be, I think. Maybe more relevant for us is how we can actually build businesses that do not only provide returns for the financial investors but also for the stakeholders. That's mostly the employees. We have introduced a few years back, before COVID, our Stakeholder Benefits Program that's reinvesting up to 10% of our EBITDA growth in initiatives, financial participation. That could be health plans. It could be safety. It could be development of people. It could be providing for, I don't know, family-caring initiatives in the company, things like that. What's important is this is not just giving money, right? I mean this is not just distributing money. These are initiatives that the boards very carefully choose to build resilience, loyalty, less turnover, better collaboration, so build better firms. And we have been joined by a number of institutions in the last 3, 4 years. And I would tell you that, in our view, active private market firms will probably be leading here in these efforts to bring real impact beyond financial returns to the stakeholders, in the next few years to come. So as a final point. One question that often comes up by the clients is, of course, what does it mean. Or what should it mean for the asset allocation? And now we cannot tell our clients what should be the asset allocation. They have their own challenges, [ duration ] management, asset liability management and regulation and so forth, but I would probably tell you 2 perspectives here or in 2 dimensions that I think are probably true for many of these clients. The first one is, by size, what we are seeing is, over the next cycle, there is probably about a doubling of the allocation. That's, on one hand, driven by just the growth of the private market industry, but maybe more importantly than that even for many of them, it's the access to [ these foundational ] to certain type of businesses they cannot so easily access anymore at public markets level. And combined with that, what we see is a real refinement in asset allocations. 10 years ago, a lot of large investors, they had essentially an allocation that said private equity 8% or 10%. I think these days are over. I think you will see a sophistication of the asset allocation process more similar to what we see today in public markets where people much more carefully think about the ecosystems, active versus passive type of approaches. So I think that will be a little bit the new norm in the industry. And again here, maybe to close the circle, I think -- with that, I think private market has definitely become more of a traditional asset class for many. So that's just in very short time, sorry for that, a couple of perspectives we have shared with our large investors last week. I hope it is at least thought provoking also for you here as shareholders, as analysts, as people from the media side. And with that, I think we'll go back and talk about business, Dave.

Okay, thank you very much, Steffen. Now for the business update. Now given this vision for the future for our industry that Steffen just outlined, differentiation, we think, is key. And our transformational approach to investing which combines this rigorous thematic work with driving assets like entrepreneurs, we think that that's a very strong strategy. And performance has been backing that up. Our direct equity portfolio on average grew EBITDA by 16% at a consistent average EBITDA margin of around 20% during the period. And that is the foundation for future satisfied clients and for future performance fees. Next slide. As just mentioned, thematic research is the foundation of our origination approach these days, and it's working for us. That's reflected in the $26 billion of investment volume that we generated during the period. It's stormy out there, but these niche sectors are a great place for investors to find refuge. Cloudflight is a good example of this. Cloudflight's niche digitization services market is expected to grow 16% per year over the next few years. Budderfly is another great example. It's an attractive space. Energy as a service is one of these fast-growing subsectors that we've had a team studying for a long time. Budderfly was sourced through mapping out that subsector, meeting all of the relevant people and assets as we research that space. And we felt that we were, out of all of those opportunities, buying the one that had the most potential. And buying leaders in these structurally growing sectors is our key to this part of our strategy. On the next slide, we outline that -- our performance in this past year. Now there's been a lot of discussions around private markets performance and valuations. I was at a conference a couple of weeks ago and it seemed like every second question was related to this subject. And so I'm going to take you through some special disclosure in response to the demands of investors to get more quantitative and transparent on this topic, but I'll start with a high level. In Q4, we had a performance uptick in many asset classes. Private infrastructure is perhaps the most notable, strongest performance out of the group. It's an asset class that's traditionally more defensive with strong inflation linkage, long-term contracts. And that's largely decoupled from GDP, and as such, it didn't see the same devaluations that global equity saw. To the contrary, our direct infrastructure portfolio generated a 13.5% return last year. And that is indeed an asset class that's getting disproportionate attention from investors right now, and you can perhaps see why. We are builders of infrastructure, not just buyers. Our top-performing assets in this asset class were ones that we have built from the ground up. And CWP is a great example of this. It started with one wind turbine. And we've transformed that asset into a now trans-Australian wind platform generating more than 1.1 gigawatts of energy. We signed an agreement to sell that asset in Q4. It's the largest renewable energy platform ever sold in Australia, and that was obviously helpful [ for marks ] during the period. Next slide. Here I'll walk you through the outperformance bridge for private equity, our largest asset class and the asset class where I probably get the most questions, perhaps because it's the most comparable to public reference points. We have 3 main drivers that explain the 21% outperformance between the public index and our direct private equity portfolio. First is sector exposure. Industry and subsector selection accounted for 38% of our outperformance. And what that means is that, if you were to invest in the closest public markets comparables to the companies that we've been investing into in the private markets, you would have outperformed the public market index by 8 points, okay? That's where our thematic work puts us ahead. Our average valuation multiple as per year-end is directly on top of our average multiple of our public comparables. Second, we've been driving our assets harder than our public market comparables. Our companies have been growing their earnings at about a 2x faster rate than their public comps, and that explains another 33% of outperformance. And finally, a trick to successful portfolio management in our space is making sure that you're diversified enough to manage risk but concentrated enough such that your outliers can move the needle. We call these outliers category winners, and they're often important to the -- to driving outperformance within our industry. You generally need a few of these outliers to bring investment programs into the top quartile. We had 6 of these top performers that accounted for a meaningful part of our total value creation in 2022. As an example, 1 of these companies, which had a liquidity event this year, was sold for an EV/EBITDA multiple that was 3.1x above our original underwriting assumption in this market. As you can imagine, that was also well above the mark that it was held at just a few months prior to signing the transaction. This asset and a handful of other strong performers ultimately accounted for another 29% of outperformance. Now on the next slide, you can see that the developments that we saw in 2022 are broadly consistent with history. Since 2019, for example, our direct private equity portfolio has outpaced the earnings growth of the broader public markets as well as sector-specific public comps. We're building what we feel are portfolios that are reflective of opportunities that we're seeing in the real economy. These are services companies and innovative industrial companies that are particularly attractive to us. A lot of public investors have been buying into the technology sector in particular at high prices over the past number of years. Big tech companies are now obviously disproportionately represented in the public markets. And that's a big part of the public markets correction, but within our portfolio, technology is the smallest part of our investment verticals. And the prices that we've been paying have been relatively modest. We're talking about an average or a median EV/EBITDA buy-in multiple of around 14x for our tech assets, not 23x like in the highest of the public markets. Maybe as a side note here. I know that there have been concerns about Silicon Valley Bank related to liquidity crunches and potential valuation squeezes in the tech and tech-adjacent growth investment sector. I want to be clear that we don't really go after early-stage, cash-flow-negative venture capital tech or venture capital health tech assets. We focus on cash-flow-positive businesses. And after a thorough analysis across our portfolio, I can assure you that our direct investment exposure to Silicon Valley Bank is quite negligible. That's not really our world. Now on the next slide. We do believe that our differentiation on the investment side is genuine for those that really dig in, but our differentiation on the client side is clear and apparent. We have great traditional funds for people that want to have individual puzzle pieces for their portfolio. Our flagship funds, I think, stack up very well and very nicely against competitors in terms of performance. We're actually in the midst of fundraising for our latest generation of our direct equity flagship program. We've raised just over $10 billion, and we're heading towards our target of $15 billion total program size. It's lower than normal, no question, but it's moving. But what truly differentiates us on the client side is our ability to build bespoke solutions through mandates and evergreens. This is a great segment of the market. It's growing disproportionately fast, and you can see the gradual mix shift here. This is something that we do really well. It's historically been more challenging for our peers given their siloed organizations and siloed incentives. Finally for me, on the next slide. We confirm our 2023 fundraising guidance of $17 billion to $22 billion based on the same things that we articulated on the January update call. It's going to be skewed disproportionately towards the second half of the year in terms of closings and conversions, but we continue to feel very good about demand. And with that, I'll hand it over to Hans for the financials.

Thanks, Dave. Yes, it's a pleasure to be here with all of you this morning. Assets under management grew 14% in Swiss franc. Fundraising was delivered within the guidance even after the markets had turned post the summer period. Management fees increased 12%, in line with the underlying AuM growth, confirming continued price discipline. Total revenues were CHF 1.9 billion. Performance fees were 14% of revenue, following the exceptional 2021 where performance fees were 46%. Our profitability continued to be strong at a 60.5% EBIT margin. The EBIT margin was impacted by higher wage inflation as well as the impact from a stronger Swiss franc predominantly versus the euro, showing that we continued to deliver against our target margin of 60-plus even after the impacts of higher inflation and exchange rates. The Board proposes a dividend of CHF 37 per share or an increase of 12%. This is underpinned by continued AuM growth and reiterates our confidence in the strength of the business model as well as the structural shift to private markets which was discussed by our Chairman earlier. Let's look at our revenue in a little bit more detail, the split between management fees and performance fees. Management fees are most of our revenue and increased 12%, in line with the underlying AuM growth. This confirms the continued demand from our clients for our bespoke solutions. Late management fees remained high, as we had the benefit of the closing of our third infrastructure direct fund earlier in 2022. Therefore, we expect for 2023 late management fees to be a little lower. If we turn to the performance fees. Performance fees were 14% of revenue or CHF 269 million. They came off the back of very strong performance fees in 2021. As mentioned by Dave, market uncertainty and limited availability of financing impacted the exits in 2022. For 2023, we expect performance fees to return to the mid- to long-term guidance of 20% to 30% of revenue. They will be skewed towards the second half. We assume markets to stabilize sufficiently to support the exits in the second half of 2023. Important to reemphasize that the portfolio performance continues to be strong; as Dave said, more than 15% EBITDA growth at very strong margins, which shows you what a strong exit pipeline we have. And therefore, we remain confident that performance fees will be delivered within our guidance of 20% to 30%. If we look a little bit deep on the longer term of our performance fees. Ultimately, performance fees reflect the value we create for our clients. The more value we create, the higher the performance fees. Our track record confirms that we have been delivering performance fees in line with the guidance of 20% to 30%, and we're confident that we will continue to do so. As we discussed, the underlying performance at our portfolio companies continues to be strong. Now what you need to add for the future is we have more direct investments content, so the mix of performance fees going forward in the investments is more than we had in the past, which gives you [ another reassurance ] that performance fees continues to be strong. Let's quickly come back to the management fee and the management fee margin. Since the IPO, our management fee has been stable at around 1.25%. Yes, they vary in any given year, but that's purely the outcome of the fee clock. But the underlying, they continue to be strong, which confirms not only our price discipline but also that we continue to innovate for our clients with bespoke client solutions to drive even more value for our clients, which underpins that stability. If you look at 2022, we were slightly higher at 1.29%, as we had the benefit of higher late management fees. Coming back to the profitability. The margin was strong at 60.5%. It was slightly below 2022, as we had the impact of higher inflation and the stronger Swiss franc. Operating expenses were down 24% to CHF 740 million. Remember 80% of our operating expenses are personnel expenses. And they were reduced as we had lower performance fee-related personnel expenses, as we allocate 40% of the performance fees to our staff. If you look at our regular personnel expenses, they increased 18%. First, we had the impacts from higher head count. On average, we had 13% more head count, which was in line with the AuM growth. And we had the impact of higher wage rate inflation as we had a more competitive talent market. Other operating expenses increased 33% to CHF 104 million as we saw a normalization to the travel activity post COVID and we continued to invest in future technology to prepare for growth in our platforms. Maybe quickly going back to the exchange rates. We're a global business reporting in Swiss franc. Most of our business comes from [ euro- and U.S.-dominated ] programs. And this year, as we saw a strengthening of the Swiss franc predominantly against the euro, you saw that had an impact of the margin of around 1.5%. Looking at our track record. Our track record supports the discipline of our cost management approach to continue to grow our business and deliver our target margin of 60% EBIT. For 2022, we delivered a 60.5% margin even after the impact of inflation and exchange rates, showing again that we continue to grow our business at the 60-plus margin. Let's look quickly at the items below EBIT as well as the balance sheet. We invest around CHF 800 million, alongside our clients, in our investment products. They generated a 2% positive return, which confirmed strong outperformance versus public markets which is underpinned by the strength of the portfolio performance. The financial result was minus 2% (sic) [ CHF 2 million ], as this positive effect was offset by the impact of exchange rates. The tax rate was 11%, as we had a one-off benefit in goodwill which generated a discrete tax benefit. Excluding this, the tax rate remained stable at 15.4%. For 2023, we expect the tax rate to increase gradually to 15% to 17% and, from 2024 onwards, more to [ 17% to 18% ] as we see the impact of the OECD minimum tax implementation. Profit was at CHF 1 billion. If you look at our liquidity: We have over CHF 3.1 billion in liquidity, which consists of a strong cash of CHF 780 million. We have CHF 1.3 billion outstanding in loans to products. And we have an available credit revolver of around CHF 1 billion, all together confirming the strength of the liquidity we continue to have. The Board proposes a dividend of CHF 37 per share. This is based on the continued strong business performance and the confidence that the growth journey will continue. Remember that, since the IPO, we have been growing the dividend in line with AuM at 18% on average. Last but not least, before we open it up for questions. We will be launching our CSR report on April 25, and we will give you an invitation to that as well. For now I would like to thank you for listening to our presentation. And with this, we'd like to open it up for questions.

This is Daniel Regli from Crédit Suisse. I have 4, with creative counting, maybe 3, questions. The first questions is on return. And I think you already elaborated a lot about this multiple impact, and I'll just make a brief calc. When I -- you said that the multiple impact -- over the past 10 years, the multiple expansion impact was like plus 25%. If I now assume, the next 10 years, it will be minus 25% given we're coming out of a high-multiple and moving into a lower-multiple environment, is then the return expectations only 50% of the previous returns we have seen over the past 10 years? And then the second question goes a little bit in the same direction. Can you talk a bit, a little bit -- I mean you have talked a lot about the multiple impact, but what is the impact of having higher refinancing rate when doing the deals? And is this having any kind of impact on your return outlook for your -- on your assets? And then the third question is about the debt capital market situation. Can you maybe give us a quick update where we stand today? And my understanding, this was part of the reason why we had kind of a difficult trading or transaction activity environment recently. And what was kind of the impact of the most recent events, in particular with SVB, in the U.S.; and maybe also with the kind of the AT1 bond cancellation on the transaction with Crédit Suisse? And then the last question: On performance fee guidance, you reiterated this guidance that you will be in the 20% to 30% range over mid- to longer term. You have -- I heard you once say that you aim to be in this range in a 3 years horizon on average, so if we now had like 14% in 2022 and consensus is at [ 20%, 21% ], can we expect 2024 to be 25% or even more to kind of be in this 20% to 30% average over the 3 years?

Sure. I'll maybe take the first, Dave, and then hand over to you to talk a bit about the refinancing rate impact. And to that situation, maybe, Hans, if you don't mind [ taking maybe ] the performance fee question. So on your first question, look. At the end of the day, there's always these 2 factors. You have underlying business growth and you have multiple changes. What's important is, as a starting point, I think, our investors, they're quite focused on not only the absolute returns but also on the relative returns to -- compared to public markets. And I guess what we tried to show this morning is that they have not been fully rewarded actually for their allocation to active investing because there was so much tailwind in the public markets. And going forward, we think that our performance will more directly come from the underlying business performance. Now I don't know what's the most likely scenario. Is it that we have simply no tailwind anymore so the numbers look maybe somewhat similar to what we have shown? It could be that we have negative. I would probably not expect a scenario where you see a higher negative valuation impact in private markets compared to public markets. I think that's probably hard to see because, the valuations, and Dave talked about some of these uplifts on exit, they have probably been on average more modest, especially in these areas where the public market was actually pretty pricey in the meantime. So that's why I didn't -- cannot tell you whether the actual returns will be 15% or 20% in real assets and private equity assets, [ gross ]. It could be that they are 10% if we see multiples come down, but I believe that in that scenario you will see probably public markets having no returns at all or even negative returns. And so in that sense, I think the outperformance, hopefully, should be good enough for our investors, but that's a fair question. Dave?

I agree 100% with regards to, on a relative basis, that outperformance should be there. If you look at the impact of rate in particular on our models, and we've gone through a couple of examples recently with the team, it's about a 150 basis points hit to returns from rate alone. And that's not scientific. That's more anecdotal, but I do believe it's directionally accurate if you were to factor in the rate side of the equation as well. So a transaction that previously was underwritten [ and do ] a 20% return, just isolating the rate factor alone, would be [ 18.5% ]. Obviously there's less leverage available today as well. That's got an additional impact also. And speaking of that: The debt capital markets were actually building a little bit of momentum back. Obviously we haven't seen any activity in this "post both Silicon Valley, Crédit Suisse" kind of era. And it's safe to say that I do think that that's delayed the recovery of the debt markets for the time being. I don't think that it's anything dramatic, for the time being. And I think, base case scenario, we would assume that, by the summertime, we're back to a place where there's a functioning set of capital markets to support transaction activity, but that's not yet in place today. Hans, do you want to talk about performance fee guidance?

Yes. So on the performance fee, we always have delivered within the middle of that range of 20% to 30%. What's always important, you do an exit when the value is created and the markets are there. Like this year, as we said, right, where there was more market uncertainty and we had these things -- so you don't exit good businesses, but what you do see in the portfolio is continued strong EBITDA growth and very strong 20% margin, which means it's real value-add propositions. So when the markets open up, as we have seen last year, we will do these exits. Our base scenario is, as Dave said, we assume markets to come back in the months to come, which would support that we have more exits in the second half of 2023, which would allow us already in 2023 to deliver within the range of 20% to 30%.

I think, I mean, to add to that, I mean, I think, I guess your question implicitly is, I mean, is the 20%, 30% kind of like what we have every year. Or is that more like an average? I think it will be an average. And so especially in a market environment where you see -- I mean after COVID or now with the volatility. You will see the market a little bit on and off in terms of the exit, [ not the ] portfolio performance. I think you will see sometimes something below 20% but then also a year like '21 which was massively above the 30%.

[indiscernible] well understood. My question was more like how much is kind of the or could be the pent-up effect now given we had like a weak year 2022 and probably also a weak H1 2023...

So to put it very simplistically: What we don't exit this year will come back, okay? So it's not lost. So as Steffen said, they can be below this year, but we will catch up to stay within the average. It's just when the markets come back, but you can [ reassure ] it comes back...

And you saw that phenomenon play out in 2020 and 2021 as well. That would be -- that's I would expect the same thing to happen in the future.

Yes, at the back...

Song from AWP. Could you please comment on the acquisition of Crédit Suisse by UBS? What does this mean for the Swiss banking sector? And does this have an impact on the business of Partners Group in any way?

Maybe I can quickly start. I don't think we can comment really on the impact on the Swiss banking sector. I don't think we're the specialists. We are private market people. I would maybe give you a quick perspective on what it means business-wise, fundraising. And then maybe, Hans, you can talk quickly about operations. I think the answer is relatively easy. I don't think there is any material impact for now, maybe also not in the long run. Crédit Suisse is -- clearly, like many other banks, is an active counterparty relationship in distributing our funds, for instance, through their wealth management. And whether that will be part then of a combined group or in whatever form in different ways or maybe through other banks going forward maybe in a slightly higher way, I don't think that is something which will have a too material impact on the firm.

No. So we run a global business. And with that, we have a very global diversified relationship with banks and financial institutions. That's underpinned by our risk management which follows a very prudent approach where we constantly [ model ] exposures across the different financial institutions. And we have been doing so. We'll continue to do so to make sure we safeguard the assets for our shareholder and our clients. And that, we have been doing and will continue to do.

Stefan Frischknecht from Schroders. Could you please comment a little bit about the environment for asset growth for new investments at the moment? Some of the pushbacks that we hear is that, your traditional investors that you've shown on one of the slides, they are already at a higher allocation in private assets than the new ones that you're targeting. And given the correction in public markets, this means that their private asset allocation has, by a market impact, increased. And it might mean that some of those investors need to delay the next commitments. And also, on private wealth clients, that might feel more uncertainty given the public market volatility. How resilient is the demand from that side, please?

Maybe I'll start quickly with a little bit high level maybe. And Dave, you can talk a bit more concretely about the current activities. So I think what we've tried to shown here on some of these slides is the following. I mean, the institutional investor base that is financing private markets to a very large extent today, this base is expected to roughly double their allocation. This is what we also hear directly from a lot of our large clients. It's what has come out of these different kind of surveys. This is where we said the current $10 trillion just with the existing base might grow by -- we're a little bit more conservative than the voices out there. I mean they say $10 trillion. We say like maybe $5 trillion to $10 trillion, so there's quite a bit of, I would say, upside. And that's independent of maybe market share gains in certain of the areas where we were a little bit fast, I would say, than the market, the industry overall. Wealth management, I think, is interesting because this is an allocation today which is very insignificant. I mean you've seen some of these numbers, I mean, for some of these global firms, wealth management firms and banks. This is between like 1%, 2%, 3%, maybe 5%, but not more. And there is certainly still today, even with the volatility we see in the market, I think a very strong conviction. I mean, at least we -- if you speak to the senior leadership teams in some of these organizations you have seen, that they actually want to go there and grow that. And as I said, not all of that money will come through traditional private market firms, but I do believe that Partners Group, with a very small actually group of other players, I think, is very ideally positioned to grow with that segment in a very disproportionate way because we launched these kind of open-ended products, for instance, about -- a bit more than 20 years ago. We have the largest private equity '40 Act fund in the U.S. That's about $12 billion, so I think there's a -- I think, a good basis to grow and benefit from that segment, but maybe, Dave, you can talk a little bit more about the current discussions we're having.

Yes, yes. And the -- you do hear in some groups of investors about that phenomenon that you're describing, which is termed the denominator effect, where their public market portfolio comes down. Their private markets allocation is relatively consistent and they blow through the thresholds that their boards have set. That is primarily a topic right now in the U.S. with the big U.S. state plans in particular that have set quite rigid allocation policies. You also have some more technical allocators like insurance companies that have very strict limits that they operate within. We don't have a lot of that type of exposure. It's maybe 10%, 15% of our client base that we hear that message from. From a lot of people, you hear about them blurring the lines between their private markets allocation and their public markets allocation because again the private markets are increasingly viewed as a more traditional asset class. And in the past, it was more of an alternative asset class. We feel really good about the dialogue that we're having with clients at the moment. On the mandate side in particular, we have the strongest mandate pipeline that we have ever had in our firm's history at the moment. And so I don't believe it's a broad concern, at least not with the clients that we cater to, of them turning off their allocations to private markets as a result of those factors.

Thomas von Rohr of Belvalor. I have just a short question about the development of your own firm with regards to employees and culture. I mean we see that the full-time equivalents increased by 17% at the end of the year, so should we expect that to grow in-line, more or less, with assets under management in the future? And can you also give us a bit an update? I mean you put your firm on new grounds with a campus in Colorado, in Zug as well, so what's your vision or strategy going forward on that side? And how do you ensure to keep your culture as well with these bigger numbers, more employees? Yes.

Do you want to start with numbers, Hans? And then maybe we talk...

Yes. That is a very important question for us both on the numbers as well as we grow our business that we have a lot of new people. We keep the DNA. First, on the numbers, indeed, we will continue to grow our business at 60% EBIT margin. That means we will grow head count about in line with AuM. The good news, as we enter 2023, because the growth has shifted a little bit, we entered 2023 well staffed, so we have an opportunity to take some advantage of that. It's -- actually is very welcomed in today's environment because that allows us to use the head count to be close to the portfolio, close to the clients. So we have onboarded those people so in these grounds. So that help. And we'll continue to do that at the 60% margin. And maybe you want to add a little bit color on all the things we do, from communication to [ wheel speeds ], to keep people in the DNA.

Yes, yes. It's a key topic for us. We are a firm that has a very strong sense of who we are, what we -- how we seek to position ourselves; and we want to make sure that our people understand that. We used to do that through proximity to the firm's founders and senior leaders. And everyone who joined would go to Switzerland, would be onboarded there before going to our various offices around the world. And obviously that's not possible in a organization that now has over 1,800 people, and so the campuses and the office environments that you referenced previously are important to that process of holding onto the firm's DNA as we grow. We've institutionalized and built into the architecture many of the elements and aspects of our culture that are important to us and that are important to hold onto it, and that's one strategy that we have. Another strategy has been investing into the next generation of leaders. We have about 190 leaders across the organization that we have assigned to be culture carriers throughout our organization. We call them cell leaders. And they're responsible for setting the tone, understanding how the firm is positioned and make sure the people within their specific proximity have a sense for the firm's culture and have things pointed out when it fits in and when it doesn't fit in. And then we put a lot of effort into training those professionals. We have summits with them where we bring them all together. And our leadership team is spending a lot of time to make sure that, even though we grow -- and 1,800 feels like a lot for people that have noticed for a long time and followed us for a long time. At the same time, it's a very manageable number. And I think we're growing in a very controlled way. And you'll see us continue to grow in a very controlled way to make sure that...

I'll just maybe add one perspective on the offices. I mean one is these -- this architectural metaphor, as Dave explained, that is actively used in how we build out these offices, what we want to signal to people when they come in, in the morning. This is hands on. This is industrial, again, in a metaphoric way. We don't own actually a lot of very old-style industrial businesses, but the second element is very basic. It's just we want to create a great environment for people. And I know this is a debate elsewhere, but we want to have our people mostly in the office because our business is actually peoples business. That's why your question is a very fundamental question. I mean the culture and the collaboration is super important for us, and so we create an environment. We spend quite some money there relative to maybe other things where we're a little bit more low profile, but we want to spend money for offices, for an environment where people really want to come to work; and what they -- something that they like, that really attracts them, especially with some of the younger generations. And I do think that's quite successful. Are we moving -- please.

Our first -- sorry. The first question from the telephone comes from the line of Hubert Lam with Bank of America.

I've got 3 of them. Firstly, how should we think about long-term asset growth for Partners? Previously we thought that Partners can grow about 10% per annum. Do you expect the same going forward? Or should it be higher just given the opportunities you mentioned, the increased bifurcation and the growth of your platform? That's the first question. The second question is your -- on your EBIT margin. It fell below 60% in the second half. I think consensus, I think, for 2023 is 61%. Do you see downside to this just given the higher personnel costs inflation, which is not going away, and the other expense growth? Or were there any one-offs in the second half of the year that led to the below-60% EBIT margin, yes, in the second half? And lastly, can you give us an update on the evergreen funds? Any change in the redemption requests? Any gates that we should be aware of? Or overall, any change in demand for them of -- just given the markets what we've seen in the U.S.?

Shall I start and hand over? So I mean, long-term asset growth, I don't think there's any new update. Yes, we have given a couple of times the, I would say, very broad guidance. That 10% is clearly the long-term minimum of what we target. I mean that we want to be, clearly, above 10%, double digit. And again that's an average number over 3, 5 years. That's a little bit like the performance fee number, so there is no difference there. Hans, do you want to quickly give an update on EBIT margin?

Yes, absolutely. First, let me reassure you that we continue to run the business at the 60-plus margin. This year, between the first half and the second half, you had 2 things which actually you should look at the year together. In the first half, which we announced in the middle of the year, we said we had the benefit of a lower provision in our management programs, as we had last year a very -- high increase in the stock price which corrected in the first half. So that 64% we delivered in the first half had a benefit in the first half which actually was for the full year, so that, you should actually spread out. In the second half, because of the competitive labor market, we had a little bit, call it, a true-up for the full year on the inflation. So we had more inflation in the second half, where it was -- also had to adjust for the first half. So you have to look at the first and the second half this year in combination. And they confirm that, even after the inflation and the stronger exchange rates, we stay at 60.5%. And we continue to plan also for 2023 and the future that we will deliver that 60-plus margin. And remember what we discussed before: We entered the year with 17% more head count, so we have a little bit the benefit of the resources we build as we enter the year, which supports our margin.

Yes. And on the evergreens, no major changes to the way to think about those, I don't think, yes. On the last update call, we told you we had a very small percentage of our asset base, evergreen asset base, that was gated 2% or something like that at the time. Those gates are now off, so we have no gates on any of the funds at the moment. We're really pleased to see, even in a volatile environment, inflows, positive inflows in both the first half and the second half of the year; and [ redemptions ] in line with guidance. And that guidance was set before the markets really got choppy, so we feel relatively good about the way our evergreens are positioned and so no major changes to the outlook there.

I would maybe just add one comment on the EBIT margin, and I think most of you will probably know this. I mean there is, of course, always this connection to foreign exchange. I mean we can certainly absorb a certain degree of volatility or reduction of the value of the euro against the Swiss franc, but there's limits. And over time, just recall this. I mean we started with [ 1.20 ] not such a long time ago. We're at, today, below parity, so we have actually, I would say through operational leverage, maybe saved about 6%, 6.5% EBITDA margin over the years which was coming just from the negative effect from the euro that has lost some of its value. So that's just something I want to mention. I don't expect a euro crisis or anything of that nature, but of course, if the euro sees a major, major change against Swiss franc, I mean, there will be some impact.

The next question comes from the line of Nicholas Herman with Citi.

3 from me, please. Just, firstly, just a quick follow-up. I think you mentioned that the mandate pipeline is -- the bespoke mandate pipeline, excuse me, is the largest in the firm's history. Would you mind just quantifying that for us, please? Then my questions are more focused on underlying performance. The -- obviously portfolio company EBITDA margin -- EBITDA growth and EBITDA margin have been strong. Just curious: Is -- that EBITDA growth, is that broad-based? Or a little bit more specific in certain buckets. Have you seen signs of that EBITDA growth moderating or even any kind of pressure on margins at all at -- [ I'll kind of say ], at the margin? As part of that, in terms of the next question, would be about category winners. So I think you referred to 6 category winners this year. What kind of moat do you typically achieve on these category winners? And if you can just talk about: In your current portfolio, do you -- I mean, how many more category winners do you see right now? And I guess, as part of that, do you have an approximate time frame for these category winners to come to market? That's -- actually, if I can just add one last one, just on the financing. I'm sorry. What proportion of your financing in private equity is from private debt rather than, let's say, from more traditional banks?

I'll -- Nick, great, yes. So the mandate pipeline is strong. We didn't provide in the press release a form of quantification of that, but it is up from where it was this time last year. At the same time, the conversion time frames are slower and have remained slower through this point in the year. We expect that to pick up later in the year. So it's hard to know exactly how that balances out, but we feel really good about the demand that we have. And there's been a lot of people who have been just consuming financial products kind of on autopilot for a long period of time who are now coming around to the reality that, having a mandate where they could steer towards their specific NAV targets, right, as opposed to having a structure that draws their capital down slowly, doesn't give them the ability to steer that allocation and then doesn't give them an expectation for when to return that money back, that's an inferior structure. And during good times, people don't question. They just continue to follow the path that they've always followed, but in an environment like this it's an environment where people are changing behavior. And we're having CIO-level discussions that we've not had before with consumers of financial product in a more traditional sense that are coming around to realize the advantages that a bespoke mandate can have. With regards to the underlying performance. The EBITDA performance can be concentrated in some sectors. As mentioned, a meaningful part of the value creation, total value creation, was from those 6 outliers. There was stronger growth during some periods and lighter during others, but it's too early to tell if there's anything structural for that or if it's just the typical ebbs and flows that we see on a month-to-month basis, so there's nothing that I would communicate there, no pressure on margins of note. We have been really proud of how our team has been able to steer through the inflationary environment to be able to protect those margins. If you miss the first couple of months of price increases in an inflationary cycle, you will never get that margin back. And I'm really proud that our team has taken the appropriate actions and driven that in a very consistent way. For the category winners: We've had exits as high as 10x, 6x, 4x, kind of in that ballpark. We usually within a fund try and have one or two 6x-plus results in order to drive the multiple of money that's necessary to achieve top-quartile performance. And we'll do that even if we have to compound over a longer period of time. Balancing the IRR and multiple requirements for top-quartile performance is an art, to return cash early with certain investments and have other assets that compound over a long period of time. And we do try and balance those 2 needs and have at least 1 to 2 assets that we're really driving for a multiple of money in a fund. Financing in 2021 really did pivot towards private lenders and private debt. And we're in a size category usually buying businesses between 500 million and 2 billion to 2.5 billion, where we can get many of those transactions done with private lenders. And so while historically it was not a huge percentage of our financings, there were periods during 2021 where basically, everything that we were getting done, we were financing with private lenders. And that continues to be a core part of our strategy for the opportunities that we pursue today until some health gets restored to the banks.

Maybe...

If I can just have one last follow-up, sorry, just -- sorry to interrupt. It's you said you want to try -- typically try to have 1 category winner in a fund to get that top-quartile performance, so therefore, presumably it's fair to infer from that, well, that with 6 category winners, you're looking at some pretty strong vintages.

Yes. And it's important to keep in mind that we have not 1 fund that we have at the point that -- we have 300 vehicles, right, that we're managing across. And many of those 6 assets are allocated to numerous investment vehicles that all have their share to it, but we feel really good about the portfolio that we're sitting on at the moment. And hopefully, you've got a strong sense for that. And it's not -- I said 1 to 2 is usually what we're steering towards. And it depends on the vintage year, but that's usually what we're steering towards for those long-term compounders as category winners. Steffen, I think you had something to add.

Yes, maybe just one quick comment on the EBITDA growth. I mean it's important to just remind ourselves here that, our portfolio companies, they're not operating in isolation of the economy. And so if you look at EBITDA growth in the last 10 years, I mean, you'll see absolutely fluctuation. I mean during COVID, the catch-up. I mean we were not, I think, as volatile as the public market, but I mean that's often between maybe at the lower end around 10%, maybe a little bit less than 10%, to maybe something like more 20%. So the important thing again here is really the outperformance compared to the respective sectors in which we operate in public market because that's driving ultimately the outperformance, if you take away the valuation effects. And this is, I think, where we are quite hopeful and convinced that also the next few years -- with maybe a different new normal with higher rates, probably more sticky inflation, we believe that this outperformance will still be achieved.

The next question from the telephone comes from the line of Luke Mason with BNP Paribas Exane.

I just wanted to ask about competition in the evergreen channels. You've talked about kind of the longer-term trends. And you've seen a number of the large U.S. players moving into this evergreen or wealth channel more in Europe. Are you seeing any more competitive pressures impacting your business there? And then secondly, just on the deployment pipeline, given the pause in debt capital markets, I understand more financing from private debt, but how do you see that impacting the deployment pipeline in the near term? Is it going to be more of a slowdown?

Maybe I can take the...

Yes...

Should I quickly take the first question and then hand over?

That's fine.

So the first question, around the -- if I understood it correctly. The quality was not great, so I apologize if I misunderstood it, but I took the question as whether we see more competition in these wealth management-oriented programs, the open-ended programs. I think that's clearly the case. At the same time, I would tell you that the growth of the industry in itself is so strong that I think it's easy if you want to have that competitive element absorbed by that growth. So we still -- as I said before, we still assume that we will grow disproportionally in the mid- to long term in this wealth management channel, but clearly, compared to, let's say, 10 years ago when we were, I think, still the only actually open-ended fund in the U.S. actually in the '40 Act space, today that's different. Today, there are probably 10 funds. They're all very small compared to ours, but they will grow. Maybe in a funny way, there's also benefits to it. I can tell you that I have been personally quite a bit on the road, I mean 15 years ago, with some of these new products in the U.S., for instance. And the question was always like who else is offering something like that. And we had to admit at that time, "Well, so far, it seems like we're the only ones." And I can tell you that's often not a great starting point actually for a discussion with a big brand-name bank in the U.S. because they don't want to take that career risk of doing something with one party even coming out of Switzerland. So I would say that the acceptance of these programs, I think, are actually a fundamental factor in driving that growth in the next 5 to 10 years.

Yes, yes. I agree 100%. And with regards to the deployment pipeline, yes, while the mandate pipeline is up, the deployment pipeline is down at the moment. And transaction activity is clearly below the levels to which we have become accustomed over the past number of years. Industry data would suggest that the last 2 quarters of 2022 were about 65% below the 6 quarters that preceded it. And we see largely a continuation of those lower activity levels in the first couple of months of this year, largely driven by the lack of availability of financing and sellers not wanting to take a risk to go out into this market and not feeling a pressure to do so.

Last question, it seems...

The next question comes from the line of Angeliki Bairaktari with JPMorgan.

If I may, firstly, a follow-up on the evergreen funds. And from what we have been discussing today, I understand that you do not see any change in behavior of private banking customers with regards to their appetite for evergreen funds, not even near term. And I guess my question is based on what I would have imagined that private banking customers both in the U.S. but also in Switzerland may take a bit of a pause given the recent concerns about liquidity and sort of deposit rates at banks. And then second question: Private real estate is the only asset class that appears to have deteriorated in Q4 versus the 9 months of '22. Can you give us some color on what drove this? And how should we look at returns in private real estate going forward? And 2 more, please, if I may. Private [ infra marks ] uplift. You mentioned that, that drove much of the return in Q4. Is it fair to assume that those transactions that you have announced in private infra are not yet visible in performances and will become visible in 2023 as the deal closes? And has there been any change in the appetite of clients to use loans to bridge their commitments given the higher interest rate environment at the moment?

Maybe I'll quickly start. I'm not sure whether I understood the fourth question, but maybe I'll hand over then. I think -- on the first question, on evergreen, I think it's similar to what Dave described, I will say, as a general pattern. I think we see very significant interest, I mean, from wealth management firms. I don't think that interest has come down, maybe the contrary, but I would probably tell you that, in this environment, I think -- also here, the actual conversion, the actual inflows, I think that might slow a little bit down. There might be a bit of a regional difference also. You might see a little bit more of that actually in Europe than the U.S., but the mid- to long-term picture, I think, is a very positive one and we have no worries there. Dave, if you want to, could you talk about real estate?

Yes, yes. And real estate deteriorated as a result of some of the third-party valuation work that we had done in that sector and particularly in the office portfolio. That was the biggest correction that we saw that led to the slight decline in performance in Q4. I don't have any reason to believe that -- with the more thematic approach that we're taking, also building platforms within the real estate space today, in a way, that's very complementary to the activity that we see within our infrastructure business, for example, within our private equity business historically that we can't generate returns in a way that are somewhat consistent with where they have been historically, but it requires us to be able to pick those spots that are relevant and avoid the spots that are getting disrupted. If you think about the private infrastructure business, the uplift in valuations, yes, that was driven by a couple of liquidity events. Hans, do you want to comment on the timing of performance fees associated with those...

Yes. [ Those too ], as you already had indicated, will help 2023, as they were announced but not met yet our conditions to recognize the performance fees. And that will happen in 2023.

We have a quite conservative approach with regards to when we recognize those, and so that will happen when the transaction closes in this instance. And then with regards to appetite for various forms of bridge loans and fund-level leverage to bridge capital calls and the like, it can still be useful, I think, for certain instances. And you do see investors preferring to have some form of facility in place and facilitation in place, as opposed to dealing with every little capital call for a hedging cover, a hedge cover over here; or expenses over there. And it's still IRR accretive for the ones that are done to bridge kind of the early stages of a fund life if those facilities are still in place today, but you'll probably see them being less -- yes, less utilized in future years if rates continue to climb.

Good. I think, with that, I get signals here that we should probably come to an end. I think we already took a lot of your time, so thank you for the patience for staying with us here. Thank you for being with us here physically or on the phone. And I'm sure that we'll find other ways bilaterally if there's more need for discussions or questions to follow up on these. Thank you so much. Bye-bye.

Thank you very much.