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

Welcome to the Partners Group's business update and outlook call. My name is Dave Layton. I'm the CEO of the firm. Also on today's call are Sarah Brewer, our Global Co-Head of Client Solutions; and Philip Sauer, Head of Corporate Development. Let's start off the call today on Slide 3 with a big picture overview. On our last call, I mentioned that we expected to see an uptick in activity levels in the second half of the year. And indeed, client demand during H2 was up 27% versus H1, and our investment activity was up 22% in H2 versus H1. However, transaction activity remained slow throughout the year and markets did not recover as quickly as perhaps we had expected at one point in time. From a fundraising perspective, we raised $18.2 billion during the year. We're pleased to be a firm that continues to have our services stand out. We're a firm that's differentiated. Mandates continue to be a strong segment for us. We had a record number of mandates won, and that was a key driver for us to be able to deliver assets under management growth of 8% year-over-year. From an investment perspective, we invested $13 billion during the year. We took advantage of the slower transactional environment to allocate resources towards strengthening our thematic pipelines and to driving portfolio performance. Regarding realizations, we ended the year with $12 billion in realizations for our clients. Exit processes are taking longer today. We continue to feel that there is potential for an improving environment for exits on the horizon. Looking to the future, we're providing guidance for new asset raising for 2024 of $20 billion to $25 billion. We have a lot of confidence in our differentiation and in our ability to win. Demand is intact as we've demonstrated, and our pipeline supports the new guidance. 2023 was certainly a transition year within the industry. That may carry into 2024 to some extent. We don't know. Next slide, please. On this slide, we see that across the industry, buyout transaction count was down this past year from recent history. It at times did feel like a fragile market. Anecdotally, we're seeing that when sale processes launch in the middle market, there's often a tremendous amount of interest. At first, teams are geared up. Firms have dry powder, but it can be hard to maintain process integrity because so many are hesitant to deploy capital, and they drag their feet or sit on the sidelines instead of making binding commitments. As binding commitments take them one step closer to having to come back and fundraise and many firms are loathe to fundraise right now. The potential for improving levels of investment activity, in my view, continues to be there. Financing is increasingly available. Valuations have started to come down. Debt maturities, in some cases, will start to put sellers under pressure. And with dry powder, you use it or lose it within a certain investment period. And so while things are slower today, we do believe that there is a case to be made for higher levels of activity over the next 12 months to 24 months. On the topic of valuations, we've seen data come out that shows transactions in the buyout space are happening at lower valuations. Valuation multiples according to industry data are down 21% from their peak in 2021. When you dissect this data, one factor that I expect is exaggerating the illustration to some extent is the fact that volumes are down almost 50% over that same time period of 2021 to 2023. And the upper middle market and large-cap segments of the market, which were heavily represented in 2021 and which tend to trade at higher valuations are massively underrepresented in 2023. But even adjusting for that, valuations have started to come down with 10% to 15% lower valuation multiples on a like-for-like basis in our experience. Activity has been at a relatively low level. Bid-ask spreads were too wide for some, but the transactions that did get done, we think are particularly attractive. And 2023 has the potential to be a very strong vintage year. Now on Slide 6. If we helicopter out just a little bit, one of the narratives that you've heard from us is that we believe that the private markets will continue to take share from the public markets. Fundraising was more challenging in 2023. But in our industry, that doesn't mean an 80% dip from the high like we saw in the IPO markets. Capital formation in the private markets has had an increasing trend line over the years and private markets clients tend to be stable clients. And here, you see that capital flows, excluding private credit, into our industry have occurred on a less volatile basis versus the IPO markets. Including private credit, it would look even better. And while 2023 wasn't a banner fundraising year for the industry, it was another year where we took meaningful share from a capital formation perspective versus the public markets. Now on to Slide 7. We invested $13 billion in 2023, with 60% of that in direct assets. We have a highly diversified portfolio and to avoid excessive concentration risk, we roll up our sleeves and drive business transformation. In order to differentiate ourselves in our competitive market, we have a highly thematic multiyear approach to researching targets. Our teams have been actively researching over 110 thematic subsectors. We leverage a network of over 200 operating directors who help drive operational change. In this up-and-down market, it shouldn't surprise you that a relatively high percentage of our investments were direct underwriting. This is the kind of market where we just want to own the underwriting process and to directly oversee execution of the target company's transformation plan. Turning to Slide 8. Thematic work for us is key. Our team spent a lot of time on a space before a target company is ever acquired. Let me walk you through the relevance of this for 2 of the investments that we made during 2023. First, SureWerx. Thematic work here started over 4 years before our investment as our team dug into the industrial safety sector. They came to really like the regulatory trends, increasing numbers of safety regulations, compliance fines, and many sectors were increasing. We made 3 more passive investments into the space while we got more familiar with the industry. And after years of looking, we identified SureWerx as a highly differentiated business model for us. From a value creation perspective, we're going to roll up our sleeves to help enhance the company's data and analytics capabilities. We're going to work to build out an enhanced digital ordering platform. We're working to address gaps in the company's product offering, and we're helping to professionalize the company's organic growth engine. When we think infrastructure, we often think next-generation infrastructure, biogeen. It's a European biogas and biomethane platform. It's not a renewable but it can be a key part towards a transition to net zero. Our governance playbook is important here. We onboarded several operating directors who have built and operated biogas plants. From a value creation perspective, we're driving a platform strategy here, starting with the portfolio of anchor assets and then driving a combination of organic expansion and accretive add-on acquisitions in this highly fragmented market. On the next slide, we have $12 billion in realizations this year. We did see a 12% increase in portfolio realizations in H2 versus H1. Activity, however, remained far from normalized levels. We previously communicated that we had several exit processes underway. You wouldn't have seen many new exit press releases of large private equity or infrastructure positions in H2. Exit processes are taking longer today. Overall, portfolio performance continues to be strong. We had double-digit aggregate earnings growth across the control portfolio as per the last portfolio review that I attended. We also established clear steps for assets with challenges. While they are a clear minority, we take these cases very serious. In aggregate, our portfolio continues to develop and to mature in what we think is an attractive way. On the next slide, we give a few examples of realizations that were completed or announced in 2023. Our realization activity truly was global. And while -- and where exits were achieved, we found that demand was the most persistent for stable assets and infrastructure-like assets. There's an example here in the middle from our real estate portfolio. It's a multipurpose office building in Japan. The office market has been overall very challenging over the past years. However, as a thematic investor, we take a lot of pride in identifying subsegments of markets that are underappreciated. In Japan, post-COVID going back to the office, full-time is the norm. We acquired Tama Center as part of our office of the future thematic. As a transformational investor, we approach this investment with a mindset that we create buildings by listening to our tenants and making them relevant for their users and set up for the long term. We remodeled the property. We managed 7 long-term lease renewals. We made the building more efficient and exited at 100% occupancy. We also recently announced the exit of Civica to Blackstone, which is expected to close in H1 of 2024. During our ownership period, we had transformed the business from a process outsourcing software business to a pure cloud-based software provider. We more than doubled the company's EBITDA and accelerated growth leading to more than 2,300 new jobs being created. Infrastructure remains a good place to be right now. We had a few infrastructure exits in 2023, including the exit of CWP Renewables. We talked about that on prior calls. Renewable energy has been a core focus of ours for multiple years now given the central role that it plays within our decarbonization themes. When we first invested in CWP in 2016, it was a single wind farm, and we've transformed it into a renewable energy platform, spanning multiple locations for wind and battery. And it now has 1.1 gigawatts in operational assets and it supplies power to a number of blue-chip Australian clients. At exit, it was the largest onshore Australian wind platform and it fetched an attractive valuation. We feel good about our decision to divest. With that, I'd like to hand over to Sarah to provide some more detail about our assets under management developments.

Thank you very much, Dave, and greeting from London from my side. I'd like to talk about our fundraising activities in 2023. And 12 months ago on this call, I mentioned that we would expect longer client conversion periods in the first half of the year and that they would largely resemble those seen at the end of '22, and this indeed transpired. This was due to the fact that our clients' standard investment decision-making processes are often disrupted in periods of market uncertainty. In the second half, we started to see a trend towards more normalized lengths of client conversion periods, which resulted in an improvement from H1 to H2 of 27%. So over the last 10 years, we showed a 13% annual growth trajectory, bringing us to $147 billion in AUM. Let's move to the following slides. So our differentiated approach with regards to investments in bespoke solutions allowed us to raise $18.2 billion for the full-year, and that's within our guidance of $17 billion to $22 billion for 2023. As you might remember, we raised $8 billion in the first half, which was a more challenging environment. And in the second half, we raised $10.2 billion as we saw conversion rates begin to normalize. In particular, bespoke solutions generated strong demand, representing 72% of total fundraising. These solutions include both open-ended evergreen funds as well as tailored mandates. So concretely, mandates represented 46% of total fundraising in 2023, or $8.3 billion. And honestly, my interactions with clients strongly confirm that they really appreciate the customization as well as the dynamic features that we can offer within these mandates that are very much tailored to their specific needs. As a result, we actually attracted a record number of high-profile mandate clients globally, which is why in many ways, I believe 2023 laid the groundwork for future growth. Evergreen then represented 26% of total fundraising or $4.8 billion. These programs allow for a certain amount of liquidity and enable investors to access private markets more conveniently. Next to our success in mandates, we also launched our next generation of flagship strategies at the -- towards the end of last year. When we spoke in July, I mentioned that flagship strategies would be a bigger contributor to fundraising in H2, and particularly in Q4. What we saw was slower-than-expected client conversion periods for these particular -- for the flagships. However, of course, we envisage this demand being converted in 2024. So if we now move to the next slide, you can see that for us, bespoke solutions have been a major differentiator to the industry. They separate us from the market and are built around our client-centric approach. Testament to this, our mandate and evergreen AUM has grown sixfold. Looking into the future, I'm really convinced that these solutions will continue to be an area of disproportionate growth for us. And if we move to the next slide, you can see that mandates are designed to be a long-term solutions, where we build clients up towards their target allocations. In doing this, we take into consideration their individual risk return parameters as well as their overall investment strategy. While we have a number of different types of mandates, the majority of mandates are in the form of evergreen-type vehicles. And as you can see on the graph on the left-hand side, these mandates are continuously invested and allow our clients to periodically increase their commitments. Hence, the assets raised in 1 year via a mandate are only the starting point in many cases of a long-term strategic relationship. We see that mandates raised in and before '23 will continue to contribute to future AUM growth. In fact, the average mandate client has tripled their commitment size with us since the start of their relationship. And the next slide actually shows an example of a client that has been investing with us for over a decade. And here, you can see on the left-hand side how we have built up the portfolio and how we have shifted asset allocations over time and across asset classes to benefit from relative value. The reason that we can dynamically steer the client's portfolio comes down to our portfolio management capabilities and our ability to do line-by-line allocations for our mandate clients in a way that I don't believe anyone else can truly replicate. For instance, in this case, this is line-by-line allocations to individual direct assets, whereas the general approach to the market would be to make commitments into funds. Why do I think this is beneficial for our clients? It allows us to efficiently build up the portfolios. We can steer the NAV towards the client's particular target. We can adjust asset allocation to the market opportunities. And this is just not possible when you commit to an underlying fund with predefined allocations and time periods. As a result, our ability to allocate dynamically and on a real-time basis is a strong point of differentiation for us as investors are increasingly placing a premium on these kind of flexible solutions. If we turn to Slide 17, you can see that our evergreen AUM has grown 20% per annum over the last 10 years. And as the institutional market has become more crowded and has slowed this year as attention has shifted to wealth. Within the wealth segment, evergreens will be the predominant investment type. And private wealth investors want products that have a preset structure that solve their problems and needs and that provide for a reasonable amount of liquidity during good time. We have been an innovator within this space and early mover, creating new structures for more than 20 years now. And today, we have a suite of evergreen products that I think are really second to none. What we offer with our evergreens is similar in a way to mandate. Evergreens have access to single-line direct investments. And again, this is different to what you can find in other evergreens, which typically invest into funds. Our approach to evergreens allows us to actively steer the portfolio as well as giving wealth clients the ability to get day 1 diversification into a pool of capital. If we are to look into the future and assume that these wealth clients start increasing their allocation slowly from most often, what's now 0%, 1%, or 2% to more like 3% to 5%, they are expected to move significant amounts. This shift over the next decade will add $3 trillion to $5 trillion in AUM to our industry, and that's twice the size of our industry today. Evergreen solutions will be the main structure to drive this growth over the next cycle. And this is the reason why we developed 6 new evergreen strategies in 2023. The plan is to bring them to market this year, and you will hear more from us about this in due course. With that, I would like to hand over to Philip.

Thank you, Sarah, and a warm welcome from my side out of the Zug office. Now that we discussed the $18.2 billion of gross inflows, let's go through the impact of tail-downs, redemptions, exchange rates, and performance-related effects. As you know, we have good visibility on tail-downs and redemptions and provided the market with a guidance of $10.5 billion to $12.5 billion for 2023. So let me start with tail-downs. They are predominantly formula based, and they came in pretty much as expected at $8.2 billion. For 2024, they are expected to only marginally increase. With regards to redemptions, they are different. They were $4.5 billion or 10% of our evergreen AUM, slightly higher than expected in the beginning of last year. We guide based on our 20-year experience with these structures and typically expect a redemption rate between 5% and 10% in a year. In 2023, evergreen programs were still in that contributor to growth as inflows were greater than outflows. Throughout the year, redemptions hit a peak in H1 and then moderately slowed in H2. We do not have visibility on factors such as exchange rates or other performance-related items. And as a result, we do not guide for them. Foreign exchange rate effects had a positive impact of $2.9 billion. This was mainly driven by a stronger euro against the U.S. dollar at the end of December 2023 compared to year-end 2022. And as you can see, 44% of our AUM stems from euro-denominated programs and/or mandates. Let us look at the performance-related effects. The solid performance across our private market portfolio supported AUM growth of $3.1 billion. These effects stem only from a select portfolio of products that link their AUM to their NAV development. These products are mainly evergreen in nature. So talking -- taking all into account, AUM grew $11.5 billion or 8%. And with that, I would like to move to the next slide. Slide 19 provides a more detailed summary on the AUM breakdown and fundraising by asset class. Over the last 10 years, we have seen a consistent growth across our platform of 13% per annum. Over the last 5 years, it was 12%. However, not all business lines have grown equally. So let me provide some colors to this. On the one hand, we have seen infrastructure accelerating growth with 19% per annum. Our strategy of transformational investing, building next-generation infrastructure platforms has continued to generate excellent results. These results put us squarely in the top quartile of the industry in terms of track record and how our assets have performed through the past cycles. We expect our private infrastructure business to grow disproportionately also going forward. On the other hand, we see our real estate business growing at a lower rate. Given its capital intensity and sensitivity to financing costs, it's fair to say that real estate is going through the most disruptive change in decades. Real estate is the most impacted asset class in this rate cycle. In this environment, industrial and residential strategies remain most attractive on a relative basis. We see that this disruption and ongoing market dislocation has caused uncertainty at least for the short to medium term. This uncertainty, however, leads in an attractive investment environment as the markets starts to clear. In 2023, much of our capital raised stem from large mandate clients who want to take advantage of the current environment. And with that, I would like to hand back to Sarah.

Thanks, Philip. So for 2024, we issue a guidance of $20 billion to $25 billion gross client demand. And we foresee that bespoke solutions will continue to be the key driver of our fundraising. The higher end of the range assumes further normalization of the market environment throughout 2024. We therefore expect a tilt towards H2, fairly in line with the split we have observed in 2023. Our estimates for tail-down effects and redemptions from evergreen programs remain largely unchanged at $11 billion to $13 billion. As we look ahead, we continue to see strong structural tailwinds for the private markets industry and our outlook for long-term sustainable growth remains in place. Specifically within that, we see 2 major areas of growth, that is, bespoke mandates and investment solutions for private wealth investors. With that, I would like to thank you all for joining us on this call, and I will hand it over for Q&A.

The first question comes from Nicholas Herman from Citi.

Three from me, if that's okay, please. One on -- I have one on fundraising, one on private wealth. And I know this is an AUM call, but just one on FTE, please. On fundraising, could you just please give us some guidance on the assumed mix of gross flows between product and asset classes? And where do you see dry powder returning to by year-end? On private wealth, I think you said on last call -- one of the last calls, there have been some entrants in the private wealth space, like you mentioned with a product-driven mindset that don't have the infrastructure capabilities that you do, which I would agree with. And I guess, Blackstone recently launched its Private Equity Strategies Fund. And I don't know if you -- I wouldn't have called Blackstone one of those. So that strategy is small versus your largest evergreens, but how are you seeing the competition evolve and beyond product launches? Because I know you've done a number of them. What else are you doing with distributors to maintain your market leadership position? And then finally, just on staffing. I guess you were pretty -- you've been pretty well staffed. And going by reports in the media, it suggests that you've undertaken a fairly sizable initiative to improve operational and headcount efficiency. So I guess, as part of that, how do you see hiring and net hiring evolving over the next 12 months? And I guess also as part of that, could you kind of give us a sense of how much headroom this initiative should give you to kind of keep investing to maintain that 60% plus EBIT margin, please?

Thank you so much for your question. So maybe I can start with your fundraising ones together if that works. So in terms of asset class mix, I think we'll see a continuation of what we have really seen in 2023. Philip alluded to some of the challenges within the real estate space. So I think we'll see a continuation of that. As I pointed out, the use of bespoke mandate has allowed our clients to act quite nimbly with us across different asset classes. And actually, we see an increased amount of clients wanting a multi-asset mandate approach. And so really the split between the different asset classes will be very much reflective of where we see the relative attractiveness from an investment perspective. And that also stands for the certain instrument types such as secondaries as well. So I think that that's how we see that continuation going into 2024. You then spoke about evergreens and the space and new entrants and so on. And forgive me if I don't cover all your points, so please repeat if there's further. Look, I think from that perspective, we have one of the longest track records in the industry, very established, well-diversified portfolios, and very good -- with very good performance. Of course, there has been a lot of noise in the market and around this topic. And as there have been challenges with the more traditional fundraising, people have switched quite considerably to this wealth and evergreen space. I think we genuinely have this unique positioning, as I mentioned, and our ability to be able to allocate to individual assets. And I think the ability for that allows us to manage these portfolios more nimbly as well through different market environments too. So yes, there's a lot of new entrants into this space. Yes, there is further competition. We've been doing this for a very long time with a very good track record in a way that I believe is quite unique and differentiated to the market. And I believe our clients see and observe that as well.

Thanks, Nicholas. Maybe I'm following up here on the dry powder and the FTE development as well as the margin. We typically run Partners Group with a 1- to 2-year investment capacity, dry powder, right? And that fluctuates in between. So when you have basically the guidance of $20 billion to $25 billion, that gives you also a bit of an outlook about where investment capacity is moving towards because we raise new capital. We have capital available right now in what we can pull. So right, you have seen in 2023, $13 billion invested. So you can assume that the dry powder is around this level times 1 to 2x. And with that level of activity, if you look at our FTE development and the way how we have built up staff over the last years, we are, as you rightly said, well-staffed. The capacity, we have free capacity in private markets, you need to live with that. So you have always bench costs, which we accept, right? But you can be quite confident that we do not need to increase FTEs in 2024 to fulfill our capacity or our investment goals, what we have. So that said, is whenever we have FTE discussions or questions like this, we always think margin and we plan towards a 60% margin. Full stop. Now there is one effect, right, we cannot influence and we never will, and we do not manage our business against that, and that is a strengthening of the Swiss franc or FX volatility. So you can be assured that we are capable to manage our business towards the 60%. Right now, it's just where the Swiss franc stands. It's just a bit more heavy. This is now the beginning of the year. As you know, you take average rates to calculate the impact on the financials. So there's a long way ahead. I'm not an FX speculator, but I can be assured that we manage the business towards that 60%.

The next question comes from Mate Nemes from UBS.

I have a couple of questions, please. The first one is simply just on the AUM printed numbers. It seems like tail-downs and redemptions were slightly above the guidance range. And it seems like you saw a meaningful increase in tail-downs from the first half of the year. Could you give us an idea, what happened there? Any color on that would be helpful. And second question would be on bespoke solutions and mandates broadly. So it seems like mandates are taking ever larger share in new assets raised. And is that simply now because fundraising for traditional programs, as you mentioned, is a bit more challenged and we should see some sort of reversion to the mean or this is a very likely lasting trends? And also in this context, if you could just give us an idea of the ideal composition or ideal breakdown of the business in terms of traditional programs, mandates, and evergreens? And the last question would be on transaction activity. And I guess, here, the big question is what gives you the optimism that we will see now gradual normalization in transaction activity? If you could just share a little bit in terms of what you're seeing in financing markets in terms of discussions between buyers and sellers. Simply, just looking at the data from PitchBook, valuation seemed to be at a much more normal level, notwithstanding what you mentioned on large-cap buyouts and perhaps the upper end of the mid-market buyout segment or the lack of skewing the data. So I'm just wondering what needs to happen now for transaction activity really to start getting into gear and then happen.

Maybe I'll do it quickly here on the tail-downs and redemptions. So when we started the year, basically, our guidance, the midpoint was roughly $11.5 billion. We were very clear that tail-downs are $8 billion. They came out at $8.2 billion, right? There's always a certain fluctuations amongst them. The fact why we came in a bit higher than guided was that we -- typically, when we give guidance on redemptions activity on our evergreens, they are limited by nature. Nonetheless, we have certain experience. We typically guide between 5% to 10%, something in the middle. This is the range where we guide for the market. Now what we have seen, and this is why we have shoot a bit above our guided range as a minimal is because we just saw a bit more redemptions. And -- but that has slowed in the second half. And I think a major cause of that higher redemption was pretty much the first half of the year. So that's why we're feeling comfortable with the new guidance.

And with regards to the shift towards bespoke solutions, these bespoke solutions, I really do think are a differentiator for us, and there's something that we increasingly are finding success engaging with clients on as they start to rethink their allocations and rethink their portfolios. The trend line that you've seen now over a decade of gradual shifting towards bespoke solutions, I do think that trend line is probably intact and will continue to remain intact. A limited partnership is just not a great building block to steer a portfolio. And when we have clients that want to add secondary content, let's say, in this environment. They have 2 options. They can go down a traditional route of evaluating a number of different secondary funds that are out there for the next 6 months, make a commitment to one of them who will finish their fundraising 9 months from now, or whenever, call that capital down over a 5-year period of time and create that secondary exposure for their clients 4 years from now. Or within our mandates, our portfolio management team has the ability to turn them on to secondary exposure next month or next quarter, and we start to build that exposure for them on a much more rapid basis. And so I think the benefit of these mandate solutions for the right type of client is significant. And I think you're going to see that be a sticky and persistent form of differentiation for us over a long period of time. With regards to transaction activity, we outlined it in the deck to a certain extent. There's a couple of things that need to be in place. You need to have a reasonable financing environment. I think it's largely check. You have not only private debt, which has been there for a period of time, but the syndicated markets are increasingly intact. You need the bid-ask spread to have been digested. I think it still remains a factor, but as time passes and people adjust to the new normal, I do think that, that change in valuations that we see people are largely either processing or getting there. I think they need to have comfort around fundraising and their ability to come back and fundraise. I mean that's something that we hear over and over again is for mid-market firms, in particular, not as much the large institutionalized firms, but the smaller monoline firms, in particular, that are quite active in processes and expressing demand who ultimately are having a tough time pulling the trigger right now because they are so fearful of coming back to fundraise in the current environment. So I think that would be helpful, not necessary but helpful. And I think you're going to start to see a lot more pressure coming from maturity dates on debt in the coming years. Not as much in 2023. We didn't see that quite as much in 2024. It's still light, but once you get into 2025 time frame, 2026, you start to see more pressure from the financing side of things to transact. And I think those factors give us comfort that we should see an increase in activity, at least over the medium term.

The next question is from Bruce Hamilton from Morgan Stanley.

On the kind of growth in evergreens, I completely agree that the wealth opportunity is a significant one. I think in the past, you said that you would sort of -- you would look to manage growth, so it doesn't become too big a part of the business. So it's about 30% of AUM today. Is that true that you want to retain a kind of diversified book or because of complexity, would that sort of constrain growth just to check? Secondly, in terms of the kind of the normalization path on activity, I mean should we assume it's going to be very second half weighted? Because I guess on -- the people are getting closer to refinance maturity date, it feels like that's, in many cases, beyond 2025 or is it going to be sort of gradually through the year? And then just to, I think I may have missed it, but in terms of the kind of portfolio health, EBITDA growth, or earnings growth, could you just mention what that was? I think you said double-digit, but I wasn't sure if that was earnings or EBITDA, and for the overall portfolio in '23.

Thanks, Bruce. So if we think about evergreens as a percentage of our total business, we did at one point in time, have a constraint that we put in place of evergreens being approximately 30% of our assets under management. And we limited growth to keep it consistent with that. Since that time, we've seen how evergreens have performed through COVID, a lot more stable than a lot of people were realizing. We see how it performs through years like 2023, right, where you see these massive redemptions in certain segments of the market, and we're able to deliver net growth out of our evergreen strategies, even in these more volatile years. And I would say that the constraints that we're placing on growth today have much more to do with the underlying portfolios being able to absorb the new capital flows in a thoughtful way than it does in artificial governor that we place from a top-down perspective in terms of assets under management. I think we're increasingly confident in the longevity of those assets. And if you look at our big evergreen funds, for example, we did some analysis recently where we've looked at our clients and how long they've been with us. And I'm telling you the, half-life on a management fee on an evergreen client is about the same for us as it is with a limited partner client, where they step into a fund structure with a tail-down mechanism in place. We have really, I think, stable clients on the evergreen side. And I don't think it deserves kind of the fast money reputation that maybe some of our space have given it. We really think that the clients in the evergreen space have a lot of longevity there. And so we're going to manage growth in line with what we think we can absorb within the individual funds and put a little bit less emphasis on a top-down governor. In terms of the normalization of transaction activity, as we look at our pipeline, the companies that we're interested in acquiring, very few people run their debt maturity wall all the way up to the line. Usually, within about a year of that, you're starting to think very seriously about generating liquidity on that position or you risk having to refinance, which implies putting oftentimes a couple of hundred million more equity into a 7-year-old investment, 6-year-old investment, which is very painful if you look at the IR math associated with that. And so as we just look at our specific portfolio of assets that we're pursuing and interested in buying, we do think that in 2024, we'll start to see some of those 2025 maturities that put pressure on things. And certainly, in 2025, those 2026 maturities that start to put pressure on things. We do have specific assets that we're interested in where the maturity time frames start to influence thinking for the sellers in our estimation. And with regards to EBITDA growth, you're right, it's a double-digit EBITDA growth as per our last portfolio review. That's right.

The next question comes from Hubert Lam from Bank of America.

I've got 3 questions. Firstly, on the fundraising guidance of $20 billion to $25 billion, it still seems you're still quite cautious this year as the normalized conversion you're saying only gets you to the top end of the range. Maybe can you talk a bit about the assumptions within the range of $20 billion to $25 billion and how the impact of lower rates may impact these type of -- the range and assumptions? That's the first question. Second question is, are you still sticking to your 10% to 15% AUM growth target? Because if I just do the math and put in the top end of the range for the client demand and the lower $11 billion for the tail-downs and redemptions, assuming nothing for the other factors, I only get to the top, I only get to 10%. So just wondering what are your thoughts around that 10% to 15% target for this year and beyond? And lastly, on the pipeline. Can you talk a bit more about the product launches in 2024 on both the evergreen and the closed-end of funds? I know Sarah had mentioned the 6 programs around evergreens but if you can maybe mention a bit about the size and targets, et cetera, that would be helpful.

Thanks so much for your question. So I think on the guidance, look, as I mentioned, the guidance is based on the continued normalization and that's both the investment activity and the client conversion pace. The challenge around that is we don't know the exact pace because that's dependent on a number of factors like the transaction volumes, the overall macro environment. And so if we anticipate that the gradual recovery that we saw in the second half of 2023 continues into H1 of this year and subsequently into H2, then we'll be sort of in the middle of that range. If it's a faster normalization, that will push us to the upper end of that guidance. But I think, yes, that's a continuation that we've seen from the factors from the second half of last year and how we envisage that moving forward into 2024.

And from perspective of the average growth rate that we've articulated of between 10% and 15% EBITDA growth, we absolutely reaffirm that. We're a management team that's committed to, on average, delivering 10% to 15% growth over the coming years. If you look back over time, we've grown our business at 13% per annum over the last 10 years. And as we look at strategically how we're positioned for this next decade, we think that we have the ability to grow at a similar growth rate into the future. Obviously, over this last decade, we've had some stronger years and some weaker years. We are a business that is somewhat subject to the environment that we operate within. And we don't yet know what 2024 brings. But we absolutely reaffirm that long-term average growth rate that we're managing the business towards. And Sarah, do you want to speak to the pipeline of new product launches?

Absolutely. So you mentioned about the evergreens. As I said, we have 6 new evergreens launching in this year. And you'll hear more about those in our March call. And in between, we'll give more details on that. As I mentioned, we started off a number of flagship programs, for instance, on the infrastructure side at the end of last year that we assume will be a significant contributor towards AUM for 2024.

Sorry, another question. Are there any other closed-end funds that you expect this year besides infra that you just mentioned?

We have the other -- we launched a number of closed-ended funds at the end of last year, including the secondary fund, the infrastructure fund. We'll have the final close of our equity funds as well.

The next question comes from Luke Mason from BNP Paribas.

Just firstly on mandates, I was wondering if you could give more detail on the type of clients by pension funds or remote funds. Where are you seeing the most demand and what asset classes are those mandates mostly heading into? Second question, just on private debt. It seems like a big theme and the industry slowed down a bit in terms of fundraising for Partners Group in the second half. I'm just wondering if you could talk about any more kind of fund launches ahead or how are you thinking about accelerating growth in that area. And then thirdly, just on debt maturities. I think you've given some detail before and you mentioned on this call about debt maturity for assets that you're looking at. Could you speak to kind of the debt maturity profile for your own portfolio companies? And how are you thinking about interest covering things now that rates are at higher levels?

Yes, sure. So on the mandate side, the type of clients that we have -- that we work with on the mandates really cover the full spectrum of our client base, quite frankly. If you look at what you can achieve through a mandate that's bespoke requirements, right, we can meet specific needs. And that's not just from an investment side, but also sometimes from a regulatory and a governance side. So for instance, we've seen quite a lot of demand from insurance companies within 2023 as well as the typical areas like pension funds. You start to often work with us on the traditional closed-ended product line and then realize over time, obviously, the benefit of coming into a mandate. So the type of client mix for mandates really is across our full spectrum of client base.

And private debt, if you -- there is a big trend towards private debt. It's been a part of the private markets that is very scalable. If you look at the way that we've built our business, it's in a highly differentiated way. We really do pride ourselves on providing portfolio solutions that are focused on driving outperformance. And so there are ways to play the debt market today. That feels to us to be somewhat commoditized. The way that we use debt integrated into our portfolio solutions, integrated into our evergreen solutions oftentimes do support alpha-generating strategies. And that's the type of debt business that we're interested in scaling. We do think that there's opportunities for us to continue to grow our debt business in a way that supports alpha-generating strategies in a way that's differentiated. But we're not a firm that is playing the, let's call it, commoditized debt play at scale. That's not for us. There's other firms that are pursuing that path. And with regards to debt maturities, we do have quite a bit of time on our own portfolio. 96% of our debt maturities happen in 2025 or later and 63% of our debt maturities happen in 2028 or later.

The next question comes from Daniel Regli from ZKB.

It's largely kind of a follow-up question on the question Hubert Lam already asked on this 10% to 15%, and I made quite a kind of a similar calculation. But is it fair to assume that kind of in a normal year 2024, and I know this is quite hypothetically speaking, but theoretically, you would have gotten to about $26 billion to $35 billion in client demand, assuming the same kind of tail-downs and redemptions? And then my second question is thinking a little bit more longer term now after seeing like a couple of years with slower AUM growth, should we expect this then kind of to be overcompensated in later years because there is some kind of pent-up of client demand or isn't this just forgone years, if you want?

Here's Philip. Now when you do the math, yes, obviously, you come to the conclusion that when you take the upper end of the 15% that you should raise $25 billion plus and so on. But on the other hand, our clients commit money to us with an expectation that we deploy that money in a reasonable time horizon. You cannot raise $20 billion to $35 billion and just say the opportunity set is not there at this point in time. We are just moving out of a recalibrating economy where we have probably seen the low point now in 2023. And given that we, in private markets, we are acting within the real economy, and we are seeing great signs of greater -- of a higher amount of activity. So yes, you are absolutely right when you say in a normal course of business, right, not just in a tipping point or turning point, yes, we should be able to raise significantly larger amount of money, which comes back to Dave's comment of the 10% to 15% or our long-term growth rate in the past of 13%. I think we're feeling comfortable with that. So yes, you're right, but maybe you are a bit early, assuming that the turning point, 2024 is already at that stage.

And just conceptually about the longer-term growth outlook, is there kind of an overcompensation in later years if you have now slower years? So should we kind of just think starting from now, we should see like a 10% to 15% growth?

It's very hard, right? When you say we are just now, we went through kind of challenging 3 years of private markets. I think private market had suffered probably most in general as an industry in 2023. When you say, is there a pent-up demand saying, oh my God, I didn't do private equity now for the 2 years, I need to do now triple or quadruple it. Then every client will just say, I'm willing to give you money but show me the opportunity set, right? And that is right now just not the case. So pent-up demand basically comes automatically as investment activity starts, right? So and I would honestly assume now a gradual pickup of fundraising in the years to come, and you should also, and of course, assume a greater fundraising in the years to come than we do today or we estimate or guide today.

The next question comes from Angeliki Bairaktari from JPMorgan.

First of all, with regards to the fundraising guidance for 2024, you did mention in the press release that you expect a tilt to the second half of the year. And I just wanted to understand sort of what drives this tilt or sort of why should the second -- what is happening at some point over the summer or in the second half that is in your expectation going to drive that? Is that because you expect transaction activity to gradually resume? And so some cash distributions are then freeing up some capacity on behalf of LPs to start recommitting capital or is it something else? And then second question. With regards to the exit activity, the realizations, I think back in September, I had asked the question whether the second half of the year could be as strong or even higher than the first half in terms of performance fees. And I know that this is the AUM call, but as you have now mentioned that you haven't seen as many transactions as perhaps you had anticipated back in September, is it fair to now expect that performance fees may be lower in the second half of 2023 than the first half? And then third question, please. How many of the mandates inflows that you saw this year, which you mentioned were at record level were driven by new relationships versus existing relationships topping up their commitments?

Thanks very much for the question. So yes, I think the reason for our anticipated H2 versus H1 tilt is that we envisage that the gradual recovery we saw at the end of last year will continue into the start of this year and then subsequently into the second half. So we're assuming like this gradual recovery. Now you pointed on exactly the factors that kind of drive that. So transaction volume, cash distribution, and these things, therefore, freeing up capital for clients. It's also fair to say, and we have seen it on the flagship on the closed-ended side where clients are looking and have now opened up 2024 capacity. By the time they then commit and make those commitments, that will probably fall into early second half by the time they've gone through that process and made that decision. So those are a few factors. And I think you mentioned the key points of why we think that's the gradual recovery and normalization of conversion periods that will lead to that tilt. And then you talked about the mandates and the record mandates in 2023, what's new versus existing clients, it's 54% new and the remaining are existing. So it's roughly half and half. And I think that's really a testament to what we're doing, right, because those existing clients are clients that have continued to invest and reinvest with us over many, many years. And then we're seeing in many geographies, even, for instance, brand-new clients coming to us really seeing the benefit of being able to put together a mandate with us for the very first time. And then we hope that grows into the same long-term strategic relationships that we have with many of our other mandate clients.

Here's Philip speaking. Thank you for your question on performance fees. Let me quickly reiterate what we said in September, and I think you summarized it nicely. The first half, the performance fees -- or for the first half, our performance fees were driven by, of course, performance, diversification, and catch-up effects from our infrastructure business. In September, right, when we looked into the remaining year, we have started sales processes, as Dave alluded to. And we said very clearly that we need to have individual assets exited and announced because most often, they are a bit more larger and they deserve kind of to be publicly announced. You haven't seen a lot of these releases in the second half due to factors what Dave just said or in our call earlier -- in the call earlier. So while we mentioned when we moved -- when we reported our performance fees in the first half, we said the second half, yes, it could be at the upper end of the guidance or could be well if, if a number of the exits materialize. You haven't seen any. So your question is, is there a risk that performance fees could be even lower than the first half? Yes, there is a risk. Now can I tell this to you? I don't know. We are just closing the books, right? This is 11th of January. And we now need to see kind of how the cash flows impacted performance fees. But I think that assessment of you is directionally right.

If I may just follow up on Civica in particular. You mentioned in the presentation that you expect this deal to close in the first half of 2024. So from that, I can draw the conclusion that those performance fees are going to be visible next year. But a bit more technical, when you announced the USIC exit, not all of the carry came through in the same semester, but it came through gradually as you invest in an asset through several funds. Shall we expect something similar also for Civica, please?

That is -- you're well informed. That is a very good question. It's a very good question. In the case of USIC, it was a bit special because USIC was considered half infrastructure and half private equity. So you had basically 2 different types of funds in different maturity states. And that's why when USIC was sold, one maturity state was ready to pay performance fees while the others wasn't, right? That is not the case at Civica. Civica is a dedicated private equity transaction, and you will see the vast majority of performance fees coming into the second half -- the first half of 2024 because the closing happens. And as you have read in the press release, we can recognize when certain regulatory hurdles, for instance, in the case of Civica are met, and they will only be cleared in, hopefully, the next month. With that -- there's one more question.

Yes. We have a question from Isobel Hettrick from Autonomous Research.

I just have one quick follow-up, please. So it sounds like on the fundraising side in 2023, there was some potentially some slippage for your, like your traditional funds. So can you maybe give a figure around how much has slipped into 2024? Is it $1 billion to $2 billion of fundraising? And would you expect this to close in the first half of '24?

Very difficult to give an exact figure on that. But I think it's fair to say, as I mentioned, that there's slower conversion times. Given we launched a number of those flagships at the end of last year, there was some slower conversion times on decision-making. And we expect that some of that will close probably in the first half of this year, that overhang.

And if I may follow up quickly for Sarah and our fundraising efforts, we consistently push a significant number of pipeline in front of us. So this is not like talking about $1 billion slipping over in 1 year or another. We talk about in order to raise $20 billion to $25 billion. These relationships and negotiations with clients, they have started months ago already for 2024. So right, and this is just a timing issue. For a client, it's very different. They look into kind of decision periods of 3, 6, 12 months, and this is the way how we deal with our clients. And that is always the case, like every other year where you have some clients moving into the next year. I was just -- so as I said, Tom Mills had one question on the chat, yes. But Tom, we'll come back to you separately on this because just timing-wise, we run out now. And it's anyway in line what we heard already. And so I will call you and with that, actually, we want to close the call now, right? And I want to say a big thank you. Dave, maybe want to say.

Thank you to everyone for your interest and attention and I look forward to seeing everyone at the annual results meeting. Thank you very much.