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

Good evening from my side to Partners Group's H1 business update and outlook call. My name is Philip Sauer, Head of Corporate Development and amongst others, responsible for Shareholder Relations at Partners Group. Also on today's call are Dave Layton, our CEO; Sarah Brewer, our Global Co-Head of Client Solutions and for the first time, Roberto Cagnati, our Chief Risk Officer and Head Portfolio Solutions. Before I will hand over to Dave, I would like to inform you that our approach on how we will handle Q&A changes a bit. After a brief presentation from our senior leaders, Sarah will open the lines for questions. We will then start asking questions from the first five people on the queue over the phone. We'll then switch and take questions on the webcast from the next five people. I will read out the names and the organizations. Thereafter, we will switch back to the phone and so on. So everybody has five rounds. We believe this will give everybody on the call the ability to ask questions, whether you are on the call or on a webcast. Without further ado, I would like to hand over now to Dave.

Thank you, Philip. I'll start on Slide 2. So far this year, we've seen signs of gradual improvement to the transaction environment. We've been pleased with increased availability of financing asset valuations are slightly at more reasonable places today. We've got easier financing terms, at least for top-tier transactions, which makes trades more achievable, and we have quite a bit of dry powder outstanding in our space. Now with regard to dry powder within the private markets, you use it or lose it within a certain period of time. And so over the next few years, as that dry powder associated with peak of the market fundraising starts to hit year 4, year 5, we think we're going to see things start to move. We've had ebbs and flows in our industry, of course, but all things considered in buyout volumes and up this year on par with the levels of activity that we were seeing in 2018, 2019, 2020, that's a reasonable industry backdrop to be operating within in our view. We're at a reasonably stable place versus the IPO markets, for example. Next slide. Realizations and liquidity levels continue to be hot topics in the market. We've seen an increase in overall transactions. Private equity realizations remain relatively low, maybe up a little from last year. Industry data shows a promising trend with twice as many investments announced in Q2 versus Q1. There is a sense and a sentiment that things are looking up for distribution activity as we continue through 2024. Now these low levels of liquidity can log jam, close-ended fundraising. If no money is flowing off of old commitments, investors are understandably slow to make new commitments. This is just another factor that's shaking up our space. And while transaction activity is gradually improving and realizations are gradually improving, fundraising within our industry is expected to be down again this year, as you can see on the next slide. The changes that we've seen over the past few years, higher rates, lower levels of distributions have initiated a period of natural selection within our space. Today, the number of firms that can successfully raise capital is down meaningfully from just a few years ago. But the genuinely differentiated firms have fundraising trend lines that are up year-over-year, as they take share from the previously fragmented landscape of managers. Partners Group is a differentiated investment firm. We have a globally diverse client base, multiple channels through which we go-to market, custom solutions that help clients to steer their portfolios more effectively, access to the wealth segment of the market which has different dynamics to those of the broader industry, and we have significant resources to build businesses and to drive operating results within our portfolio. And so even though we're having to swim upstream somewhat this year, we continue to expect to buck the industry trend and to see meaningful growth in our asset raising this year. I do believe that our industry will continue to consolidate behind winning platforms. On the next slide, we highlight some of the key business results from H1. Overall, our leadership team has been pleased with the robust results our platform has delivered during the half. We invested $9 billion in H1, taking advantage of the gradually improving environment as well as the deep pipeline of opportunities our team has established through their thematic research. This is an uplift of 55% from the same time period last year. On the realization front, while private equity, infrastructure and real estate realizations are still slow. We've seen a marked improvement in credit realizations, in particular, with the refinancing activity that's been picking up. Realizations were up 69% versus a very low base in H1 2023. And in terms of new assets raised, we raised $11 billion in new commitments during the period. Considering the challenging environment, this is a significant achievement. Bespoke solutions continue to help differentiate us and that's where we had the majority of client demand. We like what we're seeing from the Private Wealth segment, in particular. Overall, our fundraising was up 39% from the same period last year. And on the next few slides, I'll provide some additional details on some of these topics, starting with investment activity on Slide 6. Out of the $9 billion that we invested during the period, 57% of this was direct assets, while the remaining 43% was invested into portfolio assets. Our investments were diverse and spanned across the platform, the ability to offer a comprehensive suite of investment options to our clients is an important part of our bespoke solutions offerings. Most recently, we've been seeing increased traction on the credit and secondary side of the business. The majority of credit investments right now are refinancings, and we're pleased to be actively deploying capital for our clients into known assets at updated terms. I'm glad that we have a strong secondaries business in this environment. We've been providing our clients with diversification into compelling opportunities that may not be readily available via whole buyouts today. That is an active segment of the market. I was recently sitting down with our secondary team and I went through their pipeline. Our members -- our secondary team have been picking and choosing from a very big opportunity set. We had over $55 billion with the secondary opportunities that we've screened over the past few months alone. Direct equity investments amounted to $3.3 billion. We had a number of topics that we've been following for several years, which finally hit this year. One of those opportunities is found on the next slide. It's an investment that we're excited about, FairJourney Biologics. Our team has been talking about this one for over a year, and we're finally -- we're glad we finally got it signed in H1. The company is dedicated to discovering innovative antibody treatments, a topic that's pivotal to a number of key themes within pharma. There has been an increase of outsourcing of pharmaceutical research services and there's growing demand for comprehensive solutions for drug development and manufacturing. Biologics is a steadily increasing part of global pharma's R&D spend. It's reached approximately 30% of the pie in 2023. And FairJourney has positioned itself as a premium platform in the space. We see significant potential for growth. We've got plans to broaden the company's existing preclinical R&D, grow wallet share with existing clients, and expand into new technologies. Our goal here is to transform this local hero into a world-class global platform. That's what we do. And this type of private equity company is one where there continues to be strong demand from clients. Now on the next slide, I mentioned earlier, liquidity levels remained low across our industry. Against this backdrop, we achieved $9 billion of realizations during the period. That's a big uplift of over 60% for the same period last year. Now this is a business update and an assets under management call, not a financials call, but before expectations for performance fees get out of whack, I do really want to encourage you to look below the headline there and point out that most of this activity was driven by credit and by portfolio assets, which most of you know are not big contributors to performance fees. Those two categories combined for 68% of total realizations. We had a handful of exits of direct equity companies. We'd like to get more of these done in future periods. We have a strong pipeline of exitable companies and do have a few trades we expect to announce in H2, but driving full exits right now is still tedious. We continue to confirm our guidance around performance fees for the full year. We're expected to account for 20% to 30% of total revenues in the next 1 to 2 years and 25% to 40% for the years thereafter. As you all know, we don't provide guidance on half year performance fee revenues. Portfolio performance continues to be strong. Portfolio company earnings continue to grow. We feel good about the underlying portfolio positions. Now let's get some color around inflows. And for that, I'll hand things over to Sarah.

Thanks very much, Dave. So today, I would like to provide additional background on the $11 billion of funds raised. So as Dave mentioned, despite the industry challenges, we have seen a gradually improving fundraising market during the first half of this year. In private equity, our fundraising was predominantly driven by private wealth clients as well as mandates. In May, we had the successful closure of our fifth direct to private equity strategy, surpassing our $15 billion target, while the majority of this fundraising was completed prior to 2024, it again underscores the continued strength of our platform even during the more challenging times. Private credit experienced strong fundraising and direct lending and successful capital raising for CLOs. Infrastructure fundraising was led by mandates and continues for our direct infrastructure strategy. We anticipate that this program will further contribute to our fundraising efforts into 2024 and early '25. In real estate, while there are attractive secondary opportunities overall demand was lower due to the perceived continued challenges within the asset class. And last but not least, our new private markets royalties asset class or its first inflows as we build out our seed portfolio. We're actually seeing a lot of interest from clients in this asset class. And therefore, we expect this to translate into more meaningful inflows into 2025. So if we then turn to Slide 10, I can dive into client demand across the different strategies during this first half of the year. So we've continued to see strong demand for bespoke client solutions and that accounted for a significant 77% of our fundraising. So starting with mandates, you may recall that we raised a record number of new mandates in 2023. And I'm pleased to announce that this momentum has indeed persisted into the first half of this year. The Private Wealth segment is increasingly engaging with private markets and this first half, we've observed a notable acceleration in demand as more and more individuals seek diversified portfolios with exposure to our industry, and Roberto will actually expand on this opportunity shortly. Previously, we discussed how current allocations from Private Wealth clients stand at around 1% to 2%, and indeed, recent industry surveys also reveal that in private equity alone, 94% of wealth managers interviewed wanted to either increase or maintain their clients' allocation, and this is really to kind of match the allocation profile of professional institutional investors. For our traditional programs, client conversion periods did remain extended. However, we're in the market with several strategies across our asset classes. I will now hand over to Roberto, who will actually delve into our bespoke solutions and how they stand out quite distinctly in the market today.

Hello, everyone. I'm Roberto Cagnati, and I serve as the Chief Risk Officer and Head of the Portfolio Solutions Department at Partners Group. I am based in Zug. My role focus is on ensuring that the client portfolio ranging from our most complex mandates to our evergreen solution clients with our predefined parameters and the guidance received from our clients. I've been with Partners Group for 20 years. And today, I'd like to delve into the details of our mandates and evergreens, two differentiated programs we offer here at Partners Group. Now first, let's talk about the similarities and the differences between those solutions. As you can see here on the left, the mandates and the evergreens both don't have a defined end date. So they're good till canceled and there is a very substantial difference to the traditional funds as it enables those solutions to compound over time what that have been a natural end date. Moving into the mandates. Those are bespoke solutions tailored up often to the needs of one single investor, group of investors. They need to be built up, but then they usually turn into evergreen either maintaining a target size or maintaining a constant growth rate along with their overall portfolio. On the evergreens in contrast, you talk about communal solutions, where investors get fully invested from day one. And Partners Group takes on the responsibility to steer the investment level. So you subscribe and you invest and everything is being taken care of. There's no capital calls or distributions to be dealt with. An important effect, as you can see here in the curves is that characteristics of both bespoke solutions, order you maintain an 85% to 95% investment level, whereas in the traditional funds with the buildup and the wind down periods year on average, only 50% to 60% invested. And needless to say, from a client relationship perspective, it's much more long-term relationships that you build when you do not have a defined end date retendering the whole relationship every few years. Now on the next slide, please, diving into mandates, how are we actually doing it. I think underlying, maybe taking a step back, it's important to understand that Partners Group has a unique architecture. As we say -- we like to say we're built differently when it comes to governance and integration. And the key concept here to grasp is the concept of single lines. So when Partners Group starts a mandate for a client, it's not just nearly an investment in 3, 4 other Partners Group funds, but it's actually investing directly into the underlying assets owing to the underlying companies. And most importantly, the way we do that at Partners Group we follow a pro rata approach how we allocate those investments. So every client gets a fair allocation to the investment made, no matter whether it's a private wealth or mandate or a traditional fund. Every mandate has a dedicated portfolio manager who focusing on building up the portfolio following the guidelines of the specific clients. And needless to say, the single line portfolio approach really allows us to pursue a next level of portfolio management when it comes to portfolio construction, steering the target size of a program or also shifting allocations to better relative value is most attractive. On the evergreen side, it's really the same architecture benefits that set us apart in the market. The investment level steering hereby has a paramount importance as we need to make sure that all time, we're fully invested. And this is something that sets us apart in the industry being able to react swiftly to flows on the client side. Next slide, please. We spend a second on the milestones that we have achieved and where those -- where bespoke solutions business really stand to give you a bit more of a feeling. On the mandate side here on the left, we talk about 150 mandates that we're managing. 80% of those are invested in two or more asset classes, and almost half of them are in three or more. So many clients choose over time to invest across the whole private market spectrum with us. The 15% net returns is certainly one of the reasons why our mandate clients today stand at about 3x the size versus where they started their mandate a number of years ago. And that can come by topping up and increasing demanded size or simply by growing by compounding over time. On the evergreen side, we manage 17 funds across private markets. Here, it's really the industry-leading track record, both when it comes to return levels and the length of the track record we started a long, long time ago. I think one thing that specifically sets us out is our performance in difficult markets in downturns that has gained us a lot of trust with our investors. We've been launching five new funds over the last 3 quarters, focusing on areas such as infrastructure, growth, and private equity directs and BDC, and more funds are coming online as we speak. For example, royalties or [ DC ] offering for the -- focusing on private debt for the U.K. market. In summary, on the next slide, it's no surprise that within bespoke solutions, both mandates and evergreens have been strong growth engines, and we're convinced that tailored solutions will drive future growth, bespoking customized investment options by an increasing role as the industry is evolving. Next slide, please. Now let's take a closer look at our AUM bridge for the first half of the year. As you're aware, our guidance specifically covers fundraising and tail-downs. Sarah has covered the $11.1 billion of gross inflows, so I'll discuss the impact of tail-downs, redemptions, exchange rates and performance-related effects. Starting with tail-downs which are largely formula ways, they amounted to $4.5 billion. For context, our full-year guidance was $8 billion to $9 billion in H1. It primarily resulted from credit distributions and they're in line with guidance. This leads us to a new -- net new money of total $7 billion or a 9% annualized AUM growth if you only consider the factors we guide for. Moving to redemptions. They came in at $2.5 billion. This represents a redemption rate of about 10% of average evergreen AUM on an annualized basis. Moving forward, we believe 10% is a reasonable run rate for these programs as they are expected to be larger, both in terms of size and investor base over time. Performance-related effects amounted to $0.2 billion. They include contributions from a select group of products or AUM tracks their NAV development. We continue to believe that redemptions from evergreen programs are often netted out by performance effect in a normalized environment. Hence, it's fair to assume that in the second half of the year, redemptions and performance and other factors will offset each other. Last but not least, foreign exchange effects had a negative impact of USD 2.2 billion, mainly due to the strengthening of the U.S. dollar against the euro as per the end of H1 compared to the end of last year. 44% of our AUM is in euro-denominated programs and mandates. With this, I hand back to Sarah for the outlook.

Thanks, Roberto. So let's move to our final slide, which is the 2024 outlook. So our globally spread fundraising pipeline really reinforces our strong presence and reach across the various markets. And as all of you on this call have observed over the many years, our platform really thrives on the principles of diversification. And this is reflected not only in the solutions we offer and our investment track record but really also through the diversity of our client base. So I'm very happy to confirm our guidance for the fiscal year 2024 with projected gross client demand ranging from $20 billion to $25 billion. So with that, thank you all for your attention and participation today, and we are now ready to take any questions that you may have.

The telephone operator will now take questions from the phone conference. The first question is from Angeliki Bairaktari with JPMorgan.

Can I ask first the question on the evergreens in the U.S. and Blackstone's private equity fund, which launched in the beginning of this year, has already seen around $4 billion of fundraising inflows since the launch. How does that compare to the flows that you have seen to the fundraising that you have seen in your [ Act 1940 ] funds in the U.S. year-to-date. And are you at all concerned about the pace of fundraising by Blackstone as a competitor? And then secondly, with regards to the $6.9 billion of tail-downs and redemptions that we saw in the first half of the year, and that seems to be a big percentage of sort of what we had previously as a sort of full-year run rate guidance or indication of around $11 billion to $13 billion. How should we think about tail-downs and redemptions in the second half? And that's also, I hear you on redemption rate of around 10% going forward. Historically, it has been 80%. So I guess we should expect a higher number also in the second half of the year and going forward there in terms of redemptions.

So maybe I'll take the first one, and Roberto, why don't you address the second one. So the industry has experienced much of its growth over the past 30 years from institutional investors that have extended their allocations into privates from 1% 30 years ago to something like 10.5% on average today. And one of the things that this rate hike cycle has told us is that those allocations probably aren't going at 20%, at least not in the near to medium term, okay? But there is still meaningful structural growth in our space. It's just coming from different channels. And this wealth channel is an area of structural growth. And as allocations within that segment follow a similar trajectory moving from about 1% today to I don't know, 5%, 6%, 8%, 10% in the future, that's going to add something like $5 trillion to $10 trillion of structural growth for our space. And so of course, there's going to be competition, and there's going to be resources that shift from the institutional market into the wealth market. No question about it. And Blackstone is a firm that obviously brings a lot of muscle and they've come in to that segment of the market. But this is not yet a pie that we're giving up. I'd say this is a wave that we're preparing to ride. And we've been an innovator. We've been an early mover. We've got a long track record within that fund. You've seen a host of new competitors that have come into that space. Blackstone most notably, but there's numerous other ones as well. And if we can still grow in an environment of rapid expansion of competition coming into that space. That's something we feel pretty good about. It also speaks to the structural growth that's occurring within that category. The fact that those of us who are there and those of us who are coming in are all having success at the same time. I mean, tells you that this is a topic and a trend that's just getting going. And so we are not at all focused on, I'd say, market share within the Wealth segment, we're focused on having a fantastic offering that we can ride this wave with. And so we actually welcome the competition because you have wealth advisers that we've known for a long time that like the topic that didn't really move on it in the past because it was just us and a handful of other firms and it wasn't quite there. As there's been so much interest and attention and buzz around this topic that's been created recently, we think it creates a tailwind for us in the long run. And Roberto, maybe you can speak to the second one.

Happy to, Dave. I think there was a question around tail-downs for the full-year. That is something that typically evolves rather mechanical. So at this point, I think we're going to stay well within the $9 billion that we have indicated in the range. When it comes to redemptions, I think for the full-year, I would work with a number of around $4.5 billion which represents around 10% is what I mentioned before. And I'm also confident that this will offset with a performance effect, which typically compounds at a similar rate.

The next question is from Nicholas Herman with Citi.

Three, if I may, please. One on fund raising. One on actually evergreens as well. And then the third one on the environment and [indiscernible].

Are there specific questions coming to those three topics? Or do you want us to just expand on them more broadly, Nicholas?

I think he dropped out somehow.

Okay. Why don't we move to the next question then and let him get back online and ask his question. Next question please, operator. The next question is from Hubert Lam with Bank of America.

I've got three of them. Firstly, on wealth, if you don't mind, poking on that again. Can you give us a little more flavor as to where the flows are coming from in wealth in terms of both geography and distribution type? As many coming from the U.S., you talked a little bit more about where? And also by distribution, I think previously alluded to, there's more competition. We've seen that in the warehouses in the U.S. Just wondering where you're seeing most of your flows coming from by geography and distribution? Secondly is on the pipeline of four traditional programs. What's in the pipeline in terms of new product launches and closings for the second half -- or say, over the next 6 to 12 months, any flagships you have out there that we should be looking for? And the final question is on the fund performance. I know it was relatively flattish in the half year, about $200 million. Just wondering why is it so -- why is it such a low number? Is there a reason for that? What -- any reason why it's -- any particular reason around that?

Maybe taking -- it's Roberto, taking the first question around private wealth. The flows come around 40% from the U.S. and about 60% from Asia Europe. I want to highlight the U.K. and Australia here. It's a rather broad phenomenon. What I want to say, though, is next to the, I would say, large global distribution houses, there is an increasing tendency of smaller regional distributors regional local brands are contributing to the flows in private wealth.

And then you mentioned on your question two, the flagship program. So we have, as I mentioned, our direct infrastructure fund out in the market. We have secondary programs for clients across private equity, infrastructure as well as real estate and a number of closed-ended products available across different jurisdictions on the credit side. And then I think question three was about performance.

Look on part 3 on the fund performance, I think it's fair to say that coming into the year at the year-end valuations coming in across the industry, we have seen a bit of a lag, a bit of weak fourth quarter that has entered program performance in early Q1. So, our Q1 was a little bit slower, but I don't think it's an unusual phenomenon something we've seen across our funds as well and has been picking up for the second quarter since. So for us, not a reason for concern in the longer term, but certainly something that has affected the programs into the start of the year.

The next question is from Nicholas Herman with Citi.

Can you hear me now? Can you hear me now?

Yes.

I think I dropped off earlier. Okay. Great. So just -- I'm going to try to give my questions. So just firstly, in light of the fact that activity is expected to increase in the second half and you're already well within the fundraising range on a run rate basis. Is it right to say you see yourself ending this year at least in the midpoint of the target range and where do you see the flex around that? On the evergreens, some -- there was a big step-up in the inflow rates for evergreens. Could you just provide us some details on the sources of those strong inflows? I guess it seems particularly lumpy. So were there any kind of institutional flows within that? And can you talk about the pipeline on, I guess, institutional mandate pipeline -- evergreen, please? And then finally, in terms of like general environment and loan issuance, I guess we discussed previously how a wall of maturities next year in 2026 could potentially put a limit on this low activity environment because asset holders would be forced to sell or refi at higher rates. I guess with a much more constructive refi environment, and we have seen refi activity notably picking up does that change kind of your view on a pickup in activity for the industry?

Thanks so much, and great to have you back. So your first question around the guidance. So in January on our AUM call, I actually mentioned that I expected our fundraising to lean towards the second half. However, we actually observed momentum picking up and accelerating already in the first half, quite frankly. A few things went our way. Some of the conversions that we had projected for the second half already came in, in the first half. So that's the trajectory with which we go into H2. I obviously locked our pipeline extremely closely. Our most recently performed bottom-up analysis puts us around, as you would say, around the middle of that expected range. Again, clearly, if transaction volumes, exits, et cetera, pick up over the second half and accelerate beyond that and distributions come back, seeing up capital from clients for reups then clearly, that could be at the higher end of the range. But currently, on our most recently performed bottom-up analysis, it really puts us in the middle of that expected range.

The second question regarding the flows on the evergreen side, I think you're on to something. It's not unusual. About 30% of our evergreen AUM is typically smaller institutional investors. And indeed, about 20% to 30% of those evergreen inflows have been coming from institutionals not to dissimilar like in 2023 and in previous years.

And on the outlook?

Roberto, in terms of outlook, he asked?

In terms of outlook, if I also think about the nature of the size of those tickets, there wasn't a single lumpy one. So I would expect a continuation of the trend that you can see in there.

And with regards to the environment and transaction activity and when it's going to pick up, it's a multivariable equation. One of the variables that we've talked about that could drive increased activity is this wall of maturities. And indeed, owners have -- as they approach their maturities, decisions to be made on do they sell or do they put their fresh equity in. And there is still, still many of those decisions that need to get made because of maturities, probably fewer. I think that's fair because of the robustness of the refinancing environment. And it is a full-on bull market, right, within the credit market. I think that's safe to say. These last couple of transactions have been financed, spreads that are effectively on par with what we were seeing just a few years ago and base rate is obviously high. But you are correct. This is a very robust refinance environment and much of the activity that's happening right now in the credit markets is around refinancing activity. But you also have this phenomenon around dry powder, right? A lot of money was raised in the 2021 time period. And that dry powder has a deployment pattern that it needs to follow and you're bumping up against year 4, year 5 coming up here over the next couple of years, that serves as another catalyst. Valuations are looking more interesting and have come down from about 12x on average for the industry to about 11x on average today. So there's a number of factors that I think could drive increased activity.

The next question is from Gregory Simpson with BNP Paribas.

Two questions from my side. The first is on the mandates. I'm wondering if there's a positive denominator effect now given how strong public equities have been? Is there a lot of mandates to have a target allocation percentage of a portfolio, and therefore, time is need to put more money put to work and so can flows pick up from the $4 billion level they've been running at in recent halves. That was the first question. The second question, with that stat you gave about the number of managers successfully raising capital being down 40%. Has your appetite for M&A changed at all in terms of potentially being able to be opportunistic and acquire and you've managed through a bit of distress?

Hello. This is Roberto again. Yes, I think you're right there, there is somewhat of a denominator effect with a strong public equity performance but also recovery of the bond portfolios. There's a second factor that relates to the distributions that have been picking up, which is something we've definitely been seeing to free up investment capacity amongst our mandate clientele.

And with regards to consolidation, I think much of the consolidation that we're going to see within our space is going to happen through natural consolidation of investors concentrating there, incremental dollars with the firms that are most relevant in the current environment. You asked if it increases our appetite for distressed managers or managers that are kind of struggle, probably not distressed managers that's not we're that interested in. But as we think about the platform that we're building, the offerings that we're able to provide to clients being a comprehensive solution provider could this environment create an opportunity for us to pick up some world-class talent that we could integrate into that, that bespoke solutions engine and investment engine potentially. And we talked about that a little bit on our annual results call. But the dynamics haven't changed materially since we talked about it last.

Next question is from Bruce Hamilton with Morgan Stanley.

Firstly, maybe just a bit more color on sort of portfolio health. And any sort of risks that you might be seeing from the sort of higher for longer environment. And sort of whether is EBITDA growth still sort of running in the kind of double digits, mid-teens? Is that looking pretty good? And then secondly, just coming back to the point on the performance. I wasn't quite clear on the answer because I guess the -- getting back to the sort of 10% to 15% AUM growth per annum looks a bit of a stretch from where we are today unless performance is neutralizing the kind of redemption effects. And so why should we be so confident or why are you so confident that those two will sort of net off, and therefore, growth recover, just to make sure I understand.

Thanks, Bruce. First of all, on portfolio health, Indeed, the portfolio continues to perform as expected. We continue to see good, good growth, double digit in most parts of the portfolio and continue to feel good about the health and the quality of the underlying assets in which we invested. The higher for longer scenario, I think, is the base scenario that you operate within. We have a reasonable amount of debt on the portfolio. It's been largely hedged up until this point, there at some point in time in which those hedges come up but we've done all the sensitivity analysis and feel good about our ability to continue to manage those assets even through that, that future state. So nothing I would flag from a portfolio health perspective that's contrary to what we've talked about in the past. Roberto, do you want to talk a little bit about second question?

Look, I think that from a netting-out perspective versus performance, I think we are obviously at a point in time, especially as an industry towards the last 2 years, while we haven't seen the type of drawdown and recovery that the public market has seen. We've definitely seen valuation adjustments across our portfolio and the rising rates that Dave has mentioned, everything that goes with it. At the end of the day, there is a couple of simple numbers. Our EBITDA was up around 28% over the last 2 years across our portfolio companies, but the valuations were up just in the low teens. And that is really the gap where it comes from. Having said that, I think there is good reason to assume based on what we have been seeing, both on the interest rate front and the private equity market that this adjustment process has come to an end that we're through that. We make a forward-looking return projections on our program. We don't see reasons to assume that there should be so far. The usual return assumptions that we have in terms of targeting are somewhere between 10% and 14% for the evergreen funds. And as such, if I compare that with the historically observed redemption rail, even in the more volatile times, are typically 2% to 3% below that. So I think there's a margin of error to the netting assumption is something we very much believe in going forward.

Okay. That's helpful. So basically, you're saying that just the kind of lag effect, both on the way up and the way down is what's feeding through in the first half, and that should normalize as we move forward.

So thanks, Bruce. Now we would basically switch quickly to the webcast questions. Charles Bendit from Redburn ask about the trade-off between having a large opportunity set for private wealth in the U.S. and increasing competition. But I guess, we have answered that question already in the beginning. So I -- there are no further webcast questions, so I would hand back now to the operator to move on with the phone calls.

We have phone call question from Oliver Carruthers with Goldman Sachs.

Oliver Carruthers from Goldman Sachs. Maybe a bit over last field question, but perhaps one for Roberto, given he is on the call. There's been a lot of discussion in the last couple of weeks on the potential to create broad-based investable indices in private markets. So I would be very interested to hear if you think that this could be a market that could potentially develop over time, particularly given your positioning in portfolio construction, mandates and evergreen products.

It's an interesting idea. I think my first reaction to that would be interesting, but probably comes with some challenges in terms of the requirements that we usually have for indices with being investable being replicable in size. I could imagine that this is much, much more difficult to replicate in a private market industry than, for example, what we've seen on the hedge fund industry many years ago. So at least what I see what we need to do to create the performance, it doesn't feel that you can create this in EBITDA type of way by just deploying. I think the way how we create value, how we generate growth or actively own businesses or develop assets, has a significant contribution to the overall return equation, especially [indiscernible] interest rates aren't zero anymore. So I think it's something we need to discuss, but it's probably not the most obviously in the Partners Group.

The next question is from Tom Mills with Jefferies.

You've been busy on the secondary side. Clearly, I guess, anecdotally, we've heard some signs of pricing dynamics tightening. Is that something you agree with? And are there any sort of data points you put around that? And then I've also seen a start that buyout funds require over $300 billion of distributions by the end of '26, which I think is about 5.5x the available liquidity from secondary transactions, as everyone is expecting the conventional exit channels to reopen before that or hoping at least. But I'd be interested to hear your thoughts around sort of supply/demand dynamics there?

Thanks. We have indeed been busy on the secondary side. You have quite a few players in the secondary market today. It is a competitive market. But that's, I think, overlaid against quite a significant opportunity set that's out there at the moment. As I mentioned previously, we looked at about $55 billion worth of secondary opportunities over the past couple of months, and it is quite robust pricing for high-quality, high-quality assets, inflection assets that have material upside in them, has probably tightened from kind of the low 90s, around 90 last year to, I'd say, low to mid-90s in terms of pricing based on what I've seen through the investment committee more recently. So yes, I think that's probably fair. It's probably tightened up quite a bit. But it does feel like there's a very healthy supply of opportunity sets that continues to exist out there. Now you've seen a shift in dynamics in that market away from GPs facilitating liquidity on individual assets or groups of small assets, which has grown to be about 50% of the market in recent years. That's fallen to be a smaller part of the story overall and the biggest opportunity set and biggest volume that we're seeing come through the secondary market this year is from institutional investors rebalancing their portfolios, by and large.

We have a follow-up question from Angeliki Bairaktari with JPMorgan.

Just one on exits, please. The SRS distribution exit where I think you had a minority stake. Can I please check whether this the one closed for you in H1 2024 and whether we should expect to see performance fees from that exit already in the first half of the year?

Yes. SRS closed just before period end. And so yes, that transaction will fall within the first half results.

We have a follow-up question from Nicholas Herman with Citi.

I also have a question, a follow-up question on exits. Just [indiscernible] you talked about a strong pipeline of exits with multiple exit processes. Just broadly, in terms of these -- the target buyers, are these typically strategic or secondary buyers?

Yes. So if you look at a couple of the results from the first half of this year, SRS, which we were just asked about, that was an exit to a strategic Civica, we sold to Blackstone, you see a blend of both. I'd say the broad network of private market's managers who are not able to raise capital at the moment and a rose to fundraise and come back and fundraise at the moment, or sitting on dry powder, and not as active and -- but I'd say the winners within the space, strategics, they're sitting on piles of cash. Those are the groups that are most active within sale processes right now.

So a healthy blend and a healthy mix between the two? [indiscernible] confidence on those exits coming through?

Yes, that's right.

We have the last questions on the webcast today and -- from Albert Miller Brook, who asked probably a question to you, Roberto is, you have mentioned valuation contracting in the market. Do you see differences between the different asset classes, private equity infrastructure real estate?

Happy to take that one. I think it simplified, but infrastructure, certainly, we have seen barely any effect. That's simply because of the projects reaching the milestones reaching completion, which is less dependent on valuation multiples. I think compared to private equity the real estate market has certainly been affected more strongly, not least because of the debt maturities are a bit shorter in that space, and as such, is certainly the most affected [indiscernible] in private markets.

Thank you, Roberto. With that, we went through all the questions. And I would like to thank all of you for listening in and the trust you put in Partners Group. I would like to close and look forward to seeing you. I just want to mention that already, on 3rd September, as the CEO, hear you on 3rd September, 7:00 a.m. CET, we will publish our half year results. At 10:00 a.m. CET, we will do the conference call out of our London office. And with that, all the best, hopefully a nice summer break, and we look forward to hearing, seeing you soon again. All the best. Bye, bye.