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

All right. Welcome, everyone. It's a pleasure to have you at our interim results call for 2024. My name is Dave Layton. I'm the CEO of the firm. I'm joined today by Juri, our President; Joris, our CFO; and Philip, the Head of Business Development. I'll kick off on Slide 2. I do believe that our platform delivered solid operational and financial results in the first half of this year. Fundraising for the first half of the year was up 39% from the same period in 2023 at $11 billion. And yet, the first half of the year feels already far in the rearview mirror. As we sit here today in September, we do believe that we're on track to deliver within the range that we've outlined, probably at a pace towards the middle of that range as we sit here today. We have a variety of new types of solutions that we're offering for our clients. I really do believe that these bespoke solutions positioning that we have really been developing over the last number of years benefits us significantly in the current market environment. We delivered management fee growth that was broadly in line with our average assets under management growth, and we had a solid management fee margin at 1.27%. Performance fees were light during the period. This was an environment that kind of a continuation of what we saw in 2023 in many regards with regards to realization activity. And we did have a number of delayed and postponed exits. However, as we look at our performance fee potential over the coming periods, the performance fees that we don't deliver in the first half of this year don't get lost. They get postponed, and we do have a meaningful amount of performance fee that is poised to come over future periods. And so we confirm the guidance that we have outlined previously. We do see a meaningful ramp in performance fees coming over the coming years. EBIT margin was at 62%. We have an employee base that is aligned with shareholders and aligned with clients in that we have much of compensation that comes from performance fees. And so in periods like this, we're performance fees light. We have the ability to manage margins quite effectively, long-term investors, long-term employees. And I think that gives us an advantage to have an entrepreneurial mindset, long-term mindset to allow us to manage costs in an environment like this. We do see the potential for improved activity within the industry. I'd be surprised if activity levels for this year don't come up versus what we saw last year. I expect at least stable, but maybe even increased levels of activity levels overall versus what we're seeing, and you start to see that coming through. For example, in refinancing activity, in credit realizations, that was up meaningfully so far this year, and we think that's a sign of things to come. In addition to that, other indicators we look at, like our investment committee pipelines, point us in the direction of more investment, more transaction activity in the coming months versus what we saw looking in the rearview mirror. On the next slide, Slide 3, you can see how our platform has developed over the past number of years, and one of the big themes has been the shift of bespoke solutions. Bespoke solutions is a much bigger part of the overall story. Now 69% of our total asset mix, and it was even higher than that during the period, over -- well over 70% of the solutions that we created for clients were bespoke solutions. You start to see the build of the number of vehicles that we have. We now have 350 investment vehicles running on behalf of our clients, and you see that increase meaningfully as a result of this push towards bespoke solutions. We really do think that this differentiates us, particularly amongst investors that want some more handholding through an environment like this. We're a firm that is provide -- to provide those custom solutions. We continue to have an innovative DNA and drive innovation, and you're going to see that come through over the coming months. In private wealth for example, we're developing our next generation of wealth solutions, which we're very excited about. We expect to be in a position to talk more about that in H2 and in areas like U.S. defined contribution, where we're starting to have our first case studies, where Partners Group is one of the leaders in opening up those type of markets. We're not a firm that watches what's happening and then tails along. We're a firm that really does, we think, that live on the vanguard. On the next slide, Slide 4, we have a globally diversified client base. This is a huge asset for us in an environment like this, that level of diversification that we think provides part of the stability. We have multiple channels through which we go to market. You can see that highlighted. We have multiple types of solutions that we build for clients, and we are global. And we had a couple of developments that are probably relevant to just touch on here. We opened up Hong Kong this year, our 21st office as a firm. We think that that's a good entry point for bringing wealth solutions to China. And the U.S. continues to increase in terms of relevance, now at 23% of its mix. So we've got a little bit more color on that on the next slide. We've driven our assets under management in the Americas from $7 billion a decade ago to now $35 billion. That's about a 19% growth rate during that period of time. And when I stepped into my current seat as the firm's first American executive, we had about 16% of our assets in North America, and we set it as a strategic initiative to increase that. And we have been driving growth within the Americas. We are now up to 23% of our mix overall, and 34% of our mix from H1 from North America. And wealth -- and our positioning within wealth has been an important contributor of that. We've seen 29% growth in that segment over the past number of years. And we continue to feel good about the outlook in the U.S. and Canada. Actually some interesting distribution activity going on in Canada as well. We continue to feel good about that for the years to come. Now on to exits, where light distribution activity did impact us during the period. This was a period in which the industry overall had a reduction in distributions back to clients. And we talked about that on our prior call. But as opposed to 20% plus of NAV coming back to investors, and that's what investors have become accustomed to over the last number of years, it was about 10% last year. And we saw a continuation of that during the first part of this year. And that impacted the broader portfolio, I would say, to some extent, realization activity. But the thing that really drives performance fees are direct control positions. That's where the performance fees are concentrated. In private equity, for the last number of years and then over the past year, infrastructure has come online as a meaningful potential for performance fees as well. And during this period, we really only had 2 positions that were realized, SRS and Civica. And so it was a very light period as it relates to performance fee potential. And so that's the reason why we're at 17% of our revenue as opposed to 20% plus, which is where we typically expect to be. We do see continued activity, though. We continue to have dialogue around many of the assets that we've talked about in the past and have some good examples coming online, Aavas Financiers, for example. Position in our India portfolio was recently gone under contract to be sold to CVC. And that is a company that is very thematic. Our team there in India had identified the democratization of financial services, a key thing that they wanted to play. I and some of my investment committee colleagues went over to India to spend time with this asset to get comfortable with it. We did indeed get comfortable with the transformational potential that existed there, and we've increased the employee count to 6,000; increased net income by 14x and we will generate about a 4.5x return for clients in U.S. dollars, obviously, much higher in Indian rupee, but that's the nature of investing in emerging markets. The signing took place recently. We expect closing to take place in H2, could be H1 of next year, but we expected for H2 of this year. And Juri, maybe to give us a little bit more color on the future in performance fees. Over to you.

Sure. So by way of introduction, my name is Juri. I've been with the firm since 2004. In the early days, ending up co-heading our credit platform, building that out for the last many number of years, building out our infrastructure team, building out the platform. Since the beginning of this year, I assumed the role as President. As such, driving, implementing strategic projects on corporate level as well as co-heading our investment pillar, the executive team. Now from an investment perspective, if we look at the embedded performance fee potential on Slide 8, I'd like to highlight here, particularly the direct investment portion of it. If you look at the pie chart in the middle here, the $10 billion between 2010 and 2014, this is a number that has increased more than fivefold until 2015 to 2019 to $56 billion. Now why is this relevant? Typically, it takes about 6 to 9 years, give or take, to crystallize and realize performance fee potential. So it's clearly the performance we expected to follow the AUM growth. If we look at our near-term exit pipeline that amounts to $20 billion of NAV in the quarters and years to come, I think we're confident that the midterm buildup has structurally grown to a level where we haven't seen it before. At the same time, the overarching objective remains to optimize the returns on behalf of our clients. So if you have a bit of softer market and the star is not aligned, then we have decided and will decide to optimize for client returns in such market environment. Maybe another perspective on that sort of buildup, if you go through the years, it was by and large pretty much a pure-play private equity performance fee buildup. To give you a number, it was in the very low single digits until 2021 regarding infrastructure, and that has increased to meaningful contributions throughout the last 1 to 2 years. And if we zoom into that part on the following slide, just to give you some more color on how these future performance fees will come online, it's a business that we started 16 years ago, a business we built organically. It's over the last 10 years sort of a 20% growth rate per annum in terms of AUM, and that's a business where we are today equally diversified across 50 programs with a very, very strong top quartile performance. On the back of that, we have raised, for example last year, we closed our third direct infrastructure program worth $8 billion, and we have launched this year our upcoming fourth direct control infrastructure program. So if I look into the future, I think also from a business building perspective, there's further potential. For example, if you look at the overall typical allocations in private markets, infrastructure today remains also to be the silver of the overall allocations if you compare it to credit or to private equity, the most established asset classes. And if you sort of look into some of those surveys or listen to the pension fund, typical LP type of clients, there remains a very strong structural demand, but also a little bit of maybe catch-up to get that on to more typical private markets allocation levels, around 10-ish percent. Then zooming into private wealth, that's where infrastructure at the moment is pretty much nonexisting, as we speak, but also you would want to be an innovator. We have launched the first infrastructure evergreen fund this year and see here a significant structural potential for the future. Now moving on to investment activity, again, moving a bit from the rearview mirror to what has happened in the last few months. I can tell you that the investment committee is as busy as I haven't seen it for a long while. Being there every week, the agendas have extended and got pretty long, particularly in Q3. So that has translated into the $9 billion in the first half of investment activity. If we fast forward to today, end of August, it's another $6 billion that's in closing, meaning most of it has been signed and is in closing with a good visibility towards the year-end. So I'd say we're well on track here from an investment activity perspective looking into the end of the year. Now what continues to set us apart here is twofold. It's a thematic investing strategy, where we got very, very deep in many of those mega themes, but then also distinct themes and topics. We have a wealth of experience and networks build, and it's the transformation value creation playbook, our entrepreneur governance. Those are the 2 key value drivers proven and tested playbooks. Two such examples, one from infrastructure, one private equity. On the left is Eteck. That's where we have invested into market-leading decentralized heating business. Again, highly thematic. That's a market that is expected to grow with 15% per annum for the next 10 years. So strong thematic tailwinds. If we move to the right to FairJourney Biologics, partner to the pharma companies, antibody-based therapies, again, thematic tailwind, 14% market growth per annum as well as pharma outsourcing growing by another 12%. So we have here 2 examples of strong content that we were able to capitalize on, on behalf of our clients in that market environment. Now I could go on and looking forward to share more investment examples in the coming months. But until then, handing over to Joris.

Thanks, Juri. It's a pleasure to be here with you today. My name is Joris Groflin. I'm the CFO at Partners Group, and I will also walk you now through the half year 1 financial. So let me start with the assets under management. In U.S. dollar, they grew 5% year-on-year. However, on average AUM in Swiss francs, they only grew by 2%. This was mainly a result of the strengthening of the Swiss franc against the U.S. dollar and the euro. Management fees generally follow the AUM growth and increased 4%, supported by a meaningful increase in other revenues and other operating income. Performance fees decreased 39% to CHF 169 million, representing 17%, 1-7, of total revenues. They were impacted by the continued slower-than-expected recovery of the transaction environment, as Dave explained earlier. In total, revenues decreased 7% to CHF 977 million as a result of the lower performance fees. EBIT margin increased to 62%. This is testament to a strong profitability, even after the impact of exchange rates and is in line with the firm's 60% margin target. As a result, EBIT followed revenues and amounted to CHF 605 million. Let's look at our revenues in more detail on the next slide. We have 2 sources of revenue, management fees and performance fees. Let me start with the management fees. They represent most of our revenues and are recurring in nature. They increased by 4% to CHF 815 million. As mentioned earlier, they benefited from other revenues and other operating income that meaningfully increased by 89% to CHF 85 million. The strong outcome resulted from higher interest income from our treasury management services as well as a modest increase in late management fees following the final close of Partners Group's fifth direct private equity strategy in June 2024. Let me talk about our management fee margin on the next slide. Since our IPO in 2006, our management fee margin has been stable at an average of 1.26%. Slight variances between years are typically driven by the timing of rent fees or activated in the investment program. We expect the development of our management fee margin to be stable, as we stay focused on consistently offering innovative value-added solutions for our clients. Let's look at the performance fees on the next slide. And while Dave talked about the half year 1 performance fees in detail and Juri gave additional insights on the significant future potential, I would like to provide some additional color on how this potential translates into our guidance. Over the last 8 years, as you know, performance fees represented 26% of total revenues. Half year 1 2024, that represented 17% of total revenues. And as Dave mentioned, half year 1 performance fees were mainly driven by the divestment of 2 larger direct assets as well as the performance of our direct investments across our evergreen programs. Today, we believe that the recovery speed of exit markets will more likely happen in 2025 as opposed to 2024. So for 2024, performance fees are expected to be at around 20%, amid more muted market activity. On average, for the years '24, '25, we expect performance fees to amount to 20% to 30% of total AUMs. Now looking at the strong operational performance of our investment portfolio, we are confident that's taken account for 25% to 40% of revenues from 2026 onwards. So let's talk about costs on the next slide. Our profitability remains strong with an increased EBIT margin of 62%. Personnel expenses amounted to CHF 300 million and continue to make up the largest portions of total costs representing 81%. In half year 2 -- half year 1, total operating costs decreased by 9%. The decrease was mainly driven by lower performance fee funded personnel expenses, in line with performance fee development. This is because we allocate a fixed proportion of up to 40% to our employees. Management fees funded personnel expenses remained largely flat at CHF 241 million, in line with development of average FTE of 1,869. Other operating expenses increased by 4% during the period and are expected to move in line with management fees going forward. So we will continue to target an approximate 60% EBIT margin going forward, whilst continuing to invest into the growth of our business. Let's move to the next slide. We are a global business. We report in Swiss francs. However, most of our revenue comes from U.S. dollar and euro-denominated funds. In half year 1 2024, as mentioned, the appreciation of the Swiss franc against many other currencies negatively impacted the firm's financials. Management fees are most affected by this appreciation, negatively impacting growth by around 2% year-on-year. Total expenses, on the other hand, experienced a positive impact. Performance fee revenues and related costs are largely margin neutral. In aggregate, Partners Group's like-for-like foreign exchange impact on its EBIT margin amounted to approximately minus 0.4 percentage points. Let us move to the last slide of the presentation before we start our Q&A. Here, I would like to talk about our net financial results, taxes and our balance sheet. We invest around CHF 1.3 billion alongside our clients across various programs. In half year 1 2024, these investments generated a positive performance of 3% or CHF 40 million. The net financial income translated into CHF 13 million, as most of the positive returns were mainly offset by higher interest rates. Our tax rate amounted to 18%. For 2024 onwards, we expect tax rate to stabilize around 18% to 19% due to Pillar II legislation. This leaves us with a profit of CHF 508 million. With that, I would like to conclude the presentation and open for questions.

Maybe we start. We have -- our team here is in London. We have some participants here in the room. And we start in the room with questions, then we'll open it up to the phones and to the webcast. Yes?

It's Nicholas Herman from Citi. Two questions, if I can, please. One on fee margins and one on costs. On fee margins, so we can see that the long-term fee margin is 126 basis points. You're broadly there in H1, probably helped by some late management fees. But within that margin, I think what's interesting is the mix has really shifted. So the pure management fee margin is down 3 basis points year-on-year, and that's been more than offset -- has been offset by higher other operating income. The pure management fee margin decline is even greater versus FY '22. So just why is -- why are we seeing that margin decline? And I guess, how to think about that pure management fee margin going forward, both at, say, H2, but also thinking over the medium term is, one, what can the margin go below 116, for example? So that's the first question. And the second question on costs. Quite a notable step down in headcount in the first half to somewhere around 17 -- 70-ish, presumably due to the efficiency actions from last year. Is that a good run rate from here? Or would you expect to now start to really reinvest and will start to see the headcount just drive up as a result? And I guess, as part of that, you're at 62% EBIT margin. Can you hold that level for the full year? Yes.

Okay. Maybe I'll start on those. And then Joris, Philip, you can fill in where you see fit. So on the fee margin, there's two factors to be aware of there. Number one is we had a disproportionate fundraising within credit, which is a part of it. 36% of our H1 fundraising came from our private credit activities versus 21% of the overall asset mix. You guys know we've been very disciplined in terms of adding private credit assets, favoring some of the higher value-added investment types, but that's where we found opportunities with clients, particularly strong in the first half of this year. And so that's a part of it. And then the second has to do with timing as opposed to fee compression, as you've talked about it. We have a number of programs that as their fundraising, our new infrastructure program, for example, is at a very attractive fee level at 1.5% management fee. But when you collect the early commitments, the fee clock doesn't yet start. That fee clock is going to start in future periods, and that delay in management fees can sometimes cause that effect if you just look at one-half of the year numbers. Philip, Joris, anything to add to that?

I think if we look forward, especially also when, for example, the infra fund goes online and starts to fill up, then, of course, we also see revenue margins, which are above the average of the 1.26% coming in and also then helping to lift up the average management fee margin.

And within that, if I could just follow up on that point on the credit point, I think it was quite a large proportion of refinancings and CLO activity, which also, I guess, depressed that fee margin as well. Would you also expect that the level of issuance and just direct -- more direct lending rather than refinancing also to pick up from here as well to provide support there?

Yes. So the majority of funds raised was direct lending, and I would expect that to continue to be the case, the largest part of that fundraising activity. So about $4 billion in credit fundraising. Around $2 billion of that was direct lending. And I would expect for that to continue to be the largest part of our fundraising in that business certainly. And then the second question around headcount, we had given an indication in prior periods that we were very well resourced. We felt very well resourced, particularly as compared to kind of peak years of activity, 2021, for example. And there were a couple of things that drove the moving headcount. Some of that was cultural. We had kind of taken a look around and felt like we had gotten a -- had a shift towards more support professionals than we experienced in the past. And we had a cultural message that we run our engine hot at the end of last year and took some action in that regard. And that had nothing to do with costs. That had everything to do with culture. We are a company of doers, and we wanted to make sure that, that culture is sustained, even as we grow around the world and have more decision-making authority around hiring that's pushed broader within the company. The second element is with regards to performance management. During COVID, there was a notable reduction and actions taken against other performers. It was a tough market. It wasn't easy for people to find jobs. I think we got soft in that regard, and we increased the level of performance management actions that we've taken. And then the third element is we have service providers that are catering to the private markets to date that are much more sophisticated than they've been in the past when we built many of our services functions. It was in an era when we were one of the first firms to build a multidimensional, multi-asset class, multi-geographical private markets firm that operated as a platform. Today, you see a number of platforms, and you see the service provider community that has gotten much more sophisticated. You have many of these service providers today that have 5, 6 clients that they're building solutions for, developing technology for. And we've kind of taken a look at some of the aspects of our services business and come to the conclusion that they're going to have a tough time servicing a captive company of one, while these service providers are really investing into technology and into talent in a way that's hard to do with a client of one. And so we have had some of the elements of our services organization we've taken a hard look at and made some judgment calls on what's the core competency of our firm and what can be best be done by a service provider. So those are the three elements that kind of drove the mix. I think we're at a good level. The engine is humming. You are going to see -- you have seen disproportionate hiring. If you look at the revenue -- or sorry, the employee count increase from 2021, for example, I went back and looked at it, and it's 90% front positions, right? We're investing into wealth. We're investing into infrastructure. We're investing in the operators to drive performance, and we're getting more leverage out of the backbone. I think we're in a relatively good place today. We are running our engine hot. That's the way we operate, but we're at a good place. So I think that's in a position to kind of grow in line with assets under management, which has been our long-term philosophy. Do you have anything to add?

Maybe I add just regarding your EBIT margin because what Dave just said doesn't immediately mean you have a high EBIT margin, lower cost -- personnel cost because some of these costs, which were now outsourced or done by service providers, flow into our operating expenses. And so you might see, Nicholas, yes, a more elevated EBIT margin for the year, right, than higher than the 60%. And as Joris said, we invest every incremental dollar into growth in this private wealth as one of these examples.

And we're not taking margin as a firm. We have had a longstanding deal with our employees, right, what percentage goes to expenses, right, employee expense, in particular, and what percentage goes to the house. We're going to maintain that deal, regardless of employee count as well.

It's Greg Simpson from BNP Paribas Exane. Two questions. Firstly, could you talk a bit about portfolio company fundamental earnings growth and also what you're kind of doing to multiples, what you're seeing on that front just in the context that I think the global value is up 2% in H1, so the outlook there for returns? And then second question would be on defined contribution. It feels like a market that has been talked a lot about, 401(k)s, but it seems slower thus far. What are the kind of catalysts, if you think, to kind of really accelerate that market there?

Yes. Good question. So maybe I'll start on portfolio and then hand it over to you, Juri. The portfolio continues to develop more or less in line with our expectations there. During COVID, we started to provide more statistics around kind of portfolio performance and things like that, just to make sure people understood that, that was in good health. I wouldn't expect that into perpetuity, right? That was -- because the reality is when we put together these averages, right, if you put together average growth based on NAV, then it overweighs your big strong performers that are increasing in size. If you do an average based on count, then it gives disproportionate count to the smaller venture positions and growth positions that have these huge growth rates. And so the best way to show portfolio performance is actually line by line, company by company with clients, and that's the way we show it to them. And some of the aggregate stuff is less relevant in our mind. And so we -- I wouldn't expect to see that kind of on an ongoing basis, but it continues to perform in line with expectations. Now multiples have come down by about 15% in the space, and that's what we've experienced on the exit processes that we have concluded.

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No, that's from the prior market. And that's about -- I think that's about where those will stay. Because if you look, that's about the level that they need to come down in order to absorb the higher financing costs and lower quantum of debt that's currently available in the current market environment. And yes, that's the read I would give you on that. Juri, any color you want to add?

Yes. It's probably fair to say that the readjustment leads for the question has happened with the minus 15%. So to answer your question, in the first half, I'd say on variation multiples, it was more stabilization. And you probably appreciate that it typically takes a few quarters until the bid ask spreads start to narrow as part of reasoning of why it takes a few quarters until you have the bid ask matching and then that translates into enhanced transaction volumes/distributions. If I look at the performance, probably looking one level down, I think the debt markets are clearly more liquid and stronger than they have been. Call it 6, 9, 12 months ago, you have the good credits that trade at or above par even. It's a good indicator in the secondary market of the liquidity that's in the market in terms of volume. So again, that will be a contributor to drive transaction volumes into the future. Also a contributor to stabilize the valuations overall as a significant part of the enterprise value. It will be driven by the debt volumes in the market. And then maybe the third part of the answer is regarding the year-to-date performance, it's probably been a differentiated view. If you look at credit, we have high rates, lots of exposures floating, so that will contribute to strong performance. I think on the credit side, it's particularly strong year-to-date. If you look at the real estate side of things, that's the most capital-intensive business. The cap rates that went up, that has clearly impacted the performance here. And then it's the macro outlook on -- when the cap rates come down, there is a thesis here by the markets going forward where there could be potential for that. And I'd say, if you look at the in front, the private equity business on the back of multiples have landed on the back of the strength of the portfolio, I would expect a more normalized continued development from here onwards in terms of performance.

And I find the private equity secondary market an interesting place to look at from like where are people taking risk in private markets today. And it went from kind of a par-ish market down to kind of high 80s, right, in terms of where assets were trading to low 90s last year. And what we've observed so far over the last couple of months is kind of mid-90s, even some par trades. And so it gives you an indication that people are going more risk on -- within our space again, which I think is interesting. As it relates to DC, this is a big topic. It's been very slow developing, I agree entirely. And we've been on the cutting edge of that. The developments that happen as they develop. We do have our first win case study for defined contribution in the U.S. market, which we achieved in August. And that came not from the big, huge DC programs that you see, but rather in partnering with what's called pooled employer plan, where multiple employers can band together to have a sophisticated portfolio manager managing a common 401(k) program for all those different companies and have a portfolio manager that's perhaps more of an investor, less of an administrator taking a more institutional-type approach to their program. And we're one of the first firms to have private markets content going into a 401(k) program in the U.S. through one of those were called PEP portfolios. Now it's not a huge quantum of capital for the first half of this year, some $100 million so far, but we really -- we're focused on doing that in order to create the case study, in order to create the example that we can then use within our broader efforts to unlock that market potential. So it continues to be slow, but we're taking little chips at it.

It's Angeliki Bairaktari from JPMorgan. Firstly, with regards to the medium-term ambition of 10% to 15% AUM growth that I think you had mentioned last year, we said also back in July that if we look at H1 AUM, these are tracking sort of 5% higher because of FX and sort of performance on the evergreens. Now it was a bit surprising to me to see that the FTE number came down quite significantly versus the end December amount. And I was just wondering, is there anything we should read into that with regards to sort of the deployment opportunities that you see in the future or the fundraising opportunities that you see in the future? Because I think in the past, we have always tied sort of headcount growth together with AUM growth. And the fact that you grew quite fast from 2021 onwards, and now you're pulling back a little bit could prompt some questions with regards to the future AUM growth of 10% to 15%. And then second question with regards to performance fees. I was wondering whether what is the quantum of the SRS and Civica exits sort of carry that could come in the future in funds that are not yet generating carry, if any? And also with regards to IPO activity, we have seen some headlines on Bloomberg with some sort of deals still being considered for the second half of the year. Is that something that you're thinking about? And do you see the conditions improving with regards to IPOs?

Okay. So a couple of things embedded there. Number one, on the 10% to 15% growth, that is absolutely confirmed. We believe that if you average together our next several years of assets under management growth, that it's going to be in that range. Obviously, you can have transition years like we've seen last year and to some extent so far this year. But that is the ambition that our firm is driving towards. And if you look at the way we're positioned within bespoke solutions, within wealth, there is no firm in our industry with whom I would trade cards strategically. I think we're very well positioned to capture many of the big themes that are taking place within our industry. The headcount we talked about just a moment ago, if you drill down into where this is coming from, it's -- these are not growth areas that we're paring back on. For example, our investment engines continue to receive investment. Our sales force, in particular, and distribution, in particular, receive investment. So there's nothing I have to read into in that regard. Our average headcount was about flat. Sometimes, if you look at some of the peaks and troughs, you can get some swings in there. But we're running at a resource level that's about right for us at the moment. And we are investing significantly into growth areas, have a 100-plus open positions at the current point in time almost all tied to these growth areas. As it relates to performance fees, so the two assets that we talked about, specifically SRS and Civica, you are correct that not all of those performance fees fell in this period. So we have a very conservative approach to how we calculate performance fees. And even though we collected the cash, only about 50% of Civica that was counted in this period. And in some of the underlying vehicles, there's a smooth -- they're at a point where there's a smooth realization of performance fees. And some of them, there's a little bit more of a stair step. And we need another couple of distributions, maybe 1 distribution, maybe 2 in order to unlock the second half of the Civica performance fee. And then with regard to SRS, only 60% of that was counted in this period. The other 40% either came from high watermark funds, where you saw that the performance fee gathered in step-by-step as the NAV appreciated in that vehicle or they're also tied to vehicles that still require some more distributions in order to unlock that portion. Those two together account for about a 1/3 of the performance fees that we saw in this period. So certainly more potential to come. Also you see that in a period where there was not that much activity, one co-investment and one relatively small direct position is -- makes a big difference, right? And you oftentimes don't know, right, if that's going to be counted or not. It's quite complex accounting, quite complex math associated with each of these underlying vehicles. Again, 350 underlying vehicles that we have, 80 that are paying performance fees. There's quite complex math oftentimes. And sometimes, you don't know until right before reporting period does it count or does it not count. Certainly, from a cash perspective, we feel like we're doing what we thought we would be doing. But from an accounting perspective, we have the most conservative, I think, reporting on performance fees out there.

IPO market.

IPO market, we think, has some potential. And sometimes, the news that you read is true. Sometimes, it's not true. But we are pursuing a couple of opportunities in the IPO markets. We think there's potential there.

It's Oliver Carruthers from Goldman Sachs. So if I look at the industry data, it looks like in the U.S., in the interval fund space, looks like last quarter was another record quarter in private equity, semiliquid in terms of gross inflows. And it looks like it was a pretty good quarter for you guys as well. So I guess, based on the conversations that you're having with your distribution partners at the moment, how do you think about that space over the next 6 to 12 months? What are you seeing? Would you expect this kind of record levels we're seeing from an industry perspective to continue as new entrants come in? And then I guess, as it relates to your exits on the -- I think you said you had a record $20 billion exit pipe laying currently. Does anything need to change in the current kind of prevailing market dynamics for you to execute on that $20 billion? And what kind of rough time frame are you thinking about? Because to me, it seems like a lot of the necessary ingredients for transactional [ late fees ] to come back are actually there. It seems like it's just a case of time coming through, but interested for your perspective on that as well.

Yes. Two good questions. So the U.S. market for wealth continues to be strong. This was indeed a record quarter. And this was another period where you saw more and more entrants into the space, right? And you've seen that now for period after period. Just about all of our distribution partners are in harmony on the fact that this is going to be a much bigger part of their future than it has been of their past, and you see everybody moving towards higher allocations. Now we have started to hear from many of our distribution partners that their shelves are starting to be stopped, right? And so as opposed to adding 6 or 8 or 10 new vehicles to the pile, this is going to be a much more concentrated competitive set within wealth than what we saw in the institutional set. And we're starting to see the slowing of new entrants being able to get on the shelf space. And we're hearing that also from our distribution partners saying there's not going to be 1,000 wealth solutions, right, within private markets. There's going to be a few dozens potentially. And so as you start to see the number of new entrants come down and the existing participants that have had some foresight and had some credibility within that space and position good products, we think we're going to get even more benefit from the structural growth that we do indeed see coming through. Just to give you guys a sense, there were 11,000 private markets firms that successfully raised limited partnerships from institutional investors, right? There's going to be a few dozen that participate in the private wealth phenomenon. And we feel really good about the positioning that we've built as one of the leaders in that category. With regards to executing on the exit -- pipeline of exits and what needs to come through, you can talk to your colleagues on the banking side to let them know. It's not a matter of financing, right? It's not a matter of participants. I think fundraising is a big part of it. And we used to have a broad base of buyers, right? They were successfully raising funds and participating in the market. One of the things that we found is there's really only a handful of firms that can raise money today, and those are the firms that are coming through. If you look at the people that we've signed exits up with recently, it's Blackstone, it's CVC. It's people that have very robust fundraising engines. And some of the smaller firms are less active because every transaction that they complete takes them one step closer to fundraising, and they are loathe to fundraise right now because they don't believe that they're going to be able to meet their objectives. And so we did have quite a bit of time wasted on processes with where we went exclusive with the smaller firms, and they flaked at the end of the day. And you see kind of some of that happening. Just about every process where we came to a conclusion and felt like we had a market price, right, whether that's higher than our market or lower than our market, we're prepared to exit on that. But if you have a process that falls apart, right, because people flaked at the end of the day, and we're not going to go with the few bottom fishers that are kind of hanging around in a not robust process. We'd rather hold on to those assets and wait for that recovery to happen. I agree with you. I see a lot of the elements that are already in place. Financing is there. Growth is starting to improve within many of these positions. People are going risk on again. But I think security around fundraising is one of the things that I would say is a big differentiator between people that are active in the market today, like a Partners Group and like some of those other big platforms versus people that are sitting out in the current market.

And to your question, what else does it take, I'd also say it's bid ask that's normalized over last 1 or 2 quarters. It just takes a while to this. It really needs and doesn't take a quarter or 2, and we agree. And then I think in addition to that, it's also a bit one thing fuels the next. Once the exit engine, then the bid ask starts to meet, the exit engine starts to bring back distributions and then maybe the second tier type of players send money back to the LPs, have more fundraising coming. So in my mind it is a bit having the key ingredients that drive there at the moment. And now it takes 1 or 2 additional aspects that the engine is being fueled again and then spinning back those distributions leading to other activity.

We'll take maybe one more question from the room, then quickly to the phone and then come back to the room, if that's okay.

Cool. It's Bruce Hamilton, Morgan Stanley. I've got 2, maybe 3. First one, just on kind of fundraising looking forward. On slide, I don't know which slide it is, the one that help -- 4, sorry, that shows the geographical split of assets. Obviously, the U.S. has grown a lot. And given your comments around the wealth opportunity, I assume we should expect that further increases. But what about sort of Asia and Middle East? There's been some mixed noise coming out of the Middle East as to whether they're going to keep pushing. Generally, I would have thought Asia and Middle East should be also increasing in percentage terms, but just keen to understand that. Secondly, on the sort of performance fee guidance for the sort of 20-ish percent. Are we assuming then that some of the larger assets like tech can fall into '25, just to check? Or would you need still to hit a couple of big exits to get even to 20%? And then final point just on the sustainability of the nonmanagement fee and management fees. So how large -- well, late management fee is fairly normal. And -- but what about the sustainability and sort of the financing other areas as we look forward?

So from a fundraising mix perspective, we do believe that there's meaningful upside for us in Asia and in the Middle East. We have more resources that we put into both of those markets in recent periods than we've ever had present there. And the North American investments that we've made are here, and that's why we're talking about it. The other investment that we made are on the come. We continue to see good momentum in the Middle East, in particular. That's a market that we just -- for a long period of time, we're content to grow with our existing clients in Europe and just didn't put enough muscle into those markets. And we're starting to spend more and more time and have some really senior resources that we've allocated to developing those markets, in particular. So there's less to talk about in terms of specific tangible things in this period, but I do anticipate that to increase in future periods. And you see North America, Asia and Middle East potential coming through. Second question that was the...

On exits, just to understand. Obviously, there's some potentially big exits like tech that you talked about. But did your '24 guidance assume pretty much all of that in 2025? Or do you need a few big deals?

No, we don't need anything that's really big. You have kind of the typical -- you do need a couple of things to hit, but all things that we feel like we have really good visibility on. In general, with the exit pipelines today, we have huge discounts applied to just about everything that's out there because you do see some variability there. So there's no big swings that we need to take for the 20%. And again, when things do start to fall into place, you will see meaningful upside, right, in those performance fees, as outlined by Juri. Joris, anything you want to add to that?

That's clear. Maybe the last question with regards to the one-timers or the other operating income, as you call it, I think we've seen this year now a quite strong half year 1, I think, which is also comparing to more stronger years, which we saw obviously in the past. Like in 2021, we've seen $130 million. I think that's obviously -- that range could also be a good proxy when we continue to look forward this year. So we just see basically a -- by now quite a strong momentum there.

Sorry. So $130 million for full year?

I think that was the 2021 number. And this year, I think we are also quite well underway.

Can I ask a question from Máté Nemes? He asked, can we talk about 2024 performance fees? They are a bit lower now. Does this mean 2025 can be higher?

Yes. I think if you look out into the future, once exits start to fall into place, again, this period, only one co-investment and one reasonably small direct investment really hitting in this period. And the most muted general levels of distributions within the industry, which impacts some of the more diversified programs as well, I think there's a good upside in our performance fees, certainly.

Should we switch to Charles? Go ahead.

Charles Bendit from Redburn Atlantic. I just wanted to follow up, David, on your comments around shelf space in the evergreen market in the U.S., which were really interesting. Nevertheless, I think there has been more competition. And wondering whether you see a need to have distribution headcount, so that you can access individual advisers in that channel, bring them up to speed with your product offering and comfortable and actual -- actually getting them to distribute your products.

Absolutely. There is no place in our business that's growing faster from a headcount perspective than private wealth distribution resources tied to that. And that will continue to be the case because that's where the battleground is. And so we're investing to make sure that we're positioning ourselves appropriately there. Now there are other ways to leverage that group. It's -- some people are all about boots on the ground. You're going to see a lot of creativity from us as we develop what we view as kind of next-generation solutions for wealth management, where we can find some greater leverage from our team. But you are going to see us continue to invest on that theme certainly.

Maybe one just quick follow-up. Are you also thinking about investing in brand? You're obviously incredibly well known in Europe. In the U.S., likewise, you're potentially less so with end investors who are really familiar with some of the household names, the big 5 P houses. Given what we've seen inflow-wise into the K-Series funds, Blackstone products year-to-date, is there an effort on that front to make sure that Partners Group retains the share it's currently at right now?

Yes, absolutely. I don't think retaining the share we're currently at right now is in the cards. That's just not -- you're going to see this become a much bigger part of the equation, and you're going to see that share getting spread across the relevant participants. As a first mover, we came into that market early, helped to develop it, positioned ourselves, I think, in a really interesting way. And you have a number of participants that have just gotten started, right, within that program. And as that market develops, you have the potential for this to be a multitrillion dollar opportunity set, and we are going to have to get some share to competitors as that develops. But we do think we're going to get our fair share of that market as it develops, and that's going to be attractive for us. And yes, we are indeed needing to invest into brand. And you're seeing us put more resources behind that, had more people joining to continue to develop that. When an institutional investor does due diligence on a firm, they'll spend 6 months, right, sending their people in-house, getting to know things, going through spreadsheets, going through due diligence. I had a wealth adviser recently, a big advocate of ours. He said, "When I talk to my clients about you guys, just so you know, they spend 30 seconds on your website. And then they tell me, yes or no, right?" It's a different proposition. So those advisers are really, really critical to make sure that they understand the positioning, and we run workshops where we bring them in-house. We walk them through our full due diligence. We spend time with them with our management team. And so they really get to know us. And so they can represent us appropriately. And then we're also investing into brand to make sure that, that has resonance with the population of those people.

I think we have one question on the line -- on the phone. Should we...

[indiscernible]

Yes, now we can. Can you repeat the question, please?

Yes, of course. First, on your guidance about performance fees, obviously, on one hand, you've confirmed the 20% to 30% range for 2024. On the other hand, you said to be around the 20%. So do I get this right that you mean to be above 20%, but kind of closer to 20% rather than 30% or, let's say, in the lower half of the range or at least maybe even lower quarter? And then maybe secondly, can you give me a bit of an update to what happened between the last time you talked to the market in early July and now in terms of the normalization? So I think I first heard this to be around 20%. Now has this normalization been slower than you anticipated in early July now? Or was everything along your expectations, but you just only communicate now the expectation to be around the 20%? And then one thing on management fee. Can you maybe give me some color on late management fees, how this has developed and what you expect in the coming periods or reporting periods going forward? And lastly, the one thing I heard out of your answers out of an earlier question, I think it was from Nick Herman, is that you expect management fees to rather go up from where we are currently. Was this -- did I understand this correctly?

Phil, yours. Do you guys want to start?

So maybe I think the outlook that we gave that we're now giving on the performance fees that we expect has a range of 20% to 30% for the years '24 and '25. And I think for the year '24, in the more muted market, we expect to be currently at around 20% of the range. And of course, meaning then that in '25, more of the performance fees will be recognized.

And with regards to evolution of the outcome, I wouldn't say at all that something different -- something happened different than what we were expecting in a significant way. As outlined previously, it was much more from an accounting perspective. We only counted a portion of the performance fees generated as outlined a moment ago.

I think if we look at the late management fees going forward, I think what we saw now in the first half of the year, I think, typically, we, of course, realize these as soon as programs are closed. And what was the main driver in half year 1 of the other operating income and other operating revenues, I think, was the treasury management services, which, of course, also profited from the higher interest rates. Now of course, this also can continue going forward. So that's also why we say everything in between, just my answer -- my prior answer that we still expect this to be at a decently strong level also for this year, for the full year.

And late management fees, in particular, we have our infrastructure program and our secondary program, both of which have the potential to continue to generate late management fees. I think, more or less consistent with where they've been.

And lastly, regarding the management fee margin, what you mentioned, could they go up, the point is, is I think we answered this at the very beginning. There was more credit fundraising, right? Credit fees do not go up over time. I think they stay low. This is as it is. With regards to the timing of, for instance, infra secondary aid, we have infra secondaries, there's so many closed-ended funds where you see the fee clock coming -- being turned on soon. So yes, they have raised at full fees, and that means very likely that some of that management fees or margin will be recouped, not the ones for private credit.

Is there here in the London office? Yes, I think I see [indiscernible].

It's Isobel Hettrick for Autonomous Research. I have two questions, please, and both going back to the private wealth topic. So clearly, lots of momentum in the space and as we've discussed this morning. And we did see evergreen fundraising spike up to $4.6 billion in the first half of 2024. So should we -- where should we think about a sustainable run rate of evergreen fundraising from period to period? Is like $4 billion the new floor? So any color there would be great. And then secondly, we have seen lots of new entrants come into the market, some who maybe don't have extensive experience running semi-liquid funds. You guys have always been very clear, you don't advertise the liquidity of your funds, even though it's available. Do you think there's maybe a reputational risk to the sector that maybe a couple of funds don't perform, don't give the liquidity, that maybe investors think they've been sold and accessed? Can we maybe see, although it's a structural long-term opportunity, there's a few bumps in the road as the sector matures?

Yes. I maybe won't speak as much about our competitors, other than even those that have had bumps in the road continue to demonstrate pretty robust performance, which makes me believe that it might even be more robust than we had previously thought for some of our peers. We want private clients to have a fantastic experience with private markets, right? For many of them, this is their first experience with private markets, and we want to perform for them. We want to meet their expectations because there's real upside if they have a positive first experience with them then going back in and building the full portfolio, right? And that's what we anticipate to happen. So I won't speak as much about our peers, but we are very focused on making sure that happens and making sure that we underpromise and overdeliver to make sure that we meet the expectations those investors have, even if that means us growing a little bit slower in this product to make sure that we can absorb all of the cash and invest that thoughtfully as opposed to diluting people too quickly, even if that means that we have to make other moves. We are very focused on making sure that those private clients have a fantastic experience. And we're investing in the resources in order to do that. And that includes not only the individuals that are out there telling our story, but also the individuals that are servicing those clients, providing information to them. Those are all areas that are receiving disproportionate investment within our firm right now.

It's Angeliki from JPMorgan. Just a follow-up question. What is your appetite with regards to M&A in order to accelerate growth, in particular in the U.S.?

Yes. This is a consolidating industry. And the importance of the wealth market, I think, only accelerates that, right, because you have a number participants that are not going to be able to build solutions fast enough to really get on the shelf and participate in it. And as we talked about in our annual results call, I'd say we have more appetite today than we've had historically for M&A activity. And I'd say there is more M&A discussion that has ever happened before in our industry happening right now. And so these things are always hard to predict, right, but I do anticipate that being a part of our story over this next decade potentially.

And would that be more about adding distribution capabilities? Or would it be sort of adding an asset class or sort of you already have all 4 asset classes? But for example, could you look to do something more in private credit where scale is needed, especially in the evergreen space? .

Yes. You can think about it in a couple of different dimensions, right? You can think about taking an existing business that's scalable and adding a bunch of capacity to it, right? And private credit would be an example of something where that has taken place. And there are some discussions that are taking place there. We are not a firm that doesn't have distribution today and needs to add that with the same urgency that some of others do. And so I would say there is potential for us to get deeper in terms of distribution, but you can also achieve that through other means, through joint ventures and through other things like that. And so -- but probably less M&A potential for Partners Group versus some of our peers in that particular category. And then as it relates to brand and developing brand for the U.S. market, in particular, as you've highlighted, that's another area of potential. Good. And with that, it looks like we've wrapped up at least from what we can see here in the room. We want to thank you for your interest and for your participation in this call today and wish you a great day. Thank you very much.