Partners Group Private Equity Limited (PEY) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Princess Private Equity Holdings Q3 2022 Investor Conference Call and Live Webcast. I'm Moira, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sarah Page. Please go ahead, madam.

Good morning, and welcome, everyone. I'm Sarah Page, Senior Corporate Development Manager and Head of IR for Princess. I'm joined today by Michael Studer, who will go through the portfolio management review, whereas Felix Haldner and I will cover the Q3 results. Now before diving into the quarterly figures, just 2 words on Princess. Princess provides shareholders with exposure to Partners Group direct private equity investment strategy, participating in transactions alongside our institutional clients. Partners Group is a thematic investor focusing on investments in companies where growth is underpinned by long-term transformative trends. And we bring extensive resources with a global team of over 170 investment professionals, supported by a global network of external industry advisers and operating directors. All of Princess' investments are subject to Partners Group's responsible investment policy and ESG factors are fully integrated at all stages of the investment lifecycle alongside commercial and financial factors. The performance continued to develop positively during the third quarter of 2022. Princess achieved a NAV total return of 3.7% for the quarter, bringing the year-to-date performance to minus 4%. Share price total return was minus 12% for the quarter, reflecting an expansion in the company's discount to NAV. Despite not paying the second dividend this year, the yield is strong at 6.7% at 30th of September and a 10-year average of 5.2% up to 2021, which makes Princess the highest dividend payer in the industry on average for the longest period of time. Top line performance has improved with LTM revenue growth up 5.4% quarter-on-quarter, but inflationary pressure affected EBITDA growth dropping 2.2% quarter-on-quarter. EBITDA margin, however, remained stable at 21.1%, which reinforces the fundamentally good quality of the portfolio. Now although investment activity was curtailed during liquidity -- due to liquidity, which we will get into in a minute, investments that were mostly committed to earlier in the year were paid in the third quarter amounting to EUR 71.6 million. As Princess strengthens its liquidity position, investment activity will be muted in the short term. Princess' mature portfolio continue to benefit from limited distributions in the current challenged exit market with EUR 25.4 million of the EUR 33.5 million coming from the partial redemptions from senior loans. Here on this slide, we show EUR 8.1 million in distributions because this is the amount directly attributed to investments with EUR 2.7 million being the most from one single investment, which was capital returned to investors from Guardian Childcare. Now I'll hand over to Michael to go through the portfolio management review.

Good morning also from my side. Many of you have voiced your surprise and disappointment following the decision to suspend the dividend for H2. We take this very seriously and we understand that we need to work on regaining the trust with our shareholders. As such, we would like to provide you with further clarity and transparency on the main parameters that steer our portfolio management and ultimately also the sequence of events that basically led to the suspension of the dividends and actions that we have taken before and after that decision. When we look at our portfolio and risk management approach, basically for Princess, what we target is to have a high investment level in order to ultimately achieve a high total return from a fully invested portfolio. We have a dividend objective of 5% of opening NAV YSM, annual payments. Now what are the steering parameters that we apply when basically managing the investment level? First and foremost, we look at the portfolio and anticipate and -- or observe actual and anticipated distributions. On our own direct lead portfolio, this is based on bottom-up estimates from the investment teams. And on the indirect portfolio on the core investments that's basically partially from the discussions with our investment partners, but also based on top-down adjustments taking the environment into consideration. Based on these distributions and based on the target dividend, we derive the capacity for new investments. Now it's important to note that for as long as we have open investment capacity, we add Princess into the overall transaction flow that we generate as Partners Group. Now once these investments are commercially approved, obviously, there are different elements that come together and play into these discussions. So on the one hand side, obviously, often we might still need to see whether we are in a position to actually kind of execute or whether we win that particular transaction. And last but not least, there is also a time lag between the commercial approval of the transaction, the signing and ultimately the funding. The funding of transaction often can take 3, 4 months because you might also have certain regulatory approvals that need to basically being achieved in the meantime. On top of that, as a firm, we basically have agreed or we have established a policy to hedge a significant part of our FX exposure across our programs. With the FX hedging strategy, we basically -- we limit the NAV volatility that our clients face. And at the same time, obviously, this then basically results also in a certain volatility, variability on the cash flow side as and when the [ orbit ] contracts that we enter into as and when they settle. To account for the different elements of volatility around the planning on the investment side, exit side, FX, we have organized a prudent financing as a buffer for some of these unforeseen events. And currently, as we've also communicated before, the credit facility stands at EUR 110 million. When we look at the bottom of the chart, we see that actually kind of over the years, we have been successful in achieving a high investment level and the dividend payout, so this shows the last 10 years, we basically decided to suspend the dividend partial in 2020 and now in H2 2022. And with that, let me move over to the next page to run you through also the decisions and let's say the parameters that led to ultimately the suspension of dividends. We started into the year out on the back of the strong realization activities that we have seen in 2021 with a strong liquidity position. Based on the liquidity position, we launched our initial investment plan for the year and we started to execute on that. Now we have seen, obviously, the macroeconomic environment changing in the first half of the year with increased geopolitical uncertainty with a rise in inflation and interest rates. And on top of that, we've seen a significant first depreciation of the euro against the U.S. dollar, which ultimately resulted in EUR 32 million cash outflows from FX hedging. At that point in time, actually towards the end of July, beginning of August, what we have done from a portfolio management perspective that we actually kind of stopped allocating further investments to Princess in order to protect liquidity. And based on these actions, we assessed that the liquidity would be sufficient to pay the planned second interim dividend. We have seen also somewhat of a recovery over summer. But ultimately then in September and October, we have seen markets to get, again, more shaky. And this led to a further 6% depreciation of the euro against the U.S. dollar, where -- which led to cash outflows of EUR 28 million from FX hedges in Q3. As we moved into October, we have seen further deterioration of the credit environment, which ultimately basically led to us asking our teams to reconsider also the outlook for distributions, the near-term outlook for distributions. Ultimately, at the end of October, we have finalized the revised expectations pointing to a limited exit environment for the coming months. As we then basically looked at the liquidity at that point in time and taking into consideration the potential further stress on FX in a reduced exit environment, we have come to the conclusion that we would suggest to the Board to actually kind of suspend the dividend for H2, given a potential risk for further FX depreciations and assuming that that market situation would be prolonged for longer. And this is then how we informed the market on the 2nd of November. When we look at Princess and I guess, let's say, the volatilities of cash flows, there are mainly 2 sources of volatilities. On the top part of the chart, you basically see the volatility of the euro versus the U.S. dollar, which is the main currency part -- the currency pair when you think about the portfolio of Princess. And you see that you will have periods where the trading between the 2 currencies is more range-bound. And then you see periods of stress where you might see significant depreciation of one currency vis-a-vis the other. And that's obviously taken into consideration as we size our liquidity buffers as we size our investment strategy. On the lower part, what we show here is the variability of distributions back from buyout investments. So what you see is the average quarterly distribution activity in annualized terms as a percentage of NAV. So when you think about an average holding period of a buyer investment of, call it, somewhere between 3 to 5 years, you would expect to see roughly 20% to 30% of the NAV to be distributed in a particular year. This curve is more stable than FX, but it also shows that in certain periods of reduced liquidity that it could drop quite significantly. And that's the second consideration as we basically run our stress cases and scenarios that we take into consideration of the portfolio management perspective. As we basically then, as I said before, as we moved into October, we have reassessed our outlook. And with that, we have taken more conservative terms on distributions that come back from the portfolio. Obviously, just one additional comment on the variability of these distributions. In the end, this is an important benefit of private markets that given the structure of the market, you're not entering as a forced seller into the market and you don't need to realize exits or realize investments at a bad point in time. And so we can continue to create value in the underlying portfolio companies. So I guess moving to the next page, if I would want to summarize, in the end for us, based on all the demand that we see kind of from the shareholders, we continue -- we want to continue to target a high investment level to ultimately maximize total return. The current financing is sized to withstand an economic downturn and FX volatility. But we have taken in our taken measures to further protect liquidity. In that sense, as I mentioned before, we already stopped allocating to new investments for the time being. Obviously, yes, I mean once we see a somewhat normalized exit environment, we will have Princess continue to also benefit from an environment where ultimately we will be also continue to be able to execute on attractive investments. At the same time, we have also initiated discussions to upsize the credit facility. We currently have a relatively modest level of financing. It's not that we will increase this significantly. We're talking about a relatively modest increase to further increase the flexibility from a financing perspective. Obviously, the hedging strategy has been one of the questions that shareholders have raised as part of the decision to suspend the dividend. Our current hedging policy focuses on NAV stability. The one further actions that we have taken is that we're considering to partially potentially switch some of the FX hedging contracts to ones with longer-term settlement, which will basically avoid the daily margining. We are currently in discussions with the Board and internally to reassess the FX hedges strategy also based on the feedback that we have received from our shareholders. As I mentioned, coming to the last point, the dividend. So in the end, we don't only look at prevailing liquidity as we derive our proposal to the Board for dividend payouts. We always also look at scenarios and simulations to assess how the liquidity might develop in a stress case. As you're on this analysis, this show the potential shortfall at the end of October if the November dividend had been paid. And that's why ultimately, we then also went with the proposal to suspend the dividend with -- to the Board. It is still important to note that this was again also highlighted in the RNS this morning that Princess liquidity position is solid following that decision. Now as you all have highlighted in the RNS this morning, it is our stated and it remains our stated objective to pay a 5% dividend of the opening and NAV. And we are confident that absent of a further significant U.S. dollar appreciation and assuming a somewhat normalized exit market environment, that we will be in a position to pay the next dividend in June 2023. For the voidance of doubt, we will not pay out an H2 2022 dividend. And with that, I would like to hand over to Felix.

Thank you, Michael. With that, I'll dive into the value creation slides, and I start with a picture where we bridge basically the MSCI until end of September with the NAVs of the Partners Group private equity portfolio. What you see here is basically -- it's not Princess, it's Partners Group's private equity direct control portfolio. The overlap is probably about 80% to 90%, but it's not 100%. So what you see is basically the public markets measured by the MSCI were down more than 25%. You will know that we have taken down our NAVs during -- on a monthly basis, actually, particularly towards midyear, but also in the following months, just to reflect typically lower multiples that are observed in public markets. Now a deep dive and a bridge why astonishingly, the NAVs of the portfolios are only in the minus 2% for Partners Group's private equity direct portfolio, around minus 4% for Princess end of September, you find actually some explanations. The first one is that, well, as you all know, our portfolio is not basically comparable with the composition of the MSCI. I mean particularly, we don't have financials. We have less of the cyclical technology and so on. And so by that kind of -- we tried to find the public markets kind of sector adjusted performance, which was about minus 13.3%. So already the resilience of our companies resembles much more also the sector adjusted one. Then we had actually a number of events in our portfolio, about 6 top performance companies, all of them part of the Princess portfolio where NAVs have not corrected downwards or even upwards. I remind you of transactions I discussed last time in relation to United States Infrastructure Corporation, where we had a partial sale and the like that have actually added to a positive performance in that term. And we then derive to about minus 2% or as I said, minus 4%. I'm really confident we have very solid NAVs. We have taken them down and there is a reason why they are not as down as the public market indices would suggest. Now this is more general and I dive into our portfolio. On the next page, you see the reasons basically why our NAVs hold up. That's basically the performance metrics, where you see the last 12-month EBITDA growth of our direct portfolio that has a solid 18.4%. The revenue growth, even more 25% and the EBITDA margin on average of about 21%. And in terms of valuation and debt metrics, the enterprise value to EBITDA multiple and 18.7 net debt-to-EBITDA ratio of 6.3 and equity cushion of, on average, over 60%. With this overview, I hand over to Sarah, to comment on the top 10 investments.

Thank you, Felix. And yes, I'll now run through the top 10 to give you a quick update on the latest value creation developments. So starting with SRS, which is a U.S.-based company distributing roofing products, it has an acquisitive growth strategy to expand its network with recurring revenue and EBITDA growth from these streams has been supported by the construction boom in the U.S. and where roofs have a typical replacement cycle of 15 to 20 years. SRS remains highly acquisitive and compared to its peers has had a larger white space potential and less cyclicality. And it has been written up in the third quarter. Now moving on to KinderCare. The growth has been through platform building and organic growth. To date, around 26 childcare centers have been integrated into the KinderCare network. On the organic growth side, enrollments have risen back to pre-COVID levels and tuition rates have been able to be increased to help cover inflation-induced running costs, coupled with double-digit revenue growth per annum. During the third quarter of 2022, KinderCare Education has negatively revalued in line with market comparables. Nonetheless, the company continues to record positive financial performance with healthy occupancy levels. Moving on to Emeria. This is a property manager, and it has so far created value in the following way. It's gained efficiencies by upgrading its internal systems, standardizing processes and it has also improved customer relationship management initiatives. Digital transformation has also been an enabler of this. Automation of manual, low value-added activities has freed up time in client-facing front office roles to redirect the focus on satisfying client needs. This, combined with user experience and interface design, is bringing benefits both on the revenue and the cost side as well as platform building with add-on acquisitions across Europe and also gained a foothold in the U.K. with the purchase of FirstPort. And over the third quarter of 2022, the valuation of Emeria was written up as the company continued to report healthy financial developments in the last 12-month period. Now moving on to PCI Pharma. It has targeted add-on acquisitions, which has fueled global expansion of this U.S. pharmaceutical company into Ireland, Australia and Canada and also improving operational efficiencies through lean manufacturing, digital transformation of complex workflows driving further efficiencies. And during the third quarter, this has been written down, again reflecting the declines in market comparables. Vishal Mega Mart is headquartered in India, and it's a franchiser and wholesale supplier for a network of over 500 stores across India, targeting lower middle-income customers. And its growth is attributed to faster store rollout, adding product assortment and compelling value and maximizing supply chain efficiencies. And in the third quarter, it was written down again due to the decline in the multiples. USIC or United States Infrastructure Corporation is the leading provider of infrastructure locating services. And it has also been -- sorry, it has agreed to expand the share -- sorry, on 10th of August 2022, Partners Group agreed to expand the shareholding base of USIC to incoming investor Kohlberg & Company and re-underwrite the transaction with a 50% co-lead interest in the company. And USIC's valuation in the third quarter reflects this transaction, which has resulted in a valuation increase. AMMEGA is a global leader in mission-critical industrial power transmission and lightweight process and conveyor belting and its organic growth has been powered by direct-to-customer sales strategy. Rising labor costs are driving operational efficiencies through more automation and their structural underlying market growth. And this means that there is increased growth in consumption of processed food and this is leading to more production lines and growth in e-commerce, involving more investment in infrastructure. And AMMEGA has also grown through 12 synergistic add-on acquisitions, helping to build economies of scale. EyeCare Partners has grown its footprint by expanding into 5 new states as well as building up density in its hub and spoke model with over 550 physicians added to the network. Not only does this boost top line growth, but also savings in leveraging scale to unlock back office and procurement savings. The valuation of ECP increased in the third quarter of 2022 with year-on-year growth in revenue and EBITDA for the last 12-month period. Fermaca under PG's ownership has transitioned from just constructing natural gas pipelines in Mexico to becoming a fully integrated operating company in developing and operating gas pipelines and they have also expanded their network capacity. In the third quarter, it was written up on the back of comparable multiple improvement. Techem, which is already a top market position in its home country of Germany, Techem's growth has been accelerated through pan-European accretive acquisitions, coupled with building out new products and services to further improve client-centricity. And it has -- its valuation has remained broadly stable over the third quarter of 2022. And now moving on to the largest investments in Q3. We had Forterro, which is a leading pan-European software services provider with 11 enterprise resource planning software brands serving over 10,000 customers. Partners Group plans to realize Forterro's value creation potential and further expand its platform across Europe. The key initiatives will include accelerating organic growth by expanding go-to-market initiatives, making strategic acquisitions in adjacent geographies and sub-verticals and improving operational efficiency. The next investment was Version 1, which is a leading digital transformation services provider in the U.K. and Ireland, providing services such as application modernization, cloud migration services and cloud-native software engineering, which involves the development of applications in the cloud. Partners Group will work with Version 1's management team in its next phase of growth as a leading digital transformation specialist. The value creation plan aims to achieve double-digit growth by developing the company's service offering and technical depth, building its international presence and pursuing accretive M&A. Velocity EHS is a leading environmental health and safety and ESG software service -- Software-as-a-Service platform. The company has over 18,000 customers to help them manage and improve operational risk compliance and efficiency. The EHS and ESG software market is benefiting from strong thematic trends such as growing pressure on companies to decarbonize and disclose environmental sustainability information as well as an increasingly complex regulatory environment. Partners Group acquired at a significant minority stake in the company. Foundation Risk Partners is an independent insurance broker assisting businesses and individuals navigate an intricate U.S. insurance landscape. Focus is primarily on B2B segments of commercial property and casualty as well as employee benefits. Insurance brokerage is a highly resilient market as insurance coverage is a nondiscretionary expense. Partners Group will work with management to drive further growth and expansion across the U.S. The market benefits from several transformative trends, including the emergence of new risks and increasing litigation and an evolving regulatory environment that emphasizes the need for insurance advice and coverage. Accell Group is a manufacturer of bicycles and bicycle parts founded in 1904 and headquartered in the Netherlands and is one of the largest producers of e-bikes and bicycle parts globally with more than 3,000 employees across 15 countries. Accell primarily serves the large and attractive non-entry-level bike market in Europe, benefiting from circular trends, increasing sustainability and health awareness, growing adoption of e-bikes for transport, coupled with positive technological investments as well as government initiatives and subsidies. I now hand over back to Felix.

Thank you, Sarah. I'd like to remind shareholders that Princess has paid the highest dividend historically among the peers and probably also encouraged some of the peers to pay a dividend at all or to increase it. And as Michael previously said and as we published in the RNS, it's the Board's intention to resume the previous dividend policy. By that, in summary, before we go to the questions, you will notice that Princess has a very established investment strategy at its core thematic approach to identify companies benefiting from trends -- transformative trends. You have seen this particularly as a consequence that the portfolio is more resilient than the broader indices. We built companies through platform building and business transformation and we have fully integrated ESG factors. We have a stable EBITDA margins that continue to be over in above -- in excess of 20% of the portfolio, sustainable capital structures. And of course, the volume of investments and distributions, particularly distribution slowed down in the third quarter. And as we published in the RNS are also expected to slow down in the next couple of weeks. I believe we have got a very attractive portfolio, very solid entities. It's very well-diversified. It's balanced across value-creation mode. There is a good portion of fairly mature companies. So as soon as the exit environment improves, you can expect movements in the portfolio. And we've got, well, a partner from this quarter, a strong record of high dividend yield and we focus on returning to target dividend in the near term. By that, I hand back to the operator and to questions to the team here.

[Operator Instructions] The first question comes from Matthew Hose from Jefferies.

Is there any further detail on the liquidity position and particularly what the breakdown is between cash and senior loans? Just thinking that the senior loans are exposed to mark-to-market volatility.

Thanks a lot for your question. As we have indicated in the RNS this morning, we have currently EUR 88 million in cash and on run credit facility. We did actually kind of liquidate the senior loan position. So in that sense, there's no more exposure to that strategy at this point in time.

The next question is from Christopher Brown from JPMorgan.

Just a few questions. The -- I was going to ask what Matt just asked. I don't think I saw that in the announcement this morning. So EUR 88 million in cash undrawn loan. What's the breakdown between the 2, the cash versus the undrawn loan?

We have roughly EUR 50 million in cash with the rest from the undrawn credit facility.

Yes. Okay. And obviously, the sort of dollar/euro rate has moved the other way since its low point in the end of September. What's sort of the sort of, if you like, the sort of short-term liability on the hedge at the moment?

Well, I guess, if I can basically just give a little bit more detail because there also have been a number of questions on providing -- I mean, in the written Q&A around how we implement the hedging strategy and where we stand as of today. And obviously, I mean, further detail certainly we will announce also in the annual report, but let me first start off with basically the current hedging or let's say, the execution of the hedging strategy. So we are currently using short-term forward contracts, I mean where the duration is around 3 to 4 months and they are subject to daily margining. So in that sense that any movements on the currency rates will basically kind of lead to an adjustment of ultimately the collateral accounts that is between Princess and the respective counterparties. We haven't changed that strategy. So I guess to your questions more specifically, obviously, you can expect that ultimately, in the same way as basically Princess had to pay in in Q1, Q2 and Q3, so for example, I mean, Q2 and Q3 have seen a 6% depreciation since the end of September, we have seen a roughly kind of, call it, 4% appreciation of the euro against the U.S. dollar, you could expect to have a respective inflow kind of reduction of the outstanding liabilities in that sense. And maybe just the last point to give more details around kind of what we are currently also discussing with the Board in terms of amendments and one of the options is that we would basically kind of consider moving partially to longer-term hedges. So I guess there are kind of -- there are options to potentially kind of move away from the daily margining to only settle hedges over a longer time period. This basically takes away a lot of the interim short-term cash flow volatility, but obviously, in the end as and when the hedges were to then mature, it would still basically lead to certain kind of volatility on the cash flow though with a longer lead time on that. Does this answer your question?

Well, I just wonder what the current short-term hedge liability is. So nothing changed with currencies, what would be ultimately the amount you'd have to settle?

I guess, as mentioned, I guess, I mean -- I mean, in the end, when you look at the 6% reduction that basically led to a 30% cash outflow given the 4% increase, I mean you can basically calculate what this would represent.

Right. You mean, given the hedge liability at 30th of September?

Correct.

Yes. Okay. And I mean, you talked about sort of possibly sort of a different structure in terms of moving sort of longer-dated contracts. Has there been a discussion about whether it's appropriate to hedge at all?

Yes. And this is a discussion that we also had with the Board that also the team around Felix and Sarah, where they have discussed to shareholders and clearly, if you were to come to the -- and that is an option that we're discussing. Any change, we would obviously then also communicate with shareholders.

Okay. And my final question was on the loan portfolio. You said you liquidated the remainder loans. How did that loan performance -- how did that loan portfolio perform overall from the moment you made those investments to when you exited?

It's Felix speaking. We entered into this position last fall when we had the liquidity coming back from kind of a buy and exit environment at that time, the euro had negative interest on the bank account. And so at that time we invested. You can expect with the market turbulences in the first half, particularly that the loan market wasn't unaffected. So I expect actually that there was a slightly negative development on the loan-to-value and partially or fully -- partially at least compensated by interest received.

[Operator Instructions] There are no more questions -- sorry, we have a last-minute registration from James Hart from Witan Investment Trust.

I just wanted to get some clarity on how the events progress throughout the year. You mentioned that you stopped allocating to Princess at the end of July and beginning of August. So what I'd like to know is, at what stage were the Board informed of this decision or indeed consulted about this decision? And then, of course, you went on to say that you talked to the Board on -- I think it was on the 1st of November about the suspension of the dividend. So really, my question is, how involved has the Board been, first of all, about the suspension of allocations to Princess and then subsequently, the payment of the dividend?

Felix speaking. At the Board meeting we had in the course of August, this was not a topic. We took note of the forecasts that were based on Q2 on the first half of the year. And to be fair, there is no requirement to involve the Board, these decisions, as the Board has delegated the investment management to Partners Group, Princess is a managed fund. In hindsight, I, certainly as a Board member, I would have, I mean, appreciated to be informed a bit before. So that's maybe to add to the piece of what Michael mentioned in terms of sequence of events.

Okay. So I mean, I guess my question also revolves around the presentation that was put out to shareholders around about the middle of August and indeed the publication of the interim results. I think it was on the 11th of August. So it just strikes me that there was quite a lot of positive messaging or lack of negative messaging in those results. And I would have expected the manager and/or the Board to have been perhaps a little clearer in talking about some of the stresses that were obviously already in place in the portfolio if you had stopped allocating at that stage?

I guess in the end, when you look at the timing, ultimately, and that's what I mentioned before, over summer, clearly, we were highly confident that we will basically pay the second dividend because we felt that with the actions that we have taken to pose investments that this would be sufficient to basically kind of still pay the dividend in November. We then basically have seen, again, quite a significant drop, a very short-term drop on the exit side at the end of September. And obviously, again, with the benefit of hindsight, I mean, probably it would have been reasonable to basically kind of at least have the Board discussion earlier. But at the same time, I don't think that at that point in time, it would have been appropriate to already kind of caution to shareholders at that point in time.

There are no more questions from the phone.

Well, we have received also further written questions that we would basically go through. And there is somewhat kind of different topics that have come up. One topic is around new investments. So as we have discussed, clearly, for us, at this point in time the priority will be the reinstatement of the dividend. And obviously, as we were -- I mean, at some point in time, we would expect the normalization of the exit environment. Clearly, that will also allow us to also continue to do new investments. I guess what we should -- and what also should be noted that as a firm, obviously, one of our investment strategy is also in relation to platform investments. So meaning basically kind of companies that also further consolidate their industry with M&A. We have a couple of these platforms in our portfolio and they have also then sufficient runway still to also continue to basically take advantage of the current environment. And this also then links to questions around the unfunded commitments and that's something that we have also highlighted in the appendix of the presentation. So as you go through the current status, there is a total of EUR 103 million unfunded commitments. However, when you look through these unfunded commitments, you notice that there is quite a significant amount which is basically related to third-party funds, which obviously are part of the legacy of Princess and where we don't expect any material unfunded calls. Then you see that basically there is EUR 58 million unfunded from direct investments in active party group direct programs. When you look through, we would expect roughly EUR 35 million to then fund over the course of the next 2, 3 years. So this is basically also again, mainly platform companies where we have provided for reserves across shareholders in these so that they can continue to actually kind of fund the M&A together with also their debt that is linked in. I guess there were questions around the ability to continue to create value in the portfolio. And basically there, I would make the link to also the presentation that Felix and Sarah have made. And so we have -- we continue to see good traction in the portfolio. Clearly, I guess, I mean, some of the headwinds that you see from a macroeconomic environment, our portfolio companies are not immune to those. But given the fact that we have taken early on also measures to also kind of on the cost side, but also on the pricing side. And given the strong market position of our portfolios, we are confident that we can continue to also create value in the underlying companies in the months and quarters to come. Then maybe just going through some of the other questions. So one question was around also still the hedging strategy, to what extent we could have foreseen the change in currencies. I mean in the end, for us it's important or at least it was our stance in terms of hedging strategies that we want to apply a consistent strategy. We are a private market investor and we don't see our value-add in applying a dynamic hedging strategy because ultimately, I guess, currency markets are inherently difficult to forecast in our opinion. And we don't see this as our specific value-add. And I guess...

Thank you, Michael. Continue.

Maybe just the last point and let me maybe still stress that. I guess there were some questions around that basically Princess would not receive the necessary attention from a Partners Group perspective. Now I can assure you that for us it is -- I mean, Princess is a very important program. And obviously, I guess, I mean, we have basically -- I mean, we put all the resources behind that it takes both from an investment management, but also from a portfolio and risk management perspective that we were able to live up to ultimately the investment goals that we have set up on behalf of Princess. And maybe just kind of, I guess, we'll also provide certain kind of further written answers to some of the questions that we might not yet have been able to answer on this call and clearly more clarity also as we then provide for the annual results.

Are there more questions which we are answering -- supposed to answer?

Or otherwise, we hand back to the operator.

There are no more questions also from the phone. Would you like to add any final comments?

There was a question about whether a buyback is planned. I mean if one were planned, we would disclose it, of course. So the Board's priority is certainly to improve the liquidity position. And well, as you know, to have a material impact, you would need a significant number of shares. And also, I mean, last buyback activity in the sector have not really shown a long-lived benefit of doing so. So we will, therefore, focus on allocating cash into the portfolio and paying a dividend.

Maybe just 2 further questions that I've seen on the Q&A. On one side, there's a question around the interest rate and portfolio companies, which is obviously a very important question in the current environment. So let's say, the typical loans that companies enter into are initially floating rate. However, we have basically kind of taken the decision as a firm to actually kind of hedge them to a very high degree. So actually kind of the -- I mean, basically, there's a hedge ratio, which is close -- or let's say, at around 85% of the floating rates are currently hedged into fixed rates, which obviously, again, provides for a good support to the underlying portfolio companies. And there were questions around the hedge ratio on the FX side, I mean, this is -- as we also highlighted in reports at around 90%.

There was also a question, why would anyone buy Princess today given the dividend suspension. I mean, first, I remind you again on that page of the dividend paying history, which demonstrates that we are the strongest dividend payer in the sector. And some of them asked even, well, if we now suspend, I mean, there's no reason for the Princess there, I couldn't disagree more. We have a very solid portfolio of middle market companies which you can't invest into so easily through the public markets or through other private market companies. So unless there are any other questions, we'll certainly scroll through and see as to whether there are some we have received in writing to answer specifically.

And with that, we will basically hand back to the operator.

We have a follow-up question from Christopher Brown from JPMorgan.

Yes, I'm just struggling a little bit to find, is there an actual proper detailed interim sort of Q3 report on the website? I'm struggling to find anything on there. You mentioned when you were answering my question about the hedge liability that I'll be able to sort of work that out from the 30th of September, but I can't sort of find anything on the website. Is it in the presentation at all?

I made the reference to this presentation and the material of the information that is provided in this presentation.

Okay.

Around the sequence of events.

There are no more questions from the phone.

Okay. By that, thank you very much for today's -- for your attention. And as said, we'll scroll through what we received in writing to see as to whether anything was outstanding. Thank you.

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