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

Good morning, and welcome everyone to the half yearly 2024 results call. I'm Andreea Mateescu. And with me today are my esteemed colleagues, Dr. Cyrill Wipfli and Federica Cazzaniga. We are excited to present our half yearly results and provide insights into our performance. Before we dive in, I want to address some housekeeping items. [Operator Instructions] Let's first reflect on our milestones and eventful first half of the year. In February, we announced the appointment of Axel Holtrup. Axel has 20 years of direct private equity experience at managers such as AEA Investors, Silver Lake partners, and Investcorp. He's also on the board of DBAG, a publicly-listed private equity firm focused on mid-market buyouts in Germany. And in March, we announced the appointment of Gerhard Roggemann as a non-executive director. Gerhard has served on the boards of several prominent companies as non-executive director, including Deutsche Boerse, Fresenius, Friends Life, F&C Asset Management and Resolution. Importantly, in terms of his private equity experience, he was chair and non-executive director of DBAG from 2009 to 2020. In terms of changes to the board composition, and as previously reported, Henning von der Forst, who served as a non-executive director since 2012, did not stand for reelection at the AGM in June. The board wished to thank Mr. von der Forst for his significant contribution, insight, and commitment to the company over many years. We are delighted to share that we are steadfast in our efforts to continuously improve our shareholder communications. Our active engagement with shareholders and efforts to improve our reports and website are ongoing, and we appreciate your patience as we work through this journey. We would also like to extend our sincere gratitude to all shareholders who participated in the AGM. The company laid out its clear, robust capital allocation policy in March this year. Fundamentally, the policy respects the liquidity position and waterfall of the company, and the dividend objective is at the heart of the company's new capital allocation policy. As such, the dividend as well as ongoing fees expenses, the repayment of outstanding indebtedness and the reserve to meet existing investment commitments will be provided for prior to excess free cash flow being used for shared buybacks according to the mechanism described. Finally, the resolution to change the company's name to Partners Group Private Equity Limited passed its shareholder vote at the annual general meeting in June this year. The company's name change reflects the evolution of its portfolio and relationship with Partners Group investment manager. To reflect the new name, the corporate website address was changed to www.partnersgroupprivateequitylimited.com. You may have also noticed that the short name in the report is now PGPE Ltd, which is also reflected in the new mailbox. Now turning to the financial highlights. In the first half of the year, the company has now developed positively, and closed the reporting period at EUR 14.38 per share. After paying the interim dividend of EUR 0.355 per share to shareholders, the company achieved a total return of 4.1% for the first 6 months. The interim dividend payout aligns with the objective to distribute 5% of the previous year-end NAV in semiannual payments. Meanwhile, the dividends paid to shareholder over the last 12 months correspond to a dividend yield of 6.3% based on the closing share price at the end of June. Furthermore, the share price has witnessed a total return of almost 14% and closed the reporting period at EUR 11.45 per share. In terms of drivers, both value creation and favorable currency movements contributed to the NAV growth. Notably, the sale of SRS Distribution, which we will cover in the next slide, provided the largest contribution. Other large contributors during the reporting period were PCI Pharma Services and DiversiTech. Both are top 10 companies in PGPE Ltd's portfolio, and increased in value over the reporting period, reflecting their financial performance. The amount invested during the first half of the year totaled EUR 19.5 million, and as already announced with the last quarterly update, the company has further committed to Partners Group Direct Equity V fund in March. Meanwhile, the Company has seen distributions totaling EUR 103 million, largely driven by exits proceeds from SRS Distribution and Civica. And further to the distributions received, the new investments made and the first interim dividend paid, the company had cash and cash equivalents of EUR 24.6 million, and the entire revolving credit facility was undrawn as of 30th of June, 2024. During the first half of 2024, the company made new investments in Rosen Group, Velvet CARE and Pest Control Partnership. Although transaction activity recovered more slowly than expected, Partners Group, the investment manager, remained focused on operational value creation initiatives at portfolio companies and disciplined underwriting. I will quickly mention some points about Rosen and Velvet CARE, while Federica will cover later on in the presentation Pest Control Partnership. Now Rosen Group is a global provider of recurring regulatory-driven inspection and integrity management services for energy transmission pipelines. It is headquartered in Switzerland, and its core business involves the sending of high-tech precision sensors through pipelines to detect corrosion or minor cracks, helping customers to optimize throughout and extend the useful life of essential infrastructure assets. Value creation initiatives include sales force and go-to-market optimization, and continued investment in technological innovation, R&D and capital expenditure. While headquartered in Poland and with a history stretching back to 1897, Velvet CARE is one of the largest independent manufacturers of branded and private-label hygiene paper in Central and Eastern Europe, with over 800 employees. Velvet CARE distributes finished, branded and private-label products via supermarkets, discounters, wholesalers, and other retailers. Its largest markets include Poland, the Czech Republic, and Germany. Partners Group will work with management to build on the company's strong position and drive growth, while key value creation initiatives will include expanding international reach, broadening the product portfolio with a focus on high growth categories and making targeted acquisitions. Now moving on to the next slide. Despite the challenging and subdued environment for exits, the company achieved substantial distributions totaling EUR 103.7 million, reaffirming the strength and quality of its portfolio. The significant sum was predominantly driven by exit from portfolio companies SRS and Civica, which contributed EUR 92.4 million. The remaining distributions were predominantly received from more mature investments across the portfolio, underscoring the benefits of diversification. The largest distribution in amount of EUR 70.2 million came from SRS, which, as you know by now, was sold to the Home Depot. The transaction closed in June this year. Now based in the U.S. SRS is one of the largest distributors of roofing, landscaping, and pool supply products. Founded in 2008, SRS has grown via acquisitions and greenfield branch openings, while same-store sales growth benefited from an expanding U.S. property market and rising roof replacement demand. The company also expanded into several new distribution segments, including landscaping and swimming pools. Meanwhile, EUR 22.2 million came from Civica, the U.K.-based provider of cloud software solutions for the public sector. Since Partners Group initial investment on behalf of its clients in 2017, Civica has grown into a global leader in this space. Civica software is used by over 6,000 public sector customers for the running of essential government functions across 4 verticals, including local government, healthcare, education, and central government, enabling improved delivery of services to citizens, while reducing costs and boosting revenue and productivity. With this, I would like to hand over to Cyrill.

Thank you, Andreea. Good morning also from my side. Let me quickly talk about the private equity market in general. [indiscernible] Partners Group holding is a public company, and I was a former CFO, I know both works pretty well, private equity and public equity. So thus, I would like to compare public markets to private markets. But I'm preaching my own gospel here, thus it will be quick because the fact that you dialed into this call already shows that you're a believer in private markets. I will then explain the Partners Group investment approach, and in that context, closing with an illustrative example. Last year, 2023 has seen extremely low exit activity. And although compliance keeps repeating that past performance is no indicator for future performance, it is often very helpful to look back at the history to understand the future. And if you look back the last 30 years, Partners Group was founded in 1996. And since then, the world experienced several ups and down market cycles. And guess what, after the bull market falls, the bear market [indiscernible] bear market follows the bull market again. For example, 1995 to 1998, we all remember the dotcom bubble, great exit activities for the private equity industry. Then 2001-2002 dotcom bubble bursted, record low exit activities. But in 2004-2006, great recovery, a lot of exits and followed by global financial crisis correction, 2007 and '08, low exit activity. Then great recovery in 2011 to normal back until 2018. Then COVID-19 hit, then follow the high 2021. And as always, after high comes low, and thus 2023, was a low. So the good news is that a drop means that the future will be brighter. So I don't have the crystal ball, but if you look at the first half of 2024 on the next slide, on Page 9, then you see that in H1 2024, we already have seen an improvement in exit activity. Thus, this year is on track to be more of a normal exit activity year, meaning in line with 2018 and 2020 levels. And so, we have seen there are cycles, but there's also a trend. And if you look at the trends on Page 10, the private equity industry is clearly showing upwards. So prior equity assets under management had tripled the last 10 years from USD 3 trillion to USD 10 trillion, and it's estimated to double again in the next 10 to 15 years from USD 10 trillion to USD 20 trillion. And the real economy is happening in private markets, not in public markets. For example, in the U.S., 87% of companies with more than $100 million revenues are private. So that means that the private equity industry in the U.S. alone has more than 20,000 companies to choose from, whereas the public market investors can only choose from less than 3,000 public companies. And the trend in public markets is negative. Look at the number of IPOs, for example. The 20 years, 1980 to 2000, 6,500 to 7,000 IPOs versus the 20 years 2000-2021, only 3,000 IPOs, so less than half. And even those companies which are public, they sell subsidiaries, which they believe are nonstrategic, and these are estimated to amount to $10 billion to $15 billion. And of course, the divestment of a public company means an investment for a private equity company. And on Page 11, not only the number of new IPOs are declining, also the number of public companies which are public are declining. So today, the world has half the number of public companies than 25 years ago, for example, in the U.S., the fall from 8,600 to 4,300 companies being public. And the industry has changed, too. So IT companies in 2010 made up 20% of public market caps versus today over 40%. Thus IT is increasing, but normal industries like industrials, energy, and financials are declining in [indiscernible] in public markets. And we all have noticed the dominance of the famous Magnificent 7 in public stocks in the MSCI World Index the last 12 months to a point where the MSCI World Index is not representing anymore normal private equity companies, I believe. So what's the future will be? Now on Page 12. We distinguish with an active and passive approach, and in public markets, I have to say, the asset management industry has changed dramatically. In the past, highly experienced portfolio managers were paid to outperform a benchmark [indiscernible] for being active. That was -- the key success is being active. But nowadays, more and more investors give the money to passive index bonds, and the few remaining active funds force their portfolio managers to minimize the tracking error to a benchmark because of risk management reasons, which, of course, leads to performance of these bonds being more and more [ beta ]. We also see a similar development in private markets, too, but private markets works totally differently. When a private equity manager buys one company, nobody else can buy the same company. So BlackRock, for example, cannot come and buy 1% of each private equity company and make an iShares ETF index out of it at low cost. In private equity, the closest to an index fund is maybe a [indiscernible] where the manager tries to replicate beta by committing to as many private equity managers as possible. But we at Partners Group, we believe we need to be active. We need to find alpha, not beta. And in private equity, you need to work hard to create value. You buy a majority stake, so you need to take the leads to the business as an owner. You need to have active stewardship. You need to be an entrepreneur. And on Page 13, we used the word transformational investing at Partners Group. And what we mean by this is that we don't want to buy a company to increase sales or see only marginally by, for example, 10% or reduced costs by 10%. No, we want to double or triple the EBITDA during our holding period. And if we would aim for only marginal improvements, we would call it marginal investing or something like that. But we want the improvements during the years of our holding period being substantial, hence the term transformational. And how do we try to achieve this? So on the one hand, the process how we find the new attractive investment opportunities is very systematic. We do deep dives into subsectors of each industry to find high conviction targets. And once we have invested in a company, we run the business as entrepreneurs, meaning entrepreneurial governance, meaning value creation through platform building and asset transformation. And on Page 14, gives you more color on these 2 boxes. On the left-hand side, entrepreneurial ownership means that we find the best possible board members, and we want them to be active. Meaning, for example, minimum 1 day per week that they need to spend working on this company, and they need to take full responsibility for one important value creation driver, for example, bringing a U.S. company to Europe, or M&A growth or whatever it is. They need to have a 5- to 10-year vision. And now in Partners Group, we are interested in hard data. That means not just a marketing blah-blah, but board members are measured by clear KPIs with annual board assessment reviews, and we even have a proprietary software for this, which we call PG Alpha. And on the right-hand side, examples of transformational levers, which drive EBITDA growth, our digital transformation, new products, new regions, platform building, complemented by pricing excellence and operational efficiency improvements. So my last 3 slides, I would like to spend on a key study about DiversiTech, which is a very successful HVAC company in the U.S. And HVAC stands for heating, ventilation, and air conditioning. Thus, DiversiTech makes money on installing, maintaining, and repairing air conditioning devices, which can not only cool in summer, but also can heat in winter. Partners Group runs this business as entrepreneurs to drive fundamental value creation and develop the systematic operational value creation playbook to drive growth and profitability improvements. On Page 16, you see that DiversiTech has increased their revenues by 30% to USD 0.9 billion during our holding period, which is basically the last 2 years. It is a complex business with over 300,000 orders from fields per annum because customer can choose from 30,000 different parts from DiversiTech. DiversiTech has done 18 acquisitions since 2015, and reading all the private equity management reports, every company they buy is always a leader, but it is actually really true, DiversiTech is a top 5 of its 7 product categories. A typical example of value creation is bringing a successful U.S. company to Europe. This does not always work because, for example, culture differences, but it works surprisingly often. For example, the French are well-known for the cuisine, the art of fine dining, but who would have thought that the largest European McDonald's hub with over 1,500 McDonald's locations is France. So DiversiTech managed to increase the number of subsidiaries in Europe selling air conditionings and maintaining them and repairing them from 1 to 6 subsidiaries in the last 2 years, and although I'm not allowed to disclose the revenues or EBITDA of the European business, I managed to get approved to mention that the EBITDA of European business has grown by 6x in the last 2 years. And because of this, the share of European business as presented in the total business has grown from less than 5% to 20%. With this, I would like to hand over to Federica to talk about the portfolio and performance of PGPE Limited.

Thank you, Cyrill, and good morning, everyone. I'll take it from here and provide an update on portfolio development over the first half of 2024, as well as an outlook on portfolio activity. We'll start here with a slide that you should be familiar with, one that recapped PGPE Limited's portfolio composition, which is really designed to reflect the company's goal, meaning to provide access to a high-quality portfolio of direct private equity investments with broad sector and geographic diversification. I will not go into the details of every single chart or names here, but I will take a moment to highlight key changes to portfolio composition versus the last quarter. First of all, the percentage of portfolio NAV in direct private equity investments continues to tick up, and it currently stands at 97%. The exit of SRS Distribution also changed the sector and regional split of the portfolio and the margin. And now we have a more balanced sector split between healthcare and industrial versus last quarter as well as a more balanced split in regions between Western Europe and North America versus the previous overweight to the U.S. SRS was also the portfolio's second largest position at the end of Q1, and this exit changed the composition of our top 10 portfolio companies that you see here on the right-hand side of this slide. At the same time, strong performance from International Schools Partnership and Galderma means that these 2 companies entered the top 10 following positive revaluations during the quarter. Well there's been some turnover in the top 10 names. There have been no meaningful changes in the share of the portfolio this company represents. And you'll see that our top 5 are stable at just around 30% of overall NAV. As familiar as many of you might be with our top 10 position, it is worth highlighting that PGPE Ltd portfolio has much more debt to it in terms of single name diversification. With over 70 portfolio companies across our 4 PG thematic verticals and an average position size of 1.5%, the portfolio does not rely on just the handful of assets to drive performance. The number of positions alone, however, does not fully capture concentration risk. The size of each individual position is also a critical variable that determines overall portfolio risk and return. We tried to depict this graphically here on this slide, where each square in this puzzle represents a portfolio company, and the size of the square approximates the NAV share of each asset. As a portfolio manager, my goal in portfolio construction is to proactively manage the size of the position, in line with available liquidity as well as investment flow, remaining mindful of concentration risk and at the same time of over-diversification. Finally, before moving on, I'll spend a word on sector diversification. Academic literature, but also maybe common sense, see strong value in sector diversification in public market portfolios, but this might not always been the case in private markets. Due to the very nature of private market investments, which rely on active engagement with portfolio companies to generate performance through bottom-up value creation. Evidence suggests that managers who leverage their specific skills and expertise, focusing their efforts on fewer sectors or themes, demonstrate better outcomes and performance. And at Partners Group, we embraced this approach. We do so by investing through a thematic lens across 4 industry verticals: technology, goods and products, health and life, and services. And here, you see these 4 sectors and verticals represented by 4 different colors on the chart. On the next page, I will just touch quickly on what we consider to be our return engine. That's how we call it here. And that's the balance in the geo diversification. You might recall this slide from previous updates, but I really cannot overemphasize the importance of steady deployment to spread risk across macro and market environment, but also to sustain portfolio liquidity over time. We'll return to the vintage years topic later on in the call, and I will, therefore, leave these slides for now for you to take in. But the one point I'd highlight is really the almost perfect 50-50 split between mature assets in the portfolio and younger assets, indicated strong support for both upcoming portfolio liquidity, but also for continued value creation. As we continue, again, on value creation, I'll take a moment to highlight 2 recent investment examples that illustrate different ways in which Partners Group designs and execute value creation plan. In the first case, it is about building an international platform through strategic acquisitions, while in the second case, it is about continuing to accelerate strong organic growth in what's already a widely recognized leader in its market segment. We'll talk about Pest Control Partnership, an investment that came into the portfolio during the first half of 2024, and represents Partners Group plans to establish a proprietary buy-and-build leading international platform in a EUR 22 billion global pest control sector. With Pest Control Partnership, we aim to replicate the successful playbook that we've employed in building out other platforms, such as the International School Partners by anchoring value creation around 3 steps: First, acquire small profitable independently-owned operators at accretive multiples; then integrate the acquired targets into platform to drive operational efficiency, building density, and [indiscernible]; and finally, leverage technology to further enhance service delivery and back office efficiency while improving the quality of customer service. As risks posed by pests in commercial and industrial settings increase as a result of structural trends such as urbanization, globalization, and climate change, Pest Control Partnership targets to offer traditional and technology-enabled services to address these challenges. Services such as integrated pest management, food safety and auditing are crucial for businesses and organizations, where best issues can have a significant impact on productivity, product quality, health and safety and regulatory compliance. With thousands of potential targets in Europe alone and over 10 already in exclusivity, Pest Control Partnership management team is already actively working to deliver on our ambitious value creation plan. More recently, in July 2024, Partners Group agreed to acquire a majority stake in FairJourney Biologics, a leading antibody discovery contract research organization, trusted partner of leading pharma and biotech company. This is a company that primarily focuses on discovering development of antibody-based therapy. Our investment team track the assets since early 2022, for over 2 years, and initiated detailed commercial due diligence in 2023. Over time, we built a strong relationship with FairJourney CEO and Founder, while also engaging with the majority shareholder, GHO Capital, which ultimately positioned us as the preferred owner to steward the company through its next phase of growth. Partners Group will work with CEO and Founder, who will remain a significant shareholder and his management team to drive strong growth while identifying add-ons of complementary capabilities and technologies to unlock faster, more effective drug development for FairJourney partners. This transaction is expected to close in the coming weeks, formally entering PGPE Ltd portfolio in Q3 2024. I'm very pleased to add these 2 assets to the portfolio as 2 foundational businesses that provide proven scalable solutions to address significant challenges facing our environment and our society. On the next slide, we see how our investment teams continue to build a solid pipeline of investment opportunities to support deployment. These are thematically sourced across our verticals and then vigorously screened by our investment committee. Just earlier this week, in the middle of summer, really, 4 brand-new opportunities were presented to our IT for the first time. The one you see here are already more advanced opportunities, which we have been -- which have been through the first round of due diligence screening, and we might indeed see some of them coming into the portfolio down the line. There's no need to go into the details of every company here, but please do notice how these names are spread to cover varies sectors, country, enterprise size and also end markets. All these assets have one thing in common. If you came through the short description, you will note how most of these companies are the leaders in their respective market segments, consistent with our approach to focus on market-leading company that we see as best position to capitalize on their market share and reputation to further grow, to withstand market challenges and to protect margins and profitability. Investing in market leaders or transforming companies into one will also help position such companies for successful exits. And as we spend a moment to update you on ongoing monetization on a coming exit processes, it is no coincidence that the names in focus are recognized leaders in their market. Starting here from SRS Distribution. Andreea has already mentioned the receipts of full proceeds from the sale of this company to Home Depot on Q1. Last quarter, we conservatively indicated the transaction was likely to close towards the end of the year. But in fact, we received EUR 70 million in June 2024. And these were used to pay down our outstanding credit facility. Together with the EUR 13 million received from SRS Distribution during the life of the investment until Q1 2024, this translated into real life gross multiple in excess of 5x of money. Another [ worthy ] update here is on Galderma. The stock price of the company is up 25% approximately since IPO earlier this year, now implying an enterprise value in excess of $20 billion. Most importantly, the 6-month lockup on share period is due to expire at the end of September. And a gradual sell-down of our stock could potentially commence earlier in Q3, following the acquisition of a 10% stake in the company by L'Oreal. Finally, a word on Aavas Financiers. Possibly a less well-known and certainly smaller company, Aavas is a leading financial company that primarily focus on unbanked and informal income segments of homebuyers in India. We invested in Aavas in 2016 in what was at the time the largest financial services buyout in India. Under our ownership, the company grew into scale business, thanks to a number of strategic initiatives around product and regional expansion but also business digitalization and management upgrade. We IPO-ed the company 2 years later, in 2018, and gradually sold down our stake between 2020 and 2024, already realizing a DPI of over 3x at the end of June. What's news here is that we recently signed an agreement for a final stake sale to CVC Capital. This is subject to customary approval and expected to close in the next 6 months, leading to an expected gross to DPI for this investment in excess of 5x. In line with the overall company size, PGPE Ltd position in Aavas is relatively small in the context of the portfolio, and will not be a needle mover from a liquidity perspective. However, I do think that this investment is not worthy as a testament to our ability to realize value across business sites, regions, and also different exit avenues. So here we highlight [indiscernible] companies where we've seen recent meaningful development towards either full or partial realization. But our confidence in portfolio liquidity is more broadly supported by the overall positive momentum we've seen on exits over the past 12 months as well as by the ongoing processes that involve more than 10 companies in our portfolio at the moment, which we look forward to updating you on in future quarters. Moving on to performance. I am pleased to report that the company's portfolio is exactly -- is doing exactly what it says on the [ stand ], that is, providing access to a private equity portfolio whose returns are driven by operational value creation in direct investments, where Partners Group transformational ownership approach is central to unlock that return. Gross portfolio performance for the first half of the year was 4.8%, which is what you see in the dark brown bars in both charts here on the slide. On the left-hand side, we decompose the return by breaking it down by asset type, and we can see how this is almost exclusively driven by direct investments and primarily, I must say, private equity one. Notably, the sales of SRS Distribution had over 30% uplift to the company's prior valuation provided the largest contribution. But amongst other meaningful drivers, I'd like to highlight PCI Pharma, the portfolio's largest holdings of today. Since our initial investment in 2016, PCI has achieved an EBITDA CAGR of over 20% and continues to outperform expectations, surpassing our initial 2016 underwriting assumption. The company continues to surpass also revised projections from 2020 when we partially realized our investment selling part of the equity while continuing to actively contribute to the value creation through our 2 board seats. On the right-hand side, we instead decomposed the portfolio return by financial metrics. The results show the EBITDA growth, that is the value creation at the operational level within our portfolio company, is the main driver of performance and clearly so. Increase in EBITDA multiple also contributed positively to total value creation and so did portfolio changes, mainly represented by the SRS exit and the early positive performance of our new asset, Velvet CARE. These positive effects were only partially offset by an increase in debt in the portfolio company level as we took the opportunity to refinance some debt packages at lower spreads to strengthen capital structure, to sustain growth and platform building plans for our companies during the period. On the following page, we have a snapshot of portfolio NAV broken down by TVPI marks, which can be seen as an indication of value creation initiatives being reflected in portfolio company value. There have been no material changes here versus previous quarter and over 90% of our NAV remains marked above cost, resulting in an NAV-weighted money multiple just under 2.2x. If we exclude assets whose performance is too early really to be assessed against our plan, over 60% of portfolio NAV is outperforming our base case underwriting plan, and a further 30% are on plan with our underwriting plans, with less than 10% NAV falling below our expectations. As mentioned last time, underperforming asset represents a limited and contained set of investments whose negative news has been largely reflected in portfolio already and we do not see them significantly impacting performance going forward. Indeed, there were no changes in this component of the portfolio, which remains stable, limited and well-monitored. On the right side, instead, we noticed a clear correlation between the holding period of our assets and their valuation mark, suggested that we continue to compound growth towards -- sorry, throughout our holding period, all the way through realization. And we explore this aspect in a bit more detail on the next slide, where a breakdown portfolio NAV by mark and by vintage year. It is a very dense slide. And while you'll see a lot of red figures in here, there's nothing to be alarmed about. In Partners Group recent rebranding, red is the color we used to highlight positive aspects and key takeaways. Let me then use 4 boxes on the top right here to help me guide you through the main summary point. First, 4.5 years is the average holding period for companies in our portfolio today. This figure is approximately half a year higher than it was 2 years ago, as macro backdrop has resulted in low transaction volume in the market and longer holding periods. This expansion of holding period has somewhat weighed on portfolio IRR, a metric that is influenced by the timing of cash flow and it is done so especially in 2022 and 2023 when many of the assets we invested in pre-2019 would have normally reached their maturity. In this market environment, however, we remain disciplined, held on to our assets and decided to sell when the time is right, continuing to compound performance as they approach or even surpass, in certain cases, our target holding period of 5 to 6 years, as you see in the second box. The question then becomes, how are our pre-2019 assets performing? Are they going to drive future performance? To answer, I move to the bottom boxes. First, 50% of our NAV is in companies we've been holding for over 4 years. And some of these are our best-performing assets, and recent performance drivers are included in these clusters, think PCI Pharma gain, Aavas Financiers, or KinderCare. As you can see from the red area in the 2 left bars in the chart, these assets are largely held at a multiple that is in excess of 2x investment. However, the last figure show us that the way multiple we realized on the last 12-month exit stands higher than 2x, at around 3x money multiple. This is also very much in line with the multiple we've achieved for pre-2019 assets that we have already sold to date, including, for example, the recent sale of SRS as an uplift of over 30%. In summary, to bring this all together, our more mature companies are performing well, and the majority of them have been preparing for exit. While I must say that past performance is not indicative of future results, we do take comfort in our realized track record, and are encouraged by recent transactions like SRS and Galderma, indicated that our mature assets retain upside potential also at exit. I will now hand you over back to Andreea to summarize discussion points before opening up for Q&A.

Thank you, Federica, for this very comprehensive presentation. Now let's take a moment also on this slide, which shows the consistent performance across cycles of Partners Group Private Equity Limited. So the company's investment objective is focused on delivering long-term capital growth and an attractive dividend yield. Over the last 10 years, we've achieved double-digit annual returns for both share price total return and NAV total return, showcasing our commitment to creating long-term value. This consistent performance across market cycles reinforces our dedication to delivering sustained growth, and our year-to-date results further underscore this with a healthy 4.1% year-to-date NAV total return. Moreover, dividends paid out over the last 12 months have yielded 6.3% based on June's closing price, aligning with our objective of providing an attractive dividend yield for our investors. Now before we move on to the Q&A, I would like to leave you with the following points. PGPE Ltd provides shareholders with exposure to Partners Group's direct private equity investment strategy, participating in transactions alongside some of the world's largest institutional investors. Partners Group is a thematic investor, focusing on investments in companies where growth is underpinned by long-term transformative trends. Now, PGPE Ltd portfolio demonstrates diversification, providing investors exposure to companies operating in a variety of industries and jurisdictions. The portfolio was built over time, achieving a very good vintage diversification. We have an attractive mix of mature assets, but also assets that are newer in value creation stage, and that keeps a consistent performance across market cycles. From an investment perspective, we continue to focus on the disciplined deployment of capital and the identification of companies where we believe we can support management to create value. We believe that the current discount to NAV offers value, and provides exposure to a well-diversified global private equity portfolio that continues to generate positive NAV performance. And finally, as already mentioned, the company's investment objective is to generate long-term capital growth and an attractive dividend, and it has achieved double-digit NAV and share price total return performance over the last decade. With this, we conclude the update. And at this point, we are happy to open for the Q&A.

I see we already have a number of questions in the webcast. And as already mentioned earlier, we will group similar questions and answer in one go. I already have a first question here for you, Cyrill. Could you please talk more about how you source deals?

Yes, of course. That is a simple question, but a very long answer, but I'll try to make it short. So we are doing thematic sourcing, so that means we have 5 [indiscernible] we have goods and products, health and life, technology and services. We have 200 full-time employees who do nothing else but sourcing investment. So, it's one of the largest in-house teams across the globe. And we're looking for established business models with meaningful margins, experienced strong management which are positioned for growth. These are the criteria. And we source -- about half of the investments which we source is from -- in our integrated platform and the other half from our internal network. But the key thing is that on average, from a thematic source research to sourcing, it's more than 2 years of preparation. So it's a very long time, and the idea is to be proactive to try to identify those companies which we want to own and then approach the owner actually before there is a sale going on, so 1 or 2 or 3 years before there is a sale intended, approach the owner and say, hey, you have a great business, we would like to buy this business from you.

Now I see also a question for you, Federica. In the report, you state that you have EUR 125 million of unfunded commitments. Could you provide some comments around what these are?

Yes, absolutely. So of the EUR 125 million, unfunded commitment represent everything that we are sort of legally bound to unfund. So we are very conservative in estimating this figure. EUR 35 million out of this EUR 125 million are pre-2015 commitments, mostly unfunded commitments to fund holdings that are largely now in harvesting phase. And so we really considered this extremely unlikely to fund. Of the remaining EUR 90 million, approximately 1/3 is undrawn from direct investments that we have made within the portfolio, and we expect these to draw over the next few years as our companies continue to build and grow. And then we also have approximately EUR 50 million of unfunded commitments to active partners group, flagship private equity fund. And again, here, we expect approximately 90% of this will be called in line with the typical call level of primary fund. So out of the overall $125 million figures, I would guide towards approximately EUR 80 million unfunded commitments expected to be called over the next 2 to 4 years.

I also see that we have a number of questions around the FX management in the portfolio. Could you give us more color on that?

Yes, sure. You might remind -- remember that we discontinued our FX hedging policy early in 2023. And since then, we are not actively hedging the FX exposure of the portfolio. Having said that, we do report on a monthly basis. In our monthly report, the FX -- the currency breakdown of the portfolio for investors that wish to hedge the currency risk on their side.

Now I have a question for you, Cyrill, as well. Do you have any numbers on portfolio company, EBITDA, or revenue growth across the portfolio, anything regarding the margin, given the focus on value creation?

Yes. I'm actually a little bit disappointed to have several of you asking this question because we spent so much last -- the last couple of months to develop Page 26, 27, 28 in the presentation, which we believe are better positioned to actually explain the performance and how much came from EBITDA, how much came from EV-EBITDA multiples, how much came from net debt. So the short answer is the following: the average EBITDA growth last 12 months as of June is 9, the EV-EBITDA multiple is 17x, and the net debt in percent of EV is 35%. Now the longer answer to this is how you calculate this. And I think you all know that I have written my Ph.D. thesis in private equity elevations. But I think my habilitation for my professor, I will write on this topic, because I realize it's actually not so simple. So for example, what do you do with public companies like Galderma, which the valuations are not made using EV-EBITDA, but they're actually -- you lose the listed share price? Or what about infrastructure companies like [ Accentia ], which are not valid at EV-EBITDA, but they are using the discounted cash flow model? What about exited companies as SRS Distribution, where we don't use EV-EBITDA multiples anymore, but we just use the exit price? Or what about new companies which entered in H1 2024, we were not there last year or exits of last year, which are not there anymore this year? So you never have a real good like-to-like comparison if you calculate an average. And even if you calculate an average, how do you calculate an average? Simple average, NAV-weighted average, beginning of the year, end of year, average period? So what we have done here in these figures, which I announced, we have taken the average NAV as of the end of the year, end of June, divided by 2, and we have used 51 companies, which represented 91% of NAV as of June, and we have excluded the public companies like Galderma, we have excluded the infrastructure companies like Accentia, we have excluded exited companies like SRS Distribution. And if you ask a question about [ M&A ] also there we think into the numbers more deeply, what we included is actually the closed M&A transactions, but not the pro forma kind of expected to close M&A transactions in these figures. But I believe it's always a snapshot as of a certain date, as of December, as of June. So it's not the best to actually try to understand the performance of the portfolio.

Now we also have a couple of questions around liquidity, and also share buybacks in light of the capital allocation policy, and -- I mean, as I already presented right earlier during the webcast. I mean, the capital allocation policy respects, the liquidity position and waterfall of the company. As such, the dividend as well as ongoing fees, expenses, repayment of outstanding indebtedness, and the reserve to meet existing investment commitments will be provided for -- prior to excess free cash flow being used for share buybacks according to the mechanism which was described. As we start to see more exits and distributions, it is expected that free cash flow will turn positive and then depending on the share price or NAV discount, surplus cash flow would be available for buybacks. Now I have another question for you, Federica. Now the report and presentation don't hold any information around portfolio level debt. Could you provide some insights on this?

Yes. Assuming the portfolio level debt means the use of credit facility. We closed the first half of the year with no drawn facility within the portfolio. As I mentioned, we used proceeds from SRS Distribution sale to fully repay our outstanding facility, which previously stand at approximately EUR 40 million. As of today, also, we remain fully undrawn on the facility. Going forward, I would indicate we will continue to use the facility as always so to really bridge short-term mismatches between cash inflows and outflows. And again, staying around the 0% to 5% of NAV in terms of facility utilization, which is what we've been consistently doing for the past years.

Now I see a couple of other questions. One of them back again to -- maybe to the FX right and to the exposure. Why did your currency exposure change in June?

Yes. I mean I touched on the portfolio changes when covering the diversification slide. The exit of SRS, which represented approximately 7% of the portfolio, did change the regional competition of our portfolio, and also the currency exposure. So that's really what was the driver there. The balance between dollar and euro currency exposure within the portfolio shifted around. So we are now currently standing at approximately 47% euro, while beforehand, we had 47% dollars, really the SRS exit was the main driver here.

Now one last question before we close with the Q&A. And actually, I think this one is still for you, Federica. So are you underweight on technology as a sector?

Already the term underweight means that we're implying the use of a benchmark, right? So I guess this comes from a perspective of someone looking at us versus, for example, the MSCI World where Cyrill has mentioned the technology exposure is closer to 40% of the index. So yes, we are underweight technology versus the MSCI World. But one could also argue that the MSCI World is overweight technology sector as a whole. So what I would say is that we respect really our goal, which is to be aligned with Partners Group platform, and we do our in terms of our exposure to IT. And we are also very much aligned with the small-cap public equity investment universe, which has only approximately 11% in their technology exposure. Perhaps, what I close to point out is that we had very successful realizations in our IT portfolio, thinking GlobalLogic, SBI Global (phonetic), or even Civica more recently. This also means that our technology segment in the portfolio is newer -- is younger, right? So potentially yet to grow into their valuation in terms of size. So over time, as these newer assets grow in value and size, and we continue to add new ones, by the way, I would potentially expect the technology exposure to increase at the margin, but I would still see this at around 15% to 20% of portfolio, probably not reaching the values for, again, indices such as the MSCI World as they are today.

With this, we will conclude the webcast today. We would like to thank you all for joining the webcast, and we wish you a wonderful day ahead. Have a lovely day.