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

Good morning, and welcome, everyone, to our results call. I am Andreea Mateescu, and it's a pleasure to have with me today Peter McKellar, Chair of PGPE Limited; and my colleagues, Dr. Cyrill Wipfli and Federica Cazzaniga. Today, we are excited to provide you an update on the NAV development and the portfolio highlights as of December 31, 2024. Now before we dive in, I just want to address some housekeeping items. If you would like to ask any questions during the webcast, please use the Q&A tool, which you can find on your screen. We will answer the questions at the end of the presentation. And in the interest of time, we will group similar questions and answer in one go. However, if we run out of time or you have additional questions, please don't hesitate to reach out to us or send us an e-mail at [email protected] or through the contact form available on the website. Before diving into the presentation, just a few words on PGPE Limited. PGPE Limited investment activities are managed by Partners Group, one of the largest firms in the global private markets industry. And so an investment in PGPE Limited enables shareholders to invest alongside Partners Group's other clients and access the global portfolio of private companies that's not directly accessible to investors in public equity markets. Turning to the results. We are excited to report a NAV total return performance of 11.4% for the year, which includes dividends paid to the shareholders. This performance aligns well with our long-term track record, which includes a 10-year annual NAV total return of almost 11% and showcases the results of our robust value creation initiatives on asset level across thematically growing sectors. The dividends paid to shareholders over the last 12 months aligned with the objective of distributing 5% of the previous year-end NAV in semiannual payments. And at the current share price, this results in a 7% dividend yield. Now liquidity remains in a strong position as of year-end. PGPE Limited has a revolving credit facility of EUR 140 million in place, which is used for liquidity management purposes. And following the receipt of distributions, the credit facility is fully repaid as of December 31, 2024, and almost EUR 19 million in cash and cash equivalents, further strengthened the liquidity position. Now in 2024, PG continued to identify investment teams, supported by long-term secular trends and to create value through asset transformation. Systematic investment approach helped us to originate new investments, including ROSEN Group, Velvet CARE and FairJourney Biologics. Moreover, we have executed several high-profile exits, which will positively contribute to realizations in 2025 and beyond. Now the realization activity at portfolio level kicked off with the IPO of Galderma and the sale of SRS Distribution. Later on, we have agreed to sell Techem, which is an excellent example where PG's thematic sourcing, hands-on value creation and the tailwinds provided by secular trends of digitization and decarbonization all come together to transform the company into a scale player with an enterprise value of around EUR 6.7 billion. Now just as a reminder, the sale is anticipated to close in H1 this year. And as the IPO market became more conductive to transaction and increasingly offered an attractive exit route, we have announced the listing of KinderCare Learning Centers on the New York Stock Exchange, and later on, Vishal Mega Mart on India's National Stock Exchange and Bombay Stock Exchange. Before moving on to the next slide, I would like to conclude the summary with few words about the current market dynamics. Financial markets are adjusting to a new era, defined by macroeconomic volatility and elevated uncertainty. In this environment, we emphasize the importance of value creation through asset transformation and identifying themes supported by long-term secular trends. At the macro level, the global economy continues to display signs of overall resilience, but the outlook is heavily dependent on policy shifts, notably the potential for tariffs, which is fueling uncertainty. Inflation has moderated across major developed economies, but recent upticks in the U.S., in particular, highlight ongoing challenges in fully cooling price growth and while central banks navigated this content landscape with cautious monetary policy adjustments. In its base case, Partners Group anticipates navigating an investment landscape characterized by inflation and interest rate volatility, which will lead to fluctuations in valuations and cash flows. But at the same time, we are seeing an accelerated transformation of the economy due to rapid technological advances. This situation reinforces the need for disciplined underwriting with a careful approach to leverage as well as a focus on margin resilience. With this, I would like to hand over to Peter McKellar for the Board update.

Thank you, Andreea, and good morning to everyone. I want to, on Page 5 of the presentation, reflect on what we've done as a Board over the last 16 months since my appointment in late 2003. As many of you know, the first thing that we did was we strengthened the Board through the appointments of Axel Holtrup and Gerhard Roggemann, who bring significant private equity and listed company experience. We also put in place a clear and robust capital allocation policy that many analysts said is class leading. That capital allocation policy has a focus in ensuring the payments of our dividend of 5% of year-end NAV and also using surplus free cash flow when available for share buybacks. We also improved shareholder engagement with a program of 1-on-1 shareholder meetings, meeting over 75% of shareholders. And we improved disclosures in our annual reporting accounts and in our stock exchange announcements. In June of last year, we made a name change to Partners Group Private Equity, more closely highlighting the strong links that we have with Partners Group, which is one of the world's leading private markets managers. 2 days ago, I'm pleased to say that we launched a new website, which hopefully will be a focal point for shareholders in terms of information on the company. And on the February 19, we announced material fee changes, which I will talk about in a minute. And finally, we undertook a deep dive on performance to understand better the performance of the company over the last 3 years, and the manager will talk more about performance as we go through the presentation. If we turn now to Page 6 of the presentation and we start to discuss the fee changes we announced in February, in August of last year, I announced with the interim's a review of the managers' commercial terms to ensure that the manager was better aligned with the outcomes for shareholders and the effective cost to serve, which is the largest cost the company faced, was competitive. To support this exercise, we undertook a fact-based review, supported by advisers. Looking at the cost of the company and the manager relative to peers, including listed and unlisted private equity investment companies and other Partners Group managed vehicles, we had 3 principles at the heart of our review: the managers' terms needed to be fair on a relative and absolute basis. They had to be simple to understand, and that's not always the case in private markets. And thirdly, and very importantly, they had to be aligned with shareholder outcomes. So in terms of the changes that we announced on February 19 -- and if you can turn to Page 7, firstly, in relation to the investment management fee, we retained the fee at 1.5% per annum, but that is -- we've changed the basis of calculation. No longer is the basis of calculation based on the higher of net asset value or the value of the company's gross assets, less temporary investments plus unfunded commitments, but is now calculated on net asset value, effectively on NAV, less any temporary investments, plus unfunded commitments, but only on direct investments. We believe that change is worth about 10 basis points to shareholders in terms of costs. More importantly, if we look at the incentive fee, the old incentive fee arrangement was based on the realized gain after deducting purchases and sale costs, but took no account of the management fee nor any other cost of the company. Effectively, it was what is described as old school deal by deal without reference to the overall net asset value performance of the company. Importantly, in many of the meetings I held with shareholders, this came up, and many of them asked that we move to more of a fund as a whole approach. This was also the case in speaking to potential shareholders, in some cases, who would not invest in the company because of the incentive fee arrangements. The revised incentive fee is now payable on the net asset value performance of the company and is thus aligned with the net asset value performance for shareholders. The incentive fee remains at a rate of 15%, which is important when the industry standard is 20%. The incentive fee operates as a high watermark, whereby performance fee is only paid when the company's net asset value exceeds the level where performance fee was previously paid. This new arrangement has a significant advantage being calculated on the whole portfolio and after accounting for all costs. And essentially, it actually takes into account existing investments, not just new investments. The existing investments were actually technically done under the old regime, but the changes we have made mean that the existing investments will now see an incentive fee based on net asset value performance at a rate of 15%. The performance fee is also subject to the company having sufficient liquidity when the performance fee is due. Taken together, the Board believes that the changes to the investment management incentive fees will reduce meaningfully the fees paid to the investment manager. What does that mean? I've already said there should be a 10 basis point saving through the changes in the management fee. And on the incentive fee, we calculated it should be at least 30 basis points, and depending upon investment performance, could be materially higher. We also took the opportunity to update the investment objective and policy. 99% of the portfolio is now in direct deals and 97% in private equity deals. So going forward, we will no longer make investments in infrastructure, private real estate or private debt other than temporary investments, and we will no longer make primary and secondary fund investments. Overall, the Board believes that these changes are materially beneficial to shareholders, reducing both costs and improving alignment. And with that, I will turn to Federica to take us through the rest of the presentation.

Thank you, Peter, and good morning, everyone on my side also. If we move to the next slide, I've been presenting this portfolio overview for many quarters now. And the key message on this page remains really unchanged, meaning that PGPE Limited remains relentlessly focused on building a direct private equity investment portfolio, which, as Peter now mentioned, not only represents close to 100% of NAV, but going forward, it's going to be the sole focus of new investment as formalized in the updated investment objective and by the new policy just presented. The portfolio is diversified across over 70 investments across regions, industries, albeit with a clear bias towards the resilient sectors in Western economies, Partners Group focuses its thematic sourcing on. Perhaps one observation on the top 10 companies reported on the right-hand side of the slide. The list should not come as a surprise to you because we report this every month in our monthly report. Last quarter, I've mentioned the introduction of Clario amongst the top 10. This time around, you might see the Foundation Risk Partners entered as a top 9 holding in the portfolio. And it's worth noting that there are several companies around 2.5% to 3% of NAV. So in this region, we have a few that might move in and out of the top 10. Perhaps a couple of words on Foundation Risk Partners. Again, the new addition this quarter. This is a specialist insurance broker business in the U.S., and it's our ambition in a highly fragmented market to create a top 10 national brokers with the Foundation Risk Partner, with the ability to service clients across the entire country. Amongst the company, our near-term priority is the deployment of their bespoke data analytics suite that aims to promote customer retention and new business wins. And indeed, Foundation Risk Partners partnered with another Partners Group portfolio company, Version 1, to develop and roll out an AI-based solution for the processing of their risk analysis report. So we often get questions around the impact of AI in our portfolio companies, and this is indeed a great example of a use case that can produce time-consuming manual tasks, increase speed and efficiency and also accuracy of client-facing delivery -- deliverables for an insurance business like FRP. Together with these AI tools being developed, these are expected to drive value and have a positive impact on the EBITDA for the company, while also helping Foundation Risk Partners build its profile as a tech-enabled broker. So hopefully, welcome FRP to the top 10 and a company that you will see in this list going forward. Now turning to the next page. We sort of dissect 2024 performance and would like to emphasize that this continues to be driven by operational value creation in our private equity direct holdings. Indeed, out of the 12.2% portfolio performance over the year, the majority, so 7.6% that you see in the first bar stems from EBITDA growth in our portfolio company, also supported by marginal increase in the EBITDA multiple for an additional 2% contribution. Over the year, we saw an element of destruction in performance coming from an increase in net debt, as we took the opportunity to refinance and extend some debt packages for our portfolio companies at lower debt costs. Perhaps, it's worth pausing here to note that this, again, clearly resulted in a marginal higher leverage level for the portfolio, but did also imply lower debt cost for the companies where we refinance the debt, given that both interest rates, so base interest rates, but also debt spreads came down significantly in 2024 in the U.S., but also even more so in Europe. So in this supportive environment, the refinancing packages we negotiated for our portfolio companies resulted in aggregate cost saving of over EUR 80 million across the Partners Group platform for our portfolio companies. And ultimately, these will be accretive to free cash flow, but also to profitability. Also worth mentioning that net debt to EBITDA levels remain around historical levels of approximately 5x, and Cyrill will also touch on this later on. And this refinancing are instrumental to strengthen capital structures, sustain growth. But also for more mature assets, this can be seen as a preparation for a successful exit. And indeed, successful exits were also a key contributor to 2024 performance. This is the bar marked as #4 here, so plus 5.6%. Over the fourth quarter, in particular, the contribution of exit and new assets increased, with 4 out of our top 10 investments seeing a partial or full realization during 2024 as well as strong early performance for new investments, such as ROSEN and Velvet CARE. Then this, again, remains a key contributor to the overall return for the year. Moving on to the following page. We highlight here -- on Page 11, we highlight here the top contributors to value creation over 2024. We've mentioned Vishal as a top contributor earlier in the presentation. Clearly, this was a strong success story, as we announced the IPO of this company in December. This is a leading retailer in India serving middle and lower middle income consumers. I was really surprised when I read the statistics that Vishal served almost 1 billion individuals across the entire country. That's quite of a powerful figure. And during our ownership, we supported Vishal business transformation, optimizing its store footprint, but also driving double-digit same-store sales growth and also implementing operationally efficiency improvement that eventually led to a 55% increase in EBITDA and a 60% rise in revenue just over the last 2 years of our holding period. At its IPO in December, as I mentioned, Vishal ranked the largest ever IPO on the Indian Stock Exchange and represented a multiple of investment capital of over 7x for PGPE Limited. I wanted to touch on SRS. This is a company we've highlighted in previous calls, as we exited in the first half of 2024. But I'll instead spend a couple of words on the other 2 top value contributors, so ISP and DiversiTech. ISP is the leader in K-12 school group that increases value over the year, reflecting a robust financial performance, driven by both strong organic growth, but also by acquisition. The acquisitions were led by a strong acquisition team, proven capabilities in onboarding and integrating new skills, but also delivering sustainable organic growth through high-quality offering and learning focused philosophy that led to EBITDA and revenue growth of over 36% each during the year. And finally, a quick note on DiversiTech, a manufacturer of components and supplies for the U.S. residential heating, ventilation and air conditioning market. The company also reported strong financial performance on the back of strategic acquisitions and also operational efficiency. Throughout the year, interestingly, DiversiTech benefited from lower raw material costs, productivity gains from automation, so again, AI coming into the picture here, and also contributions from recent acquisitions. So despite competitive pricing pressures, the company maintained healthy margins, sustaining positive growth in EBITDA and also positioning itself competitively in the market. Touching on investment and realization activity over the next couple of slides. In 2024, PGPE Limited invested just over EUR 31 million, including investments in ROSEN Group, Velvet CARE, FairJourney Biologics, Afileon and Pest Control Partnership. A couple of words on the top investments that you see here in the pie chart and also highlighted in text on the left-hand side. ROSEN Group is a Swiss-headquartered global market leader in mission-critical inspection services for energy infrastructure assets. So for example, they produce little robots, which are then sent through pipelines to inspect them, to identify potential problems, leakages, so that the maintenance team can actually fix them before the pipeline breaks or leaks. We have strong conviction in this business and in its success because its growth potential is supported by regulatory tailwinds, promote safety. But also, ROSEN has a particularly resilient business model with proprietary state-of-the-art tool and fully vertically integrated in-house manufacturing. The company has continued to deliver positive financial results throughout the year and is already tracking ahead of expectations. And in light of this performance, ROSEN Group also completed a refinancing in October 2024, with a portion of the proceeds that were already allocated to shareholder distribution, which resulted in an early DPI of 0.23x. Velvet CARE, the second addition here for EUR 6.4 million, is the largest manufacturer of hygiene paper products in Central and Eastern Europe, offering both private label, but also branded products, which allow it to target premium and value consumer sectors alike. For this company, key value creation initiatives include expanding its international reach, broadening the product portfolio with focusing on high-quality and high-growth categories and also making targeted acquisitions to expand its footprint. Also Velvet CARE has posted a solid recent financial performance with both volumes and revenues exceeding budgets. And margins have been positively impacted, in this case, by decreased utilities cost and lower pulp prices over the second half of the year since our investment. And finally, FairJourney Biologics, as our third largest investor during the year, this is a leading company in antibody research that offer design and preclinical production of antibody-based therapies to over 250 pharma and biotech companies worldwide. FairJourney is already the European leader in its market and amongst the top 3 globally. It's already recognized as the preferred partner by its customers, and Partners Group aims to leverage its operational expertise to further expand the company's technology and enhance its efficiency of drug development to strengthen their partnership with customers. We've also made several add-on investments to existing portfolio companies to support operations and acquisition pipelines, and that accounts for pretty much the rest of the remaining EUR 31.3 million we invested during the year. And then taking a quick look at realization activity. We saw 2023 as a sort of year record low for fee market volumes in general, and 2024 showed only a marginal pickup if I look at the broader market. But in such an environment, we are pleased to report that PGPE recorded substantial distributions during the year for a total of EUR 144 million. So this is very much in line with what the company has seen historically. And so that brings us back to historical distribution levels, and again, ahead of what's been seen by the broader market. This really reaffirms, in my view, the strength and quality of our portfolio. So looking at the drivers -- the main drivers of this EUR 144 million we received from our portfolio companies, the bulk was driven by exits in the first half of the year, SRS and Civica. We've mentioned these 2 combined contributed to over EUR 90 million. And then in the second half of the year, we also received proceeds from partial divestments in companies that went through IPO, so namely Vishal and Galderma, which together accounted for EUR 28 million distribution. The remaining balance of EUR 23 million was received predominantly from other direct investments, as I mentioned, ROSEN, for example, and this really underscores the benefit of diversification. Perhaps, one final note on my side. You will see KinderCare listed here in the bar chart on the bottom right-hand side. The EUR 5.5 million received by KinderCare do not relate to the initial public offering in October. So the initial public offering was entirely primary shares whose proceeds were entirely used to pay down debt and delevered to 3.5x. So the EUR 5.5 million you see here are actually distribution we received pre-IPO from a dividend breakup executed by KinderCare. So all in all, very pleased with the investment and realization activity in the portfolio during 2024. But we are equally excited about the quality of the companies that we continue to hold. And I'll now pass it over to Cyrill to take us through the quality of our portfolio.

Thank you, Federica. Good morning from my side. You know me, I'm always honest. So you know in the meantime that I personally don't like the portfolio company, KPIs, like capital weighted average last 12-month EBITDA growth, average net debt to EBITDA, average EV/EBITDA multiple, because the averages can be misleading. So that is why I killed them in Q1, but the feedback from you, dear shareholders, was that you liked them. And the client is always right. So in Q2, we brought it back orally, but then also we request also in writing at Q3. And if you look at the figures now as of the end of the year, 12% last 12-month EBITDA growth on average on our top 20 portfolio companies actually does make sense as well as 5x net debt to EBITDA shows the healthy financing levels. And this is after a slight increase of net debt mentioned earlier by Federica. But the 21x EV/EBITDA is inflated because we included the 3 public companies; Vishal, Galderma and KinderCare. And Dr. Wipfli, the doctor in my name doesn't mean that I can save lives, but I wrote my PhD thesis about valuation of private equity companies. So pardon my passion and my focus on this, but I do take it personal when we trade at a 32% discount to NAV, and it's interesting. The public market shareholders are challenging the valuations of private equity companies because they're afraid that the private equity industry values the companies too high compared to public markets. But in reality, it's actually different. When we say the NAV is 100, but the supply-demand of shareholders trading the shares at the London Stock Exchange leads to a share price, which results in a 32% discount to NAV, then that means 68 value, another 100. But the average exit in 2024 has shown a 37% uplift in valuation, so which means 137. But 137 is actually twice as much as 68. So in that sense, we may trade at a 50% discount. So applying to EV/EBITDA multiples, we say 17x EV/EBITDA is correct for our private companies. But then the public markets say, oh, no, actually, 32% should be the discount, so we checked, it should be 12. But then when the IPOs, Vishal, Galderma and KinderCare, they then traded much higher. So if you look at implied valuation, we shall trade more than 50x. So Galderma, it's 29x. This led to an increase to 21x. So thus, in other words, if the companies are private, the public investors don't trust our private equity valuations of, for example, 17% and ask for a large discount of, for example, 32%, which means 12x. But as soon as the same companies go public, the public market investors value the companies much higher, last year even twice as high. So -- but now change in topics, the realizations, as of the last slide there shown has shown the exits in 2024, but I would like to talk about potential exits going forward. Almost half of the portfolio is invested pre-2020, thus will reach 5, 6, 7, 8 years of holding period this year. This means these companies are candidates for exit soon, and interest rates helped, too. As mentioned earlier in the presentation, the interest rates have come down last year, and companies could refinance themselves cheaper. And this had a massive impact on the profitability of the investments. So the portfolio companies of the whole Partners Group platform have achieved, last year, interest rate cost savings of over EUR 80 million, but that's the whole platform. Maybe let's take a little illustrative example. If a company has an EBITDA of EUR 100 million, is financed 40% equity, 60% debt at an average tax rate of 20%, and the cost of debt can be reduced from 10% to 8%, at least 20% lower cost of debt doesn't sound like much, but it leads to 30% increase in profitability. Now on Page 15, only 9% of NAV is invested in companies which are valued below 1x, meaning below cost. 44% of NAV is invested in companies, who achieved their normal phase of value creation, meaning on their way from 1x to 2x, 30% have already surpassed 2x and even 3x, whereas 16% even have surpassed 4x, meaning clear outperformance. So private equity is not magic, but value creation is hard work, and it takes time. Thus, it would be of no surprise to you that the longer the holding period, the higher the value creation. For example, 1.75x over 3.8 years is 60% IRR; 3x over 6.5 years is equal to 18% IRR or 5x over 7.7 years equals 23% IRR. Now after the outlook on potential exit deal, let me now give you a quick outlook on new potential investments. Partners Group has a thematic sourcing approach grouped into what we call verticals, meaning industry-specific teams across the world, targeted to identify new investment opportunities at attractive entry valuations. Partners Group maintains a solid pipeline of direct equity investments on due diligence, with EUR 6 billion in Health and Life, EUR 5 billion in Goods and Products, EUR 3 billion in Technology and EUR 8 billion in Services. Attractive themes in the Health and Life vertical are, for example, Pharma Services, Specialty Pharma. Attractive themes in the Goods and Products vertical are, for example, Industrial Technology Solutions or multi-retail. Attractive themes in Technology vertical are, for example, Financial Services Technology, or of course, Enterprise Security. And attractive themes in the services vertical are, for example, what we call Testing, Inspection, Certification, Compliance, TICC, or ROSEN would have been an example in the same segment, as Federica explained, or lifelong learning. And with this, I hand over to Andreea.

Thank you, Federica and Cyrill, for the comprehensive portfolio overview. Now let's take a moment also on this slide and touch base on the consistent performance across cycles of Partners Group Private Equity Limited. Now over the last 10 years, we've achieved double-digit annual returns for both share price total return and non-total return, showcasing our commitment to create long-term value. Now this consistent performance across market cycles reinforces our dedication to deliver sustained growth, and our year-to-date results further underscore this with a healthy 11.4% year-to-date NAV total return. Our portfolio demonstrates diversification, providing investors exposure to companies operating in a variety of industries and regions. The portfolio was built over time and achieved a very good vintage diversification. We have an attractive mix of mature assets, but also assets that are in newer age in value creation. While 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. Now my last remark is going in line actually with Cyrill's comments on the discount to NAV. The current discount of 30% is clearly below the average of the last 10 years, which stands at around 18%. And 10 years ago, while the portfolio was 44% Fund of Funds like, and today, it is 99% direct. Now I'll let you be the judge on this. With these last words, I would like to open now for questions.

Just as a quick reminder, as I've mentioned in the beginning, we will group similar questions and answer in one go. And again, if we run out of time or we -- or you have additional questions, please don't hesitate to reach out to us. Peter, I see we have a couple of questions on the same theme. And in particular, could you let us know why is there no hurdle in the new fee arrangement?

Thank you for that, Andreea. I did note some analysts comment from one analyst in particular in relation to this. It may be just worth taking a step back just in terms of the incentive fee arrangements. The old arrangements were deal by deal. We took account of purchase and sale costs, but no management fee accrual or any of the other costs that the company faced. We could see that impact in 2022 and '23 when against the background of poorer NAV total return, significant sums were paid out by way of incentive fee. It was very important for us to move to a fund as a whole model. But if you have an 8% hurdle on fund as a whole, traditionally across the industry, you have a 20% carry. That's something that Partners Group charges on its direct funds. What we were able to negotiate was 15% effective carry. That's the incentive fee on net assets. More importantly, we also managed to achieve 15% on the old portfolio existing investments, which is I alluded to before, but effectively being done under the old fee regime. Also if I turn to math now and just let's actually look at what effectively an 8% hurdle relates to. If you have an 8% hurdle and 100% catch-up, which is the traditional norm in terms of Partners Group, the manager has effectively paid out at 9.2% return. The returns for the company, as Andreea has alluded to, is a NAV total return over the last 10 years of approximately 11%. If we add in the fee savings that we expect from these changes, we're closer to 11.5%. That's materially above the 9.2%. So in layman's terms, what does that mean? It means across the cycle, the 8% hurdle is less relevant. And it's also worth bearing in mind, we do have a hurdle, and that hurdle is the high watermark, which protects shareholders in an environment of negative returns, which you may see in a recessionary environment.

Thank you, Peter. Now, Federica, I think I now have a very good question for you actually. Could you walk us through your current exposure to the listed companies? Are you concerned that the company could underperform on the back of public market volatility?

Yes. Thanks, Andreea. So listed company exposure, obviously, went up during 2024 on the back of the IPOs we announced. But it might be remains relatively contained with just below 15% of total NAV, went up slightly a couple of percentage points over the year. Now that might add an element of volatility if public markets were to continue remaining sort of volatile, as they have for the first couple of months of 2025. But it's worth noting that our public companies are largely trading positively to date, and that we also expect to reduce down these exposures to gradual sell-down. So you might have read in -- over the past couple of months already in 2025, we've signed the sale of remaining exposure in Global Blue, also an additional tranche sell-down of Galderma. So we expect, for example, this exposure to move down back towards the 12% or so in the next couple of months. And we will continue to take advantage of positive trading where we see it to further reduce that.

Okay. Actually, there is a follow-up question exactly on this topic. Should we see more IPOs in PGPE Limited portfolio?

Yes. I would say difficult to say. We will definitely see at some point other IPOs coming in the portfolio. So we said in the past that we always explore all possible exit avenues for our portfolio companies, and eventually, we'll go with the one that maximize value for our shareholders and for our investors. So the IPO option remains on the table. That said, given the current market volatility, I don't see it as the sort of the most preferred option, at least in sort of in the coming months. But I wouldn't exclude it, that sort of a more stable public market environment might lead to more IPOs in the portfolio down the line, yes.

Thank you. Then, Peter, I see now also a question, which is very well placed with you in particular. Can you tell us more about the capital allocation policy and whether there will be a pool for buyback?

Thank you, Andreea. As most of you know, we put in place a capital allocation policy in March of last year. It was regarded as class leading. It presents a cash flow waterfall. At the heart of that cash flow waterfall is recognition of the importance of paying the current dividend, which I mentioned is 5% of the previous year-end NAV. But it also, if we have surplus cash flow, provides an opportunity to enhance NAV returns by buying back company shares at material share price to NAV discounts. So where are we at the moment? Well, the anticipation is that as distributions continue to increase, that we could see some surplus free cash flow that we will use for the purposes of those buybacks. I know a lot of you look at the numbers in terms of our calculations, and I can say to you that we're sitting today with cash and temporary investments somewhere in the region of about net EUR 10 million. We've got contracted distributions of broadly speaking about EUR 30 million, so in aggregate it's about EUR 40 million. We need to see that number move above EUR 70 million before that surplus pool becomes available. But that's perfectly credible given last year with over EUR 140 million of distributions, and we also have, as Federica had said, significant listed equity available to us. But it's also important to remember, we don't just have capital allocation policy, we retain the discretion of the Board to undertake share buybacks at any time, and that is something that the Board is very focused on as we come to an end in terms of delivering on the various objectives that I set out when I joined back in November 2023.

Thank you, Peter. Now I have a question for Cyrill. Any idea how one could mitigate the discounts to NAV?

Yes. I think 2 things: one, exits; one, investor relations. So regarding exits, I think that the industry saw a high discount to NAV in 2023, for example, because there were just not enough exits. And so that's why then public market investors did not believe the private equity valuations. Whenever you have an exit and you actually materialize the net asset value, and you can show that you even sell above NAV, then the markets trust much more. So I think one factor is definitely exits. 2024 has already seen exits. I mentioned 37% uplift versus the last published NAV. So I think we just need to spread the good news there. And the second one, the focus of Andreea entire this year will be investor relations. I think we're very thankful of the shareholder base we have currently. But we need to find new shareholders who are also willing to actually buy more shares if the share price goes down and sell shares when the share price goes up because I think we have a very loyal shareholder base at the moment who does buy and hold and we love that, but I think the goal is to attract new shareholders who are also willing to trade more and actually take advantage of share price movements. I think in the long run, it doesn't really matter so much. As Andreea mentioned, you have a 10%, 11% performance last 10 years on NAV and on share price. So the viable strategy is a very well valid one over the long run. But I think I'll try to find also more additional shareholders this year who will be happy to pick up on a higher discount. And if I'm speaking, anyhow, there was a question which was pulled because, hopefully, I explained the EV/EBITDA multiple correctly. So just to reconfirm, so the EV/EBITDA multiple, which we use for our valuations, which is 80% of NAV, so for this private portfolio, it's 17x EV/EBITDA. But if you include the 3 public companies, the capital weighted average increased to 21. But for the ones which we use for valuation of private companies, it's 70. And the question also asked about whether 12% loss of EBITDA growth was not low compared to others. There, I don't want to comment on the others because I don't know what the others are doing. But I do can tell you what we are doing. It is a huge difference when you look at last 12 months EBITDA growth or you actually look at the expected future 12-month EBITDA growth. So in other words, we decided that we do a mark-to-market approach where for every company, we have a basket of public companies. And if we look at these public companies and if the valuation multiple goes up or goes down, we want to mark to market our private equity companies as well. And we realize that in the public market world, if you lose -- if you use last 12 months EBITDA, meaning the annual report, audited figures, and then you look at the share price and then you have an implied EV/EBITDA multiple of last 12 months, you only have 1 variable, which is the share price. If you actually go for earnings estimates on the public market comparables and then you have their estimates, and so some analysts are more bullish than others, so you suddenly have 2 factors. You have the earnings estimates, which can go to too high or too low, and you have the share price. And that's why we said, you know what, I think it's much better to use last 12 months earnings growth, so it's easier to compare our private companies with the public market companies. And that, of course, last 12 months is always lower than if you bake a lot of hopes or cost-cutting exercises in the future forward-looking growth figure.

Thank you, Cyrill. Federica, now just maybe 1, at most 2 questions since I'm mindful that we're actually already over time. Then quick for you, do you expect to see a similar level of new deals in 2025, maybe something on the sectors and regions you're looking at?

Yes. So as we mentioned a couple of times during the call, the investment environment appears to be more and more supportive with, again, financing market opening up and many JVs out there seeing lower levels of liquidity in their portfolio, so it's firstly due to transact effectively. So I would expect investments and distributions level to continue to pick up in 2025, above what we've seen in 2024, so relatively higher. I would guide as far as what I can see right now. In terms of sectors or regions, no real changes. So the way we approach our investment, our investment due diligence and philosophy will remain the same. I would just let the margin say that we will see higher distributions, therefore, higher investment activity also.

And just the last question. Have the priorities regarding deals pipeline changed in a way following the Trump's recent tariffs?

Yes. I was expecting this question. Well, obviously, there's been an ongoing flux of information coming out of the White House. And probably, new tariffs are being announced as we speak. It's difficult to position based on the sort of ongoing noise here. But I would say, if anything, the volatility and the news flow that we've seen in recent months reinforce our existing approach, right, to due diligence, where we are focused sort of on the downside, where we put strong emphasis on the quality of earnings, of pricing powers on selecting market leaders in our portfolio companies. We look at the risk outlook for each of them. At underwriting, we incorporate downside scenarios to ensure resilience of our companies to the macro headwinds wherever we can. So I would say in terms of the actual pipeline, we've been more and more mindful of rising protectionism and increasing political polarization over the past sort of 6 months, so to speak. We haven't invested in China for a while now. I believe we only have 1 portfolio company in China for PGPE, so it's really, really limited and contained. We focused on domestically oriented firms in our pipeline, and we maintain our -- sort of our active approach to sort of pivot towards the more attractive segments where we see more resiliency as well also in direct exposure as well in the supply chain where we can.

Maybe if I add. There was a question about the pipeline, but what about the existing portfolio. So the part of value creation of portfolio companies through so-called lead operating directors, LODs, which are Board members of these 70 portfolio companies responsible for a specific value creation lever. So we have advised all LODs to make this a special topic for 2025. And the first analysis has shown that no portfolio company stands out with a big red flag in terms of immediate negative impact from the term tariffs that we are not proactively addressing.

Thank you. And most importantly, thank you to all of you joining us today and asking the questions. We really, really appreciate the dialogue, and we hope to continue this way. And just as Cyrill mentioned earlier, we're very happy to be on the road to meet with you one-on-one or also virtual meetings, just let us know. We're always available for you. With this, we would like to close the webcast, and we wish you a fantastic day ahead.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect your lines and have a great day.