Price sensitive ("ad hoc") releases
Baar-Zug, Switzerland; 8 September 2020
Summary H1 2020
- USD 4.3 billion invested on behalf of the firm's clients across all private markets asset classes (H1 2019: USD 6.9 billion)
- Gross client inflows of USD 8.3 billion (H1 2019: USD 8.4 billion); expected range of USD 12-15 billion in gross client demand for 2020 confirmed
- Assets under management (AuM) increased by 2% to USD 96.3 billion as of 30 June 2020 (31 December 2019: USD 94.1 billion)
- Revenues decreased by 9% to CHF 623 million (H1 2019: CHF 682 million), driven by:
- 3% increase in revenues from management fees to CHF 567 million (H1 2019: CHF 552 million)
- 57% decrease in revenues from performance fees to CHF 56 million (H1 2019: CHF 130 million); the firm decided to postpone several divestments due to the weak exit environment caused by COVID-19
- Total number of FTEs increased by 3% to 1'501 for the six-month period ended on 30 June 2020, in line with AuM growth; in H1 2020, average FTEs grew by 19% year-on-year due to intensified hiring activities throughout 2019
- EBIT margin remained stable at 63% (H1 2019: 63%), confirming the disciplined approach to cost management; EBIT decreased by 10% to CHF 390 million (H1 2019 CHF 432 million), in line with lower revenues
- Net financial result amounted to CHF -24 million (H1 2019: CHF 23 million) driven by negative (unrealized) valuation adjustments during the period of the firm's own balance sheet investments, alongside its clients, due to COVID-19
- Profit decreased by 21% to CHF 313 million (H1 2019: CHF 397 million)
Messages from the Co-CEOs
David Layton, Partner and Co-Chief Executive Officer, comments: "Our experience during the first half of the year has reassured us that our entrepreneurial governance, hands-on engagement with assets and focus on robust, transformative sectors should not only withstand the structural changes following COVID-19, but that these changes could even amplify the relevance of many of the businesses and assets in our portfolio. Therefore, we believe the investment strategy and longer-term outlook for our portfolio continues to be very strong."
André Frei, Partner and Co-Chief Executive Officer, adds: "We remain steadfast in our commitment to generating long-term value and positive outcomes for all our stakeholders and are pleased with the continued support of our clients. While we invested significantly into the growth of our platform in 2019, we prioritized business continuity at Partners Group and across our portfolio in H1 2020. We also decided to postpone the sales of certain portfolio businesses and assets because we did not believe the market conditions would enable us to optimize the returns for our clients."
Summary of key financial figures (in CHF million)
Net financial result
1 Revenues include management fees and other revenues, net, performance fees, net, and other operating income.
2 Management fees and other revenues, net, and other operating income.
Financial update H1 2020
Revenues decreased by 9% to CHF 623 million (H1 2019: CHF 682 million) due to lower performance fees. The management fee margin slightly decreased due to lower other operating income earned for treasury management and short-term financing services and amounted to 1.23% (full-year 2019: 1.29%). The 10-year average of the management fee margin amounts to 1.26%. Lower performance fees brought the total revenue margin to 1.35% (full-year 2019: 1.82%) during the same period.
A substantial part of the revenue base remains recurring and is based on long-term contracts with the firm's clients, providing highly visible cash flows. Continued strong client demand resulted in a 3% increase in management fees. The proportion of management fees in relation to total revenues increased to 91% (H1 2019: 81%) due to a lower performance fee contribution during the period. The market volatility and weak exit environment following COVID-19 led the firm to postpone several exit activities which were originally scheduled for H1 2020. Performance fees therefore decreased by 57% to CHF 56 million (H1 2019: CHF 130 million) and represented 9% of total revenues (H1 2019: 19%).
During the period, the firm's hiring activities slowed. The number of FTEs grew by 3% for the six-month period ended on 30 June 2020, which was largely in line with the development of AuM. In H1 2020, the average number of FTEs grew by 19% to 1'492 (H1 2019: 1'254) driven by more pronounced hiring activities throughout 2019. Over the same time period, personnel expenses – the main driver of the total costs of the firm – decreased by 11% to CHF 178 million (H1 2019: CHF 201 million). This development was attributable to lower performance fee-related personnel expenses, which decreased in line with the development of overall performance fees.
Other operating expenses were stable and amounted to CHF 35 million (H1 2019: CHF 35 million). During the period, restricted travel activity due to COVID-19 reduced expenses by around CHF 6 million. This saving was offset by the firm's contribution of CHF 5 million to the Portfolio Employee Support Fund alongside the partners and employees of the firm. This fund aims to support the most financially vulnerable employees at our portfolio companies during the COVID-19 crisis.
As a result, EBIT decreased in line with revenues by 10% to CHF 390 million (H1 2019: CHF 432 million) and the EBIT margin remained flat at 63% (H1 2019: 63%), confirming the firm's disciplined approach to cost management.
The net financial result amounted to CHF -24 million (H1 2019: CHF 23 million). Partners Group invests into its investment programs alongside clients (typically around 1% of the program's size). As of 30 June 2020, these diversified investments across asset classes amounted to CHF 650 million on the firm's balance sheet.
The impact of COVID-19 on the overall portfolio resulted in a negative (unrealized) valuation adjustment for these investments of CHF 25 million (H1 2019: unrealized gains of CHF 33 million), which was the main driver of the net financial result.
In combination with corporate taxes of CHF 53 million (H1 2019: CHF 57 million), this led the firm's profit to decrease by 21% to CHF 313 million (H1 2019: CHF 397 million).
Partners Group confirms anticipated gross client demand of USD 12-15 billion for the full-year 2020. This outlook considers the potential for temporarily limited investment volumes and longer conversion periods for new commitments due to the continued market uncertainty. The full-year estimates for tail-down effects from the more mature investment programs and potential redemptions from evergreen programs amount to USD -7.5 to -9.0 billion. Fundraising is expected to be spread across a variety of solutions spanning all private markets asset classes, including customized mandates, the firm's extensive range of evergreen fund solutions and traditional closed-ended programs.
While exit markets have largely stabilized for now and divestitures are planned for many assets, the actual timing of the more material realizations is not yet fully predictable and may extend into next year. As a result, the firm estimates that performance fees will amount to 5-15% as a proportion of total revenues for the full-year 2020. This compares to the firm's expected mid- to long-term range of 20-30% as a proportion of total revenues, where it assumes a more supportive exit market. Management fees are expected to continue to be the main source of revenue for Partners Group, constituting an expected share of around 70-80% of total revenues in the mid to long term. Irrespective of the market environment, Partners Group continues to manage its operating margin towards a target EBIT margin of ~60% for newly generated management fees (assuming stable foreign exchange rates), as well as for performance fees.
Conference call today
Partners Group's senior management will hold a conference call today at 9am CEST. To register for the call, please click here or use the contact details at the end of this press release.
The Interim Report as of 30 June 2020 was published today at 7.00am CEST and is available for download on the firm's website.
Key dates 2021
14 January 2021
Announcement of AuM as of 31 December 2020
16 March 2021
Annual results and Annual Report as of 31 December 2020
12 May 2021
Annual General Meeting of shareholders
15 July 2021
Announcement of AuM as of 30 June 2021
7 September 2021
Interim results and Interim Report as of 30 June 2021