Partners Group's performance fees hit by slump in private-equity-deals market

By Louis Goss

Swiss private-equity firm Partners Group said Tuesday that an ongoing slump in the deals market caused it to delay a series of exit deals in the first half of 2024, leading to a sharp 39% drop in its performance fees.

The Zug-headquartered firm, which has $149 billion in assets under management, said the "slower-than-expected recovery" of the deals market had seen it halt several asset divestitures in the first half of 2024.

Partners Group's performance fees fell to 161 million Swiss francs ($189 million) in the first half of 2024, compared with 265 million Swiss francs a year earlier.

Private-equity firms typically generate performance fees when they divest from the assets they own, via a system commonly referred to as "carried interest," which sees them take a proportion of the profits generated on their sales.

Normally, this structure sees private-equity firms take sums equivalent to around 20% of profits from sales of the assets they own in the form of performance fees, alongside annual management fees equivalent to 2% of the value of the assets they control.

Over the previous year, private-equity firms have seen their performance fees slump on the back of a major slowdown in the transactions market.

In a report published in March, Bain & Co said the value of private-equity deals had fallen 37% last year, to $438 billion, leaving private-equity firms sitting on a record $3.2 billion worth of such assets.

"The word for this market is stalled," Bain & Co's report said. "The culprit was the sharp and rapid increase in central bank rates, which caused general partners to hit the pause button."

Private-equity firms are investment funds that typically work by buying out companies and working to increase their value, before selling them off to other buyers or floating them on public markets.

Partners Group increased its assets under management by $11 billion, to $149 billion, leading to a 4% increase in management fees to 815 million Swiss francs. Partners Group had revenue worth 977 million Swiss francs in the first half of the year, down 7% year-on-year.

Shares of Partners Group (CH:PGHN), listed on the Zurich stock exchange, fell 8% on Tuesday, having gained 17% over the previous 12 months.

The private-equity firm said it now expects its performance fees will recover next year on the back of an anticipated rebound in the transactions market.

"While fundamentals gradually improved, transaction markets continued to recover more slowly than expected, affecting our performance fees," Partners Group Chief Executive David Layton said. "We are confident that our performance fees will materially increase as the exit environment begins to improve."

The private-equity firm said it expects performance fees will account for just 20% of its overall revenue in 2024, compared to usual rates of 20% to 30%. But the firm said it expects performance fees will account for 25% to 40% of its total revenue in the coming years.

Partners Group was first started in 1996 by former Goldman Sachs bankers Urs Wietlisbach, Alfred Gantner and Marcel Erni, before achieving major success by investing in small and midcap companies in Europe.

In 2019, Partners Group hired former U.K. Prime Minister Gordon Brown as an adviser to help the private-equity firm make impact investments.

-Louis Goss

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09-03-24 0733ET

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