Partners Group to Pare Back Evergreen Funds, Chairman Says

(Bloomberg) — Partners Group Holdings AG is considering paring back the overall sizes of its so-called evergreen funds for wealthy investors, while broadly keeping its investment approach unchanged even after a bruising stock selloff this month.

“We clearly don’t see the need to change our strategy based on what has happened over the past weeks,” Steffen Meister, Chairman of the Baar, Switzerland-based firm said in an interview. “We are looking at the open funds and we might keep them slightly smaller in size going forward, more aligned to flow dynamics over time.”

Partners Group is weathering a turbulent period as client withdrawals have spiked just as a short-selling firm, Grizzly Research, targets the firm through allegations that its funds are broadly over-valued.

“This is about the right-sizing of the largest Evergreen funds,” Meister said. “Some individual funds have become too big. Otherwise our offering stays the same.”

Senior executives were at an annual strategy retreat in the Swiss mountain resort of Lenzerheide just as shares were plummeting following the news on June 3 that the firm would cap withdrawals from one of its biggest “evergreen” private equity funds.

The company’s shares were down 0.2% as of 5:10 p.m. in Zurich.

The company has forged a path in recent decades often at odds with its competitors, and was a pioneer in building out the evergreen business — funds which have no fixed end date and allow periodic redemptions. Partners Group managed about $56 billion in evergreen funds as of year-end, compared with $185 billion in total assets under management.

While institutional investors, often large pension funds or endowments, lock up capital over a decade in the pursuit of higher returns, evergreen funds offer periodic opportunities to pull liquidity out.

For Meister, equity investors have not well understood that even if the evergreen business has grown rapidly they are not the majority of the firm’s backers. Withdrawals from the funds were driven by wealthy investors from Asia Pacific.

“People thought all the growth at Partners Group was coming from wealth clients,” he said. “What we did not emphasize enough is that the other 80%, the institutional investors, are much more significant.” He declined to comment further on the Grizzly allegations.

The 56-year old, who has been with Partners Group since 2000, said that the company hasn’t told its own narrative well enough. Meister counts as one of the most-high profile finance chiefs in Switzerland. He also holds 1.3% in PG shares, according to data compiled by Bloomberg.

“I was very surprised about the share price move,” he said. “We can say that we made some mistakes in our communication, despite all good intent.”

The firm has gone from being the darling of Swiss finance, praised for its innovation and founder-led culture, to a recurring candidate for investor concern. That’s despite continued robust fund-raising and above-peer performance of some of its funds — particularly infrastructure.

Shares have declined more than 33% this year, pulling it below the performance of most European peers even at a time when the private equity industry is suffering from a lack of deals to enable return of funds to investors. Partners is due to update investors on its assets under management on July 15.

The ongoing search for yield for insurers, many of whom are increasing their exposure to private markets, is a support for Partners Group as enthusiasm among individual wealthy investors ebbs.

“We see a lot of growth on the institutional side,” he said. “Insurers alone are already accounting for up to 15% of global assets under management, close to the size of the private wealth business.”

For private equity firms, the wealth channel had become a key source of growth. Private banks and wealth managers, including UBS Group AG, struck distribution partnerships with alternative asset managers. Private markets firms including KKR & co. Inc and Apollo Global Management Inc. have opened offices in hubs such as Zurich to tap the wealth channel.

Yet Meister signaled that that bet has not fully paid off.

“Everything that was positively projected turned into the contrary,” said Meister, adding he wouldn’t blame the banks for pushing the trend.

“It’s phenomenon of the investment world,” he said. “When things are seen as super good there are investors who are not fully aligned with the risk return profile.”

The Partners Group chairman, who has held the position since 2013, also said that private markets are still heading for a reckoning on valuations. In particular, firms are struggling to profitably dispose of assets acquired at high prices during boom years between 2018 and 2022.

The same applies to stock-market prices and even valuations of listed alternative asset managers have been too high, Meister said. “We need to discuss whether those valuations still make sense at a time when inflation is a topic, growth is slow outside of tech and interest rates are less likely to fall.” Various Partners Group insiders have bought shares in the firm since the drop, according to filings.

Consolidation is already way under way in the private equity industry, as many funds increasingly struggle to raise money. Some firms however still manage to execute blockbuster exits and raise large funds.

For Meister this trend will lead to more market share for big firms such as Partners.

“There are thousands of funds,” he said. “Only 10 to 20 firms grow strongly. There will be a lot of growth to capture from market share gains. Many PE funds are bleeding out.”

–With assistance from Noele Illien.

(Updates story with share price and quote.)

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