Partners Group warns of virus impact on exits and performance fees

After a stellar 2019, the listed buyout group was more cautious in its 2020 forecast

Partners Group, the Switzerland-listed private equity firm, has warned that the coronavirus outbreak will impact most of its exit activities, which will hit performance fees in the first half of the year.

In a conference call on the firm’s annual results, co-head of group finance and corporate development Philip Sauer said performance fees will likely be skewed to the second half of the year and fall below the firm’s long-term guidance of 20% to 30% as a proportion of total revenue. Full year performance fees in 2019 were 473m Swiss francs.

Despite being underweight to some of the hardest hit sectors like tourism, aviation, hospitality and oil, the firm’s co-CEO David Layton said the wider portfolio has started to feel the impact of the pandemic over the last two weeks.

“We have school assets that are partially closed, we have restaurant assets that have seen footfall fall. We’ve had to move many of our locations to delivery or take away models,” he said.

The firm, like many of its peers, has rolled out social distancing initiatives across its offices.

Regarding its portfolio companies, the focus has been on liquidity management. “With this sudden slowdown in economic activity, we will see revenue shortfalls in many portfolio assets and we need to manage liquidity closely,” he said.

Most assets have revolving credit facilities in place and the firm has drawn down many of those lines at the asset level. If needed, Partners Group also has $15bn in dry powder at fund level, Layton added.

He said that the firm has been working with two portfolio companies to help mitigate some performance problems, as they are at risk of breaching covenants. Layton added that the vast majority of transactions over the last three years have had covenant-lite packages.

The firm expects many sales processes to be shelved in the industry, therefore it is widening its efforts to look for opportunities created by the volatility.

“Priority number one is the existing portfolio, but we have a large investment engine and will do our best to take advantage of having long term capital in a year like this,” Layton said.

The investment teams have a list of targets in the public markets, which were previously too expensive, but may become more attractive today if valuations remain at their current depressed levels. He added that the firm has lost competitive processes in the past to other private equity firms, which now may not have the capital base to sufficiently support those companies through this difficult period.

He also said they may “approach owners of overleveraged, solid assets with capital solutions,” adding that the team is looking for “quality assets” and “if the current environment forces [businesses] to raise equity capital for some reason” or if Partners Group can provide liquidity solutions, they will take the opportunity.

He added that volatility increases the relevance of the secondary market, with the team at Partners Group anticipating a large spike in opportunities.

The buyout group believes that future capital commitments may be delayed because of the current state of the market and has chosen to withhold confirming its guidance temporarily.

The warning about the impact of the coronavirus comes as the firm reports a strong end to 2019. According to its full year results, assets under management rose 14% to CHF88bn with new capital commitments of $16.5bn. Revenue was up 21% to CHF1.6bn, while performance fees grew by 46%. The firm also reported that it increased earnings, before interest and taxes by 17% to CHF1bn.

The Zug-headquartered business is proposing a CHF25.50 dividend, a year-on-year increase of 16%.

Shares at Partners Group were down 7.40% to CHF552.80 on March 17 at 13.50.

Source: Financial News

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