Partners Group today publishes its H2 2017 Private Markets Navigator report, which shares the firm’s mid-term outlook and investment preferences for all private markets asset classes.

Introducing the report, Steffen Meister, Partner, Delegate of the Board of Directors, and Chairman of the Relative Value Committee at Partners Group, says: “We continue to believe in a base case macroeconomic projection of sustained low but steady growth. However, after nearly a decade of rising markets, and with a shift away from extremely loose monetary policy, there is the risk of a deviation from our base case. Identifying anchor assets with platform-building potential in above-average growth segments and testing their resilience to adverse economic scenarios is key to outperformance in this environment.”

A short summary of the views presented in the H2 2017 Private Markets Navigator:

Private equity: the prospect of different potential macroeconomic outcomes paired with high valuations makes for a challenging investment environment. To continue to generate sustainable returns, we focus on ‘platform investments’ through which we can develop resilient market leaders at a reasonable price. Next to platform investments, we maintain two additional major investment strategies: we aim to find ‘category winners’, which are leaders in terms of market share or growth potential in sub-sectors benefiting from trend-based tailwinds, and seek out ‘niche leaders’ with strong defensive capabilities. A recent example of our ability to capture a category winner is our acquisition of Cerba HealthCare, a leading European operator of clinical pathology laboratories.

Private real estate: an uncertain market environment has prompted us to take a more measured investment approach. We seek properties and locations benefiting from social, demographic and technological trends and remain focused on identifying assets with value creation potential. To crystallize value, we buy assets in rebounding markets below replacement cost, we ‘buy, fix, and sell’ older properties in great locations that are in need of active asset management and we selectively develop core. The European office market, for instance, offers opportunities to buy properties below replacement cost and upgrade their design to cater to the changing ways in which people live and work. One such opportunity is represented by our acquisition of CB16 Tower in La Défense, Paris.

Private debt: while many market participants have been willing to pursue more aggressive structures with even lower pricing, we favor more conservatively structured investment opportunities which we source and negotiate outside of traditional syndicated loan markets. We continue to focus on supporting successful sponsors and management teams in their buy-and-build strategies, on offering creative structures that support companies’ specific cash flow profiles and working capital needs, and on targeting niche industries where we have the depth of experience and confidence in underlying growth fundamentals. For example, based on our long track record of investment in the restaurant industry, we recently invested in Checkers, a quick service restaurant chain in the US.

Private infrastructure: as infrastructure asset valuations continue on their steady upward trajectory, especially in the core space, our investment focus remains firmly on assets that offer value creation potential, with platform-building being our preferred strategy. We consider platform investments in all sectors of the infrastructure market and currently see the most attractive opportunities within the communications and energy infrastructure spaces. Proactively building core assets instead of buying them continues to be our preferred strategy for renewable power generation assets, particularly in Europe and the Asia-Pacific region. One example is our investment in Sapphire Wind Farm, a 270MW onshore wind project in Australia.

To request a copy of the report, please contact Milevka Grceva: milevka.grceva@partnersgroup.com

Partners Group, the global private markets investment manager, has received record commitments for its 2016/17 direct private equity vintage. The 2016/17 vintage consists of the flagship program Partners Group Direct Equity 2016, which was capped at EUR 3 billion, together with EUR 3 billion of additional capital committed to direct private equity.

Investors in the program constitute a mix of new and existing clients, including public and corporate pension plans, sovereign wealth funds, insurance companies, endowment funds and foundations from around the world. Partners Group’s founders, partners, and other employees, together with affiliates of the firm, are making a substantial investment into the program, committing in excess of 5% of Partners Group Direct Equity 2016.

Partners Group Direct Equity 2016 is the successor to Partners Group Direct Investments 2012, which closed in early 2014 and has a net IRR of 23.9%.¹ Like the 2012 program, Partners Group Direct Equity 2016 will be deployed globally on behalf of investors in mid-market and select large-cap companies across a broad range of industry sectors, including healthcare, education, business services, information technology, industrials, and consumer. Partners Group’s investment strategy involves identifying transformative growth trends within specific sub-sectors and finding the companies best-placed to profit from these trends with the help of an active value creation strategy.

David Layton, Partner and Head of Private Equity at Partners Group, states: “In a sluggish macroeconomic environment, we are concentrating our efforts on specific market niches that are experiencing above-average growth. Within these pockets of growth, we look for companies with recurring revenue streams and highly visible cash flows, which are not only well-positioned to perform during a variety of economic scenarios but show significant upside potential and a clear path to value creation.”

Among the transformative trends prioritized within Partners Group’s current relative value outlook are the rise of outsourcing in healthcare and information technology, the digitalization of business services and consumer companies, and the emergence of new business models in consumer services and social infrastructure.

At the time of its final close, Partners Group Direct Equity 2016 was already committed to a number of investments in line with these investment views, including US-based Curvature (formerly Systems Maintenance Services and SMS | Curvature), a global provider of IT network and data center lifecycle services; Cerba HealthCare, a leading European operator of clinical pathology laboratories; and Aavas Financiers (formerly Au Housing Finance), a provider of housing loans in India’s affordable housing segment.

Fredrik Henzler, Partner and Co-Head of Industry Value Creation at Partners Group, comments: “We have more than 160 separate value creation initiatives ongoing at our current lead- and joint-lead portfolio companies. Almost 50% of these are top-line focused projects aimed at increasing market share, while the other 50% are either bottom-line focused efficiency drives or risk-reduction strategies. The extensive sector experience of our global Industry Value Creation team enables us to work alongside management teams to implement such projects and ensure their effectiveness.”

This structured approach to value creation has contributed to measurable results for Partners Group’s existing direct private equity portfolio, which has recorded compound annual growth rates of 15% in terms of revenue and 19% in terms of EBITDA since 2014.²

Christoph Rubeli, Partner and Co-CEO, Partners Group, adds: “We would like to thank our direct private equity investors for placing their trust in our firm in a challenging investment environment characterized by high valuations. With more than 700 private markets platform professionals globally and a highly selective investment approach, we believe we have the sourcing capabilities and the investment discipline required to continue to generate solid returns.”