00:00One of the reasons this is remarkable is because it was supposed to be a really bad year for
00:03fundraising, and for a lot of people, it was. So what's different at Partners Group?
00:08Well, the industry is down and still not raising as much capital as it was a few years ago at peak
00:16levels. We have the benefit of having a couple of strategies that are highly differentiated.
00:21Number one, we were one of the early pioneers in the wealth channel. We raised $9.4 billion
00:26this year in private wealth as more and more individual investors are using privates as a
00:35key component of their portfolio, and that was helpful. In addition to that, institutional
00:39investors, which are a little bit more wary of locking their capital up in long-term limited
00:46partnerships, funds that they have a tough time steering their allocations with over the long
00:51run, are increasingly using model portfolios and custom solutions that firms like us are building.
00:59And our custom account business is now up to $66 billion in size. And those two topics,
01:06the private wealth channel and our custom mandates, custom account business, are two of the things
01:11that help to drive this result this period.
01:14How much do you think, I was listening to Tom Keen on Bloomberg Surveillance talk about what
01:20percentage of private wealth portfolio should include alternatives or what percentage should
01:26be alternatives? What are you seeing?
01:28Yeah, so institutional investors range from 60% in some of the most aggressive usage to 5% in some
01:37of the more conservative portfolios. On average, it's about 10.5% in institutional portfolios.
01:43Now, if you talk to the people who run these big private wealth platforms, they're putting targets
01:49and objectives out there to have private markets be 5, 6, 7, 8, 10% of portfolios in the future.
01:58And there's a reason for that. It's because many of the companies that would have gone public in
02:03years past and been a part of the Russell 2000 or in other indices or accessible to individual
02:09investors are no longer accessible. The private markets have become a $15 trillion asset class.
02:15And we have been become the home to most of the middle market. And so it's not an option anymore.
02:22If you want to build a balanced portfolio, you need to have private markets as a part of that. In addition
02:29to that, with all of the concentration that we see in public markets today, public markets investors
02:35are going to go where the big AI names take them. And people are looking for some more diversification
02:41and stability, you know, and that is often found in the private markets as well.
02:46There feels to be a little bit of irony of this rush coming into alternatives from retail because
02:50there's a new source of capital coming in at the same time where we started that some firms are having
02:55a hard time fundraising. When you look at that split right now, how does just the competitive
03:00landscape look right now? Are you seeing a lot of various private equity back off so there's more
03:05opportunities or is it getting more competitive as more cash floods in from retail? Well, this is a
03:11great time to be investing. Valuations are down from about 12 times at peak levels to about 10 and a half
03:19times today for your average private market business. So it is a less competitive period of time to
03:25to be purchasing companies in the private markets. The reason for that is that we used to have
03:30thousands and thousands of firms that were raising capital on a consistent basis in the private markets
03:36as those allocations to institutional portfolios expanded from 5% years ago to 10 and a half percent
03:42today. You had, you know, a tremendous amount of competition that we're meeting those institutional
03:49investors needs. Now that the institutional allocations have started to plateau and the growth is coming
03:55from wealth, the growth is coming from 401k. It's really only the more sophisticated platforms that can
04:01service that channel. There that channel is not going to be using limited partnerships, a very investor
04:09friendly tool. They're more demanding. They want more liquidity. They want more options. Exactly. Exactly. And so it's
04:15only the larger platforms that are really able to service that segment of the market. So the growth
04:20right now is accruing to the diversified platforms. So I'm wondering what can you do with your bespoke
04:28solutions, right? Can you offer an investor more exposure to alternative assets while at the same time
04:37offering a little bit more liquidity than they would get elsewhere? Exactly. We can custom build a portfolio
04:45that meets the needs of those individual investors in the public markets. You already saw this trend
04:49play out over the last number of years. Solutions have been the topic, right? It's gone from products
04:55to solutions in the public markets, and you're starting to see that play out in the private markets
04:59as well. Just to give you some of the solutions that we built with private credit being a topic right
05:04now and people are worried about it being overheated. We had some of our clients that wanted their private
05:09credit portfolio to lop off the riskier type of loans. And so they put a cap in terms of the debt
05:19earnings level that they would allow in their custom portfolio. We could provide them a portfolio that
05:23was custom built for their needs. We had some sovereigns out there that had some different
05:28geographical emphasis this year than they have in years past. Maybe they want less exposure to data
05:33centers. Less exposure to data centers so we can build them a custom portfolio there. We had a religious
05:38institution, a church in Europe that didn't want to make investments in their community. They thought
05:44it would be awkward if they had to enforce on one of their members of the congregation or something like
05:48that. And so we did a zip code exclusion for that religious institution to meet the specific needs
05:55of their clients. And so you're starting to see more and more of these custom solutions working their way
06:01into the institutional side of things. And then the individual investors, they're going evergreen.
06:06Hey, David, only about a minute here, but I just really want to get your thoughts off off the back
06:09of a Davos where it's this back and forth to is the world fracturing more, is it not? Partners
06:13Group is so unique in how global you are. Headquarters in Switzerland, in Denver, here in the United
06:19States. What do you see as the responsibility of this firm to help corporates, to help the companies
06:23that you own right now navigate this moment of real geopolitical angst? Yeah, this is a complex
06:31market. And I think it's going to become more complex over the coming years. And so for our
06:38clients, they need more solutions that are built specifically for them. For the companies that we
06:44invest into, they need strong leadership that has their hand on the wheel that can help them navigate
06:50around the challenges that are presented. And I think the private markets are the appropriate home
06:57for these assets today, where ownership is more consolidated. You have governance that's aligned
07:05with the management team in a very systematic way. And I think you're going to see the private
07:10markets start to play a bigger and bigger role in helping to steer the future of many medium-sized
07:18companies as a result of this complex environment.
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