The ability to dynamically shift private markets exposures across a range of asset classes and investment vehicles will increasingly be key to winning mandates from big institutional investors in Asia boosting alternatives allocations now, predicts Peter Wuffli, chairman of Zug, Switzerland-based Partners Group AG.
More and more, clients "come to us and say, 'here are $500 million. I want you to invest this in private equity, private debt, private real estate, private infrastructure'" — across Partners Group's own funds, secondaries or primaries — and '"adjust it dynamically over time, depending on the opportunities,'" Mr. Wuffli said in a recent interview in Singapore. He declined to discuss specific clients.
Such "flexible mandates" from clients based in the Asia-Pacific region accounted for $4.1 billion of the $65.9 billion in assets under management Partners Group reported as of June 30, up from $1.3 billion out of $34.3 billion in total assets five years ago, said Jenny Blinch, a Zug-based spokeswoman for the company. (2012 figures are based on the June 30, 2012, euro-dollar exchange rate.)
The same "strategic partnership" trend can be seen among European and U.S. clients with long track records investing in alternatives, many of which are looking now to streamline private markets fund and manager lineups that have grown unwieldy and "complicated to handle," Mr. Wuffli said. Roughly 15% of the firm's total AUM, or $10 billion, was invested in flexible multiasset-class strategies as of June 30, up from 5% in 2012.
But a growing number of big Asian investors are skipping the 10- to 15-year learning process that saw their North American and European counterparts invest initially in funds of funds, and then move on to a bevy of individual private equity, real estate and private debt funds.
"They want to leapfrog," to benefit from the fact that today there are large global multiasset private markets firms capable of taking on that strategic partner-asset allocation role as opportunity sets shift over cycles, Mr. Wuffli said.
One senior Singapore-based private markets analyst, who declined to be named, said a majority of sophisticated limited partners still opt to handle asset allocation in-house, choosing — for example — "Blackstone or KKR in private equity, Sequoia in venture capital, Actis for emerging markets, Varde for debt and so on."
Continues to grow
Partners Group's overall business in Asia continues to grow strongly. Assets managed for clients in the region tripled to $9 billion over the five years through June 30, a period which saw the firm's total AUM double, noted Ms. Blinch. That growth has left clients in the region accounting for 14% of total AUM, up from 9% five years before.
Public disclosures show the firm managing assets for a number of big asset owners in the region, including Korea's 602 trillion won ($531.4 billion) National Pension Service and its $110 billion sovereign wealth fund, Korea Investment Corporation, as well as Australia's A$92.8 billion ($72.7 billion), Brisbane-based QSuper and A$20 billion Hostplus Pty Ltd., Melbourne.
A spokesman at KIC, which picked Partners Group as the fund's manager of the year in 2013 and 2014, declined to say whether KIC has engaged the private markets firm for a flexible, multiasset mandate. Spokesmen for the other three funds either declined to comment or didn't respond to emails seeking comment.
Mr. Wuffli cited South Korea, Singapore, China and Australia as important markets in the region for Partners Group, while noting the "huge potential" of Japan now as big investors there move to take a "serious look" at private market assets.
Mr. Wuffli said Partners Group's own pursuit of "relative value" in private markets since the firm's launch in 1996 has left the company well-positioned to offer prospective clients the broad asset class experience and global footprint that flexible, multiasset mandates require.
The mix of asset segments and investment vehicles offering the best value "may change over time, and it has changed in our case," he said.
For example, "when there's stress in the market, you have very attractive secondary opportunities," said Mr. Wuffli.
Following the global financial crisis, Partners Group's investments in secondaries — private markets interests sold by other asset owners — surged to more than half of the firm's total activity, eclipsing its investments in fund-of-funds and direct private markets opportunities. Currently, investments in secondaries account for 20% to 25% of overall investments.
By contrast, in times like the present, when volatility is low and almost all segments of the private markets universe look pricey, "direct investing with a value creation expertise is much more attractive," Mr. Wuffli said. Direct investing currently accounts for 60% to 65% of Partners Group's new investments.
The firm's fund-of-funds business, Partners Group's initial focus, now accounts for just 10% to 15% of new investments.
In terms of asset classes covered, Partners Group started out with private equity, then added private debt, real estate and, six or seven years ago, started investing in infrastructure, Mr. Wuffli said.
With 40 professionals spread across offices in Houston, Sydney, Zug, London, Singapore, Denver and New York, infrastructure has been "our fastest-growing business," accounting for 14% of the firm's total AUM, or roughly $9 billion, as of June 30, Mr. Wuffli said.
In contrast to the majority of private infrastructure investment firms, which focus on brownfield infrastructure in developed markets — including ports, roads and airports — Partners Group has focused on greenfield market segments, including renewable wind and solar power projects.
"We try to create value," and with so much money chasing yields now in brownfield infrastructure, it's "very, very hard to create value" in that part of the market, Mr. Wuffli said.
In greenfield, by contrast, Partners Group has been able to deliver returns of between 12% and 14% over the long term, a profile that's increasingly attractive to clients as the current low-yield capital markets environment has dragged on, he said.
In addition to its broad range of asset classes and investment vehicles, the way Partners Group has structured its compensation system provides further support for the dynamic, relative-value approach to mandates more clients are looking for now, Mr. Wuffli said.
"We have very aggregated global incentive pools," an integrated global platform, in contrast to competitors with incentives tied more to specific funds, creating "more of a conglomerate of funds type of firm," he said.
"It allows us to have a relative-value kind of view on asset classes, top down, which most other firms find difficult to do," Mr. Wuffli said. n