Alternative plus head Partners Group (OTCPK:PGPHF) posted a disappointing FY22 plus nether guidance (AUM) update, pinch gross customer request of $22bn coming successful astatine nan little extremity of nan anterior full-year guidance of $22-26bn range. Alongside nan report, guidance besides pegged FY23 AUM astatine an moreover much disappointing $17-22bn successful ray of nan challenging near-term outlook.
While backstage markets will look headwinds connected nan exit and fundraising fronts complete nan coming months, nan mid-to-long-term bull lawsuit remains intact, successful my view. And arsenic backstage markets normalize, guidance is assured successful returning to FY21 levels of fundraising – fixed nan secular displacement toward alternatives, I person nary rumor underwriting this view.
Yet, nan muted capacity fees outlook heading into H1 2023 and nan imaginable of much Fed tightening than expected pursuing nan caller jobs and ostentation information intends immoderate caution is warranted for now. At ~20x fwd earnings, nan banal seems reasonably priced.
Key Takeaways from nan FY22 AUM Release
Partners Group lowered nan barroom heading into adjacent month’s net report, disclosing a below-par $135bn AUM astatine nan extremity of December 2022. The header miss was driven by tail-downs and redemptions, offsetting higher customer commitments. Still, location were metallic linings. Of note, nan backstage equity capacity delivered amazingly affirmative returns of 2.6% (vs. -2.6% successful nan anterior nine-month period), helped by stronger portfolio maturation and respective liquidity events. Management was speedy to temper expectations connected nan telephone (audio replay here), though, cautioning that returns for nan buyout assemblage will stay pressured for nan foreseeable early amid expanding financing costs. In nan meantime, plus translator efforts (vs. purely leverage) should thief to cushion nan capacity effect of little indebtedness being used.
Another statistic worthy noting from nan Partners Group AUM position was nan disclosure that it had only deployed $12.6bn of assets successful H2 2022 – good beneath nan $18.6bn invested successful H2 2021. Unsurprisingly, nan slower gait of fundraising was nan cardinal culprit, though guidance stressed connected nan telephone that nan little “client conversion rates” was a impermanent inclination and that request remained intact. In statement pinch this view, nan company’s mid-term guidance calls for a emergence successful allocations - successful its guidelines lawsuit scenario, backstage equity fundraising is projected to return to FY21-FY22 levels wrong nan adjacent 3 years (in statement pinch broader complaint normalization globally). As I stressed successful my prior coverage, rising allocations to higher-performing alternatives for illustration backstage equity are present to stay, and thus, I spot an extended organization allocation runway arsenic good wrong reach.
Disappointing FY23 Guidance Amid Delayed Exits
As highlighted by its caller guidance for $17-22bn of caller customer request and $10.5-12.5bn of tail-downs and redemptions successful FY23, nan institution will request to contend pinch akin backstage marketplace headwinds passim nan coming year. For one, nan Fed isn’t done tightening, and financing has been difficult, arsenic banks propulsion backmost connected indebtedness financing and superior marketplace investors request a larger consequence premium fixed nan uncertainty. In response, nan institution is lowering its summons size to $0.4-1bn (down from $1-1.5bn prior) and reducing its woody leverage to ~35% (down from ~50% prior). Alongside nan little AUM inflows, this intends much disciplined superior allocation to prolong expected returns. Given nan unfavorable pricing environment, though, nan institution is being forced to clasp disconnected connected nonstop exits and liquidity events, truthful little returns look for illustration a much realistic result for now.
Another cardinal interest is connected nan disbursal broadside – per management, hiring had ramped up passim nan twelvemonth to dress up for nan little hiring activity successful nan anterior years. As a result, nan year-end headcount stood astatine 1.8k, pinch hiring activity group to summation successful statement pinch nan AUM level successful nan coming years. While guidance reiterated that operating margins would stay supra nan 60% guidance level, location could still beryllium downside consequence for EBIT margins successful FY22/FY23 from nan caller headcount additions. Plus, management’s reiterated capacity fee/revenue guidance astatine an implied ~12-13% for nan afloat twelvemonth seems optimistic successful ray of nan downbeat exit activity outlook. So unless location is immoderate offset from customer demand, I fishy location is downside consequence to nan capacity interest guideline arsenic well.
Disappointing AUM Update Signals Challenging Times Ahead
The FY22 AUM and guidance update from Partners Group up of its net study were good beneath statement expectations; pursuing nan announcement, it’s difficult to spot past nan near-term downside. Still, location remains a batch to for illustration for patient, semipermanent oriented investors - nan company’s unsocial integrated level exemplary allows for customizable offerings, which has resonated pinch allocators frankincense far, allowing it to go nan largest and astir profitable listed replacement plus head successful Europe. Given its beardown differentiation vs. much accepted plus head peers, Partners Group is poised to capitalize connected a secular displacement to alternatives.
The drawback is nan unfavorable near-term dynamics for backstage equity, arsenic higher rates person weighed connected nan full cycle, from fundraising and financing to exits. Pending visibility into a sustained backstage markets recovery, nan banal is astir apt reasonably priced astatine ~20x fwd earnings.
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Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.
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