WEBVTT - Partners Group CEO David Layton Talks Management Reshuffle 0:00:02.520 --> 0:00:04.210 Bloomberg Audio Studios. 0:00:04.690 --> 0:00:05.390 Podcasts. 0:00:05.690 --> 0:00:06.210 Radio. 0:00:06.630 --> 0:00:07.070 News. 0:00:12.350 --> 0:00:15.580 Partners Group is reshuffling its top management after a slump 0:00:15.660 --> 0:00:18.239 in first half earnings. It all started earlier this year 0:00:18.300 --> 0:00:22.160 when a wave of redemption requests hit the firm's evergreen funds. 0:00:22.730 --> 0:00:27.740 Partners Group is naming two different co-CEOs who will be 0:00:27.820 --> 0:00:32.360 replacing David Layton, who becomes the CIO on January 1st. 0:00:32.460 --> 0:00:35.720 I'm pleased to say that David Layton joins us now. David, 0:00:35.760 --> 0:00:37.600 great to see you this morning. And we have to 0:00:37.640 --> 0:00:40.960 start with the news there on the rotation of CEOs. 0:00:41.060 --> 0:00:43.280 And I know it is the group's line that you 0:00:43.330 --> 0:00:46.850 do this sometimes, keeps the firm fresh, having different leadership positions. 0:00:47.350 --> 0:00:50.100 But the timing is notable considering it comes after these 0:00:50.240 --> 0:00:53.520 outflows and concerns over your evergreen funds. How much of 0:00:53.580 --> 0:00:56.640 this is an attempt to calm investors and do something 0:00:56.680 --> 0:00:58.080 that looks like riding the ship? 0:00:59.580 --> 0:01:03.070 Well, it has zero to do with that, Dani. So 0:01:03.150 --> 0:01:07.610 I've been in my seat for eight years in January. 0:01:08.330 --> 0:01:11.510 The prior CEO was in his seat for eight years. 0:01:11.550 --> 0:01:13.940 The CEO before that was in his seat for eight years. 0:01:14.020 --> 0:01:15.760 And the CEO before that was in their seat. 0:01:16.140 --> 0:01:16.980 For eight years. 0:01:17.700 --> 0:01:21.220 We have a partnership culture here at Partners Group where 0:01:21.260 --> 0:01:25.470 we kind of rotate leadership assignments from time to time 0:01:25.490 --> 0:01:29.190 on a somewhat predictable basis. 0:01:30.130 --> 0:01:32.290 The two new individuals that are. 0:01:32.209 --> 0:01:37.610 Stepping up could not be more ready to lead the organization. 0:01:38.330 --> 0:01:40.580 I'm looking forward to after eight years and more of 0:01:40.620 --> 0:01:44.340 a corporate function, getting back to the investing side of things. 0:01:44.760 --> 0:01:46.619 That's the part of the business that I came up in. 0:01:46.660 --> 0:01:50.630 I'm very much looking forward to getting back to investing 0:01:50.710 --> 0:01:54.100 as chief investment officer. But this is very much a 0:01:54.200 --> 0:01:57.680 part of a natural leadership rotation that our firm's been 0:01:57.720 --> 0:01:59.780 doing for 30 years now. 0:01:59.940 --> 0:02:01.960 I guess, David, why decide to do it now then? 0:02:01.980 --> 0:02:04.100 Because I'm sure you're very aware of the optics that 0:02:04.140 --> 0:02:07.120 doing it at a point when you announce earnings that 0:02:07.320 --> 0:02:10.740 perhaps aren't the strongest, just considering how the market is reacting, 0:02:10.780 --> 0:02:12.400 that it looks like it's coming from a place of 0:02:12.440 --> 0:02:16.150 stress rather than just a normal announcement you would do otherwise. 0:02:17.650 --> 0:02:21.049 Well, I think the timing has a lot to do 0:02:21.210 --> 0:02:25.970 with the fact that the two co-CEOs that we've been, 0:02:26.900 --> 0:02:30.820 incoming co-CEOs that we've been working and developing are absolutely 0:02:30.900 --> 0:02:35.520 ready to step up and to take on the topics 0:02:35.860 --> 0:02:37.480 that face the business today. 0:02:37.500 --> 0:02:39.980 You know, we talked about do we. 0:02:39.900 --> 0:02:43.500 Want to postpone a leadership transition because of optics, but 0:02:43.560 --> 0:02:46.329 that's not really our style. I think we're going to 0:02:46.470 --> 0:02:49.930 operate the way we feel is best, put people in 0:02:49.950 --> 0:02:54.660 the seats that we feel like is best to put 0:02:54.700 --> 0:02:58.000 them in, and we'll leave the optics to kind of 0:02:58.060 --> 0:02:58.540 other people. 0:02:58.580 --> 0:03:00.940 We're not as concerned with that, Dave. 0:03:01.380 --> 0:03:03.920 And David, you're staying on as chief investment officer. How 0:03:04.480 --> 0:03:05.680 will that dynamic be? 0:03:07.410 --> 0:03:12.430 Well, we have multiple former CEOs still present within the firm. 0:03:13.130 --> 0:03:17.160 Our first CEO, Freddie Gander, He rotated out after eight 0:03:17.200 --> 0:03:21.240 years and became the chairman of our Global Investment Committee, 0:03:21.280 --> 0:03:25.139 a role I'll also take on. Stephan Meister, after eight 0:03:25.160 --> 0:03:28.440 years in his seat, rotated out and took on the 0:03:28.460 --> 0:03:32.820 chairmanship of our board. Andre Frey, after his eight years, 0:03:32.860 --> 0:03:35.960 he rotated out and led a number of our ESG initiatives. 0:03:36.640 --> 0:03:39.520 And so that's the culture that we have. It's more 0:03:39.560 --> 0:03:43.660 of a partnership culture where you have generations of leaders 0:03:43.690 --> 0:03:48.760 who working together as opposed to a traditional maybe corporate hierarchy. 0:03:50.280 --> 0:03:55.070 It's the individuals that sit around the table for years 0:03:55.110 --> 0:03:55.650 and years and years. 0:03:55.670 --> 0:03:57.690 We've been together for 20 years. 0:03:57.750 --> 0:04:02.010 I've been working with the incoming co-CEOs for over 20 years. 0:04:02.510 --> 0:04:06.170 I've been working with the prior CEOs that still exist 0:04:06.190 --> 0:04:07.610 within the company for a period of time. 0:04:07.630 --> 0:04:09.310 It's maybe a little bit more. 0:04:09.150 --> 0:04:12.560 Swiss than American with regards to how we're set up. 0:04:13.040 --> 0:04:15.340 But it's a culture that very much works for us 0:04:15.920 --> 0:04:20.860 and allows us to keep a very natural leadership rotation 0:04:20.920 --> 0:04:21.820 going within the meetings. 0:04:22.160 --> 0:04:24.460 So, David, you go back to your roots, again, leading 0:04:24.520 --> 0:04:27.529 investment strategy. What would you like to change? Is there 0:04:27.570 --> 0:04:30.750 anything that you will be changing as you take over 0:04:30.770 --> 0:04:31.870 as CIO? 0:04:33.190 --> 0:04:36.170 Well, I'm stepping into that role as CIO, I think, 0:04:36.210 --> 0:04:38.610 at a good time. Number one, our firm has raised 0:04:38.630 --> 0:04:41.770 a record amount of capital. that needs to be invested. 0:04:41.990 --> 0:04:45.310 We raised $ 16 billion in the first six months of 0:04:45.350 --> 0:04:45.710 this year. 0:04:45.750 --> 0:04:49.170 That's up 31% year over year, and. 0:04:49.170 --> 0:04:53.880 It's coming from an increasingly diversified number of channels. Our 0:04:53.920 --> 0:04:58.560 infrastructure business, for example, raised $ 15 billion for its direct strategy, 0:04:58.920 --> 0:05:02.100 another $ 5 billion for its secondary strategy. That's $ 20 billion 0:05:02.260 --> 0:05:06.630 of total capital raised for infrastructure investments. that have been 0:05:07.990 --> 0:05:11.850 brought in over this last fundraising cycle. And so, indeed, 0:05:11.890 --> 0:05:14.530 this is an environment that we feel like we can 0:05:15.050 --> 0:05:21.170 capture really interesting private markets opportunities for our clients. We 0:05:21.210 --> 0:05:24.750 have been winning market share within the private markets. If 0:05:24.790 --> 0:05:29.320 you look at since, you know, 2023, the start of 0:05:29.360 --> 0:05:34.960 this most recent fundraising cycle. Our firm has raised about 50% 0:05:34.960 --> 0:05:38.320 more capital today than we were raising back then. And 0:05:38.980 --> 0:05:42.810 the industry is raising 15% less capital than it was 0:05:42.820 --> 0:05:43.110 back then. 0:05:43.120 --> 0:05:44.400 So we're taking share. 0:05:44.430 --> 0:05:48.570 And we've got the opportunity to, I think, be highly 0:05:48.630 --> 0:05:52.570 differentiated how we go about finding investment opportunities and deploying 0:05:52.610 --> 0:05:55.680 capital in an environment where not everybody has the luxury 0:05:56.000 --> 0:05:57.180 of having access to capital. 0:05:57.900 --> 0:06:00.700 And David, we should also note that you reiterated your 0:06:00.740 --> 0:06:04.260 guidance for fundraising this year, which does continue off the 0:06:04.300 --> 0:06:07.400 back of a record new assets in the first half. 0:06:07.920 --> 0:06:10.039 If things are going so smoothly, David, why has it 0:06:10.060 --> 0:06:13.920 been so hard to turn around the image for your 0:06:13.980 --> 0:06:17.740 public equity investors? Why aren't investors appreciating this? What is 0:06:17.779 --> 0:06:20.400 going wrong that the public image of Partners Group is 0:06:20.480 --> 0:06:23.940 still around the drama concerning your Evergreen funds and the 0:06:24.000 --> 0:06:24.670 outflows there? 0:06:25.850 --> 0:06:30.130 Well, the Evergreen business is only about, well, it's 30% 0:06:30.130 --> 0:06:34.470 of our business, but individual investors using Evergreen are only 20% 0:06:34.470 --> 0:06:38.880 of the business. But because we were an early pioneer 0:06:38.980 --> 0:06:42.340 in that space, the Partners Group name is very much 0:06:42.420 --> 0:06:47.260 associated with that channel, the channel of individual investors. And 0:06:47.320 --> 0:06:50.610 as you have individual investors that have started to redeem 0:06:51.029 --> 0:06:55.110 in certain funds, that's cast a shadow over the firm. 0:06:55.470 --> 0:06:57.950 But the reality is that's only 20% of the business. 0:06:58.630 --> 0:07:03.060 We have an increasingly diversified set of channels that we 0:07:03.100 --> 0:07:06.339 raise capital from. That'll continue to be an important channel 0:07:06.360 --> 0:07:09.700 for us. Let's keep in mind we have $ 4. 2 billion 0:07:10.240 --> 0:07:14.520 in inflows into our evergreen business. Despite some of the 0:07:14.740 --> 0:07:19.650 redemption pressure, we're still net positive with regards to inflows 0:07:19.850 --> 0:07:22.770 in that part of the business. Then we also have 0:07:23.230 --> 0:07:27.030 a very strong Asia segment of the business where we've 0:07:27.050 --> 0:07:28.430 seen an increase in fundraising. 0:07:28.810 --> 0:07:29.470 We see. 0:07:30.800 --> 0:07:34.440 Certain channels like the consultant channel, which is increasingly important 0:07:34.480 --> 0:07:38.700 for us. And that has led to an overall result 0:07:39.100 --> 0:07:41.880 that is a record high. We're up 31% year over 0:07:41.960 --> 0:07:46.520 year in our H1 fundraising from the same period last year, 0:07:46.900 --> 0:07:49.820 despite these headwinds. But I think it's going to take 0:07:50.100 --> 0:07:52.620 a little bit of time to get out from under 0:07:52.660 --> 0:07:53.220 that shadow. 0:07:54.300 --> 0:07:55.760 David, what about when it comes to M & A? 0:07:55.780 --> 0:07:58.980 The chairman on the earnings call said that PartnerSoup is 0:07:59.040 --> 0:08:01.280 open to M & A, but hasn't been courageous. What 0:08:01.300 --> 0:08:02.660 kind of targets are you looking at? 0:08:04.240 --> 0:08:07.080 Well, if you look at our business today, I think 0:08:07.100 --> 0:08:09.420 there are certain strategies that. 0:08:09.280 --> 0:08:11.940 We could be deeper in. 0:08:12.050 --> 0:08:16.190 We've talked about Impira in the past. That was a 0:08:16.770 --> 0:08:20.150 great example of a successful M & A transaction that 0:08:20.190 --> 0:08:25.370 we completed. We bought Impira, a real estate platform, primarily 0:08:25.410 --> 0:08:26.210 known for its. 0:08:28.630 --> 0:08:33.580 Residential business in Germany. And we have really successfully integrated 0:08:33.640 --> 0:08:37.740 their investment content into our client distribution channels. 0:08:38.520 --> 0:08:40.670 And that has been a really successful addition for us. 0:08:41.220 --> 0:08:45.540 And so you'll continue to see us looking for successful 0:08:45.660 --> 0:08:48.829 asset management firms with a good culture. that we can 0:08:49.030 --> 0:08:54.330 potentially plug into our distribution capabilities in a similar way. 0:08:54.510 --> 0:08:57.730 Would you do transformational M & A, David? Would you 0:08:57.770 --> 0:09:01.230 buy someone of a large size that would really rewrite 0:09:01.290 --> 0:09:03.290 what Partners Group looks at? Or are these more just 0:09:03.330 --> 0:09:04.709 small sort of bolt-ons? 0:09:05.910 --> 0:09:09.130 I think a base case, it's probably. 0:09:10.270 --> 0:09:14.940 Bolt-ons or medium-sized acquisitions. But I think our industry is 0:09:15.100 --> 0:09:20.490 in structural consolidations. And you're going to see a continued 0:09:20.590 --> 0:09:24.550 wave of consolidation within the private markets landscape. You have 0:09:24.570 --> 0:09:27.730 the public asset management firms that are increasingly thinking about 0:09:27.770 --> 0:09:31.170 how they add privates to their portfolio. The middle market 0:09:31.290 --> 0:09:34.189 is really kind of accessed through the private markets today 0:09:34.730 --> 0:09:40.150 more than it is through the public markets. And so 0:09:40.170 --> 0:09:42.530 you have public asset management firms that are thinking about 0:09:42.590 --> 0:09:46.020 how private markets fit in. You also have a number 0:09:46.070 --> 0:09:51.470 of very strong investment cultures within the private markets landscape 0:09:51.710 --> 0:09:54.870 that just don't have access to capital the way that 0:09:54.890 --> 0:09:58.729 the larger platforms do. Again, we're raising 50% more capital 0:09:58.750 --> 0:10:01.670 today than we were back in 2023, but the industry 0:10:01.690 --> 0:10:03.250 is raising 15% less. 0:10:03.809 --> 0:10:06.250 So you have a number of really good teams that 0:10:06.290 --> 0:10:07.850 we think could be incremental, either from. 0:10:07.750 --> 0:10:12.950 A geographical perspective or from the capabilities perspective. 0:10:11.980 --> 0:10:14.460 That we're looking at. And let's keep in mind that 0:10:14.520 --> 0:10:15.660 the space. 0:10:15.740 --> 0:10:19.470 Has re-rated over the past number of quarters. And so 0:10:19.510 --> 0:10:24.000 that doesn't make M & A discussions particularly easy because 0:10:24.059 --> 0:10:26.440 if our stock is down, you know, and our peer 0:10:26.460 --> 0:10:28.319 stock is down, you're going to be looking at a 0:10:28.360 --> 0:10:30.479 counterparty across the table and tell them that their private 0:10:30.520 --> 0:10:31.990 stock is down. 0:10:32.000 --> 0:10:33.330 And those are tough conversations. 0:10:33.770 --> 0:10:38.709 And oftentimes that can delay a dialogue and discussion, potentially 0:10:38.830 --> 0:10:40.809 ice dialogue and discussion. 0:10:42.030 --> 0:10:42.910 But we remain active. 0:10:44.830 --> 0:10:46.750 David, I would love to get your take, you know, 0:10:46.809 --> 0:10:50.290 as you kind of go through the remaining months as 0:10:50.309 --> 0:10:53.910 your role of CEO, again, transitioning into CEO, how you're 0:10:53.929 --> 0:10:57.050 thinking about the past year. Would you have done anything 0:10:57.130 --> 0:11:00.720 differently when you started to see those redemption requests? Is 0:11:00.740 --> 0:11:03.400 there anything with the benefit of hindsight you think as 0:11:03.460 --> 0:11:06.339 you and your peers in this industry have to navigate 0:11:06.380 --> 0:11:09.040 those redemptions that you would have adjusted or you will 0:11:09.080 --> 0:11:10.120 adjust going forward? 0:11:11.740 --> 0:11:15.520 Well, I think those funds have worked in the way 0:11:15.559 --> 0:11:18.890 that they were intended to work in that we have 0:11:19.309 --> 0:11:23.590 protected the investors that wanted to stay in those investors 0:11:23.630 --> 0:11:27.230 and not fire sold assets to the detriment of performance. 0:11:27.350 --> 0:11:30.290 We worked hard to protect performance within those. 0:11:30.730 --> 0:11:33.469 If I look out over this last cycle, we've said 0:11:33.530 --> 0:11:35.530 one of the key things that we can focus on 0:11:35.570 --> 0:11:39.829 is building an increasingly diversified set of investment engines that 0:11:40.290 --> 0:11:40.650 it can. 0:11:40.530 --> 0:11:43.929 Share the burden of deploying those evergreen structures. 0:11:43.950 --> 0:11:46.690 And I think that's one thing that we're very focused 0:11:46.730 --> 0:11:50.190 on is increasingly building out the investment engines. 0:11:50.290 --> 0:11:52.950 And you've seen that with royalties from us. You've seen 0:11:52.970 --> 0:11:56.860 that with the new special situations business that we launched into. 0:11:56.880 --> 0:12:00.300 You've seen that with the acquisition of Empira, as mentioned, 0:12:00.340 --> 0:12:04.059 and other acquisitions that could come in the future. You're 0:12:04.080 --> 0:12:07.979 seeing us build out an increasingly diversified set of investment 0:12:08.020 --> 0:12:12.220 engines to avoid concentrations in individual assets in the future. 0:12:12.860 --> 0:12:15.240 Hey, David, we got just like 30 seconds here. So 0:12:15.260 --> 0:12:18.480 just quickly, where do redemptions stand? Have they started to 0:12:18.600 --> 0:12:20.500 ease this quarter? How long do you expect them to 0:12:20.540 --> 0:12:20.900 go on? 0:12:22.340 --> 0:12:26.730 Yeah, so we communicated in June that we expect for 0:12:26.750 --> 0:12:31.150 this period of elevated redemptions to probably go on for 0:12:31.150 --> 0:12:32.050 12 to 18 months. 0:12:32.770 --> 0:12:33.429 We are not the. 0:12:33.390 --> 0:12:37.890 First firm to introduce liquidity restrictions on one of our funds. 0:12:38.670 --> 0:12:41.050 There have been many, many funds in a pattern that 0:12:41.090 --> 0:12:44.490 you can watch almost on how those funds behave during 0:12:44.510 --> 0:12:47.090 those periods of time. And we're assuming that our fund 0:12:47.130 --> 0:12:49.329 follows a similar pattern to other funds that have introduced 0:12:49.350 --> 0:12:53.260 liquidity restrictions. And that's probably elevated liquidity for the next 0:12:53.260 --> 0:12:58.059 12 to 18 months. But despite that elevated liquidity, we 0:12:58.120 --> 0:13:00.120 have stayed positive in terms of our inflows. 0:13:00.160 --> 0:13:00.700 Again, at $ 4. 0:13:00.600 --> 0:13:01.179 2 billion in new assets. 0:13:04.000 --> 0:13:07.819 Coming into our evergreen side of the business. 0:13:07.620 --> 0:13:08.740 In the first half of this year. 0:13:09.160 --> 0:13:10.520 Hey, David, we're going to have to end it there. 0:13:10.540 --> 0:13:12.380 Thank you so much for joining us. And we've really 0:13:12.440 --> 0:13:15.100 enjoyed our conversations with you as CEO. I hope they 0:13:15.120 --> 0:13:18.160 will continue when you take over as CIO. That's Partners 0:13:18.200 --> 0:13:21.560 Group CEO, David Layton. You're watching Bloomberg Open Interest.