Partners Group Holding AG

Welcome to our 2020 financials call. I hope you are all healthy.

My name is Philip Sauer, and I'm the Head of Corporate Development, and I would like to introduce today's presenters. I will be joined in this call by our Chairman of the Board, Steffen Meister, who will provide us with an update on the most recent rotations at Board and ExCo level.

He will also share with us his perspective on the importance of thematic investing in private markets. I will be also joined by our 2 co-CEOs, Dave Layton and André Frei, who will talk about our investment and client activities, respectively.

Last but not least, Hans Ploos, our CFO, will shed more light into our financial performance 2020 and also provide additional insights on our financial outlook. With that, I would like to hand over to Steffen, please.

Thank you, Philip. Good morning, everybody, from my side.

Also, I'm very happy to kick this off today. But before I move to my first 2 topics, let me just make an upfront statement here.

2020 came clearly with its challenges, for sure. But overall, we are quite satisfied with the results with the year.

We have seen incredible work across the different dimensions. That's on the investment side of things, working on the assets with clients.

In operations, we have seen a substantial stakeholder impact during this year. And Dave, André and Hans will clearly talk more about details here and share the financials.

But just upfront, I want to just share my gratitude for that work that has been done by the ExCo, by my colleagues here in the room, by the other ExCo colleagues, but also by the rest of the organization. I think we're very, very happy and proud about that.

With that, let me move directly into the leadership changes. That's on Page 3.

We have, on the one hand, Eric Strutz, that will retire from the Board. That's after he has reached a maximum term of 10 years that we have set ourselves for independent Board members to be independent, in our perspective.

And Eric has been a very strategic thinker. Over the 10 years, he has been a very steady hand in risk management.

He was also Head of Risk and Audit Committee for a number of years. And so we're very, very grateful for the work is done.

And we are actually very happy that he does remain very engaged in our portfolio companies as an operating director. And so we'll lose -- we'll not lose the relationship with Eric, who has been so valuable to us.

Newly joining the Board will be Joe Landy. That's probably a name that many of you are quite familiar with.

Joe, during his 20-year tenure as Co-CEO of Warburg Pincus, has probably been the driving force in building up Warburg Pincus to what it is today as a real market leader in private equity. And beyond that entrepreneurial side of things, I mean, he has an impressive track record on the investment side of things, being actually investment responsible behind many of their most successful investments over the last 20 years.

So probably not a surprise that we really hope to see major contributions for Partners Group in our expansion of our transformation investment platform, but also our client solutions businesses, and that is, especially, I guess, outside the European market. So very, very happy to welcome Joe also onboard.

Just a quick note on the Board overall. I mean, what is really unchanged is not only the rest of the Board, but maybe, as important, is it's the way we tackle what we call private markets style governance, which is a very active in a way of running the firm.

It's actually mostly done through committees or at individual levels where all of us focus on our couple of focused topics, most of them in business and corporate development. That's on the investment side of things, the client solutions, DC programs, for instance, portfolio oversight, operations, and then, of course, very importantly, the human capital development and leadership development in the firm.

And that's maybe a good segue to talk about the changes we have announced this morning at the executive committee level. Very, very big change to start with, André.

André, you are stepping on to a new function in the firm after about 8 years as Co-CEO. I really have to tell you, I mean, André was an incredible leader in this firm.

He is a very inclusive leader. He was very involved in developing our client activities, the portfolio side of things, operations.

And this is why it's very sad to see him moving on to that new function. But I have to admit that with my own experience as CEO for 8 years, I have sympathy with that step.

And I'm very grateful that André stays with us in that function as Chairman of Sustainability, where he can really bring very action-oriented approaches to sustainability, stakeholder impact and ESG. I suspect, André, you will talk about your role quickly in your part later on?

Or you want to do this right now?

Well, absolutely later.

Good. Okay.

We'll do this later on. And just to mention that here on this call, this is too early to wish farewell to André.

There's another few months to go, mate. But we'll do this in an appropriate format in summer.

A big second step is the leaving of Mickey Studer out of the ExCo, but staying again in the firm. He has been more recently the Co-Head of Portfolio Solutions and Chief Risk Officer.

He will actually remain Chief Risk Officer. And so Mickey will actually focus pretty much on the same portfolio, but outside the ExCo.

So that's on the client side of things, portfolio and the Investment Committee matters. So again, very big achievements over the 8 years, and we are very happy to retain him in that function as Chief Risk Officer and with his focus on the client side of things.

So that means that from 1st of July, we have Dave running the ExCo as a single CEO. I mean, we have absolute confidence in Dave's ability to do this, especially given the strong ExCo we have, with Juri Jenkner, who is really running the day-to-day organization side of things and investment platform with Dave already for quite some time very successfully; Andreas Knecht as an incredible COO; Marlis is running the largest team actually as Head of Client Services; and Hans being a formidable CFO and Head of Corporate Finance or Corporate Development.

But what you see maybe from that composition is that with the departure of André and Mickey from the ExCo, there is clearly a bit of an underrepresentation on the client side of things. And that's why we have asked Sarah Brewer, our new Co-Head of Client Solutions, to join the ExCo from summer; and also Roberto Cagnati, who is the successor of Mickey Studer, who was Co-Head previously with him and will take over the portfolio solutions team as a single head going forward.

Also, actually, will be joining Kirsta Anderson as Chief People Officer. Human capital is such an important topic in the ExCo, and we felt it was opportune to have a direct representation in the ExCo.

So if you think about that step, on the one hand, it's very sad to see all of these changes, of course. But I have to tell you, I am thrilled.

I'm surely speaking on behalf of the entire Board here to see that deep bench of talents, that we can actually absorb these changes, address these changes in such a smooth and seamless manner. And beyond that, I'm very, very happy that we have that setup and the culture that allows people like André and Mickey to actually stay in the firm, in important functions, like so many of them before when they have.

That's the ExCo. So with that, let's move to my set topic I want to talk about today, that's the thematic investing approach.

Why do I think it's very opportune to talk about it? I think, if anything, I think the COVID year 2020 has clearly shown this incredible shortening of innovation cycles, the change of business models.

And there's one illustration on this slide here, right? Just to put things a little bit into context.

If you think about the automation space in manufacturing assembly, we have seen development, for instance, heavy machine, take about 50 years. That ran to about 25 years for heavy-duty robots.

We have now, in the last not even 5 years, seen a complete new generation of smart automation applications. We call them cobots, the collaborative robots.

How is that possible? It's this acceleration across dimensions.

It's this parallel innovation, in this last case, driven by change in materials. It's development of new standard technology, both visual and physical.

It's the development of new computing power, and together with that, machine learning. And what happens here, and that's just really one very small example, is we see ahead of us an incredible set of opportunities.

But there's also risk if these opportunities are wrongly assessed or missed because what's happening is in many of these areas, the ecosystem, and maybe more relevant, the profit pool allocation will look very, very different in a few years from now. So that's a question we're asked very often by our clients.

So how do we respond to that? And how have we actually ensured that we are so much on top of these developers and so many of these investments that we're making?

So our thematic investment approach, our proprietary approach is actually starting with what we call the giga themes: automation/digitalization, new living, decarbonization. But it's actually not that we focus directly on these themes.

It's much more that we build a cascade of thoughts out of those. So we'll think about what are the main transformative trends in each of them and then the areas to observe, so for instance, like data centers in infrastructure, nutrition in private equity or small building in private equity.

And if you turn one more slide on Page 9, you see a typical example of how we actually systematically look at that space and develop our convictions and themes here. And so I go back to this idea or this example in automation/digitization.

So if you think about assembly automation, you could look at entire dark factories, a big, big topic. You could go one level further down to automation installations, so individual lines, effectively.

You can look at cobots today or you can, for instance, go one level deeper, which is grippers. In this particular case, we actually like grippers most in that space.

Why is that? Well, grippers benefit from the larger forces of growth that we see in that automation trend.

That's for sure. It's a pretty sizable niche, and I think the niches we typically look at would range from maybe anything between a couple of billion dollars of market revenues to several hundred billion dollars of revenues.

So they tend to be sizable enough to create nice businesses. But what happens is often that at this second, third or fourth order level of a topic, we see often more interesting business development opportunities.

Sometimes we see more predictability, stability. And actually, we see often less competition.

It's a good example here, certainly true for grippers relative, for instance, robots or automation installation. So this approach of developing this cascade and really coming out with our highest convictions and finding areas where we see best businesses or assets to develop, that's really the approach across private equity, same for infrastructure.

That's true for real estate also, to relatively large extent. And so maybe just give a sense of how that builds together on the next page, you see the focus themes we currently develop for private equity.

So in private equity, overall, there's a couple of hundred themes, but we focus on about 50. That means about 12 or so, a dozen or so per each of our 4 sectors, goods and products, technology, services, health and life.

And so if you look at these themes and if you take that previous example, I think what you will see is that what really thematic investing is about is choosing offense as the new defense. That's the way we label it, right?

So we try to find a space where we have a very clear conviction. If we don't have that, we stay away.

And if we have the conviction, we play offense by creating these market leaders. And this, I think, is probably the best example or illustration or explanation also why we have seen so much rebound so quickly and even growth in the second half of 2020 across our portfolios.

Because that's precisely -- because what COVID has done is it accelerated or amplified most of these trends across the portfolio in a quite substantial manner. And maybe that's a good segue for Dave to jump in to talk about exactly these kind of changes, the impact and what that meant in practice for 2020.

Dave, if I may hand over to you.

Thank you, Steffen, and good morning, Europe. Now I think this approach to thematic investing strongly orients us towards topics that will be relevant for very long periods of time, it helps us avoid disruptions, and it helps us to maneuver to get in front of structurally sound tailwinds.

Now regarding the leadership evolution, those of you that have followed our firm for a while know that succession planning is firmly embedded in our DNA. Already, in our 25-year history, there have been 4 generations of CEOs, and what's interesting about that is that all 3 prior generations still have a place in the business.

And our ability to seamlessly transition roles and still retain experience, to have multiple generations of leaders aligned and partnered, I think, is a key strength of our firm. And André is such a remarkable partner and Co-CEO.

You'll rarely find an executive who's capable and yet grounded and humble as he is. He's smart and accomplished and purpose-driven.

And he's truly been an exemplary partner, and I've learned a lot from him and hope to continue to learn from him as he drives our sustainability initiatives moving forward. And that goes to Michael and Steffen as well in their new roles.

Now in this next part of the presentation, we'll elaborate on our approach to sustainable growth. I'll speak first on the investment side.

The big theme right now with many of our investment departments is transformation, and we'll talk about why. André will then speak about the client side.

We've delivered what we feel are solid returns to clients, and we continue to see meaningful demand. But even more than returns, we're increasingly known by our clients for our ability to customize bespoke solutions.

While others push product, they push funds, we sit down with clients, we understand their needs, we craft custom solutions for them. And that's what we're increasingly known for.

Now all of our business is reasonably long term in nature, but that custom business is very, very sticky business. And finally, Hans will close out the report with financials, with highlights including performance fees, margin stability and the dividend proposal.

Let's move to the next slide, Page 13. On our last call, I already gave you quite a bit of commentary on our 2020 investments, and so I'm not going to dwell on the investment section today.

I gave you a somewhat positive outlook on both investment and exit activity heading into 2021, with 2020 carryover potential in both of those categories. Now it's still early in the year, a lot can happen, but I continue to feel positive about both of those topics for 2021.

This has the potential to be a strong year for us. While it's a competitive market, we're a firm that's prepared to compete.

And our thematic sourcing approach that we just went through gives us a leg up. And we've been able to win our fair share of transactions.

We've onboarded some exciting new positions in the portfolio already this year. Our realization activity in 2020 actually ended up in a quite reasonable place, $11.8 billion for the year, and momentum is carried into 2021.

Now the next page, Page 14, speaks to the foundation for realizations and returns, and that's value creation and successful asset transformation. And it's just a reality that in the current environment with elevated valuations for attractive assets, substantial value creation is required to continue to generate outsized returns for our investors.

And so that's why we're putting our emphasis on this so strongly. And on this slide, you'll see a couple of examples from across the portfolio.

On PCI, we acquired a disparate set of pharmaceutical packaging assets, and we went to work. It started with assembling the right Board, a Board of entrepreneurs, not administrators.

We brought on Franz Humer, long time CEO and Chairman of Roche, well known to our firm. He became the Chairman of PCI, bringing world-class global vision and experience to the middle market.

And we set a new transformational strategy called One PCI to help the company evolve from a packaging service provider to that of a value-added integrated solutions provider. We had over 20 Board initiatives tied to this One PCI strategy.

We replaced 7 management team members, 5 external hires, 2 internal promotions. Partners Group's operating professionals spent material time at the company helping to reduce switching time by 60%.

We shifted the business mix towards biologics. We implemented automation improvements.

We led a digital transformation. We acquired and integrated 4 meaningful add-ons that have genuine relevance to our strategy.

And that's a lot of work, but it led to good earnings growth, and that strongly positioned the company as an industry leader. And that was a good result from a return perspective from our investors.

PCI was one of the realization events for our clients in 2020. Now that same transformational philosophy can pull through in real assets.

At Grassroots, for example, we've transitioned from a single onshore wind farm to an independent power producer, including battery. We in-sourced the development of our pipeline, and we have transformed Grassroots from an asset to the largest renewable energy platform in the region.

And in East Austin, that part of the city has historically received a lot less attention than some of the other techier parts of town. With Oracle and some other large tech employers, we're starting to change this.

And we're helping to transform the surrounding area around some of those corporate campuses with 5,000 residential units, 5 million square feet of commercial space. Now these are not just individual asset examples.

On the next slide, you'll see that across the direct private equity portfolio, we're seeing solid double-digit earnings growth, driven by this approach of thematic sourcing, platform building and asset transformation. This is the foundation.

If you work out solid earnings growth, informed by our thematic research and value creation efforts, then successful realizations follow, happy clients follow and performance fees follow. Now on the next page, we're sharing with you our portfolio performance for calendar year 2020.

2020 was a successful year for our direct private equity portfolio, driven by our entrepreneurial and transformational approach that we've outlined. Our private debt strategies underperformed their benchmark for this year.

While our programs had less of a drawdown in Q1, we had less exposure to cyclical. They benefited, to a lesser extent, from the very strong market rebound at the end of the year.

Our private real estate portfolio has shown a modest decline in valuations this year. We had a very limited exposure to sectors like retail, hospitality and student housing.

Our largest exposures there are in office, followed by residential and industrial. But new leasing value creation was obviously more limited this year, but we're comfortable on where we stand there on a relative basis.

Our private infrastructure portfolio has performed very well compared to other private infrastructure programs. We have a very solid portfolio with minimal exposure to commodity prices, GDP or traffic volumes.

We avoided a lot of the issues that some had coming from commodity energy. And on the right-hand side of that slide, we also share annualized performance to the relevant public market index across all asset classes over the past 5 years.

We've averaged 6.7% outperformance through private equity, 30 basis points of outperformance in debt, 1.5% outperformance in real estate and a solid 8.1% outperformance in infrastructure. And with that, I'll pass over to André.

Well, thank you, Dave. Good morning, and welcome also from my side.

First, Dave and Steffen, thank you for your kind words. It has been -- it is an honor and pleasure to service as Co-CEO, to work with you, Steffen, and the Board, with you, Dave, and the Executive Committee, and actually with an outstanding team of employees across the globe.

Thank you also, dear shareholders, for your trust over the past years. I feel it's the right time for me to assume a new role, and I'm going to talk about this at the end of the presentation.

And I can do so because I really have a strong trust and respect in all the colleagues in the new Executive Committee. Let's go to Slide 17.

This slide provides a quick update about our client activity in 2020. Despite the volatility we have seen and the highly challenging environment for global investors, we did see strong demand across asset classes, and our clients entrusted us with $16 billion in new capital commitments through a number of programs and bespoke solutions.

Private equity is the largest contributor to assed raised, representing 40% of all new commitments or about $6.4 billion. Private debt saw strong inflows in 2020, representing 23% or about $3.7 billion.

If we look into it, direct lending activities contributed 45% and our CLO business contributed about 55% of these inflows. Real assets, that is real estate and infrastructure combined, contributed 37% to our asset raising in 2020.

And you see that we have noticed double-digit growth across each asset class, bringing total assets under management to $109 billion. Slide 18 shows that our client base is broadly diversified across regions and types of clients.

We count around 900 institutional clients. The 2 charts here show the split of our AuM as of the end of 2020.

You all know that European clients contributed the largest share of assets under management, about 2/3. Europe remains highly important for the growth of our firm.

North America currently represents about 16% of assets under management, and we see strong growth potential in that region. Beyond track record and service excellence, Partners Group differentiates through mandates for institutional investors and evergreen solutions for high net worth individuals.

Equally, there are sophisticated large institutional clients in Asia, where, for example, mandates are an interesting way to partner up. And the chart on the right-hand -- right side reminds you that around 80% of our AuM stems from institutional investors.

Around 20% was contributed by distribution partners, which provide access to our products to private individuals as well as smaller institutional investors. Our assets under management is also well diversified across programs and clients.

We currently manage around 300 diverse private market portfolios across all asset classes. Partners Group is strong at managing complex private market portfolios.

We offer bespoke solutions already for comparably small mandates, starting with $100 million to $200 million. At the same time, we manage very large evergreen programs.

As per year-end, our 2 largest investment programs are evergreen programs, and they account for 12% of our assets under management. The pie chart on the right top illustrates our client diversification.

Our largest client accounts for 3% of AuM, and our top 20 clients make up about 23% of our assets under management. The pie chart on the right bottom shows that bespoke client solutions account for about 64% of our assets under management.

We provide investors with tailored access based on a 20-year track record of managing bespoke mandates and evergreen programs. And I believe that's a true differentiator.

It's not at all easy to replicate because there are so many ingredients required to make it happen. And one of these ingredients is portfolio management.

Slide 20 shows that portfolio management is a very central function at our firm to create value, not only bottom-up in the underlying assets, but also top-down in our portfolio through portfolio management. We help our clients achieve their target investment level and maintaining it when we reinvest their proceeds.

Our portfolio management team designs optimal investment strategies, both in terms of strategic as well as relative value asset allocation, often across asset classes. And it's often our job not only to manage risks, but also to manage cash and hedge the FX exposure, for example.

At the core of each of these mandates is really a dedicated portfolio manager that takes full responsibility of all these aspects. And I'm personally excited about the depth and the breadth of services we can provide as a company.

Slide 21 shows our 3 pillars of growth. And that is not new.

We have seen a similar slide in the past. Over the past 5 years, our bespoke solutions grew very strongly.

Evergreens grew stronger, but from a smaller base. This pillar includes our solutions for the defined contribution space.

Mandates showed a favorable growth of 17% per annum. Traditional programs grew at about 12% per annum and remain an important building block for investors that focus on diversifying their private market exposure across a broad set of investment managers.

We expect all 3 types to contribute to future growth, also traditional programs, which I expect to come in strong in '21. Already in January, we provided a positive fundraising outlook for '21, which remains unchanged.

We see sustained demand from our investors, many of which want to continue to increase their exposure to private markets. We expect to onboard between $16 billion and $20 billion in new client commitments, which we will invest responsibly over the years to come.

Tail-downs and redemptions are estimated at around $9.5 billion. Our '21 fundraising outlook is based on the expectation that current uncertainties around COVID-19 will improve as the year progresses.

Let me move to my last slide, which talks about ESG and sustainability. This is an important topic for our investors and for our shareholders equally.

Partners Group has been consistently recognized as a leader in ESG and sustainability by our investors. We integrate ESG throughout the entire investment process, and our responsible investment framework applies to all our investment decisions.

I would like to invite you to our corporate sustainability update call on the 25th of March, which I will personally host. We're excited to update you on what we have been working on in 2020 and what is on the horizon for '21.

In my future role as Chairman of Sustainability, I will focus on sustainability in general and actually stakeholder impact in particular. At Partners Group, delivering sustainable returns is the foundation of our investment strategy.

We have systems, processes, playbooks and the network of experts that we leverage in order to achieve this goal. Our ambition is to deliver consistent returns by building better companies and assets in our portfolio.

This entails that in these assets, we do not only have strategic business initiatives, but also identify and implement stakeholder impact projects that our Boards and management teams believe can directly or indirectly create upside and returns for our investors in the long term, projects that are long-term beneficial to these assets and a broader set of stakeholders, including employees and the environment. I'm really excited about the lasting positive impact we can have when many of our assets implement such stakeholder impact projects.

And with this, I would like to hand over to Hans Ploos.

First, I would like to thank André for his great support and leadership. I look forward to working with him on the sustainability agenda.

Yes, this is part of delivering sustainable returns. We look back to a strong ending of an unprecedented year as COVID became a new reality.

And we're well positioned to continue our journey of profitable growth by continuing our strategy of transformative investing and providing bespoke client solutions. AuM grew by 16% in U.S.

dollars. As we report our financial results in Swiss franc, it's important to mention that the average AuM increase in Swiss franc was lower at 6% because of the strengthening of the Swiss franc against most major currencies.

Total revenue was down 12%, driven by lower performance fees. Performance fees were down in the first half as COVID unfolded, yet strongly recovered in the second half of 2020.

Profitability remains strong with an EBIT margin at 62%. We proposed a CHF 27.5 dividend per share or an 8% increase.

This is underpinned by our continued underlying AuM growth and supported by strong cash flow and confident business outlook. Let us now look at the financials in more detail, starting with the revenue on Page 25.

Remember that we have 2 key sources of revenue: management fees and performance fees. Management fees are contractually recurring and grew 4% in 2020.

This is in line with the AuM growth, if we take into account the impact of timings of fees on some new commitments. Other revenue income was down from $94 million in 2019 to $61 million because we had less income from short-term financing activities as a result of a lower level of investments in 2020.

Performance fees were down 44% and represent 19% of total revenue. Let me move to Page 27 to discuss performance fees in greater detail.

Clearly, the first half of the year did not provide the right market conditions for exit. As a result, performance fees were only 9% of revenue during the first half of the year.

We saw a strong recovery in the second half, during which we delivered strong exits, and performance fees came back to 27% of revenue, confirming the strength of our portfolio, as discussed by Dave. It is important to remember that we follow a prudent conservative approach in recognizing performance fee.

We only recognize performance fees on the realized investments after adjusting for a stress test unrealized investments by applying a 50% discount to NAV. This approach makes it highly unlikely that we would have to reverse recognize performance fees.

And in doing so, it significantly reduces the risk of clawback. We continue to target performance fees in the range of 20% to 30% of revenues in the medium to longer term.

This remains unchanged. Turning to the next slide.

We see that the performance fees were highly diversified across a multiple of programs and mandates. They're also well balanced across the investment portfolio when you look at the number of assets that generated the performance fees.

This shows the strength of our transformative investment approach. The following slide provides further perspective on future performance fee potential.

Performance fees follow AuM growth with a time lag of about 6 to 9 years. We generated around $1.8 billion in performance fees over the periods 2015 to 2020.

These are the results from investments made over the 2010-2015 period. Looking at the period 2016-2020, we invested about double the level of the 2010-2015 period, meaning that we have around double the level of future performance fees in the pipeline.

Add to that, that our newer programs are more performance fee heavy, such as direct investments. This demonstrates that we're building a strong future stream of performance fees.

Concluding on the revenue. It is important to look at the fees over a longer time horizon.

Management fees are between 1.18% and 1.33%, and we expect this stable development to continue. This year was only slightly lower due to the impact of less income from short-term finance activities related to a lower investment level.

Let's now look at the profit development on Slide 30. We continue to balance making the right investments to drive future growth with cost discipline.

As a result, the EBIT margin remained stable at 62%. Total EBIT was down in line with revenue.

Looking at the cost development. Personnel cost, which represents 80% of our costs, were down in line with revenue.

The average headcount was up 12%, mainly driven by the intensified hiring in 2019. We did reduce the hiring in 2020.

And as a result, headcount was up 5% since the start of the year, which is in line with the AuM growth. Our regular personnel cost grew with the headcount.

Total personnel cost came down because of the performance-related cost, which were reduced with the lower performance fees because we allocate 40% of the recognized performance fees to our employees. In other words, the lower performance fees directly result in lower cost.

Other operating expenses were down because of the COVID-19 lockdown, which resulted in lower cost areas such as travel, representation and discretionary spending. To support the need of people at our portfolio companies, we established a CHF 10 million portfolio employee support fund.

This provided help to over 12,000 people and their families for health care, child care and loss of income as a result of COVID-19. Turning to Page 31.

We target a 60% EBIT margin and confirm in 2020 that we are delivering against our targets with a 62% margin. Remember, we report in Swiss franc, and most of our revenue generation comes from euro and U.S.-dominated funds.

As we saw this year, the Swiss franc strengthening reduced the revenue growth. On the other side, we had the benefit on our cost base as we translate non-Swiss franc cost into Swiss francs.

The impact was a modest reduction in the margin, which was offset by lower cost, which was helped to keep the EBIT margin stable, offsetting the impact from a stronger Swiss franc. Let's look at the items below EBIT and our balance sheet on Slide 33.

Along with our clients, Partners Group invest CHF 650 million into its investment programs. The financial result line increased from CHF 30 million last year to CHF 53 million in 2020, behind positive valuations on those investments.

The tax rate remained stable at 13.3%. This leaves profit at CHF 805 million or 11% down, in line with revenue growth.

Turning to our balance sheet. We have CHF 1.1 billion in net cash.

This includes the strong CHF 1.2 billion in cash and CHF 673 million in short-term loans to products. In our calculation of net cash, we deduct our outstanding long-term debt of CHF 800 million.

Turning to the dividend on Slide 34. The Board proposes a dividend of CHF 27.5 per share or an 8% increase versus 2019.

This is a payout ratio on diluted earnings per share of 91%. The proposed payout follows our dividend approach, which is based on the overall growth of the business across asset classes, our operating results, the confidence in the sustainability of the firm's growth in the future.

Since our IPO in 2006, the dividend per share grew 18% annually, in line with the growth of our AuM. This concludes the 2020 presentation, and we now like to open the floor for questions.

For the disclosure on performances, I'm wondering, in private equity, you talked about an 18% performance, and some further up in the slides, you talk about 10% EBITDA growth. So roughly, that means 8% of the value created comes from an increase in valuation multiples.

Could you perhaps break down, in terms of that value creation, what is coming from the overall just market going up -- market multiples going up? And what is value creation by repositioning the portfolio through platform deals or what have you?

My second question is, could you perhaps give us an update in terms of the UBS partnership and what math there we'll be looking at? What's the expectations on AuM growth there?

And finally, I'm wondering, on M&A, we've seen quite a bit of activity in the space. Is that something you consider?

And how do you weigh up the risks of organic growth versus inorganic growth?

Sure. I'm happy to take the first question on the leverage buyout math.

So we don't -- it's a little bit more complex equation than just 10% EBITDA growth translating to 10% IRRs. It's -- there are leverage, all these businesses, that make that not directly translatable.

But we have the majority -- in the analysis that we've done, the majority of the value that we create within the portfolio, we create through hands-on operational work. And we go through with our clients kind of that attribution on various investments that we made and break that down.

We obviously have benefited in a number of cases from the market uplift. But we're pricing in, in almost all of our underwriting scenarios, multiple contraction.

We've been doing that for years. And so obviously, with the market not only holding up but increasing, we've had some surprises to the upside in a number of our underwriting case.

But the math is a little bit more complex what you think. Maybe, André, do you want to take the next question on the UBS?

Yes. UBS has been and is one of our largest distribution partners, as you know.

In '21, what we do is we expand our cooperation, as we have indicated, to new offerings. And also, we will now launch this direct equity strategy together with UBS.

So I expect the asset raising or inflows from UBS to grow, grow in '21, grow over time. And UBS will be an important contributor, not only in this year, but also in the years to come.

So on track there to expand this cooperation with UBS.

So quickly on that third question. I mean, of course, the principal answer is yes.

I mean, we observe what's going on in the market, and I mean, we're regularly approached with opportunities. I guess the reason why you have seen us being very passive in that space over the years, and still, as of today, is really the following.

Let me maybe start by saying that, I would say, there's 2 different types of models in private markets -- how to run private markets. They are, let's say, more franchise-oriented models, meaning companies that under one brand have, over time, accumulated different teams, teams that are sometimes quite autonomous actually in how they operate; and sometimes teams that are not 100% under the roof of that brand, but maybe only with a stake or some partial ownership.

And then there's the model of what we call like a fully integrated firm. That's clearly what's Partners Group's approach, which is really having not only different teams under one roof, but actually entertaining a very, very active dialogue and interaction between the teams.

And we talked about thematic investing. And that's probably where this really comes in very strongly, where we use, for instance, different teams between real estate and infrastructure and technology when it comes, for instance, to a valuation of data centers and what's going on in that space.

So it's 2 different approaches, and I don't think it's right or wrong to have one over the other. But I guess what I would say is that if you look at the activity in the last few years, again, a lot has been about stakes a bit more financially oriented.

And so that would typically then fall into a category where we're probably not too interested. So having said that, I mean, we keep our eyes open.

If there's a great opportunity, we'd certainly try, I mean, to have a close look at it. But I don't think anyone should expect that we become suddenly super active in the M&A space.

It's Gurjit Kambo here. Just 3 questions.

Firstly, just on the management fee margins. I think the answer is it's really the other fees, i.e., the bridge loans, et cetera.

But just underlying management fee trends, anything that you've observed? Or is it just sort of business as usual on the management fees?

That's the first one. Secondly, in terms of the investment pace within the second half.

Obviously, it was a little bit slower. Just any more color what drove that?

Is it just the timing, as more deals will come -- just fall in '21? Or was there more competition in the market?

Just anything else on the kind of pace of investment. And then finally, as we see growth in the SPACs industry, how do we think about that for the private equity industry?

Is it good because there's more buyers or assets? Or is there competition for deals?

So yes, how do you think about the growth in SPACs?

Let me start, Hans here, with the first question. Yes, management fees will grow in line with the underlying AuM this year.

Because of some timing elements, it was a little lower, but you could expect they go again in line with AuM. So we have price discipline and price stability.

With that, I'll hand over to Dave. .

Dave? You're on mute, Dave.

Sorry. With regards to the investment pace in the second half of the year, I think it is the case that a number of the things that we're working on carried over into 2021.

So in late 2020, we signed Telepass, Wedgewood Pharmacy, Ecom Express, for example, and had a number of other transactions that were in development -- actually in development for quite a long period of time, Careismatic Brands, Parmaco, Resilient Infrastructure Group, Idera, for example. Recently signed a district heating platform in Northern Europe.

Those are all transactions that we've been working on for quite some time that we ended up signing or closing in early 2021. And so sometimes the calendar year cut-offs on these things are a little bit arbitrary, but we do have a very solid pipeline that we had been developing for quite some time.

And it's starting off to be a quite active year in 2020. And with regards to SPACs, we have seen an uptick in capital raising from SPACs.

There's no question about it. At the same time, in the U.S., for example, we compete with thousands of different private equity firms, all of whom have professional origination engines and are very, very competent competitors.

And the SPACs have kind of come on to the scene, have raised a lot of capital, but actually, many of them don't have a systematic approach generating investment content, investment volume. And there's almost not a day that goes by that I don't have a banker or a SPAC manager calling up, asking if they can get access to one of our companies or if they could buy in.

And you can just tell that it's a different caliber of buyer in many instances versus the private equity community. And so it is a competitive space.

We've had a couple of exits to the SPACs already. We've had 2 portfolio companies that have exited SPACs.

I wouldn't be surprised if you saw more of them. They are a relatively aggressive buyer in the current market environment.

But we don't see any material competition in our active pipeline from SPACs, in all honesty.

My first question is touching on performance fees. You also mentioned a cleared up, a brightened up environment for exits.

Now you are also guiding for 20% to 30% in -- of total income for performance fees in the midterm. Will we see almost 30% already this year, also in light of delayed exits of the last few periods?

Or how do you look at that? And my second question is concerning interest rates.

There are a lot of discussions about rising interest rates. What do you see a risk for valuations of your assets here?

Hans here. First, on the performance fees.

We have seen strong performance fees in the second half, and 2021 has the potential to be a good year. Now it's early to tell and we're early in the year.

In the medium, long term, performance fees will be at that 20% to 30%. Now I want to give a little bit some message on performance fees.

Performance fees are the outcome of delivering great returns for our clients. This is our objective: deliver superior sustained returns.

We're not targeting a performance fee number in any given year. We focus on building a strong portfolio, and exits are optimized to deliver the value.

With this, performance fees will be in that range of 20% to 30%, like they have been over the last 5 years. So a good start of the year, but it's important to recognize that performance fees are an outcome.

And I'll take the question on interest rates. Obviously, there is a correlation between rates and financing ability and financing costs, and therefore, valuation.

The 10-year U.S. interest rates have increased by 100 basis points, but they're still at historically low levels.

But during that same period of time, those rates have increased. The U.S., for example, consensus for real GDP growth has moved from 3.9%, just a couple of months ago, to 5.5% today.

And so if rate increases are driven by better economic momentum, I think other factors can offset the adverse valuation drag. And so we'll have to wait and see how this equation plays out.

But one thing is for sure, the best protection against that is buying really, really good, really sound assets that are industry leaders and stand out above the competition. And that's really where we've been focused with our thematic approach and with our very selective investment process.

If I may be quickly adding to this. So I think another way to look at this is the following.

We're probably not so concerned about the impact of high interest rates at the asset -- in the individual asset level for the reasons that Dave mentioned. And as you might know from our publications, I mean, we stress test each single asset against a number of scenarios.

One is including actually higher inflation to make sure it's robust enough to actually absorb high interest rates or to address that. .

But of course, I mean, having said that, I mean, I just want to be clear that we're not disregarding that, I would say, broader perspective that with higher interest rates, I mean, you will see at one stage multiples normalize somewhat. I mean, that's certainly true for real assets, very specifically, but also including valuations for private equity, for instance.

And so what we do is, at the time of underwriting, we actually assume a multiple contradiction pretty much for each single asset. But of course, is that enough or not?

That will depend largely on the kind of maybe change we see in the next few years. And very hard to predict, of course.

But we would not be surprised to see some normalization of valuation and halve really price. This isn't for our assets.

I'd like to congratulate both Dave and André on their new roles, firstly. I got 3 questions.

Firstly, on the income from loans to funds in 2020, how much did you get from that? And what do you expect in the future?

Do you expect the loans to funds to come back in this year -- back to 2019 levels if investments recover? That's first question.

Second question, on costs. How much did you benefit from FX tailwinds for cost in 2020?

And lastly, I guess, a question for Dave. Is anything going to change under your new role as the sole CEO?

Will you have less time focusing on investments and other things you've done previously?

Hans. I'll take the first 2 questions.

So this year, because of the lower level of investing, we had less income from loans to profit. That used to be around CHF 60 million, that's now around CHF 30 million.

That will come back somehow in 2021, but maybe not fully to the level of 2019 because we also continue to -- while we grow our business, to balance that with the use of our balance sheet. So that's as part of our growth units.

So we'll recover somehow, but not fully. On your second line, on the cost line, we call the benefit of around 1 margin point.

But let's not forget, on the revenue, we have the opposite. So if you take on the net EBIT margin, the exchange rate cost, that is 2.5 percentage points in margin, which we did offset through cost.

Dave?

Yes. And with regards to my own time allocation, I think it is safe to say that I will probably focus less time on the investment side and more time on the corporate side with this change in role.

I'm still going to remain on the Investment Committee, and I've got one foot in the investment business, which I'll keep because I am who I am. But certainly, André had a number of responsibilities related to the organization and the Executive Committee which we'll be transitioning, and that will take up a larger percentage of time.

No question about it.

Just a few follow-ups from me. One on the costs side.

Now obviously, hiring has slowed down in 2020 as compared to the previous year. Just what can we expect going forward?

Also with regards to the Denver campus really, have you reached the level where you see sort of normalized cost growth? Or could we expect another step change in costs?

And secondly, just on really the outlook for the individual asset class when it comes to fundraising for the coming year. I mean, if we also take into account the various performances throughout 2020, do you see any of the asset classes that you have more in favor than others?

Or do you sort of expect the usual split between them?

So on the hiring, indeed, we have seen this -- that we have slowed down the hiring. But the hiring has grown in line with the average AuM.

Our objective is to continue to support the growth of our future business and make the right investments in the future business with our margin target of 60%. So we will continue to balance, preparing for future growth with the right cost discipline to underpin that 60% margin.

On the second question, on the growth cost asset classes. We have a diversified portfolio, continue to focus on the diversified portfolio.

Given what we were doing at the moment on infrastructure, it might be that infrastructure in 2020 is running a little bit ahead into the fundraising.

I have 2 questions, please. The first one is on the cost base.

Obviously, in the past few years, you made quite an effort to diversify the currency exposures on the cost side as well. I was just wondering if you could give us a sense there the non-Swiss cost base could develop in the next couple of years, if there's a conscious effort to further increase the share of perhaps U.S.

dollar-denominated or other currency denominated costs. And secondly, if you could give us an update on your education efforts and then perhaps distribution efforts in the U.S.

on the defined contribution engine side. Any update on discussions with trustees, consultants and so on?

And also maybe a quick update on how you see the competitors moving in that space.

Yes. First, on the cost base.

Our cost is around 40% in Swiss franc and 60% international. Our objective is to grow our business internationally and globally.

And with that, our cost base and our revenue base will continue to diversify, and that will allow us to support the growth of the business and deliver a 60% margin. So you will see continuously growing the cost in line with our business growth and the internationalization of that.

And maybe I can take this question around DC in the U.S. in particular.

So DC development in the U.S. reminds me a little bit of what we have seen in terms of adoption of private market allocations in the DB space about 30 years ago in the U.S.

And if you look back, I mean, to that period, what you will see is that it was actually a business that was mostly sponsored by family offices, wealthy individuals. And the institutions, actually, in some form of herd mentality, jumped actually on that train relatively late.

It took quite a while, but then quite rapidly. And as you know, I mean, today, I mean, the allocations in the U.S.

DB plans, they are relatively high certainly by comparison to the rest of the world. So I think in some ways, we see a bit of similar development, A DC is organized very different from DB.

Often these efforts are run outside the normal investment of treasury departments, but more like in an HR kind of context. Very focused on turnkey solutions, adoption of easy solutions.

So maybe coming with a little bit of skepticism over adopting now these private market allocations, even though they realize it's helpful from the return perspective, but with a little bit of worry of, I mean, would that be maybe negative in some ways to their existing setups. And that's why I think we'll see a very similar development like in DB 30 years ago.

I think it will take a bit of time, and we're actually, I think, leading quite clearly here the space in education, in speaking to consultants, institutions, in having a solution actually ready for the apt solution and CIT solution for that space. So we really see this as a longer term development.

But what is absolutely evident -- I mean, there will be a seismic shift in allocations in DC in the next few years. Is that happening in 3 years or is that happening 7, 8 years?

I honestly couldn't tell. But it's so substantial, so that's why we absolutely see the need and the benefit to spend our time there.

And surely, we'll get some monies from that space even though maybe the large allocation shifts might take a while.

We have actually 2 questions from the webcast, the first one coming from Mayumi Hirono from Sumitomo Asset Management. They are actually specifically asking, what is our specific theme -- investment theme for 2021?

And the second question that he would like to get more color on is about our PG hardship fund, how we actually helped portfolio companies in terms of their liquidity.

So I guess, yes, I talked a bit about the thematic investment focus. And I guess, as I tried to explain, this is really an effort where we look at hundreds of ideas and themes.

And we'll typically look at maybe a dozen or so per actual sector as a focus area. So it's really hard to talk about one individual theme.

But maybe, again, give a little bit more color on -- I mean, how this works and what is our thought process behind it. Let me, for instance, take the health care space.

It's a space we have been very active in. It's a space that gets a lot of attention because, on the one hand, I think people realize there's a lot of cost containment pressure by governments, not only in the U.S.

So that comes clearly with headwind for a number of businesses like the hospital business and some other businesses. Whereas it will probably benefit a space like, for instance, physical therapy where we have been very active.

And then there's probably more niches like, for instance, health care IT. I would maybe take that as an example.

That's an incredibly interesting space. If you think about areas like patient record-keeping or patient record analytics, which precisely in a phase like COVID, was something that was actually lacking.

And we have seen an underperformance effectively in that space by public institutions, but also the private sector. So these are areas that will actually have an incredible tailwind.

And so that, again, would be one typical example that we look at. But again, it's not one single topic, and I think that would really be the wrong thing to do.

I mean, we have actually quite a number of eggs that we put here in one basket. So we'd certainly try to avoid, I mean, to run only with one transformational trend only.

And with regards to the hardship fund, we celebrated our 25th year anniversary in December, and we had a virtual event with all of our employees on and went through a number of different topics. And the one consistent feedback that we got from our people that was most powerful and most touching and they're most engaged by was the stories of the employees who were aided and assisted by the hardship efforts.

And it came in a number of different forms. For some people, it was related to housing.

For some people, it was related to maintaining their health insurance. For some people, it's education-related, equipping their families with the tools they needed to educate at home.

There's a whole variety of stories from people from every corner of the world and every type of job that you could imagine. But that was a very, I think, worthwhile endeavor.

And the organization is 100% behind it.

With that -- thank you, Dave. With that, we have no further questions, and we would like to conclude this presentation.

And hope to see or speak to you in the next weeks or months to come. We're looking forward to meeting you on -- via VC or on the phone.

And with that, we wish you a wonderful rest of the day. Thank you.