Annual Report 2023
Industry | 3 |
The new 'traditional' asset class: financing the economy
Public and private markets have swapped roles as IPOs have shifted away from the real economy
800 | 85% | |||||||
Transition into new IPO era | Traditional | |||||||
The % of IPO-ed businesses | ||||||||
600 | with positive earnings has | |||||||
shrunk since 19901 | ||||||||
400 | ||||||||
The number of IPOs | 35% | |||||||
globally decreased | ||||||||
200 | significantly since 19901 | |||||||
Opportunistic | ||||||||
1990 | 1995 | 2000 | 2005 | 2010 | 2015 | 2020 | ||
In 2023, IPO volumes remain subdued and now stand just above 10% of
their 2021 levels. IPO'ed firms are still mostly unprofitable.
IPOs as strategic corporate development
- Mature and proven companies from all sectors
- Profitable companies with earnings history
1980s
Private markets are opportunistic, event-driven
- 'Household' consumer and industrial companies
- Usually deriving value from high leverage
Private markets drive the broader economy
- Profitable companies and assets across all sectors
- Long-termorientation with lower leverage
Present
IPOs dominated by "hyped" assets
- Primarily unprofitable focused on speculative growth
- Exit path for venture and growth capital
2023 data confirms our hypothesis that the role public and private markets play in financing the economy is changing
The IPO market remained relatively inactive in 2023, making the last two years among the lowest volume years ever
December 2023
As private investors capture a greater share of
returns prior to going public, public investors may suffer over the long run
July 2023
Toshiba Plans to Go Private in $15 Billion Deal With Japan Investors
VinFast Stock Plunges After EV Maker's Blockbuster Nasdaq Debut
PG to sell CWP, a major Australian renewable energy platform to private investors
1 Earnings per share > 0; Annual data, 9'181 IPOs in total. Dr. Jay Ritter's global dataset of IPOs as of 8 March 2024. Excludes IPOs with an offer price below USD 5 per share, unit offers, ADRs, closed-end funds, partnerships, acquisition companies, REITs, bank and S&L IPO, and stocks not listed on CRSP (CRSP includes Amex, NYSE, and NASDAQ stocks). Note: For illustrative purposes only. There is no assurance that similar investments will be made. Companies have been selected for illustrative purposes. Only Pharmathen and Forterro are Partners Group portfolio companies. Source: Partners Group (2024).
Industry | 4 |
The new 'traditional' asset class: investors' considerations
As private markets overtake public markets, the private markets investor landscape will significantly develop and transform industry DNA
Private markets capital | |
1'200 | formation has outpaced |
global equity issuance | |
since 2016 1 | |
1'000 | |
800 | |
600 |
Private markets at the
start of cycle
Growth from existing institutional investors
Current AUM leans active
Leans active
400 |
200 | ||
0 | ||
2010 | 2015 | 2020 |
In 2023, private markets capital formation stood ~ 2.8x higher than equity
issuance, in line with the ~3x gap in 20221
Growth in allocation from 25 | Leans passive | |||||
largest asset managers | ||||||
Growth from all other asset managers and | Leans passive | |||||
investors | ||||||
Private markets AuM by end of cycle: USD 30 tn | Future AuM leans | |||||
slightly passive | ||||||
2023 data confirms our hypothesis that private markets are set to grow with new entrants transforming the investment DNA
The ongoing shifts to the broader economy and investing landscape have poised private markets for growth
November 2023
Rowan said firms such as Apollo will squeeze active managers, while the largest players in passive management will continue to grow
December 2023
Vanguard is taking a structured approach to opening private equity access to individual investors
October 2023
1 Projection based on global equity issuance which includes rank eligible, non-convertible IPOs and follow-on equity investments; excludes preferred shares, rights issued, closed-end funds, business development companies, and special purpose acquisition companies. Projection based on global private markets fundraising includes private equity, private real estate, and private infrastructure. SIFMA (2023), Refinitiv (2023), Preqin (2023). Note: For illustrative purposes only. There is no assurance that similar investments will be made. Companies have been selected for illustrative purposes. Source: Partners Group (2024).
Industry | 5 |
What truly shapes the private markets investment paradigm in the 'brave new world'?
Recalibration of the macroeconomy? | Geopolitics-drivende-globalization? |
US Inflation and Interbank Rates Over Time1
Interbank | What could break under higher-for- |
Rate | longer interest rates? |
2010 | 2012 | 2015 | 2018 | 2021 |
5%
3%
Geopolitical tensions and increasing protectionism are reshaping global investments, threatening to depress growth
As the U.S.- China trade dispute hits another
level, the bigger casualty over the longer term could be the globalization trend
Labor market and demographic dynamics?
US Labor Participation Rate Over Time2
The next generation of technology?
67%
A smaller, older population threatens economic growth
Declining labor participation rate threatens long-term growth
63%
Don't Get Distracted by The Hype Around | |
Generative AI | 36% CAGR |
Generative AI Set to Affect 300m Jobs
Across Major Economies
Investors Are Starting To See The Downside
From The Rapid Acceptance Of AI
2000 | 2005 | 2010 | 2015 | 2020 |
1 12-month percentage change, Consumer Price Index, All items, monthly, not seasonally adjusted. Historical data ranges from 2010 to 2023. 3-Month or 90-Day Rates and Yields: Interbank Rates. Total for United States, Percent, Monthly, Not
Seasonally Adjusted. Historical data ranges from 2010 to 2023. US Bureau of Labor Statistics (2024), FRED (2024). 2 Labor Force Participation Rate, Percent, Monthly, Seasonally Adjusted. FRED (2024). Note: For illustrative purposes only.
Companies have been selected for illustrative purposes. Source: Partners Group (2024).
Industry | 6 |
Is the recalibration of the macroeconomy a game-changer?
Private markets grow and deliver strong returns across macroeconomic cycles
Private Equity Fundraising, USD tn1
1'000 | 25.0% | |||||
800 | 20.0% | |||||
600 | 15.0% | |||||
400 | 10.0% | |||||
200 | 5.0% | |||||
1990 | 1995 | 2000 | 2005 | 2010 | 2015 | 2020 |
Funds vintaged in recession years provided strong returns2
Private markets have grown independently of
- low-rateenvironment3
Inflation has just returned to more normalized historical levels4
Higher financing costs and lower debt availability impact returns…
Debt level in the capital structure | ||||||||
30% | 35% | 40% | 45% | 50% | 55% | 60% | ||
Rate | 5% | 17.1% | 17.8% | 18.6% | 19.6% | 20.6% | 21.9% | 23.5% |
7% | 16.8% | 17.4% | 18.1% | 18. | 19.7% | 20.8% | 22.1% | |
Interest | 8% | 16.6% | 17.2% | 17.8% | 19.2% | 20.2% | 21.3% | |
9% | 16.5% | 16.9% | 17.4% | .0% | 18.7% | 19.5% | 20.5% | |
10% | 16.3% | 16.6% | 17.1% | 17.5% | 18.1% | 18.8% | 19.6% | |
…but these impacts are balanced out by lower entry multiples….
Entry Multiple | ||||||||
12.5x | 12.0x | 11.5x | 11.0x | 10.5x | 10.0x | 9.5x | ||
Multiple | 11.0x | 17.9% | 19.5% | 21.1% | 22.8% | 24.6% | 26.4% | 28.3% |
10.5x | 16.7% | 18.3% | 20.0% | 21.7% | 23.4% | 25.3% | 27.2% | |
10.0x | 15.4% | 17.1% | 20.5% | 22.2% | 24.1% | 26.0% | ||
Exit | 9.5x | 14.1% | 15.8% | 17.5% | 19.2% | 21.0% | 22.9% | 24.8% |
9.0x | 12.7% | 14.4% | 16.1% | 17.9% | 19.7% | 21.6% | 23.5% | |
Given the recalibration of entry multiples, the 'Brave New World' represents a very attractive investment context
Partners Group acquired Velvet CARE, one of the leading European manufacturers of branded and private-label hygiene products, for ~ 8.9x TEV / EBITDA Multiple5
Partners Group acquired ROSEN Group, a global technology leader of mission-critical inspection services for energy infrastructure assets, for ~ 12.2x TEV / EBITDA Multiple6
1 Private Equity fundraising inclusive of Venture Capital from 1990 to 2023. Preqin (2024). 2 Benchmark median net IRR returns for all Private Markets Strategies. Preqin (2023). 3 3-Month or 90-Day Rates and Yields on Interbank Rates. Total for United States, Percent, Monthly, Not Seasonally Adjusted. Historical data ranges from 1990 to 2023. FRED (2024). 4 12-month percentage change, Consumer Price Index, all items, monthly, not seasonally adjusted. Historical data ranges from 1990 to
2023. FRED (2024). 5 EBITDA Multiple defined as TEV over LTM EBITDA (pre-IFRS).6 EBITDA Multiple defined as TEV over LTM EBITDA. Note: For illustrative purposes only. There is no assurance that similar returns will be achieved. Source: Partners Group (2024).
Industry | 7 |
Is geopolitics-drivende-globalization a game-changer?
World trade has remained quite resilient as Globalization embarked on a profound transformation
Global Exports of Goods & Services, USD tn1
30 | 27 | |||
25 | ||||
20 | 18 | |||
2010 | 2015 | 2020 (COVID) | 2025 |
Globalization Isn't Dead. But It's Changing. Multinational companies still want cheap and efficient markets, but they also want safety. That's why they're rerouting the pathways of global trade and finance.
January 2023
Re-Globalization: A smaller part of the global economy is shifted towards other | Near-Globalization: A modest portion of the global economy is re-shored to |
countries in the same regions to de-risk production at lower costs | improve the independence of critical supply chains and retain tech advances |
World trade data begin to show early signs of Re-Globalization. Vietnam, Mexico, India are among gainers
May 2023
87% of Pharma companies surveyed are considering moving volumes to Western manufacturing sites
May 2022
Re-Globalization and Near-Globalization represent very significant opportunities for private markets investments
Form, a global manufacturer of highly-engineered metal components, is launching manufacturing facilities in Vietnam to ease supply chain constraints and geopolitical risks
Sterling, a leading European CDMO, is picking up incremental volumes as large pharma companies move manufacturing away from Asia and into Europe and North America
1 Exports of goods and services (constant 2015 USD). World Bank national accounts data, and OECD national accounts data files (2023). Note: For illustrative purposes only. Companies have been selected for illustrative purposes. Source: Partners Group (2024).
Industry | 8 |
Are labor and demographic dynamics a game-changer?
Productivity has become the key driver of global growth
Employment Contribution (USD tn)1 | Over the past two decades, productivity growth | Trend is expected to | |||
Productivity Contribution (USD tn)1 | |||||
has become a more than a 2x contributor to GDP | accelerate in the next | ||||
US Labor Participation Rate (%)2 | growth | decade | |||
62% | |||||
60% | 26 | ||||
12 | 15 | ||||
7 | |||||
1 | 3 | ||||
7 | 6 | 6 | |||
6 | 6 | 5 | |||
1972-1982 | 1982-1992 | 1992-2002 | 2002-2012 | 2012-2022 | 2022-2032P |
Boosting US productivity represents a $10 trillion opportunity […] | Digitalization of business models, shifting supply chains and de-carbonization |
equivalent to $15,000 per household | are driving this "American Productivity Renaissance" |
February 2023 | April 2023 |
Private markets will serve as a conduit to finance the investments needed to usher this new era of productivity-driven growth
Version 1, a leading provider of digital transformation services, increases productivity by modernizing legacy IT systems,
performing cloud migrations, and developing custom software to improve automation
Ammega, a leading provider of industrial power transmission and
conveyor belting, helps businesses counter labor constraints by enabling the automation of industrial processes
1 Global GDP growth, CAGR %. Source: McKinsey Global Institute Analysis, Partners Group Analysis (2023). 2 US Labor Force Participation Rate, Percent, Monthly, Seasonally Adjusted. FRED (2023).
Note: For illustrative purposes only. Source: Partners Group (2024).
Industry | 9 |
Is the next generation of technology a game-changer?
There are an unusually broad range of perspectives on the potential impact of the new generation of technology
AI pioneer says its threat to world may be 'more urgent' than climate change
Don't be deluded by the exaggerated claims made for AI
Many top business leaders are seriously worried that artificial intelligence could pose an existential threat to humanity in the not-too-distant future. Forty-two percent of CEOs surveyed say AI has the potential to destroy humanity five to ten
years from now
September 2023
How A.I. can help create jobs for humans, not just automate them
AI is Going to Eliminate Way More Jobs Than Anyone Realizes
As we cut through the noise, it becomes clear that the next generation of technology will be THE game changer
1 | Technology will lead the next | 2 | Technology will drive a | 3 | Technology will redistribute | 4 | These developments are |
transformation of the economy | reconfiguration of winning | profit pools across the | expected to unfold within a | ||||
business models | economy | mere 10 to 15 years |
Note: For illustrative purposes only. Source: Partners Group (2024).
Industry | 10 |
The only constant is the ACCELERATION of change!
While it seems widely accepted that the only constant in the economy is change…
Constant Transformation Is the
New Normal
Software Principle #11: The Only Constant is Change
Embracing Change as a Constant In today's digitized and interconnected world, the only thing you can count on is change.
December 2020
Embracing The One Constant In
Business: Change
'Change Is a Constant': Tech Law Firms Steady on Pursuing Innovation
…it misses the key point: the only constant is the ACCELERATION of change
Each successive global economic transformation
has been twice as fast as the previous one1
Adoption of new technology waves has also been twice as fast with each platform shift2
Speed for AI models to reach human level accuracy has also decreased exponentially3
Industrialization | ~100 Years | |
Service Economy ~50 Years
Digitization 1.0 ~25 Years
Digitization 2.0 | ~10-15 Years ? |
PCs 20 Years
Internet 12 Years
Mobile 6 Years
Broader AI | 3 Years ? |
Adoption |
Speech Recognition
Image Recognition
Code Generation
Reading Comprehension
20 Years
10 Years
6 Years
3 Years
1 Partners Group Analysis (2023). 2 Morgan Stanley (2023). 3 Contextual.ai (2023), PapersWithCode (2023). Note: For illustrative purposes only. Source: Partners Group (2024).
Attachments
- Original Link
- Original Document
- Permalink
Disclaimer
Partners Group Holding AG published this content on 19 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 March 2024 16:35:08 UTC.