Partners Group Cuts Fees to Ease Global Value Overhaul
(Bloomberg) — Partners Group Holding AG is reducing management fees at a key evergreen fund as it seeks investor approval to revamp the private equity vehicle.
Earlier this month the Swiss private markets firm revealed it plans to turn the €6.6 billion ($7.4 billion) Global Value SICAV fund, into an “umbrella” structure overseeing two portfolios, a distributing fund with older, lower-performing assets and a compounding entity that offers potentially higher returns over time.
Partners Group is now seeking to sweeten the deal for investors affected by the firm’s response to a wave of redemption requests, potentially building support ahead of a vote on the changes next month.
Read More: Partners Group Gets Creative to Fix Funds Hit by Redemptions
Investors in the distributing fund will see their fees reduced by at least 25 basis points for three years and investors in the compounding fund will see their management fees reduced by up to 75 basis points until January 1, 2030, according to an investor presentation seen by Bloomberg.
“Existing investors will benefit from reduced management fees in the distributing fund and, upon conversion, on their converted holdings in the compounding fund,” Partners Group said in the document, dated from this month.
Partners has recently been forced to limit withdrawals from Global Value and some of its other funds, a structure which the firm had for years popularized among investors with the option to periodically access liquidity. Yet broad doubts over private markets and flagging performance in some older investments has ramped up the pressure on the firm this year, leading to an almost 40% decline in its shares.
Newly invested capital will also benefit from reduced management fees in the compounding fund. At the same time, Partners is reducing the ability of investors to withdraw cash from the fund, lowering the redemption threshold for some investors.
Read More: Partners Group’s Redemption Curbs Show Exposure to Rich Clients
Private equity firms typically earn fees on the assets they manage, allowing them to generate a predictable source of income outside of the gains from selling stakes in companies.
Partners Group generated 905 million Swiss francs ($1.1 billion) in management income for the first half of the year, up 6% from a year earlier, the firm said in September.
“The proposed fee reduction on this product is an improvement, though fees here start from a high base,” said Mara Dobrescu, a senior principal at Morningstar, citing 3.2% in management fees and other administrative costs. “So it would take more than the proposed reduction to bring the fund’s fees significantly below those of its competitors.”
The proposed umbrella structure for Global Value is aimed at giving investors who are keen on cashing out a way to do so, while letting those committed for the long-term stay invested in the fund’s more promising bets.
“We have received positive feedback from our distribution partners, both in Europe and globally, who see our approach as a potential blueprint for the industry,” a Partners Group spokesman said by email. “We are confident that the shareholders in the fund will also see this evolution as a positive step for their investment in Global Value SICAV.”
The proposed move to an umbrella fund is subject to shareholder approval, to be sought in the week of Nov. 9, and the sub-funds are expected to be operational on November 30.
Further Tightening
Until the changes to the fund are stabilized, Partners intends to reduce the ability of investors to withdraw assets even further.
Investors were also told that the net redemption threshold will be reduced from 5% to 2.5% of net asset value for new share classes from October 30, but following the split “the compounding fund is expected to return to the standard 5% net redemption threshold as soon as practicable.”
The Global Value fund first imposed its redemption limit of 5% net asset value per quarter in June, after withdrawal requests had surged to an estimated 9.8% in the second quarter. Requests for the third quarter have hit the 5% level again, according to a notification to wealth advisers.
The fee cuts “are temporary, which suggests they are meant as a short- to medium-term retention mechanism, rather than a long-term plan to improve the fund’s chances of out-performance,” Dobrescu said. “The decision to cut fees now may suggest that initial investor response to the fund split was less enthusiastic than the firm hoped.”
