Digital Transformation And Aging Populations Will Drive Private Markets

Key Takeaways

• Structural AUM and inflow growth, driven by strong investor demand and U.S. evergreen expansion, is set to compound fee revenues and margins above expectations.
  
• Technology investment, operational efficiencies, and strategic M&A will enhance scalability, margins, and long-term market position.
  
• Competitive pressures, shifting investment preferences, regulatory demands, and tougher deal environments threaten Partners Group's margins, earnings, and ability to sustain historic growth rates.

Catalysts

A private equity firm specializing in direct, secondary, and primary investments across private equity, private real estate, private infrastructure, and private debt.

• Analyst consensus expects performance fees to increase from 25 percent to 40 percent of total revenue by 2026 on the back of a mix shift to direct investments, but this likely understates the upside, as the maturing direct portfolio and a $19 billion pipeline with substantial embedded value could trigger an even larger multi-year step up in performance fees and total earnings once liquidity conditions normalize and realizations accelerate.
  
• While analysts broadly project record U.S. inflows and private wealth fundraising to continue growing steadily, Partners Group's rapid seven-fold expansion in U.S. evergreen products, with multiple new launches and cross-sell potential across more than one hundred distribution agreements, could drive a structural uplift in AUM growth-translating to recurring management fee and margin upside far above consensus expectations.
  
• Resilient demand from institutional and high-net-worth investors for alternatives, coupled with aging populations seeking higher-yield, long-duration assets, points to persistent, long-term AUM and inflow growth-supporting fee revenue compounding at a rate above the historical average.
  
• Ongoing investment in technology, digital infrastructure, and automation not only enhances operational scalability but should unlock further cost efficiencies and margin expansion, resulting in structurally higher EBITDA and net margins over the coming decade.
  
• Strategic M&A activity and increased industry consolidation will continue to materially strengthen Partners Group's market positioning, providing access to new distribution channels and asset classes, and further boosting long-term revenue streams and sustainable earnings growth.

Partners Group Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Partners Group Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Partners Group Holding's revenue will grow by 20.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 53.1% today to 49.5% in 3 years time.
• The bullish analysts expect earnings to reach CHF 1.8 billion (and earnings per share of CHF 70.87) by about July 2028, up from CHF 1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, down from 24.2x today. This future PE is greater than the current PE for the GB Capital Markets industry at 15.2x.
• Analysts expect the number of shares outstanding to decline by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.23%, as per the Simply Wall St company report.

Partners Group Holding Future Earnings Per Share Growth

Risks

• Intensifying competition from mega asset managers and alternative investment platforms, particularly in the U.S., may pressure Partners Group to further invest in distribution or lower fees, eroding net margins and long-term revenue growth.
  
• Increasing adoption of passive investment strategies and ETFs could cause a secular shift away from traditional private market allocations, shrinking the available pool of capital, which would result in slower AUM growth and potentially stagnant or declining management fees.
  
• Periods of sustained high interest rates can make leveraged deals less attractive and dampen returns in private equity and infrastructure, leading to lower client demand for Partners Group products and reduced performance fees, directly impacting earnings.
  
• Rising regulatory scrutiny and tightening ESG standards across regions may force Partners Group to limit the types of investments it can pursue, while increasing compliance costs, thus squeezing net profitability over the long term.
  
• Challenges in consistently deploying growing levels of committed capital at attractive returns-as the private markets become more crowded and efficient-could result in underperformance relative to historic levels, jeopardizing the sustainability of elevated performance fee revenues and overall earnings growth.

Valuation

• The assumed bullish price target for Partners Group Holding is CHF1443.58, which represents two standard deviations above the consensus price target of CHF1210.57. This valuation is based on what can be assumed as the expectations of Partners Group Holding's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF1500.0, and the most bearish reporting a price target of just CHF1090.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CHF3.7 billion, earnings will come to CHF1.8 billion, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 5.2%.
• Given the current share price of CHF1055.0, the bullish analyst price target of CHF1443.58 is 26.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.