Ladies and gentlemen, welcome to the Partners Group Annual Results 2020 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. Webcast viewers may submit their questions or comments in writing via the relative field.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to the Partners Group Management. Please go ahead, gentlemen.
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, I would like to introduce today's presenters. I will be joined in this call by our Chairman of the Board, Stefan Meister, He will provide us with an update on the most recent rotations at Board and Exco level. He will also share with us his Perspectives on the importance of thematic investing in private markets.
I will be also joined by our 2 Co CEOs, on Dave Leighton and Andre Frei, who will talk about our investment and client activities, respectively. Last but not least, Hans Plos, 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 Stefan.
Thank you, Filip. Good morning, everybody, from my side. Also, I'm very happy But before I move to my first two 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 from 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, Andre and Hans will clearly talk more about details here and share the financials. But just upfront, I want to just I'll 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 are very, very happy and proud about that. With that, let me move directly To the leadership changes, that's on Page 3.
We have, on the one hand, Eric Stroop 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 Erik 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 he has done. And we're actually very happy that he does remain very engaged in our portfolio companies as an operating directors. 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 Wolper Pink as 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 behind many of their most successful investments over the last 20 years. So probably not a surprise that we really hope to Major contributions for Partners Group in our expansion of our transformational investing 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 on board.
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, it's the way we tackle what we call private market style governance, which is a very active and fair 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 over site operations and then, of course, very importantly, the human capital development and leadership development in the firm. And that may be a good segue to talk about the changes we have announced this morning at the executive committee level. A very, very big change to start with, Andre. Andre, you are stepping onto a new function in the firm after about 8 years as CoE CEO. I I really have to tell you, I mean, Andre was an incredible leader in this firm.
He is a very inclusive leader, 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 simply pivoted a step, and I'm very grateful that Andre 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, Andre, you will talk about your role quickly in your part later on or you want to do this right now? No, 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 Fairbel to Andre. There's another few months to go, mate, but we'll do this in the appropriate format in summer.
A big second step is the leaving of Michi Studler out of the ex co, but staying again in the firm. Michi has been more recently the Co Head of Portfolio Solutions and Chief Risk Officer. He will actually remain Chief Risk Officer. And so Michi 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 July, we have Dave running the Exco as a single CEO. I mean, we have Absolute confidence in Paysabilly to do this, especially given the strong ex co we have. With Yuri Enkner, who is really running the day to day organizational side of things on the investment platform with Dave already for quite some Time very successfully. Andreas Knecht is an incredible CEO. Mal 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 Andre 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 Sauerbruer, our new Co Head Client Solutions, To join the ex co from summer and also Roberto Canati, who is the successor of Michi Stuter, who was co head previously with him And we'll take over the Portfolio Solutions team as a single head going forward. Also, actually, I will be joining Kerst Andersen As Chief People Officer, human capital is such an important topic in the ex co and we felt it was opportune to have a direct representation in the So if you think about that step, on the one hand, it's very sad to see always these changes, of course. But I have to tell you, I'm thrilled. I'm Surely speaking on behalf of the entire board here to see that deep bench of talent 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 set up and the culture that allows people like Andre and Michi to actually stay in The firm in important functions like so many of them before when they have that the export. So with that, let's move to my second topic I want Talk about today, that's the thematic investing approach. Why do I think it's very opportune to talk about that? I think if anything, I think the COVID year 2020 has clearly shown this incredible shortening of innovation cycles, the change of business 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 shrunk 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 sensor technology, both visual and physical. It's a 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 the question we ask today often by our clients.
So how do we respond that, and how happy actually ensured that we are so much on top of these developments and so many of these investments that we're making. So, our thematic investing approach, our proprietary approach is actually starting with what we call the GIGA themes, Automation, digitization, living, decarbonization. But it's actually not that we focus directly on these themes. It's much more that we build a cascade of Kate, our 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 and infrastructure, nutrition in private equity or small building in private equity. And if you send me one more slide, Alex, on Page 9, you see a typical example how we actually systematically look at that And so, I go back to this idea or this example in automation digitalization. So, if you think about So, assembly automation, you could look at entire dock factories, big, big topic. You could go one level further down to automation installations, so individual lines effectively. You can look at cobbles 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 $1,000,000,000 of market revenues to Several $100,000,000,000 of revenue.
So they tend to be sizable enough to create nice businesses. But what happens is often that at this 2nd, 3rd or 4th 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. That's a good example here.
Certainly true for Grip is 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 developed, that's really the approach across private equity, same food 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 100 themes, but we focus on about 50.
That means about 12 or so 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 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 twenty twenty across our portfolios because that's precisely because what COVID has done It accelerated or amplified most of these trends across the portfolio in a quite substantial manner. I mean, that's a good Segway for Dave to jump in to talk about exactly these kind of changes, the impact and what that meant in practice for 2020. Steve, if I may hand over to you.
Thanks, Stefan, and good morning, Europe. I think this approach to thematic investing strongly oriented towards Topics that will be relevant for very long periods of time, helps us avoid disruption and helps us to maneuver to get in front of structurally sound 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, but still retain experience, to have multiple generations of leaders aligned and partnered, I think is a key strength of our firm.
And Andre is such a remarkable partner and co CEO, you'll rarely find an executive as 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 from Michael and Stefan 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.
Andre 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 We are 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, 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 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. Well, it's a competitive market for 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, dollars 11,800,000,000 for the year and momentum has carried into 2021. Now the next page, Page 14 speaks to the foundation for realizations and returns and that's value creation And it's just a reality that in the current environment with elevated valuations for attractive 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 Zumr, the longtime 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 1 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 had 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. That same transformational philosophy can hold true 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 5,000 residential units, 5,000,000 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 Successful realizations follow, happy clients follow and performance fees follow. Now on the next page, we're sharing with you our portfolio performance for 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 modest decline in valuations this year. We had a very limited exposure to sectors like retail, hospitality and student housing. Our largest exposure to The 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 to the relevant public market index across all asset classes over the past 5 years. We've averaged 6.7 percent outperformance for private equity, 30 basis points of outperformance in debt, 1.5% outperformance in real estate And a solid 8.1 percent outperformance in infrastructure. And with that, I'll pass over to Andre.
Well, thank you, Dave. Good morning and welcome also from my side. First, Dave and Stefan, thank you for your kind words. It has been it is an honor and pleasure To serve as Kosio, to work with Youdestensen 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 is at the end of the presentation, and I can do so because I really have 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 a $16,000,000,000 in new capital commitments through a number of programs and default solutions. Private Debt is the largest contributor to asset rates, representing 40% of all new commitments or about $6,400,000,000 Private debt saw strong inflows in 2020, representing 23% or about $3,700,000,000 If you look into it, direct lending activities contributed 45% and our CLO business contributed about 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 $109,000,000,000 Slide 18 shows that our client base is broadly diversified across Regions and types of clients. We count around 900 institutional clients. The two charts here show the split of our AUM as of the end of 2020. You all know that European clients contribute the largest share of assets under management, about 2 thirds. 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 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 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 $100,000,000 to $200,000,000 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 SaaS under management. The pie chart on the right bottom shows that Bespoke Client Solutions account for about 64% of our rest 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 essential function at our firm to create value, not only bottom up in the underlying assets, but also top down in our portfolios through portfolio management. We help our clients achieve their target investment level and maintaining it when we reinvest their Our portfolio management team designs optimal investment strategies, both in terms of strategic as well as relative value asset allocation, often across asset 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. You have seen a similar slide in the past. Over the past 5 years, our bespoke solutions grew very strongly. Evergreens grew stronger from a smaller base. This pillar includes our solutions for the defined contribution space.
Mandate 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 three types to contribute to future growth, also traditional programs, which I expect to come in strong in 2021. Already in January, we provided a positive fundraising outlook for 'twenty one, 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 $16,000,000,000 $20,000,000,000 in new client commitments, which we will invest responsibly over the years to come. Tail downs and redemptions are estimated at around $9,500,000,000 Our 'twenty one fundraising outlook is based on the expectation that current uncertainties around COVID-nineteen 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 Our 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 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 'twenty one. 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 Our investment strategy, the 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 But also identify and implement stakeholder impact projects that our boards and management teams believe can directly or indirectly create upside and return for our investors in the long term. Projects that are long term beneficial to these assets and their 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 Floss.
First, I would like to thank Andre 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 francs 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 twenty twenty. Profitability remains strong with an EBIT margin at 62%.
We propose CHF27.5 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 Two 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 €94,000,000 in 2019 to €61,000,000 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 Clearly, the first half of the year did not provide the right market conditions for exits. 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 We only recognize performance fees on the realized investments after adjusting for stress test unrealized investments by applying a 50% discount to NAV. This approach makes it highly unlikely that we would have to reverse recognized 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 are also well balanced across the investment portfolio when you look at the number of assets we generated at performance fees. This shows the strength of our transformative investment approach.
The following slide provides further on future performance fee potential. Performance fees follow AUM growth with a time lag of around 6 to 9 years. We generated around €1,800,000,000 in performance fees over the period 2015 to 2020. These are the results from investments made over the 20 ten-twenty fifteen period. Looking at the period 2016, 2020, we invested about double the level of the 20 ten-twenty 15 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 are 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, personal costs, 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 costs grew with the headcount. Total personnel costs came down because of the performance related costs, 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 costs.
Other operating expenses were down because of the COVID-nineteen lockdown, which resulted in lower cost areas such as travel, representation and discretionary spending. To support the needs of people at our portfolio companies, we established a €10,000,000 portfolio employee support fund. This provided help to over 12,000 people and their families for healthcare, childcare 60% EBIT margin and confirm in 2020 that we are delivering against our target 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 costs into Swiss francs. The impact was a modest reduction in the margin, which was offset by lower costs, 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 invests €650,000,000 into its investment programs. The financial result line increased from €30,000,000 last year to €53,000,000 in 2020, behind positive valuations on those investments. The tax rate remains stable at 13.3%. This leaves profit at 8 0 £5,000,000 or 11 percent down, in line with revenue growth. Turning to our balance sheet.
We have £1,100,000,000 in net cash. This includes a strong CHF 1,200,000,000 in cash CHF 673,000,000 in short term loans to products. In our calculation of net cash, we deduct our outstanding long term debt of €800,000,000 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 the 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'd now like to open the floor for questions.
Participants are requested to use only handsets while asking a question. Webcast viewers may submit their questions or comments in writing via the relative The first question comes from Arnaud Gibran from Exane. Please go ahead.
For the disclosure on performances, I'm wondering, in Private Equity, you talk 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 milestones we're looking at?
What's the expectations on AM growth there? And finally, I'm wondering on M and A, we've seen quite a bit of activity in the space. Is that something you consider? How do you weigh up the risks of organic growth versus inorganic growth? Thank you.
I'm happy to take the first Question on leverage buyout math. So it's a little bit more complex Equations in just 10% EBITDA growth translating to 10% IRRs. It's There are leverage on 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 We create hands on operational work. And we go through with our clients kind of that attribution on various investments that we make 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. But the math is a little bit more complex than
Andre, do you want to take the next
question on UBS?
Yes. UBS has been and is one of our largest distribution partners, As you know, in 'twenty one, 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 asset raising or inflows from UBS to grow, Grow in 'twenty one, 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 to expand this cooperation with UBS.
So, quickly on that third question, I mean, of course, principal answer is yes. I mean, we observe what's going on in the market and we're readily 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 how they operate and sometimes teams that are not 100% under the roof of that brand, but maybe only with a 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 evaluation of data centers and what's going on in that space. So it's 2 different approaches, and I don't think Right or wrong to have one over the other. But I guess what I would say is that if you look at 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
The next question comes from Kambo Gurjit from JPMorgan. Please go ahead.
Hi, good morning, Uveet. It's Gojekambo here. Just three questions. Firstly, just on the management fee margins, I think the answer is, It's really the other fees, I. E.
The bridge loans, etcetera. But just underlying management fee trends, anything that you've observed? Or is it Sort of business as usual on the management fees, that's the first one. Secondly, in terms of the investment pace within the second 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 All in 2021 or was there more competition in the markets? Just anything else on the kind of pace of investments? And then finally, as we see growth in the 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 stacks? Thanks.
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 grow again in line with AUM. So we have price discipline and price stability. Good.
And I hand over to Dave.
Dave, you're on mute. You're on mute, Dave.
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, charismatic brands, Parmaco Resilient Infrastructure Group, Idara, 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 We ended up signing or closing in early 2021. And so sometimes the calendar year cutoffs 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 onto 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 can buy in. And you can just tell that it's a different Caliber of buyer in many instances versus the private equity community.
So it is a competitive space. Had a couple of exits to SPACs already. We've had 2 portfolio companies that have exited to 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.
That's great. Thank you.
The next question comes from Pascal Vol from KBW. Please go ahead.
Yes. Good morning, ladies and gentlemen. My first question is touching on performance You also mentioned a cleared up a brightened up environment for exits. Now you are also guiding for 20% to 30% In 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. Thank you.
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 will early in the year. In the medium and 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.
I'll take the question on interest rates. Obviously, there is a correlation between rates And financing ability and financing cost and therefore valuations. 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 that 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 That's the adverse valuation drag. And so we'll have to wait and see how this equation plays out. One thing's 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 higher interest rates at the asset at 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 a higher inflation to make sure it's robust enough to actually absorb high interest rates 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 normalized somewhat. I mean, that's certainly true For real assets, very specifically, but also including evaluations for private equity, for instance.
And so what we do is at 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 how really priced this isn't for our assets.
The next question comes from Hubert Lam from Bank of America. Please go ahead.
Hi, good morning. I'd like to congratulate both Dave and Andre on their new roles, firstly. I've got three 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 the first question. Second question on costs. How much did you benefit from FX tailwinds for costs in 2020? And lastly, I guess a question for Dave.
Is anything going to change under your new role as a sole CEO? We have less time focusing on investments and other things you've done previously? Thank you.
Hans, I'll take the first two questions. So this year, because of the lower level of We had less income from loans to profit. That used to be around €60,000,000 That's now around €30,000,000 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 journey. So we'll recover somehow, but not fully.
On your second line, on the cost line, we got a 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 costed us 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 I'll 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, Andre 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.
Okay, thank you.
The next question comes from Jens Ehrenberg from Citi. Please go ahead.
Hi, good morning guys. Thanks for the presentation. Just a few follow ups from me. 1 on the cost side. Now obviously hiring has slowed down in 2020 as compared to the previous year.
Just what can we expect going forward? Also with regard The Denver campus really, have you reached a level where you see sort of normalized cost growth or could we expect another step change in costs? And secondly, just on really the output 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? Thanks.
So on the hiring, indeed, you have seen this that we have slowed down the hiring, but the hiring has grown 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 across asset classes, we have portfolio continue to focus on the diversified portfolio. Given what we're doing at the moment on infrastructure, it might be that Infrastructure in 2020 is running a little bit ahead into the fundraising.
Got it. Thanks Hans.
The next question comes from Nate Nimmes from UBS. Please go ahead.
Yes, good morning and thank you for the presentation. I have two 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.
There is 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 For education efforts and perhaps distribution efforts in the U. S.
On the DeFi 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 that space? Thank you. Yes.
First on the cost base, Our cost is around 40% in Swiss francs and 60% international. Our objective is to grow our business Internationally and globally, amid 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.
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 private market allocations in the DP 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 dissimilar development. DC is organized very different from DB.
Often these efforts are run outside the normal investment or treasury departments, but more like in HR kind of context, very focused on turnkey solutions, adoption of easy solutions. So maybe Coming a little bit of if we get this system over adopting now these prior 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 actually, I think, leading quite clearly here to space In education, in speaking to consultants, institutions, in having a solution actually ready, a 4 d act solution, a 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.
Thank you very much.
Actually, two questions from the webcast. The first one coming from Mayung Hiromo from Sumitomo Asset Management. They are actually specifically asking what is our specific PE investment team for 2021? And the second question that I would like To get more color on is about our PG hardship funds, how we actually help portfolio companies in terms of early ticketing. So I guess, yes, I talked a bit about the thematic investment focus, and I guess as I try 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 to 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. 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 Space like, for instance, physical therapy, we have been very active. And then there's probably more niches like, for instance, healthcare 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 Wrong thing to do. I mean, we have actually quite a number of eggs that we put here in one basket. So we 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 The feedback that we got from our people was most powerful and most touching and they are 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 was education related, equipping Their families with the tools they needed to educate at home. There was a whole variety of stories from people from every corner of the That was a very, I think, worthwhile endeavor and the organization is 100% behind
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.
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