Dear ladies and gentlemen, welcome to the conference call of Partners Group. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star followed by zero on your telephone for operator assistance. May now hand you over to the management. Please go ahead.
Good morning, everybody. A warm welcome from my side to today's 2018 AUM call. My name is Philip Sauer. I am Co-Head of Group Finance and Corporate Development. I have with me on this call today both Co-CEOs of Partners Group, André Frei here in Zug, as well as Dave Layton dialing in out of Denver. Also with us on the phone are Pascal Noth, Managing Director in our direct private equity team based out of Zug, and Edward Tong from our private debt business based in Singapore. Both of them will give you some more insights into the current transaction environment later in this presentation. We want to talk in the next 30 minutes about our client and investment activities and provide you with an AUM outlook on 2019 expected fundraising.
We will not talk about Partners Group's financials, as we will announce them in March later this year. With this, I would like to continue on slide four. We continued to see strong client demand across all private market asset classes. 2018 was in particular successful as we are able to demonstrate that our clients entrust us with their capital, also in the absence of larger flagship programs. As you can see on the left side of the slide, the absence of dedicated flagship programs was more pronounced in our private real estate and infrastructure asset classes. It hardly affected our corporate asset classes, private debt, and private equity, which contributed the lion's share of new assets raised. On the right side of the slide, we show the breakdown of assets raised by structure. As you can see, mandates made up the largest part of our fundraising activity.
They accounted for roughly 45% of our flow business versus roughly 40% of our stock. Closed-ended products represented 35% of our flows. This compares to roughly 40% of our AUM. Lastly, our listed and semi-liquid programs continued to strongly contribute to our overall fundraising activity throughout 2018 and represented 20% of our inflows. These vehicles offer investors access to single or multi-asset class private market exposure and target stable returns, moderate risk, and low correlation to equity and bond markets. These clients who invest into such products, they are able to subscribe or redeem on a monthly or quarterly basis, and in exceptional cases, even on a daily basis. With this, I would like to move on to slide five. After a strong first half of the year with new commitments of CHF 6.2 billion roughly, we had an even stronger second half of the year, raising CHF 7.2 billion.
In our industry, it typically takes 12-18 months until a mandate solution for a client is developed. Thus, many of our client conversions in the second half were a result of discussions we already initiated with clients 2017 or early 2018. This brings new client commitments across all private market asset classes for the full year to CHF 13.3 billion, which lies within the communicated expected bandwidth of CHF 11 billion-CHF 14 billion. As already indicated six months ago, we forecasted that our tail downs and redemptions are somewhat tilted towards the second half of the year. They amounted to CHF 4.8 billion, which also lies in the communicated bandwidth of -CHF 4.5 billion to -CHF 5.5 billion. Let me lose some words about the tail downs and their visibility. The majority of our programs have a long duration. However, at one point they mature.
As such, when they mature, our AUM decline. This decrease in AUM is based on a mathematical formula pre-agreed with the clients at the time we signed the contract with the clients. That means we expect tail downs to grow because our AUM grew in the past. We will provide you annually guidance on the magnitudes of these factors. With regards to redemptions, I would like to say that we have about 20% of our AUM or EUR 16 billion in open-ended structures. These run forever, which provide some form of liquidity, and they can have redemptions. In the past and considering the benign market environment we have experienced over the last years, inflows in these programs have far exceeded its redemptions. This is why the net assets in these vehicles have been growing.
If you look at FX and other effects, it is important to note that half of our AUM at Partners Group is euro-denominated, and about one-third of our AUM is US dollar-denominated. Thus, any weakening or strengthening of the US dollar against the euro will affect our total assets under management in euro. During 2018, the US dollar appreciated 5% against the euro, and this was actually the driver of our FX, amounting to +$1.1 billion. An additional positive contribution of $1.3 billion stemmed mainly from performance and investment-related effects from vehicles where AUM is calculated based on the NAV development. The exposure to private markets, and therefore their fee base, can increase when our investment activity is accelerated, like it happened in the second half of the year.
With this, I would like to move on to slide six and talk about fundraising in the individual asset classes. As you can see, all our business lines on slide six grew double digits, and that resulted in a net AUM growth of 18%. Now, if you exclude the extraordinary items such as FX and other effects I just talked about, the net growth is 14%. If you look now into private equity, inflows in private equity amounts to $5.2 billion and were tilted towards the second half of the year. These inflows in 2018 also exceeded the inflows of the whole year 2017, which amounts to $4.8 billion. We saw in the second half of the year a continued strong willingness to invest from our client base across the globe. I would like to give you some examples.
For instance, one of our longstanding diversified global value strategies held its final close in the second half. It is the fourth successive fund, the demand for this program exceeded actually our expectations in the second half of the year. We also successfully launched a new structure, which was especially developed for Mexican pension funds. We saw a substantial first closing and added over CHF 100 million AUM. In Italy, for instance, we finally established a distribution partner agreement with one of the leading platforms in Italy that took us two years to develop and added CHF 300 million in the second half of the year. Let's move on to private debt. We saw EUR 5 billion in new commitments in our private debt business, which compares to EUR 3.5 billion in 2017.
This business continues to benefit from lower yields of traditional fixed income investments, in particular, the floating base rate and the short time to ramp up debt portfolios is seen as highly attractive by most of our clients. The debt AUM grew 37% and was the strongest growing asset class at Partners Group, this also demonstrate the scale of this business. The main driver for the strong fundraising in that asset class were twofold. One, our direct lending business, this is the traditional lending business of Partners Group, contributed to about two-thirds of this fundraising. Secondly, our CLO business. That contributed about one-third of the assets raised in 2018. Let me give you some color on those. We were able to raise two additional CLOs in the second half of the year, shortly before the market turmoil.
Raising those two CLOs within November, December would have been more difficult, we are glad that we could add it to the EUR 700 million on top of our assets raised. Today, our entire CLO business represents about 3% of our total AUM and is expected to grow disproportionately in the years to come. Moving on to private real estate. New commitments amounted to $1.7 billion and were roughly $1 billion lower than last year. Real estate grew less mainly because our most recent flagship program, which will target global real estate opportunities, will contribute more meaningfully to fundraising in 2019. All in all, AUM and real estate still grow by 15%. Moving on to infrastructure. New commitments amounted to $1.4 billion. This compares to $2.1 billion in last year.
Similar to real estate, we just about to start to approach the market with our new flagship offerings in 2019. With that, I would like to move to slide seven. Would like to conclude with the most important drivers of AUM in our industry and at Partners Group. Firstly, it is the structural growth in institutional AUM globally and the rising allocations to private markets of these institutional investors who drive AUM. Secondly, clients reduce their relationships and concentrate to work closer with those managers who can offer the necessary investment capacity for them to build more meaningful private market exposure. These drivers led to an industry growth of over 10% per annum over the last 10 years, allowed us to grow with over 16%.
We, at Partners Group, clearly benefited from this development as we continue to build out our investment platform as a pure-play private markets firm. As you can see, this platform build-out comes with limited scalability. We simply need more resources in order to secure, transact, create value on our long-term investments. This is also why we continue to hire talents in order to meet the increasing investment demand from our clients in the future. With this, I would like to conclude my part of the presentation and hand over to André.
Okay. Welcome everyone, also from my side. I'm happy to provide you an update about our platform on the next few slides. I would like to start on slide nine, please. Partners Group now has EUR 73 billion in assets under management, and this is powered by more than 1,200 employees in 19 offices. I think this is a quite impressive platform. Our tagline says, "Realizing potential in private markets." This refers to at least two dimensions, both of which we have talked about in the past. First, realizing potential refers to Partners Group finding the best investment opportunities, which is the job not only of the investment professionals and everyone at Partners Group, but it's in particular also true for our industry value creation department. We call it IVC.
Our IVC team is a global team that researches sub-sectors to determine transformative trends as well as companies in those sectors. We identify companies that we foresee to operate successfully and have significant potential over the mid to long term. The build-out of our IVC team is a priority for Partners Group. Second, realizing potential refers to the value creation part of our business. Here we want to leverage our global reach and local expertise across private markets to grow these assets, not only in a hands-on manner, but also in a very systematic manner. You see that our portfolio now amounts to about EUR 36 billion on the corporate equity side, and another EUR 37 billion on the real estate and financing side. Our portfolio consists of many significant private assets across industries and regions.
As a partner to the industry, we want to manage this portfolio with a clear approach to business excellence and board governance. How do we do that? Well, first, we want to ensure that boards and management teams are aligned on targets. We want our IVC leaders, as well as our external operating directors, to be very active board members. Third, we typically install a project management office that implements our strategic plans decidedly. Partners Group are committed to doing all of this, not only on an asset-by-asset basis, but very systematically across the platform for private equity, but equally for private infrastructure and real estate assets. This allows us to demand and allow for entrepreneurialism in every portfolio asset, but also to oversee these assets in an effective way based on our entrepreneurial governance framework.
Let's turn to slide 10, which illustrates the investment activity in 2018. 2018 proved to be a record year. In aggregate, we invested $19.3 billion in private markets on behalf of our clients. $19.3 billion represents a substantial increase compared to the $13.6 billion that we invested last year, which is also due to a number of deals closing in 2018 that we had been working on for a long time, and already in 2016, 2017, started the respective processes and due diligences. In 2018, we invested the majority of capital, about 60% or $11.5 billion in direct assets, whilst the remaining 40%, or about $7.7 billion, went into globally diversified portfolio assets in the primary and in the secondary market.
This is in line with our long-term estimates to invest about 60%-70% in direct assets and around 30%-40% in portfolios, which includes secondary investments in globally diversified private market portfolios, but also select primary commitments to private market managers directly. The geographic split of our direct investments illustrated on the right-hand side demonstrate our truly global approach. Of the 78 direct investments, we did 29 transactions in North America, 42 in Europe, and 7 in Asia Pacific and the emerging markets. As always, these numbers include transactions across the capital structure and asset classes, covering both private equity or equity and debt. Let's turn to slide 11 to illustrate the number of transactions that we have screened and executed in 2018 across asset classes. You see that we were able to generate significant deal flow in investment opportunities across all asset classes.
As a matter of fact, we saw more than 2,000 or about 2,800 direct opportunities. We screened $145 billion in portfolios in the secondary market. We assessed over 490 partnerships during the period. In our selection process in 2018, we again remained highly disciplined in terms of return and risk considerations. On many occasions, holding the line on pricing resulted in us not winning a transaction. That's the way it's supposed to be. That's really important to us. We want to adhere to the targets on the rising returns that we have communicated to our clients. The discipline on platform level kept our decline ratio at 97%, which I consider a very high level in our industry.
In summary, we put a lot of effort to invest $19.3 billion during the year. The depth of our approach will be highlighted in a few minutes by my colleagues, Dave, Pascal, and Edward. Before we move on to that one, let us turn to slide 12, where I want to report on the investment split between regions and types of investments. You can see that our investment activity was well spread out across regions, sectors, and investment strategies. In terms of regions, we invested about 47% or roughly $9 billion in North America. The United States remains an attractive region, and it has offered us many high-quality investment opportunities. It's also not surprising to see that the U.S. came in a bit higher than Europe, given the size and maturity of the U.S. private equity market.
Having said that, our European investment equity activity was very strong, and it amounted to roughly CHF 7 billion invested in 2018. We were able to close on a number of sizable equity transactions and further ramped up in lending activities. Lastly, our investment activity in Asia Pacific and emerging markets amounted to CHF 3.2 billion, or 16% of overall activity. We mostly focused on direct assets in that region. In terms of strategy, and as previously stated, direct assets dominated our investment activities also in 2018, 60% invested directly, of which about 55% on the equity side and 45% on the debt side. Let us turn to slide 13, my last slide before I hand over to Dave to talk about our business and corporate development focus in 2019.
Well, on the client side, it's naturally about servicing our existing clients well, and we would like to further strengthen the collaboration with these mandate clients. We have about 1,000 institutional clients at Partners Group, and we expect this number to increase in 2019. Mandates accounted for about 45% of fundraising, as Philip said before, and I expect the share to be a bit lower in 2019 given the product pipeline that we have established for this year. We will build out on the investment side as Partners Group business. We'll build out our IVC team, and we will broaden our operating director circle. This will, by the way, be the focus of Christoph Rubeli, my former Co-CEO, together with Christian Unger.
They will not only provide an entrepreneurial governance framework for our portfolio assets, but they will also be actively involved in composing adequate boards that will define and drive forward strategy on asset level. The third pillar is about operational excellence and culture. We're now at 1,200 employees, and I would say Partners Group is now not a large, but a sizable company. We have grown our platform by about 15% in 2018, and this platform build-out will continue. It will involve both onboarding senior experience to our platform, which will require a lot of dedication by existing leaders. But of course, it's equally important, if not more important, that we grow the 1,200 professionals that we already have.
You see that we have a clear plan for 2019, and I look forward to working on these focus topics with Dave, the executive committee, the board of directors, and the entire Partners Group team. With this, I'd like to hand over to Dave.
Thank you, André. For those I haven't met yet, I look forward to getting to know you. My name is David Layton. I've been with the firm for 14 years. I've known André actually that entire time, and I'm excited to be teamed up with him more formally in this role. With regards to investments, over the years, we've tried to be thoughtful about how we navigate evolving market conditions within the investment side of the house. In the current environment it's no different. We often track assets for years. We take a long-term view, and the recent volatility has been a positive in some regards. I think it helps to reestablish balance in certain segments of the market. We've continued to have meaningful discussions around many of our pipeline assets. But as the environment changes, our areas of emphasis also evolve over time, as shown on page 15.
We share our key investment themes with our clients through our various publications and in our regular update meetings with them. For us, 2019 is all about owning the right types of assets, and it's about driving value within those assets, starting with the second part of that equation. First and foremost, we're ensuring strong governance within the portfolio, and we're bringing hands-on value creation resources to the table. In an environment like this, where I think we can all expect to get less and less from the market itself, perhaps even a negative contribution moving forward, who knows? We have to be focused on truly rolling up our sleeves and building value asset by asset and initiative by initiative. We're establishing the boards of our portfolio companies as the center of vision and strategy for our assets to help them navigate and capitalize on the market environment.
Another key area of emphasis for us continues to be disciplined, thoughtful asset selection and underwriting. Our investment committee discussions today are as heated and critical as they've ever been, and we continue to invest into only the most attractive opportunities that we see on a global basis. Another topic which is related to our relative value work is what we call thematic sourcing. We identify top-down target sectors and target assets within those sectors that we believe are structurally positioned for outsized growth. We deepen our relationships, our angles, and our understanding of those target assets, tracking them over months and years. This is one of the ways that we've been able to differentiate ourselves amongst competition. It's, I think, kept us focused this year on assets that we already know we want to own.
We've had much less opportunistic deal chasing, which has been for the better. On page 16, we list out some of the sub-sectors where we have target assets that we're in active pursuit of. Those are the sectors that you see there in bold on that page. We have some other areas of interest where it's still somewhat early days, where we're still trying to get comfortable with some of the top-down risks in the sector or where we're still debating on which target assets in the market we'll pursue. Target assets are developed over very long periods, and they become actionable when they become actionable, and it can be hard to predict. It just so happened that we had quite a few of these long-term targets that we landed in 2018.
One of those opportunities is a merger of equals that we've been orchestrating and driving over the past few months. To give you some color on this transaction, I'd like to now hand things over to one of our senior deal leaders, Pascal, to give you an overview of the transaction on page 17.
Thank you, Dave. My name is Pascal Noth, and I'm a managing director in the European private equity direct team based in Zug. As Dave just described, competition is strong in the current market. It is even more important now for our investment teams to identify new investments early and find unique value creation angles. I would like to take you through the investment story behind AMMEGA, the combination of Ammeraal Beltech and Megadyne. This is a very attractive market, supported by secular growth driven by automation across 50+ industries. Our thematic market analysis, which goes back years, of the automation industry, led us exactly to these two companies. We knew we had to acquire both companies in order to realize our vision and create the global category leader in belting. Let me quickly give you some background on both companies.
Megadyne, by market share, the global leader in industrial polyurethane transmission belts, is headquartered in Mathi, Italy. It operates in end markets for elevators, machine tooling, electric bikes, home fitness equipment, and many more. Most importantly, it grew for the last 20 consecutive years, stronger than the market. Therefore, a transition from a small, local family-owned company into the global leader it is today. The Tadolini family remains actively involved and fully reinvested alongside our investment. Ammeraal Beltech, it's the European number one in lightweight conveyor belts in food processing, logistics, which includes e-commerce centers, and airports. It is headquartered in the Netherlands and has already seen private equity ownership periods in the past, which highly professionalized the organization. The product of both companies are mission-critical, whilst they only represent 1% of total equipment cost for its clients. I'd say that's a good combination.
They have a high degree of recurring sales, high switching costs, and benefits from long-term customer loyalty. The two businesses are highly complementary, which we liked, the combination of them has a strong industrial and operational logic, which will lead to material cost and revenue synergies. In our industry, it is rare that two leading businesses were bought in sync overnight, one in an auction process and one on a proprietary basis. Every investment has particular risks. Here, the obvious risk is the merger of a Dutch company with an Italian one. In order to successfully manage the combination, we focus on active governance. André mentioned it. I'm working with Christoph, Christian on, for example, immediately establishing a supervisory board post-closing. Us, select independent board members. The management teams interact on a weekly basis to mitigate these risks.
For those of you who follow us more closely, we, for example, appointed Horst Heitz as chairman of the supervisory board, with whom we worked in the past. Horst was chairman of VAT Group, which was listed on the Swiss Stock Exchange in 2016. We also secured Stijn Frans, a Dutch national, as our new CEO. He has a 15-year track record of relevant work experience in Italy, which impressed us immensely, and he's the perfect fit to resemble the marriage of the two companies well. Today, AMMEGA is set for revenue growth, high cash conversion, and further margin increases. In particular, in America and in Asia, we see a double-digit revenue growth opportunity, and we'll pursue bolt-on acquisitions as well. In the next five to six years, it is our goal to double its EBITDA. With that, I hand over back to Dave.
Thanks, Pascal. Private markets managers are evaluated based on their relative performance, based on how they stack up against the rest of the market in a given vintage. This deal is going to be a tremendous amount of hard work, as just described, a lot of heavy lifting. We're creating a true global leader with the combined resources of these two middle-market companies. We believe that as we look back years from now, this one may have the potential to be one of the highlights of the 2018 vintage. It's too early to tell, but there's a lot of potential here. Hopefully, that came across. Also, on the debt side, we'd like to quickly give you some feedback as to what we're seeing in the market and highlight a transaction in a sector that institutionally we know very well.
I'll hand over now to Edward Tong, who's a senior leader in our Asian debt business out of Singapore, to talk you through slide 18.
Thank you, Dave. My name is Edward Tong. I'm a senior vice president and head of the Asia private debt team at Partners Group based in Singapore. I'd like to start with a few comments about the markets. Despite periods of market volatility, leverage loan volumes in the U.S. and Europe saw the second highest ever issuance in 2018, driven by M&A. Leverage levels remain broadly in line with the year before, as have equity contributions from sponsors. The market activity in late 2018 saw loan yields increase meaningfully as investors demanded higher risk premium for greater macro uncertainty.
In this light, returns currently look compelling, in particular in the second lien segment, with relative spreads of 400 basis points or more as compared to the spreads of senior first lien securities, bringing all-in spreads in the second lien market to 8 to 900 basis points over LIBOR. The uncertainty in the market not only led to repricing of risk in the capital markets, but also caused competing sources of capital, such as the high yield bond market, to remain a volatile option for borrowers. This is where the provision of private direct debt financing solutions can add value to sponsors by being a reliable and patient provider of capital. Here in Asia, one of our key drivers of deal flow is the growing amount of private equity capital raised from the region, with several multi-billion dollar funds raised.
Asian private equity sponsors increasingly have global ambitions and are looking outside the region for attractive cross-border investment opportunities. We highlight one such example. During the second half of 2018, we invested in the second lien debt of Spring Education Group, the largest operator of preschool through grade 12 private schools in the U.S. Spring Education is a combination of Stratford Schools, Nobel Learning Communities, and LePort Montessori, forming a platform that covers more than 220 school sites across 18 states, educating more than 38,000 students annually and employing more than 6,000 teachers and staff. We were also an existing lender into Stratford Schools, as well as a previous equity owner of Nobel Learning Communities. The U.S. private schools industry has benefited from resilient growth over the past 15 years, while Spring Education is predominantly funded through private pay, shielding it from changes in government funding.
The company has exhibited consistent enrollment growth, has leading margins, and benefits from strong free cash flow generation as a result of upfront payment of school fees that is typical of such private school businesses. Spring Education develops a broad range of high-quality proprietary curriculum in their offerings, enabling students to achieve good academic outcomes, which is really a key aspect of why we invest into education institutions focusing on quality learning. The education sector is an industry that we continue to focus on given the emphasis placed on parents on providing high-quality education for their children, and is consistent with our private debt relative value approach of looking for stable and resilient companies. We're excited about this subordinated debt investment, which has helped to support the formation of the largest private school businesses in the U.S. With this, I'd like to pass back to Dave.
Thank you, Ed. I think these types of scaled debt solutions can be particularly attractive for our investment partners in the current environment. On page 19, we highlight a similar top-down relative value process on the real assets side that we described previously for corporate assets. This is all in an effort to focus our teams and to concentrate our resources where it makes sense. Within our real estate business, we're zoomed in on office, residential, industrial, maybe a little bit more cautious on retail and hospitality. Office is a particular area of focus. We're allocating resources to high growth, sometimes second-tier markets in the U.S. like Portland, Denver, and Seattle. We're a little more anchored to major cities in Europe. Within our infrastructure business, energy infrastructure continues to have a few target assets of interest.
In general, we're actively tracking more infrastructure services companies today, which can complement more traditional infrastructure assets in our clients' portfolios. Just quickly on page 20, you can see that in 2018, this was a solid year for realizations. We were able to harvest some of the fruits of our labors with $13.4 billion of gross portfolio realizations this past year, with contributions from each of our investment departments. With that, we'd like to now spend a little bit of time on the assets under management outlook for 2019. André, I'll hand it back to you.
Thank you, Dave. I'm on slide 22, and I would like to talk about the expected growth client demand in 2019. Our expected range of new growth client commitments in 2019 amounts to EUR 13 billion to EUR 16 billion. That means we raised the band by EUR 2 billion compared to our 2018 guidance. This 2019 guidance assumes that the benign fundraising and investment environment continues. 2019 is still young. Many variables will drive the actual outcome, but we're confident that 2019 will be a strong fundraising year. We aim to capture further client demand through a series of products and flagships across all private market asset classes. In practice, you know this from the past, actual client demand will be split across thousands of products and mandates.
Indeed, we will continue to offer bespoke solutions as well to our mandate clients and actively manage and steer their exposure to private markets in line with their longer-term investment targets. Taildown effects from mature Partners Group programs and potential redemptions from liquid and semi-liquid programs are expected to amount to EUR 6.5 billion to EUR 7.5 billion. 80% of our assets under management, as Philip said, come in form of closed-ended structures. As and when such investment programs mature and reach the end of their lifetime, assets under management decline. The 2019 increase in taildowns and redemptions is driven by a number of products reaching the end of their lifetime. For 2020, we expect taildowns to more moderately change compared to 2019.
Taking the midpoint of both factors guided, that is growth client demand plus taildowns and redemptions, our anticipated net assets under management growth remains double digits in 2019. As a final remark, as always, I would like to say that we do not provide guidance on other effects such as FX rates. This concludes the formal part of our update presentation. I would like to open up for questions in the audience by the participants on the call.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. Alternatively, you may type your questions into the web Q&A box. One moment please, for the first question. The first question is from Daniel Regli, MainFirst. Your line is now open. Please go ahead.
Good morning, everybody, thank you for the presentation, thanks for taking my questions, also congrats to the, I think, good results in 2018 so far. I have three questions, if I may. The first question is regarding investments in 2018. Particularly, I was looking at direct investments. I just noted that you already hinted to it, that obviously you closed a couple of deals you already initiated earlier, but maybe you could still give us some more flesh to the bone on this end, given that your amount of investments increased by about 40%, while your assets screened went down by 25%, 2018 versus 2017. Also maybe if you could elaborate a bit on the average deal size, which obviously went up 37%. Do we see there that you need to go into larger deals given the amount you need to invest?
The second question is about multiples. Maybe if you could just give me some kind of feeling how the multiples exit and entry multiples developed during 2018, whether we have seen some kind of setback in multiples and what kind of swings do you normally see in multiples on private markets in such an environment in history? The third question is regarding the taildowns. You increased your taildown guidance quite a bit at 2019 versus 2018. You already hinted to that this is due to a number of programs closing in 2019. Can you just give me a little bit more details here? What was the impact of this increase in numbers of programs closed, should we expect a similar number for 2020? Can you give me some more details to a little bit estimate the impact we will see 2020 versus 2019? Thanks.
Allow me maybe to take the first question or two. Then I'll hand it over to Philip Sauer to answer the third question. With regards to investments in 2018, you asked about the direct investments in particular. You'll find good press releases on these transactions, you can go back and look into these. The merger of Ammeraal Beltech and Megadyne is one of them. The buyout of Techem is another transaction. GlobalLogic, which is a software product engineering services provider. We did a buyout of a company called Hearthside Foods. It's a large contract food manufacturer in the U.S. A transaction in a company called Vishal Mega Mart, a retailer in India, were some of the notable transactions on the buyout side in this last year. You asked about the larger deal size.
I'd say we're still squarely within the middle market, maybe the upper middle market. Transaction sizes up to about CHF 2 billion is generally where we're hunting. You'll occasionally see us tracking an asset that's a little bit larger. Techem is probably a good example of that, and when we do have a good asset that we're developing that is a little bit larger, we'll simply bring in partners, as we did with Techem. We brought in two large Canadian pension plans to take minority positions in that company. I don't see us doing any major migration in terms of size of transaction. I think if you look at the investment volume that we've generated this past year, I think that should meet the demands that our clients have in the near term.
May I quickly follow up on this one, Jared, please? I was mostly also interested in the dynamics of screened investment versus actual investments. Obviously, you screened quite a bit less this year versus last year. Invest more in what was driving this.
Yeah. 100% of what's driving this is our target asset effort that we tried to describe a little bit. We have moved our investment team away from maybe a more opportunistic approach where we're chasing opportunistic transactions, to one that we're much more focused on developing themes and developing specific assets over months and years.
Our teams were much more focused in 2018 than they've been in years past, and we had much less chasing of opportunistic transactions, which we think is for the better.
Okay. I see. Thanks.
With regards to the multiples, there's good industry data on that. Multiples can be broken down by different segments of the market. We primarily play in the middle market, and there we've seen, over the last number of years, EBITDA multiples that have migrated from the eight to nine times range up to, in many cases, north of 12, 13, 14 times for really good quality assets. I think if you look at the developments within public markets and what's happening with multiples there, that should give you a pretty good proxy of what's happening in private markets. It tends to be a little bit more stable. When we do our valuation work, we're very referential to what's happening within the broader market.
Daniel, let me quickly give you the answer to the last question. Typically, tail downs is a derivative of our fundraising activities today. If you grow your funds over time, as we did as Partners Group grew our AUM, then about six, seven years later tail downs come into effect. When you have grown your AUM by 15%, at one point in time tail downs will kick in, and they will grow also with 15%. Now, that is an approximation. We give you annual guidance this year is an increase. Why? It's because if you go 10 years back, there we raised flagship funds on the secondary side, on the real estate side, which are now tailing completely off. These funds are running to an end, and that's why this is more a step up of tail downs for 2019.
You should not expect this to continue in 2020. As André said earlier, it will be much less growth of tail downs for 2020.
Okay, just to make it clear, we will still see some growth in tail downs. It's not that we have now a one-off effect in 2019, that we see an increased number of closings of programs, then we should see a moderation again in 2020.
There are more products ending. Every year we raise about 15 to 20 programs will tail off at one point. I would say it's probably less or significantly less than you have seen in 2019, tail downs will grow going forward.
Okay, thanks.
The next question is from Anil Sharma from Morgan Stanley. Your line is now open. Please go ahead.
Morning, everyone. I just had two questions, please. I was just hoping the first one, if you could just remind us what the composition of the liquid and semi-liquid strategies is. Is it the same as the group? 39% PE, 37% private debt, et cetera. The second question is, given what's happened to markets and just thinking about obviously how Partners Group co-invests alongside its clients, the element that's recorded on Partners Group balance sheet, how quickly do you have to market that? Should we be seeing some negative marks coming through on the finance line over first half 2019? Thank you.
Maybe I take the first question. Philip will take the second question. In terms of these liquid and semi-liquid structures, I would say they do resemble the balance sheet, but probably there's a tilt towards diversified offerings and private equity offerings. Partners Group offers private equity liquid and semi-liquid structures because we have a strong deal flow in this segment. However, we also offer structures or solutions that would combine infrastructure, real estate, private equity debt, basically all asset classes into one offering. There's a tilt towards diversified, there's a tilt towards private equity. We do have offerings on the liquid side also for infrastructure. We do have offerings on the semi-liquid side for real estate.
My own preference is that these structures typically allow for a broad type of deal flow. That is why the offerings of the future will largely resemble the offerings that we currently have in our portfolio.
Got you. Thank you.
Maybe from the co-investment side. Typically, for all the participants on the call, Partners Group invests about 1% of the AUM or of the funds it raises alongside its clients. We have a balance sheet position of roughly CHF 600 million on co-investments, which we do in our funds alongside our clients. What happened in November, December in terms of the market is simply too early to tell, and give us some time to evaluate the numbers because it depends a bit how the market reacts going forward. I think just a two-month correction, if it's a V-shaped one, it has less so an impact on overall private market valuation versus when there's a structural negative trend of valuations, then you will see this coming through in the course of 2019. At this point in time, it's simply too early to tell.
In the past we have seen 5%-10% growth of these investments alongside clients. Depends. We will come back to you and explain in very detail probably in March, if you don't mind, because we don't know yet. It's still too early.
Okay. That's helpful. Thank you.
The next question is from Mr. Alevizos Alevizakos of HSBC. Your line is now open. Please go ahead.
Hi. Thank you for the presentation. I've got three areas, actually, that I would like to cover. Three questions. The first question is, you talked about the increasing penetration of mandates versus programs in this period. I'm just trying to understand two things here. First of all, what is the actual benefit of the mandate? Is it margin plus ability to raise assets easier? Also, what is the ambition for the mandates overall? That's area number one. Area number two, you talked about the realization of underlying portfolios being about, I think, CHF 13 billion in 2018. I just tried to compare that figure with 2017. Thirdly, you had very good hiring in the period. Did you hire mainly from universities, or you also hired senior people from competitors? Thank you.
In terms of first question, like the mandate, I'm really happy that Partners Group can offer bespoke solutions to mandate clients. These are clients that put hundreds of millions CHF to work in private markets. Sometimes the clients or the mandate clients simply decide to invest in an existing product that Partners Group has on the shelf. Often, in intense discussions over several months, as Philip said, you want to fine-tune, you don't want to go for the standard offering, the standard product. You want to tailor it to the client needs. That is something that Partners Group offers to large clients. It's about 40%-45%. I said 45% in 2018, maybe a bit lower in 2019. It's not necessarily fundamentally different from a product that we offer. It does allow a client to tailor it to its needs.
Importantly, mandates allow clients to really fine-tune and adjust over time. The majority of the larger mandates that we have at Partners Group are mandates that have evolved, not only grown in size, but have evolved. Maybe they started private equity and include real assets over time. That is a key advantage, of course, of a mandate over a product. The ability by the client, together with Partners Group, to influence the respective allocation and potentially even be involved in the asset selection.
Margin?
Margin.
Question.
These are larger clients. They can come at the most level of rebates, important for us as a company, it does not make a difference whether it's a mandate or a product offering. There's no financial benefit for Partners Group. This is a benefit to clients that we're happy to offer based on the strong services and technological platform that we have built up over the past two decades.
Excuse me. Why not have all of your clients sign up for mandates? Effectively they will be able to tailor the product rather than getting an automatic kind of program that you got for everybody.
Well, actually, a mandate also means more work and involvement for the client. Mandates are common for investors that put to work significant amount in absolute amounts, but also in relative amounts. Ideally, a mandate really triggers a lot of collaboration between the investment manager and the client. I believe it's true that a large number of institutional clients simply do not need the tailoring. That applies to larger clients, but it would be too much of a hassle for investors that have not yet decided to allocate more significant amounts to private markets.
Thank you.
Maybe quickly on the realization side. Yeah, we have $ 13.4 billion in this year. Last year it was $ 11.8, roughly 10% growth because the exit environment is, and the demand for private market investment also from managers is still strong in 2018. We have seen a slight growth alongside our AUM with realizations in 2018.
Dave, maybe talk about hiring.
On hiring, it really has been a balanced effort. We have hired out of universities. We have associate program that we hire MBA students into, as well as a financial analyst program where we hire undergraduates. Significant training goes into that. They rotate across our various business units and get experience across our different departments before they finally settle into a department. We have continued to ramp up that program, but we have done a lot of lateral hiring this year. We've hired from competitors and from other financial institutions. It's been a good balance of bringing up our own in-house talent, which has always been a hallmark of our firm, as well as lateral hiring.
Thank you very much, and congratulations on these results.
The next question is from Gajut Kambal, JP Morgan. Your line is now open. Please go ahead.
Hi. Good morning, everybody. Thank you for the presentation. Very helpful. In terms of just a couple of questions. One is really just trying to understand your track record, and obviously asset raising has been exceptional year-on-year increases for the last sort of seven, eight years. When you look out to 2019, I think you mentioned a few flagships in real estate, in infrastructure. Could you just give us the sort of size of perhaps flagship products in 2019 versus what you saw in 2018? That's the first question.
Just to link to that, when you look at the broader industry, and perhaps this is slightly unfair, but if you're thinking about how the industry may grow in 2019, do you see opportunities for Partners Group to be taking some more share as you see a migration for clients to be with less managers and consolidate their assets with fewer private market players? That's really the two questions.
Well, thanks for these two questions. We will have flagships in the market in 2019 for private equity, for real estate, for infrastructure. These flagships are about to be launched. We have not yet communicated targets. What's important for you is that this flagship raising, all products, all mandates, if you combine it, then it results into the EUR 13 billion-EUR 16 billion of asset raising that we have communicated. It's not necessary to split it down to individual products. Because also in 2019, our asset raising will cover, as I said, thousands of products and mandated Partners Group. Maybe building on the prior question about mandates. Yes, there is a certain consolidation in the market. Larger clients have, over the past decade or two, built up potentially sizable offerings with thousands of private equity real estate infrastructure debt funds in the portfolio.
It turns out to be a lot of work to administer, evaluate, to monitor dozens of investment managed private markets. That is why for mandate clients, but also for investors in products, I believe the trend to consolidate, to allocate to fewer lines in the future, that's a trend that we see and a trend that I believe will continue also in 2019. I believe Partners Group is a global offering. We offer all regions with an offering that is covering direct secondaries and primaries, an offering that covers all four asset classes. It's going to be one of the beneficiaries if this consolidation continues to happen as we would predict.
Don't expect it to happen too fast. It's not like it's 2019, Partners Group taking material more shares. I think in the market, there are quite a lot of fundraising activity still expected for 2019. It took us almost over 12 years since we IPO'd to increase our market share from roughly 0.6% in terms of assets under management of the industry to roughly 1.5%. That happens slowly but surely. Don't overanalyze this. I think this needs to be seen in the longer term.
Thank you. That's very helpful. Thanks.
There are no further questions on the telephone lines. I hand back to the speakers.
We have seen one question on the webinar. There is something, I think, Dave, for you. We saw that maybe you can give a short glance on what are the challenges in private equity for 2019 according to you.
I think the challenges are not insignificant. I think we're humble and critical about the current market environment. I think the level of competition that we see is significant. As I look back over the last number of years, I think we've seen asset prices increase pretty significantly. The quality of earnings has become harder and more laborious to assess. The percentage of marketed earnings that are attributable to add backs or EBITDA adjustments have gone from 5%-10% a few years ago to something like 25% today. From creative things like projected incremental earnings from cost savings programs not yet implemented. We're seeing stuff like that. I think sale process timelines have also contracted meaningfully. It used to be a couple of years ago, a formal sale process would take about five months. We've seen them as short as 60-80 days.
A little bit of volatility in the market like we've seen, I don't think is the worst thing to bring some balance back into the market. I think keeping a level head, staying humble, remaining critical within the investment committee, making decisions together, underwriting in a very disciplined manner, those are all some of the things that we're going to do to focus on managing some of those challenges that exist.
Thank you. Thank you, Dave. There's one more question on how does Partners Group embrace its ESG criteria in infrastructure, private debt, and private equity? Maybe André, you would like to answer this last one.
Well, actually, we truly embrace ESG at Partners Group. We are a committed leader in responsible investing. We put a lot of emphasis on ESG aspects. As a matter of fact, all investments at Partners Group are diligent for ESG criteria. If you don't pass the ESG test, an investment is not pursued at Partners Group. We have been a UN PRI signatory already back in 2008. I'm happy that now for the third year in a row, that the ESG assessment that we have received as a company is actually an A+, which is the highest rating that you can get. The way it works at Partners Group is that all investments are screened for ESG criteria during the due diligence phase. Again, it's kind of like a criteria not passed, you would not continue. That happened a few times in 2018, right?
In a case where it's simply not certain about, let's say, corruption or where you're not certain about environmental aspect, for example, too much coal, or where you're not comfortable with exposure, for example, military use of assets. In a majority of cases, actually ESG criteria are passed. When it gets really interesting is when you move from monitoring or measuring ESG to really starting to create value. That is why as Partners Group, the ESG team, which is a dedicated team, is part of the IVC team, the Industry Value Creation team. About 10%-20% of all value creation initiatives actually have a strong tilt or a factor considering ESG. That depends then on industry by industry. In an industrial asset like the one that Pascal described, it could be about the employee health and safety.
If it's a consumer business, it could be about food waste. If it's any type of business where you build up a platform, it might be about setting up proper governance to handle the growth of these assets. It's important to us that ESG is embedded as part of IVC. It's important to us that we tailor it, and it's certainly going to be something that we will focus on also in the future. Not only because we want it, and we have always wanted for more than a decade, but it's also an emphasis that our clients like to see investment managers to be active in.
Thank you, André. I think there's one last question coming in. Maybe I answer first part, and Dave, maybe you need to help me on the second one is, we talked about that 2019 was a fundraising year for products, and someone asked whether or not we can provide an update for PG LIFE or the PG Direct 2019. First of all, I want to say this is true to PG LIFE and PG Direct 2019 are one of those flagship products which will be raised in 2019. We will come back to the market with an update on fundraising once these products are closed and not throughout the year. I have to unfortunately say, please bear with us some time and wait till we make the respective announcement on when these products have closed. We will make an announcement when this happens.
The second question is more on the current secondary transactions in the market. Maybe Dave, maybe you can see maybe some of the underwriting or what you see on that market currently in the IC. Maybe you can say something about that private equity secondaries.
Yeah. After a somewhat light secondary activity for us in a couple of prior years, we actually had a pretty strong year this year. This past year, I think we found a number of opportunities that really resonated with us. It's the type of market environment where you don't just want to buy portfolios at large. Many of them are trading very, very competitively. We've really tried to pick our niches in the portfolio that we've gone after. We've had a couple of situations where we've been able to leverage the breadth of our platform. Our competitors were only buying, for example, just the private equity component, and we were able to put together a bid that leveraged the private equity component of their portfolio together with the private real estate component of their portfolio to put together a pretty compelling and attractive offer.
We continue to see pretty strong bids, actually. Even with some of the volatility that we've seen, we're hopeful that it's going to become more moderate. They continue to price really, really tight.
Thank you, Dave. I think with this, thank you very much for this bit longer call than expected. We look forward to hearing or seeing you on our March announcement, end of March 19th, for our financials. With this, I wish you all a very successful day, week, and look forward to seeing you again. All the best. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.