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 via the telephone lines. During the presentation, you may type your questions May I now hand you over to Mr.
Andre Frei, who will lead you through this conference. Please go ahead, sir.
Good morning, dear investors and media representatives, and a warm welcome to today's assets under management announcement call for the full year of 2017. My name is Andre Frei, Co CEO of Partners Group, And I have with me today on this call my Co CEO, Christoph Rubelin as well as Filip Sauer, our Co Head of the Group Finance and Corporate Development Department. We want to provide you a detailed insight also into our investment activity in each private market asset class and that's why I have also on the phone Bilge Oglut, Managing Director in Private Equity Europe, who is based in our Zug office Robin Toevissen, Senior Vice President in our European Private Debt team, who is based in our London office Mike Bryant, the Co Head of our Global Private Real Estate team, who is based in London and Esther Piner, Senior Vice President in the European Private Infrastructure team based in Zug. As always, we appreciate you taking the time for this call to follow our business and organization. We want to provide you an update about current assets under management and assets raised in 2017.
And we want to give you more insight into the current private market environment and our investment activities in 2017. At the end of this call, we will share our 2018 outlook from a client perspective and walk you through the 2018 guidance on the client demand side that we have published this morning. With this, I would like to hand over to Filip and ask you to turn to page 4 of this presentation.
Thank you, Andre. A warm welcome from my side as well. My name is Philipp Sauer, and I'm heading the Group Finance and Corporate Development team. Since the IPO of Partners Group, we have seen a sustained growth in AUM. Clients from all over the world have entrusted us with capital in order to increase their exposure to private markets in different economic environments.
We continued to see this strong client demand across asset classes and regions also in 2017, mainly driven by ongoing transformative trends in the asset management industry. The most important structural drivers remain the growth in institutional AUM combined with rising allocations to private markets. This has led to a 10% plus growth rate of the private market industry over the last decade. Partners Group has benefited from this trend and was able to outgrow the market in the past. This was in particular due to the fact that investors increasingly turn to managers with a truly global and institutional setup.
These managers are required to cover multiple asset classes, create value at asset level and throughout cycles and offer investors the ability to onboard sizable commitments and service them accordingly. As you can see on the chart, Partners Group AUM stands today at €62,000,000,000 and has grown with an annual growth rate of 16% over the last 2 years and 17% over the last decade. The number of our employees has grown broadly in line with AUM to more than 1,000 talents in over in 19 offices. Let us move please to Page number 5, where we talk about the AUM development. After a strong first half of the year with new commitments of $6,900,000,000 we had an almost equally strong second half of the year raising $6,400,000,000 This brings new client commitments across all private market asset classes for the full year 2017 to 13,300,000,000 euros These commitments moderately exceeded the communicated expected bandwidth of €10,000,000,000 to €12,000,000,000 by approximately 10%.
And I want to explain you why. First of all, we have seen a continued strong demand for our programs across all asset classes also in the second half of the year, despite closing many of our flagship programs in the first half. Almost all of our commingled programs experienced higher than anticipated inflows. The second reason is, we have seen an acceleration in the conversion time for select mandate clients based on an increased pipeline of investment opportunities. For instance, mandate discussions on the equity side typically take up to 2 years.
On the debt side, we were able to reduce this time to less than 1 year. These two factors drove the actual demand over the guidance. I will talk about new commitments and focus topics on the next two slides, but before I do so, let us quickly address tail downs, redemptions and other factors. Tail downs tail down effects from mature private market investment programs and redemptions from liquid and semi liquid vehicles amounted to a total of minus €4,100,000,000 in 2017. The guidance provided in the beginning of 2017 was minus €3,000,000,000 to minus €4,000,000,000 Regarding tail downs, and as you know, about 80% of our AUM are in closed ended structures with a predefined lifetime.
And when such investment programs mature, so become older, our AUM decline according to a mathematical formula pre agreed with the client. We expect tail downs to grow roughly in line with our past AUM growth. And as always, we'll provide annual guidance on those because our visibility on tail downs is very high. With regards to redemptions, almost 20% of our AUM, so around €11,000,000,000 are in open ended structures, which provide some sort of liquidity. Typically, this is quarterly or monthly or in exceptional cases, even daily.
Over the last 5 years, the AUM of these vehicles have more than tripled. In these open ended programs, we cannot have tail downs, but we can have redemptions. And in the past, these inflows in these programs exceeded the redemptions. This is why the net new assets have been growing. In 2017, redemptions of these semi liquid programs increased by €300,000,000 compared to the previous year and amounted to €900,000,000 This increase of redemptions is mainly due to the growing AUM and D vehicles.
So let us move on to FX and other facts. 36% of Partners Group's AUM is U. S. Dollar denominated, which equals around €22,000,000,000 So any weakening of the U. S.
Dollars will reduce our euro denominated AUM and vice versa. In fact, the U. S. Dollar weakened against the euro by 12% last year and was the largest driver of the FX effects. In sum, FX effects amounted to minus €2,900,000,000 The year before, we had a positive effect of +1.4 €1,000,000,000 So given that there is volatility in FX, we do not and cannot provide any guidance on these factors.
Lastly, there was also a positive contribution of €1,400,000,000 stemming from performance related effects and other effects. These stem from only a few numbers of our investment vehicles. The vast majority of our investment programs are based on commitments and not on NAV. So performance of programs itself typically have no impact whatsoever on our AUM. So at the end this leaves us at the end of 2017 with €62,000,000,000 representing a growth rate of 14%.
In U. S. Dollar terms, this is €74,000,000,000 or in Swiss franc terms €72,500,000,000 you pick your currency of choice. So let me now talk about slide 6 and 7 in parallel and talk about client demand. In 2017, we saw a record demand for flagship direct programs across private equity, private debt and private infrastructure.
We also saw strong initial demand for a new flagship secondary strategy in private real estate. Overall, and like last year, we experienced an accelerated conversion for select mandate clients. As a result, total demand was strong and the percentage share of assets raised in 2017 was broadly diversified. This shows that yet smaller asset classes such as real estate, infrastructure or private debt are a clear investment focus of our investors globally. Despite the strong relative growth of these smaller asset classes, our largest asset class, which is private equity, continues to grow steadily too.
So let me provide you with some insights into our fundraising efforts 2017 in each asset class. So I will start with Private Equity. Private Equity inflows amounted to $4,800,000,000 and represented 36% of all new commitments. The private equity asset class continued its steady growth path and grew at the rate of 6%. Inflows stem from dozens of different programs and mandates and the 2 largest contributors were our Global Private Equity Direct program as well as our Global Private Equity Integrated programs.
The direct program focuses entirely on transactions where Partners Group sources and underwrites an opportunity and is solely responsible for the value creation. The portfolio of the integrated programs is much more diversified. And in addition to the transactions on the direct side, we build up exposure through secondary transactions by investing in private market portfolios globally. We also allocate capital to 3rd party business partners where we believe true value add can be found, either through their regional networks or their expertise in special themes. Talking about private debt now.
Private debt also saw strong commitments of more than €3,500,000,000 taking AUM over €10,000,000,000 These commitments represent 26% of total new client demand. We were able to scale our private debt platform further and are in the market with our private market credit strategies, which focuses on corporate senior debt as well as multi asset class offerings, where we also build up exposure in real estate debt and private infrastructure debt. We are also in the progress of raising several new CLOs, allowing our clients to gain broader access to global senior credit markets. In sum, our private debt business continues to profit from low yields on traditional fixed income investments and was again the fastest growing segment within the firm, growing by 30% year on year. New client commitments in private real estate in 2017 amounted to €2,800,000,000 and significantly ramped compared to the first half numbers and represented 22% of the overall client demand.
This increase in the second half was expected and communicated because later in the second half of last year or 2017, one of our main flagship funds was launched and started to contribute substantially to fundraising. Our Private Real Estate business continues to profit from the general demand for real assets globally and grew by 21% year on year. Last but not least, new commitments in Private Infrastructure amounted to $2,100,000,000 which represents about 16% of overall new client demand. Similar to private equity, also private infrastructure fundraising focused in 2017 on the global direct programs and the integrated programs. In sum, Private Infrastructure grew 24% in 2017 and was the 2nd fastest growing segment at Partners Group.
With this, I would like to conclude my part of the presentation and hand back to Andre Frei.
Thank you, Philippe. Please let's turn to Slide 9, where we show an overview of our platform activities in 2017. The last year proved to be a very solid investment year, as you can see. In aggregate, about $13,300,000,000 in private markets on behalf of our clients, and this compares to about $11,700,000,000 in 2016. Of course, we kept up our highly disciplined and prudent approach to source and execute the most attractive investment opportunities in this market that is still characterized by full valuations and increased competition for transactions.
As announced in September, we grew our platform to now over 1,000 employees worldwide, which is up from 9 30 employees at the end of 2016. We will further grow our investment platform in the quarters to come. And as a matter of fact, we have been and will be hiring in all asset classes to build out capacity and capability. In 2017, we invested the majority of capital that is 62% or almost $8,300,000,000 in direct transactions, while the remaining 38% or about $5,000,000,000 went into secondary transactions and primary commitments. This is in line with our long term estimate to invest about 60% in direct, 20% in secondaries and about 20% in primaries.
The geographic split of our direct investment is illustrated on the right hand side of this slide and it does demonstrate our truly global approach. Of the 77 direct investments, we actually did 27 transactions in North America, 34 in Europe and 16 in Asia Pacific and Emerging Markets. These numbers include transactions across the capital structure and asset classes covering both equity and debt. Let me conclude by stating that 2017 was not only an attractive investment year, but it was also able to realize a significant number of private market assets. Our work resulted in a total of about $11,800,000,000 in gross underlying portfolio distributions, which is up about 20% compared to 2016.
Let's turn to slide 10, please, which illustrates the number of transactions that we have screened and executed in 2017 across asset classes. We always say that a solid pipeline with attractive investment opportunities is the lifeblood of our platform. And to maintain and further grow our pipeline, we have again put a strong emphasis on sourcing and we expect from all professionals that they contribute investment ideas. Combined with our institutional brand and our leading market positioning, this allowed us to generate significant deal flow in 20 17. We saw over 3,800 direct opportunities and $137,000,000,000 in secondary deal flow.
And we reviewed finally over 4 70 managers during the period. We did not compromise on the target returns promised to our clients and we did not simply accept lower quality deals with higher risk profiles. We remained disciplined and kept our decline ratio at about 98%, which is a very high and similar level to previous years. These figures also show as highlighted by Philippe, that Partners Group is not only an active direct investor, but we continue to invest in the secondary market and in primaries to complement our portfolio. Indeed, we consider ourselves part of the private markets ecosystem and we have what we call a bias towards relationships, not competition with our business partners across the globe.
Today, we are invested in more than 700 funds and we sit on over 250 advisory boards, which makes us a respected and depreciated global investor in other funds. Also, Partners Group regularly invites not only clients, but also other general partners to invest alongside Partners Group. In summary, you can see that we have put a lot of hard work to invest the $13,300,000,000 and some select investment examples will be shared by my colleagues in just a few minutes. Please let us move on to slide 11, where we report on the investment split between regions and types of investments in 2017. In terms of regions, we invested 36% or roughly $5,000,000,000 in North America, which is in line with 2016 figures.
The U. S. Remained an attractive region and offered us many high quality investment opportunities. Our European investment activity was also strong and actually increased from roughly $5,000,000,000 slightly less than $5,000,000,000 to close to $7,000,000,000 partially driven by the further ramp up in our lending activities, taking advantage of the disintermediation of banks. But we were also able to close in a number of sizable equity transactions, such as the software provider Civica in the U.
K, which Bill Georgot will elaborate on later. Lastly, our investment activity in Asia Pacific and Emerging Markets was roughly in line with the previous year at around $2,000,000,000 We mostly focused and do focus on direct assets in that region. In terms of strategy and as previously stated, direct transactions dominate our investment activities also in 2017. Direct accounted for 62% of the volume and were roughly split fifty-fifty between debt investments and equity investments. On the debt side, the largest portion was invested in European corporate debt such as VFS Global, which Robin Twieffsen will present shortly.
On the secondary side, we were selective as the market remains heated and price levels have reached lofty levels. Despite our significant deal flow of $137,000,000,000 we invested only about 72 17% or $2,200,000,000 in secondary transactions. Primary investments finally continue to remain an integral part of our business as just highlighted in order to diversify our client portfolios. In line with our long term target, we have invested about 21% of our total deal flow and investment amount with select best in class managers. And with this, I would like to move on to page 13 and hand over to my co CEO, Christophe Rubelik, who will give you an update about our investment outlook 2018.
Good morning
to all. I will provide you with an overview on the investment strategies pursued illustrated by deal examples presented by my colleagues around the world. While maintaining its modest pace in historic terms, the global economy picked up some speed in the second half of twenty seventeen, partially because of improving fundamentals, partially due to cyclical factors. Central banks are gradually starting to reverse extremely loose monetary conditions, but financial conditions overall should remain accommodative. We continue to believe that markets are lenient about the pace of Fed rate hikes.
And while we do not project a more material correction of capital markets in the near future, higher rates are likely to temper rich equity valuations. Much of the improving top line growth is already reflected in expectations. So largely the economic conditions have not changed, but clearly the political risks have increased. Therefore, we think for each underwriting case and scenarios, including multiple contraction and economic downturns. In order to generate sufficient returns for our clients in such scenarios, a clear plan for improving the EBITDA through operational added value measures is required.
Given this more uncertain outlook, we continue to operate with discipline and focus on assets that are or can become leaders in their field, sub segments of the markets that experience better growth on the back of transformative trends and defensive targets for which we have a tangible plan how to create value. Let us turn to page 14 covering private equity. In spite of near record pricing, our strategy to realize relative value potential in the private equity space remained unchanged and we continue to focus on platform companies with a strong management team and an infrastructure and then purchase add on companies to further grow the platform. We actively subscreen subsegments and focus on identifying category winners and niche leading firms with defensive characteristics. Active ownership and value creation measures remain the key value drivers.
Birgael Hogud now presents to Silica, a recent investment in the U. K. That illustrates such a platform strategy pretty well. Please Birgael.
Thank you, Christophe. My name is Bilge Auguste, and I'm the Managing Director in the European Private Equity team at Partners Group based in Zug. In the second half of twenty seventeen, we continued to see quality assets straight for near record multiples. Peak evaluations and the likelihood of multiple contraction continue to mean that it is not enough to simply buy smart. Instead, we focused on and found several compelling companies in growth sectors where we can proactively create value.
As Christophe just mentioned, we favor specialist category leaders in sectors with strong growth trends and platform companies in actively consolidating sectors. In all of our investment activities, we remain focused on both growth potential even if this requires significant work on our part and valuation. Looking forward, we are seeing an acceleration in growth and profitability in the business and financial service in North America. With many emerging market economies growing in high single digits, we have found that with the right owners, small cap companies can achieve outsized growth and develop into mid to large cap space through private equity ownership. As a hands on owner, we are focusing on identifying such opportunities.
We think European growth is more likely to surprise the market to the upside than to the downside. Moreover, we are seeing a number of compelling sector consolidation opportunities within the European Economic Zone. This is in contrast to what we have seen traditionally in Europe, which has leadership in regional or local players in each market. In Europe, one transformative trend we have seen is an increased importance on cost optimization. We have witnessed this in both public and the private sector.
This has created a number of relative value opportunities in segments that target the delivery of cost optimization solutions, in particular, companies in the Business Services, outsourcing and software segments. A great example and a deal that we like a lot is our investments in silica. Civica is a leading U. K.-based software and digital solutions company serving predominantly the public sector. The company's software facilitates a broad array of everyday interactions to the public sector.
These interactions can range from local councils maintaining and renting out their housing stock to allowing public authorities to track their tax collections. Local and regional governments everywhere are digitizing their processes to offer more cost effective and user friendly services to the public. Civica has the necessary expertise in supporting digitalization and efficiency gains in the public sector. Civica is an attractive opportunity because it has a broad and diversified customer base with long standing relationships. It has a large portion of recurring revenue as well as a strong order book, operates in a market with high barriers to entry given the necessary strong reference accounts and continues to pursue attractive organic and inorganic growth avenues.
Civica has demonstrated strong financial performance with continuous growth, stable margins and high cash conversion. EBITDA growth over the past decade has been consistent at 12% compounded annual growth. Partner's value creation strategy will be to work closely with management to build business further in the U. K. As well as continue to expand internationally.
Our priorities are increasing customer penetration and new customer wins through product and software innovation, continued costs and upselling, supporting the M and A activity. To conclude, we are excited about this investment and are targeting a gross IRR of approximately 17% for our clients. With this, I would like to pass back to Christophe.
Let us turn to Page 15 covering private debt. The private debt markets remain robust, both in terms of investment activity and the fundraising levels. Demand for private debt financing remains strong on the back of significant amounts invested by private equity funds and the growing number of private equity transactions that require refinancing. In the current market environment, we remain disciplined in our credit selection process and within our key investment strategies. We continue to focus on companies with 3 defining characteristics: Resition resilience, stable recurring cash flows and a cash a high cash conversion level.
We have recently invested in the business service company VEFS, which very nicely illustrates these characteristics. The case here is presented by Robin Thiessen.
Thank you, Christoph. My name is Robin Thiessen, and I'm a Senior Vice President in the European Private Debt team at Partners Group based in London. Let me say a few words on the market first. In the U. S.
And in Europe, leverage levels in 2017 remained at 2016 levels, broadly in line with the high levels seen since 2014. Equity cushions, I. E, the skin in the game of private equity sponsors, continues to be at high levels as well, higher than 2014 levels and most importantly, higher than those observed in 2007 before the global financial crisis. Overall, given their bespoke nature, private loans in the form of direct lending continue to offer an additional premium over liquid loans and generally offer better downside protection, mainly through tighter documentation. Geno debt financing solutions continue to be employed in the market
with 2nd lien remaining a prevalent component.
Indeed, 2nd lien volumes in the 1st 3 quarters of 2017 alone reached a level of more than twice full year 2016 volumes and could reach new record levels. Return potential remains attractive in the second lien space, where spreads have over 400 basis points difference compared to the 1st lieniquid loan spreads. Including your wallet OID or relevant fees for 2nd lien, the total return for 2nd lien is at 9% to 11.5% when the first lien is around 4% to 5.5% depending on the currency. We believe that direct senior loans and junior debt can be very attractive in the current market environment, even on the one hand, the bank's ongoing lower market share and on the other hand, the overall risk reward enhancement provided by base rate flows and the option to participate in equity upside. Club transactions are typically less competitive in our opinion and offer risk return dynamics.
And as a result, direct loans remain our primary driver outperformance. In this segment, we target companies with EBITDAs in excess of US20 $1,000,000 We are also constantly looking at attractive and recession within subsectors within industries in which we invest. As an example, we recently structured and arranged a second lien investment, which allowed for the refinancing and separation of CFS Global from its parent company, the Kouni Group, a well known service provider to the global travel industry. Equity had acquired Kouni in 2016 and then split the group, selling 2 of the 3 businesses separately as part of the strategic repositioning of the company, which will enable each business to unlock future growth separately. The carve out left the remaining standalone company VFS Global.
Let me now say a few words on VFS Global itself. VFS is the leading Visa outsourcing specialist for governments worldwide. The company essentially manages administrative and non judgmental tasks related to visa, passport and citizen identification. Today, the company employs about 4,500 people and operates almost 2,500 application centers in 130 countries and has a very strong track record as it has placed processed almost 160,000,000 applications since its inception. Why did we like this deal?
Number 1, VFS is a clear market leader with a 1 48% market share globally. Number 2, the industry has also high barriers to entry due to the government tender processes for these services and the high number of centrally awarded multicountry contracts. Number 3, VFS benefits from positive drivers such as the growth in global driving volumes, increased focus on border security, and it is expected that outsourcing for visa applications will continue to grow. Last but not least, VFS is a highly profitable and recessionary resilient service business. Our subordinated financing addressed and solved VFS's global specific needs throughout the complex separation.
It also supported the company's acquisition of a complementary business in emerging markets, which reinforced its global leadership in VISA processing outsourcing across the world. We provided the 2nd lien financing with attractive terms at LIBOR with a flow of 1% plus 8.5% cash margin. We are very excited about this investment, which will enable to support the global extension of this company. With this, I would like to pass back to Christoph. So let us
turn to page 16 summarizing our private real estate activities. The real estate market continues to exhibit high levels of liquidity. Global real estate transaction volumes have maintained their positive momentum and further increased in the second half of twenty seventeen, mainly driven by activity in Europe and the Asia Pacific region. Both the occupier and the capital markets seem stable with institutional investors incrementally raising their target allocations to real estate, supported by the positive threats between the long term government bond yields and the capitalization rates. This leads us to conclude that the real estate market is currently fully priced, but not consistently overpriced.
In this market environment, we generate attractive returns and continue to prefer on one hand properties and locations benefiting from social and demographic trends. And we focus on value added office properties in the major Tier 1 cities and economically vibrant Tier 2 cities across all regions creating the core assets that many investors are seeking. Mike Bryant illustrates his strategy with the recent direct to equity investment in Sydney Australia.
Thank you, Christophe. My name is Mike Bryant. I'm the Co Head of Partners Group Private Real Estate Team based in London. As Christophe has recently mentioned, there's a lot of dry powder in the real estate industry right now as investors continue their search for yield. And therefore, as a consequence, we are actively avoiding competitive auction processes as a means to source real estate.
So we're looking for special situations where we can be a financial solution provider to unlock the recapitalization of joint ventures and funds. So that's really important for us right now in today's market environment. Equally, we're looking for underlying asset stories where we can implement a value creation initiative through CapEx and occupancy growth to generate additional net operating income. Our investment themes are twofold right now based upon 2 big transformative forces shaping the real estate market. We see technological change generating demand for logistics space.
And equally, we see new urbanization generating demand for modern office and residential in city center locations. So those are the 2 themes we're pursuing. But as I said previously, always looking for special situations where we can buy smart because we're a financial solution provider. 73 Miller Street in North Sydney ticks those boxes for us. This is an office building in North Sydney.
It's the north side of the bay, if you know it, from the city center, from the CBD. This was a transaction with a value of just over AUD200 1,000,000 sourced by our Asian real estate team on an exclusive basis through the recapitalization of a joint venture. And as a consequence, we were able to buy below recent valuation and replacement cost. The situation itself, we have some local growth trends that we really like and those are twofold. 1, rents in Sydney CBD have gone up recently by more than 30%.
So there is a significant delta between the CBD and North Sydney now. So we see tenants looking to North Sydney as a more affordable office accommodation. The other factors that are local to North Sydney, we have infrastructure improvements. We have a new metro line being completed in 2021 that will further improve accessibility for the location. And equally, we have a lot of office stock that has been taken out of the market recently as a consequence of residential conversion.
So we see a good market story. At the asset level, it's a very simple business plan for us. The asset is currently leased to a government tenant. They will leave the asset in approximately 18 months' time. We then intend to undertake a significant capital project to improve the quality of the asset to create a Grade A product, and equally we're able to create additional area at the asset through the infilling of balconies which we think is a really smart thing to do to generate additional capital growth.
So we're very excited about the investment and we're targeting gross IRRs of approximately 15 percent. With this, I'd like to hand back to Christophe.
We're moving to page 17 covering our 4th business line, the Private Infrastructure. The current environment is a challenging one for new investment activities. However, the record amounts of available capital and the high prices for operating assets make for a good exit environment and we have realized quite a number of investments ahead of the base case benefiting from these attractive conditions at above average returns. In terms of deal origination, we continue to focus on building core assets or building infrastructure platforms. Our investment activity concentrates on renewable energy, communications infrastructure and the energy infrastructure sector that all benefit from positive transformative trends.
Selectively, we pursue regional themes. For example, we see attractive relative value in the U. S. Conventional power sector and keep a close eye on emerging themes such as energy storage and batteries or the Internet of Things such as smart meters or smart cities. A recent investment example in the renewable space is Borsele, a 7 30 Megawatt offshore wind farm project in the Netherlands that is now presented by Esther Heine.
Thank you, Christoph. My name is Esther Heine and I'm Senior Vice President in the European Private Infrastructure team. The search for stable and risk adjusted returns has been a constant theme over the past decade. Since the end of the financial crisis, infrastructure has seen continued activity both in terms of fundraising and deal making. The asset class overall is increasingly mature with a broad range of capital sources, sustained investor interest and that leads to valuations now reaching cyclical highs.
The record volume of capital available to private infrastructure is fueling competition for investments and that does push down returns. While higher valuations can in part be justified by potential transaction synergies, we at Partners Group believe that in most cases the valuation gap is due to lowering or alternatively more aggressive business assumptions in the underwriting. In fact, our experience over the last 12 months has shown that in order to win processes for high quality operating assets, many investors now seem to disregard downside risk. We've analyzed all the investments in 2017 that we put through due diligence that didn't win. And that analysis shows that for approximately half of these transactions, the winning by actually paid a price that implied a return between 200 to 3 50 basis points lower than what we would have been prepared to accept.
This is why our investment focus in this environment remains firmly on infrastructure investments that offer real and tangible upside potential. Renewable energy continues to be a transformative trend within the infrastructure asset class and an important component in the future energy security of many countries. In wind energy alone, Partners Group is committed to invest in projects totaling nearly 2 gigawatts of generation capacity across Europe, Asia and Australia since 2011. Here in Europe, in the renewable energy sector, we do focus on offshore wind at the moment as we believe that offers the most attractive opportunities based on the fact that we have an interesting available investment size and we can generate the appropriate risk adjusted return. As Christa said, one recent example is our investment in a 7.30 Megawatt offshore wind farm project located off the coast of the Netherlands.
The project signed in December 2017 gives us a 45% stake in the project, making us the largest shareholder in a consortium of investors that will construct and operate this project. We were able to negotiate the final transaction parameters of our acquisitions on an exclusive basis and we were able to achieve that because of our strong sector knowledge, our good relationships within the industry and also with the other consortium members. The Dutch government is highly committed to renewable energy is looking to achieve 16% of energy production from sustainable sources by 2023 orders that part of a broader national renewable energy action plan. We believe this project is now timely and critical in helping the country to achieve the same. Once fully operational, Borsello is expected to generate enough electricity to power nearly $1,000,000 homes.
Borsello 34 is a strong fit with our investment strategy due to the attractive relative value proposition and because it gives us the opportunity to enter the project at an early stage, but without taking development risk. In this way, we can add value and shape the debt process and the final engineering procurement and construction negotiations. And this enables us ultimately here to deliver a mid to high teens return for our clients. With this, I would like to pass back to Christophe.
Let me conclude by briefly summarizing the core focus areas in investment activities for 2018. In private equity, we continue to focus on leading companies in the global mid market space with the ability to outgrow their competition within their respective industry or sector. Active value creation remains a key value driver. In private debt, we see value in the senior loan market and we want to capture a larger market share benefiting from lending restrictions of banks. In private real estate, we continue to focus on asset management, driven value creation outside the crowded core space and provide liquidity solutions for select real estate portfolios on the secondary market.
In private infrastructure, the focus is on developing projects or platform transactions that can benefit from those transformational growth. We continue to build out our platform to create the required investment capacity commensurate with our client needs. I'll now pass back to Andre, who will conclude this presentation with an outlook of our
fundraising plans for 2018. Thank you, Christoph. And let's look at Slide 19. Our expected range of new growth client commitments in 2018 amounts to €11,000,000,000 to €14,000,000,000 This 2018 guidance assumes that the highly benign market environment holds up, which is our base case. Compared to our 2017 guidance of €10,000,000,000 to €12,000,000,000 we raised the lower end of the guidance by €1,000,000,000 and the upper end by €2,000,000,000 for the full year.
This range is now €3,000,000,000 wide, not just 1 or 2, which reflects that the year 2018 is young and there are many variables that will drive the actual outcome. The anticipated increase is the result of the continued build out of our investment platform to offer capacity to our clients as well as the strong anticipated interest by existing clients and prospects to invest in private markets with Partners Group based on our investment track record and service excellence. In 2018, fundraising is expected to be spread across a variety of programs and mandates across all asset classes. As in 2017, we expect to raise significant amount for private debt and private debt will, as you know, come at a lower margin than our equity offerings. Also recall that 2016 2017 were years with our private equity, real estate and infrastructure flagship funds in the market, which will not be the case in 2018.
But we will have a substantial number of established offerings open for our investors and we have a number
of new
initiatives that are focused on private markets of course and will build on our existing deal flow. Mandates finally are expected to remain a key contributor to asset raising in 2018. Tail down effects from mature partnership programs and potential redemptions from liquid and semi liquid programs are expected to amount to minus €4,500,000,000 to €5,500,000,000 which represents an increase of about 25% in the midpoint. Please recall that about 80% of our assets under management are in closed ended structures and when such investment programs mature or reach the end of their lifetime, assets under management do decrease. Furthermore, the increasing size of our more liquid programs requires us to incorporate a certain level of redemptions into our guidance.
Taking the midpoint of both factors guided that is gross client demand as well as tail downs and redemptions, our anticipated net assets under management growth remains double digit in 2018. As in previous years, we don't provide guidance on other effects such as FX rates. And with this final slide, I would like to conclude our presentation, but we would like to open up for questions from the participants on this call.
Thank you. We will now begin our question and answer session via the telephone lines. We've received the first question. It comes from Gurjit Kambo of JPMorgan. Please go ahead.
Your line is now open.
Hi, good morning. It's Gurjit Kambo, JPMorgan. Just thinking about the sort of fee management fee margins, I think you mentioned the demand for private debt is higher. And clearly, we know that's a lower margin business. But at the group level, are you still sort of confident that we can sort of expect margins broadly to be stable at the group level?
So that's the first question.
Yes. Thank you, Georgi. It's me, Filip. I think the answer is yes, because there is a blend. Of course, we will do more senior oriented debt investments.
They at a lower margin, but we also do more debt equity investments, which come at a higher margin. So on a blended basis for Partners Group, you may expect a stable margin going forward.
Okay. That's great. And then just a follow-up question. In terms of the investments, so in Europe, obviously, you saw quite a big pickup in the investments made in Europe. And I think you alluded to the fact that some of that was to do with the on the debt side.
But in terms of just sort of broader U. S, Europe, are there any sort of themes that you're seeing? Is pricing more aggressive in U. S. Versus Europe?
I think both sides of the Atlantic are very liquid, as we have explained, and we expect that not to change in the foreseeable future. I would say that the American market has probably been somewhat more disciplined on pricing and structure following certain market norms. Whilst in Europe, we've been able to attract really record pricings on some of our most recent deals. For instance, von Cianserba have both contracted at and closed at a very, very attractive conditions for the equity owners. So probably the market will not evolve from here.
I would also not expect a major change in those debt packages. The advantage obviously for the equity is that most of the debt programs at the current moment are without covenants, therefore quite borrower friendly. So for as long as you choose an adequate leverage ratio, you're actually pretty safe for the holding period of that asset. And that's also something that is very, very different compared to the environment we had back in 2006 and 2007.
Okay. That's great. Thank you very much.
Thank you. The next question comes from Alarizos Alarizakos of HSBC. Please go ahead. Your line is now open.
Hi, good morning. Thank you for the presentation. I've got a quick question. I wanted to ask what is now the average size of deal that you're doing versus 2 or 3 years ago? And how can we expect it to be transformed in 2018 given that you constantly increase the number of net new money that you raised?
In all of our four business lines, the average check has increased. I would say, back to 2012 to today is probably a doubling or 2.5 to 3 times of the average ticket size. As we are dedicated to the mid cap space and to assets that we can develop, I would not expect a huge increase from here on. We are looking on average at deals looking at the private equity space for instance with equity checks that sort of range from €100,000,000 at the low side to maybe $600,000,000 $700,000,000 at the high side. Very often, as Andre has explained, we include alongside partners group also GPs, general partners, auto private equity practitioners, as well as clients.
And at the large end, the equity checks have reached the size of roughly 1,000,000,000 dollars In the recent case of USIC, for instance, where we had a mix of clients, Partners Group programs and also honestly 2 divisions of Partners Group that have just survived, both the infrastructure as well as the private equity team have been allocating to this asset. So the range is somewhat variable. I would not expect this to be seen at the very, very large end of the market, which continues to be the most competitive segment. It's probably more the medium size or the extended mid market, if you wish, where we have the majority of our transactions.
And if I may have a follow-up on regarding the tail downs that you gave for next year. I assume that given that you constantly give a higher tail down going forward, do you expect the benign environment to continue in 2018 that will lead in additional exits? Is that the base case?
Look, the markets are always difficult to predict. If I just look at the current programs and the evolution of our investment holdings over the years, we have actually quite a few assets which have now reached a stage where they can be sold. So assuming a relatively benign market environment, which is our base case as Andre explained, I would also expect that the distribution level will continue to be at the high end of the range.
Great. Thank you very much.
Thank you. The next question
Thank you very much. My first question relates to I mean, I think you've made comments on the high market valuations on record multiples. And given your target returns, are you facing any challenges now with making new investments?
Look, clearly, finding the right investment capacity and finding the right deals is probably the biggest challenge in the industry at the moment. As I tried to say in the presentation, we are thinking in scenarios in each case. We cannot rely on multiple expansion that is really a theme of the past. We would even expect in most cases actually a slight contraction of the multiples over the years between the entry and the exit. We are disciplined and modest in our leverage ratios.
Hence, the only way to really make money for our clients is by identifying things that have an above average growth potential and that can actually be transformed, where you actually widen the EBITDA and the operational profit. And that is its active ownership, that is its industrial backing and the operational added value, which are then really driving the returns for our clients. They have come slightly down over the past 5, 6, 7 years, but they're still very commensurate with the expectation of our clients. And compared to public market investments, there is still a healthy spread between what we can deliver and what the public markets would probably in all likelihood sort of return.
The second question actually relates to, I think, the earlier comments you made on your revenue margins. You expect this to be kind of broadly stable on a blended basis going forward. Would that I mean, given the increase in inflows into private debt, would that suggest that your new mandates in private equity are coming in at a higher revenue margin than your legacy portfolios? And I guess the follow on to that is given the expected return in reduction in returns going forward, Do you envisage any form of pressure coming from clients who expect revenue margins?
Maybe, Adi, it's me, Filip, again. I think, look, the problem in our industry is capacity, and there is a lack of capacity in our industry. So what we do currently is we build out our platform to provide that capacity for clients, what they look for. But there is not enough out there at this point in time. So we don't see in that sense price pressure on our products.
But of course, if you assume now we wouldn't raise any more equity or any other product, but only debt, which comes at the lower margin, just mathematically, this would have an impact on the overall revenue margin. But you may assume going forward, as all our business asset classes, they grow that the blended rate will be rather stable. And our pricing has not materially changed over the years.
Maybe I make an add on comment here. For the avoidance of doubt, please note that these pockets are separate. So we talk about private markets on the one hand, but we also talk about equity that's really said in infrastructure. So Partners Group has not now started to invest in debt investment opportunities on behalf of clients that actually are looking for equity type of returns. So these are different pockets.
Debt investments have increased based on increasing demand by clients for debt investments, and we do not substitute. That is also why an increased debt volume would not lead to renegotiation of fees or additional pressure on fees.
Okay. But just a follow on. Looking at your current mandate in 2017, for example, comparing that to a past portfolio in private equity, would that suggest that you've been able to kind of, on your new mandates, kind of achieve higher revenue margins given the higher inflows into private debt?
No. Equity programs, equity mandates come with the same margin as they came 1 year, 2 year, 3 years ago. That has not changed. But if you do more of that, then you have a better or a higher contribution towards an uplift of the revenue margin. And if you do more debt, then you have more pressure on the downside.
So on average, you will have a stable margin. So our pricing has not changed.
What has changed is the business mix. If you look at 2012, we had about 40% of direct investments. We're currently at roughly 60%. That obviously is a big driver of the overall revenue margin. And we will come maybe to the revenue margin.
We speak about revenues, margins and so on in
March on 20th when we announce our financial results.
Thank you. At the moment, there are no further questions.
I see one question which is asking the in addition to what we do in developing markets, what we do in the emerging markets in particular, do we have any plans for Africa? We have, for many years now, been working at the extension of our investment activities in emerging markets. As you have seen in the recent years, the emerging markets have been fairly volatile, going up and down in remarkable sort of magnitudes. We are also very dedicated and committed to doing deals and transactions, which are fully compliant with ESG guidelines. So things which have questionable business practices or whatever are just things we cannot touch.
That being said, we have every interest to widen the space and to widen the scope. We have now for about 6 years been actively screening deal opportunities in Africa and in few cases actually get very, very close to completing them. And I would hope maybe first significant investments would occur in 2018. For the other emerging markets, Latin America, I guess, is an underway for the current moment given the overall macroeconomic situation, but we continue to be quite active on the Asian side with investments in India, investments in China, but also most recently in the Philippines, which has been a market that has done exceedingly well, but also business practices start to be very, very much in line with global sort of industry standards. And those are markets where I would also expect in 2018 an increased level of activity.
We've received more questions via the telephone lines. The first question comes from Andre Venditti of Bank of Montreal AG. Please go ahead. Your line is now
open. Yes. Hi. Thank you. Some in the private equity market seem to be looking into moving to longer duration assets, let's say, 10 years plus.
What is Partners Group's view on this development? And are you also looking into it?
I mean a lot of our clients thank Andreas for that question, which is from a strategic point of view quite relevant. It's a desire by many of our clients to not just be in a transaction for 4, 5, 6 years, but to maybe actually have a longer duration in the exposure. And some of them are actually saying, hey, well, why do you actually give us back all the money after 3, 4, 5 years? Wouldn't it be nicer to hold that for a longer term? On the other hand, I guess, there is also sort of from the investment side seems where maybe the value creation does not take 3, 4, 5 years, but probably 10, 15 years.
If you, for instance, look at digitization in certain industry sectors, if you look at new technology and the speed of deployment that it may take, we've seen a lot of recent investment examples that probably longer holding periods might be beneficial. And therefore, it's certainly an area that we currently contemplate and let us see where it takes us. But clearly, those are two areas where you might see a widening of the scope on the investment side in the years to come. On the other hand, I would like to add that it's probably not without conflict in certain respects. How do you actually make the distinction between long term and short term and how do you allocate across the programs fairly and so on and so forth.
It's not without conflict this whole long term debate, But it's certainly something that keeps us busy and that we currently have in sort of a thinking mode, product development mode, and we'll see where that takes us.
I guess in our client discussions, it's interesting to see that there's some of the bifurcation in the market. From a regulatory perspective, for example, defined contribution, investors may need to have a daily valuation or even daily trading. And that cases to the semi liquid structures, let's say, at Partners Group. So that is an important building block of Partners Group. At the same time, and maybe that's the reason for your question, there is an increasing number of clients that really come to realize that a substantial portion of their portfolios can be illiquid.
So this is not only a question about how long to hold an asset, it So the recognition by investors that substantial amounts of the portfolio do not need to be yearly, quarterly, monthly, weekly, daily liquid, but what can be held for periods that are substantially longer, especially should the market is locationed. Private markets is an ideal asset class to avoid pressure to sell and simply hold on to the assets waiting for the recovery or take additional capital and time to bring an asset again up to speed.
Has your question been answered?
Yes. Thank you.
Okay. Thank you. The next question we've received is a follow-up of Gugit Campbell JPMorgan.
Just one quick follow-up question. In terms of the semi liquid products, I think you mentioned that that's been increasing. Has that been a function of the demand from clients for these products or something else? And just in terms of the economics, are they broadly similar to if you're buying a closed end fund?
Thanks for that question. Indeed, these programs are similar in terms of profitability to partners group. So, there's no difference for these programs versus the mix overall that we have on our platform. I guess there are several factors that lead to this demand. On the one hand, it's the recognition that this is a complicated space.
So, it's important, certain investors need to have liquidity. And it's also recognition that to create these structures, to maintain them, to comply, to implement this is quite a task, right? The Partners Group has been in this market now for 10 plus years. We have gathered a lot of experience on the one hand throughout the cycle, but we also have achieved the setup that makes us a true market leader in providing these type of high liquidity structures to institutional clients and then, of course, also via distribution partners to investors all across the globe. It is an area that we believe will be will remain to be substantial for Partners Group.
But as highlighted before, it currently amounts to about 20% of Partners Group. That is substantial on the one hand, but also just 20%. And you will not see this portion of our overall assets under management increase much, much higher over the next over the short term basically.
Okay. That's very helpful. Thank you.
Thank you. The next question comes from Damian Zikruis of AWP Finanselaigristen AG. Please go ahead. Your line is now
open. Hello. A question on the on your hiring of professionals and you mentioned that you want to expand your platform in this year and to hire more professionals. Do you have a guidance of how many people you will hire or then? The second question, could you give us some light on what you are expecting from the what we can expect from the P and L on the 20s in March?
Do you think that will deliver strong results and that the dividends will be higher than last year? Thank you.
Well, thanks a lot for this question. Maybe I'll start with the second one, which is a P and L guidance. Unfortunately, you will need to wait for our communication on March 20. So we do not give guidance, but focus on assets raised and invested amount only in today's call. In terms of hiring, also here we do not give strict guidance, but we do expect that there's a continuation of platform growth over the next over 2018 and probably over 2019.
So Partners Group is hiring both on the senior side, but then also on the side on the junior side. We have a best in class financial analyst and associate program in place as it allows us to hire younger private market professionals or professionals new to the asset class, basically straight from university. At the same time, the growth of our platform allows us to also hire laterally hire professionals that are already in the asset class for 10 to 20 years. So we expect to see a continuation of the 2017 growth, at least for 2018, probably also 2019 should this market environment remain benign. And I guess, here, the not the guidance, but some sort of indication why I'm anticipating this chart that we have shared with you on Slide 4.
You see that in the past, employees have been closely correlated versus under management, and I expect that this will remain the case also going forward. And this is simply the commitment by Partners Group to translate assets under management into employees and investment capacity and capacity and capabilities to create return for our investors.
Thank you.
The next question comes from Oscar Green.
Open. Hi, Oscar Greene from Unquote. Somebody mentioned in the presentation that you're looking to raise CLOs this year. I wondered if can give any more detail on roughly how much and how many vehicles?
Thanks for that question. So private debt, as we have highlighted, is an asset class that saw strong traction in 2017. We expect that 2018 is going to be a year with a strong interest in private debt. Again, it's really going
to be
mixed in higher yielding but then also senior loan type of investments that come at lower spreads and also more liquidity. So what we want to do as a company is continue to launch these more liquid offerings. We have launched a CLO in 2017, so there could also be CLOs in 2018, 2019. But certainly, this is not the only strategy we want to pursue. So it's a real mix of investment opportunities and vehicles that will allow private market investors to achieve returns at the upper end, closer to 10%, so not quite equity, but below, but then also offer programs that allow investors to seek exposure to private market type of assets that are not available otherwise.
So there will be more assets raised hopefully. That's what we believe and it's going to be a mix and CLOs are a part of this.
There are no further questions via the telephone line.
Okay. There doesn't seem to be more questions. Let me simply say thank you for your continued interest and trust in Partners Group. We remain passionate about the potential of private markets in general and Partners Group in particular, and we will work hard to deliver solid results for all stakeholders of Partners Group and all of us look forward to seeing or talking to you on March 20. Have a successful day.
Thank you.