Dear ladies and gentlemen, welcome to the AUM announcement. 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 * key followed by zero on your telephone for operator assistance. May I now hand you over to the Partners Group management. Please go ahead.
Good morning, dear investors and media representatives, and a warm welcome to today's Assets Under Management announcement call. My name is André Frei. I am the Co-Chief Executive Officer of Partners Group, and it is my pleasure to talk about assets raised in the first half of 2017, as well as our assets under management outlook for the full year 2017. I am joined by my Co-CEO, Christoph Rubeli, who will talk about the current investment environment. To make our investment activity tangible, we will also have on the phone, Kim Nguyen, the head of Private Equity Continental Europe, who is based in our Zug office; Christopher Bone, head of Private Debt Europe, who is based in our London office; Stefan Lempen from our integrated private real estate team, who is based in Zug; and Andrew Kwok, from the Asian private infrastructure team, who is based in Singapore.
In short, we want to talk about clients and investments today, not financials. I look forward to our call in September when we will also be joined by Cyrill Wipfli, our former CFO and new Co-Head of Portfolio Management, as well as Philip Sauer, the new co-head of group finance and corporate development, to talk about financials. Today it is about clients and investments. With this, I would like to turn already to page four of the presentation. Partners Group has seen a sustained growth in assets under management over the last decade. Clients from all over the world have entrusted us with a significant capital in different economic environments. Today, our assets under management stands at a new high of EUR 75.8 billion. The strong client demand from pension funds, from insurance companies, from distribution partners, sovereign wealth funds, et cetera, has been driven again by two factors.
Firstly, demand from institutional investors is the result of both a structural growth in institutional assets under management, as well as rising allocations to private markets. Secondly, we see that these investors increasingly turn to investment managers with a truly global and institutional setup, who are able to create value both at the portfolio level as well as at asset level. The EUR 75.8 billion, it is a new level of assets under management of Partners Group by June 2017, and you also see that the number of our employees has grown in line with assets under management to more than 950 talents today in our 19 offices. Please let us move to slide five.
We saw a very strong first half with new commitments from our global client base of EUR 6.9 billion, tail-ends and redemptions of -EUR 1.9 billion, and FX and performance and other factors of -EUR 1.4 billion. I will talk about new commitments and focus topics on the next two slides. Before I do so, let us quickly address tail-ends, redemptions, and other factors. tail-down effects from mature private markets investment programs, as well as redemptions from liquid and semi-liquid vehicles, amounted to a total of EUR 1.9 billion. For the full year 2017, we provided guidance in the range of -EUR 3 billion to -EUR 4 billion for tail-ends and redemptions. 20% of our assets under management or around EUR 12 billion are in more open-ended structures, which provide some form of liquidity, typically quarterly or monthly, and in exceptional cases, even daily.
In these open-ended programs, as mentioned before, we can have redemptions, but we cannot have tail-ends. In the first half of 2017, the US dollar weakened by 7.5% against the EUR, and this negatively affected our assets under management in EUR, given that about 36% of our assets under management is US dollar denominated. In aggregate, foreign exchange effects therefore amounted to about -EUR 1.7 billion. If you add the positive contribution of about EUR 0.3 billion from performance-related effects in relation to investment vehicles, where the asset under management base is calculated based on NAV, aggregate other factors amounts to -EUR 1.4 billion. The growth rate in 2017 first half amounts to 14%, and that takes us to the EUR 75.8 billion. Let's now talk about client demands on slides six and seven.
In the first half of 2017, we saw a record demand for our three flagship direct programs across private equity, private debt, and private infrastructure, which represented around 40% of all client demand during the period. For the avoidance of doubt, we have been raising for these flagship products already in 2016, and we have not held final closings for these programs yet. These programs are now in the final stages of fundraising as we go into the second half of the year, and you can expect to see press releases from us when those final closings have taken place. In general, new assets raised were strong across asset classes. As a matter of fact, the percentage share of assets raised in the first half roughly mirrors the percentage share of overall assets under management.
In private equity, inflows amounted to about EUR 3.1 billion, which represents 44% of all new commitments. The private equity asset class continues its steady growth path and grew at an annualized rate of 7%. Inflows stemmed from about a dozen different program and mandates, and the two largest contributors were our global private equity direct program, as well as our global private equity integrated program. The direct program focuses entirely on transactions where Partners Group leads or joint leads to sourcing and underwriting of an opportunity, and is equally responsible both for the value creation and exit decision. The portfolio of the integrated program is more diversified, and in addition to the transactions in the direct program, we build up exposure also through secondary transactions or by allocating capital to third-party business partners.
Private debt also saw strong new commitments of more than EUR 2 billion, taking assets under management for June to over EUR 10 billion. These commitments represented 30% of total new client demand. At this point, we are in the market with our private market credit strategy, which focuses on corporate senior debt, as well as with our multi-asset class offerings, where we also build up exposure in real estate debt and private infrastructure debt. In sum, our private debt business continues to profit from low yields on traditional fixed income investments, and in H1, private debt was again the fastest-growing segment within the firm, growing by 38%. New commitments in real estate in the first half amounted to slightly over EUR 400 million and contributed 6% of the overall client demand in the first half.
We expect the real estate business to be a stronger contributor in the second half of the year as our main flagship real estate program has just launched and actually will start to contribute substantially to fundraising in the coming quarters. New commitments in private infrastructure amounted to EUR 1.4 billion, which represents about 20% of overall new client demand. Similar to private equity, private infrastructure fundraising also focuses on the global direct flagship program and the integrated program. In sum, private infrastructure grew by 37% in the first half and was the second fastest-growing segment at Partners Group. I am now on slide eight and would like to provide an overview of our platform activities in the first half.
With more than 950 employees and with our highly disciplined approach to investing, following in today's challenging environment, we have invested about EUR 5.6 billion in private market transactions on behalf of our clients. Our business remains highly labor-intensive, and we will further grow our investment platform, reaching and surpassing 1,000 employees, most likely in the quarters to come. As you can see, we continue to invest the majority of capital, that is EUR 3.2 billion or 57%, in direct transactions, while the remaining 43% went into secondary transactions and primary commitments. In previous calls, we had already commented on the split in terms of directs, secondaries, and primaries, and we had communicated that about 60% directs, 20% secondaries, and 20% primaries could be reasonable long-term averages. In that sense, the investment activity in the first half is roughly in line with that plan.
What we have done, and Christopher will comment on this, is that we did remain prudent and invested slowly in the first half in terms of equity investments. We invested EUR 0.9 billion, and at the same time, we have been more active in debt investments, where we did invest EUR 2.3 billion directly, especially also in the European credit markets that Christopher Bone will talk about. Slide nine illustrates the number of transactions we have screened and executed across asset classes in the first half. You can see that we were able to generate significant deal flow again, both in direct, secondary, and primary investment opportunities across all asset classes. We saw over 2,200 direct investment opportunities, and we screened EUR 73 billion in secondary deal flow, as well as 250 managers during that period.
In our investment selection process in the first half, we did not compromise on target returns promised to our clients, and we did not accept lower quality deals with high risk profiles. This discipline kept our decline ratio at 98%, and we executed on only 2% of the screened deals. In summary, we have put a lot of efforts to invest the EUR 5.6 billion in the first half, and some select investment examples will be shared by my colleagues now in just a second. Please let's turn to slide 10, where we report on the investment split between regions and types of investments. You can again see that investments have been well spread across regions, sectors, and in strategies. In terms of regions, we invested 39% or over EUR 2 billion in the United States.
Our European investment activity was strong and increased from EUR 1.5 billion to now EUR 2.8 billion in the first half. As a matter of fact, we were able to ramp up our lending activities, and there has been a sizable Cerba HealthCare transaction in France that Kim Nguyen will talk about in a second. On the right-hand side, you can see that direct transactions again dominated our investment activities in the first half and accounted for 57% of the volume. 70% of this direct volume in H1 was in relation to debt investments. In terms of secondaries, we continue to be highly selective as price levels have reached new highs, and invested about EUR 1 billion in secondary transactions, which compares to EUR 1.2 billion during the same period last year. Primary investments remain an important part of our business in order to diversify our integrated programs and mandate portfolios.
In line with our long-term target, we have invested about 25% of total investment amounts with our best-in-class managers. With this, I would like to move on to page 11 to give you an update about our fundraising outlook for 2017. In January 2017, we have provided a guidance of EUR 8 billion-EUR 10 billion growth client demand for the full year 2017. Based on strong client demand and also driven by an increase in anticipated investment capacity, we adjust our guidance today for the anticipated bandwidth of growth client commitments for the full year 2017 to now EUR 10 billion-EUR 12 billion. This new guidance implies a continued solid client demand in the second half, and it also implies that full-year client demand is somewhat skewed towards the first half of 2017.
This can be simply explained, as I already mentioned, by the successful fundraising for a number of flagship programs in private equity, infrastructure, and debt in the first six months of 2017. For the quarters to come, our broad offerings match the opportunities we see in the market. We will be still raising assets for our flagship programs, as well as for the integrated programs, and we will continue to tailor mandates for very sophisticated clients all across the globe. Slide 12 will look familiar to you. That's my last slide. It illustrates the figures that I just mentioned in a different way. The adjusted guidance of EUR 10 billion-EUR 12 billion is actually a significant step up compared to what we raised in the recent past. We tremendously appreciate this continued trust, the increased interest, and the deep relationships we have with our clients.
Our guidance for expected tail down effects from mature programs and potential redemption from liquid and semi-liquid programs remains unchanged at an expected range of EUR 3 billion-EUR 4 billion. As in previous years, we do not provide guidance on other effects, including foreign exchange rates, which are difficult to predict and not part of our core business. With this, I would like to hand over to my colleague, Christoph Rubeli, to talk about the investment side of our business in more detail.
Good morning, dear analysts and investors. I will provide you with an overview on the investment strategies pursued, illustrated by deal examples presented by my colleagues around the world. Page 14 and 15 cover the investment environment in which we operate. In the first half of the year, markets saw a period of robust returns and low volatility. However, political uncertainties have markedly increased and valuations continue to edge up. Modestly improving macroeconomic conditions slightly lifted earnings and earnings growth expectations. In this fresh environment, we continue to operate with discipline, we focus on proactive sourcing and deal development. We focus on assets with visible and stable cash flows. We identify industry niches and subsectors that offer above-average growth, and we look for targets where we have a tangible plan how we can create value in order to generate the returns in line with our client expectations.
We continue to believe in our economic base case of low yet robust growth, combined with gradual monetary tightening in the U.S. However, nearly a decade into recovery and after a long stretch of extremely loose monetary conditions that created high valuations and elevated leverage levels in many sectors and countries, we believe we must place even more emphasis on economic scenario analysis. In our underwriting, such as continued stock market rally, we look for a faster hike of interest rates, or also the effect within a recessionary environment. This sensitivity analysis helps us to better understand the risk-return profile of a specific asset. Following our relative value approach, we structure attractive portfolios top-down for our clients. We will illustrate this in some of the recent investment cases. Turning to private equity.
In the private equity space, we continue to focus on platform companies, category winners, and leading firms with defensive characteristics. We focus on acquiring market leaders in fragmented industries with a significant organic growth potential. Given the fragmented markets, these companies can also grow by way of acquisitions and thereby consolidate the industry. In terms of industry segments, we continue to be attracted to leading industrial niches with high added value to healthcare, education, business process outsourcing, financial services, and enterprise software solutions. I now hand over to Kim Nguyen, who will present Cerba HealthCare, a recent investment in France that illustrates such a platform strategy. Please, Kim.
Thank you, Christoph. My name is Kim Nguyen. I am a managing director in the European private equity team at Partners Group based in Zug. Please let me start by giving you some background on the healthcare market in Europe.
Today, most EU member nations are under pressure to reduce their operating deficit and hence achieve more for less with their healthcare spending. As such, healthcare players that manage to reduce the overall cost of healthcare by providing services in a more cost-efficient manner have taken market share in their respective markets. In this context, actually, we managed to acquire Cerba HealthCare in May 2017. Cerba is a leading operator of clinical pathology laboratories, and they are actually the clear number 1 player in France and have very strong positions in Belgium and Luxembourg, usually number 1 or number 2. What is the company doing? If you look at its revenue breakdown, 70% of it is generated via routine lab tests. Routine lab tests are highly automated, mid-to-low complexity tests, which require limited biologist involvement. Such tests are, for example, blood count, vitamin count, or cholesterol.
The company conducts something like 30,000 of such tests on a daily basis. On top of that, the company also focuses on specialty lab testing for more complex medical diagnosis. This includes, for example, HIV tests, hepatitis tests, or non-invasive prenatal tests. Cerba conducts about 20,000 of such tests on a daily basis. Finally, the third leg of its activities relate to the central lab, where Cerba conducts roughly 2,000 tests on a daily basis for pharmaceutical and biotech companies to test the efficacy of their new drugs. With such a high volume of tests, Cerba benefits from significant economies of scale. Today, the company operates 360 collection centers where patients go and give their blood samples, and 24 technical platforms where the tests are pooled together to achieve optimal cost per test unit.
The company employs 4,300 people and generates revenues of approximately EUR 630 million in 2016. We are now working with Cerba's management team to support the various growth opportunities of the business. These include, for example, the continuation of Cerba's highly successful consolidation strategy within France, but also internationally. As well as the acceleration of its organic growth. That includes, for example, cross-selling into the well-being segment or the veterinary market. To conclude, we are very excited about this investment as it combines resilience as well as growth potential, and as such, we're targeting a gross IRR of roughly 18% for our clients. With this, I would like to pass back to André.
We turn to page 17, to private debt. In private debt, the regulatory environment helps us as it restricts banks from lending in certain market segments. As equity valuations are high, we have often preferred to pursue a target on the debt side from the debt perspective. In the current market environment, we remain disciplined in our credit selection process and favor more conservatively structured packages outside of traditional syndicated loan markets. Scale, speed, and flexibility are the prerequisites to successfully transact on an investment. Focus continues to be a recession resilient company with strong recurring cash flows. A recent example in the business services sector is Claranet, which will now be presented by Chris Bone in London.
Thank you, Christoph. My name is Christopher Bone, and I'm a managing director and head private debt in Europe at Partners Group, based in the London office. At Partners Group, we continue to believe that there's relative value in the middle market lending space, where we support leading businesses operating in attractive niches and differentiate ourselves by remaining flexible across the capital structure. In Europe, in particular, we currently see the most attractive opportunities in club financing, where institutional lenders provide financing alongside a traditional banking group. It can be attractive for borrowers to have private debt funds in a club structure, as these can provide larger ticket hold commitments than traditional bank lenders, and thereby de-risk the transaction. Private debt lenders are also able to support borrowers with follow-on financing and provide more flexible structures.
We, as lenders, are able to benefit from increased returns for our clients and stronger input into the legal negotiations. In May 2017, for instance, we were the largest and only non-bank lender in the senior term loan financing of London-based Claranet, providing the company with over GBP 90 million in a first lien debt on behalf of our clients. Founded in 1996, Claranet is one of the leading independent managed services providers in Europe and offers a range of integrated hosting, networks, and communications managed services. Businesses of all kinds increasingly rely on applications to run their day-to-day operations, from customer-facing applications on the web to internal back office systems. Claranet hosting service focuses on managing the critical applications that are essential to its business customers. Claranet designs, builds, manages, and continually evolves hosting services to match specific customer needs.
Such an approach is an essential in a complex and continually advancing IT environment. Today, the company has over 1,800 employees and provides mission critical IT outsourcing services with a contracted revenue base. We like Claranet because it has a diversified customer and geographic footprint, serving over 6,000 customers in eight countries in Europe and Latin America, and operates in an attractive growing niche. Claranet has a strong track record of acquisitions with strong revenue growth. Our financing enables Claranet to refinance its capital structure and to undertake strategic add-on acquisitions.
Typically, we're able to target over 6% gross blended IRR for investments such as this. We are excited about this investment to be able to support the global expansion of the company. With this, I'd like to pass back to Christoph.
Thank you, Chris. We turn to page 18 that covers real estate. Investor appetite for real estate has remained solid among developed countries as yield spreads continue to remain attractive. In this market environment, we generate attractive returns through two strategies. Firstly, we target older assets in good locations and revamp them to sell them to yield-seeking investors, thereby developing the core that many investors are actively looking for. Secondly, we invest in real estate portfolios which benefit from ongoing transformative trends, driving real estate demand on a global scale. An excellent example showing how we transact on these trends within our real estate secondary strategies will now be presented by Stefan Lempen.
Thank you, Christoph. My name is Stefan Lempen. I'm a senior vice president in Partners Group's private real estate department based in the Zug office. As Christoph said, we believe that a number of ongoing transformative trends will continue to drive real estate demand on a global scale. For example, these trends include the impact of shifting global consumer demand and the growth in e-commerce, which changes the need for retail and logistics real estate. Another trend is the influence of demographic shifts, which impacts residential and office occupier demands and the design of properties in upcoming urbanization areas. With this in view, on global real estate markets in mind, we stress test individual assets against these trends and incorporate them in our underwriting assumptions.
If you do this well, we believe that the current environment offers a wide variety of investment opportunities that we particularly find in locations that benefit from these social, demographic, and technological drivers that change the way we live. Building on these trends, we focus on, one, value-add office investments in tier 1 and tier 2 cities around the globe. Number two, we develop class A apartments, and we upgrade class B apartments in markets supported by these population and employment growth trends. Number three, on functional warehouse space in markets where infill property is in high demand. On the real estate secondary side, the continuous low-interest environment and macroeconomic events such as Brexit or the slowdown of GDP growth in emerging markets are shaping the current market and generates a very healthy level of deal flow for our business.
A recent example of our ability to capitalize on secondary market trends and the transformative trends in real estate is our acquisition of a portfolio comprised of office, retail, hospitality, and data center assets in the U.S. and France. This transaction was originated by Partners Group's team in Sydney, Australia, and was jointly developed and priced by the real estate specialists in both the U.S. and in Europe. In essence, the seller was an Australian institution in this particular case. The unique portfolio is comprised of 20 underlying assets with a well-diversified return profile. All these 20 assets are cash flow producing and various value-add projects are in the process of being implemented. These value-add projects will have a positive impact on the size and the contractual duration of the future net operating income of the portfolio.
About 45% of the properties are located in the U.S., and 55% are located in France. The business plan assumes an asset-by-asset disposal strategy following the successful implementation of the respective value-add or asset management initiatives. In terms of performance, we forecast a return of about 18% IRR and a multiple of cost of 1.6x invested capital. With this, I'd like to hand back to Christoph.
Thank you, Stefan. We turn to page 19, private infrastructure. We continue to observe increased demand for infrastructure investments that influence the return potential of the asset class. We're therefore skeptical of established core infrastructure projects. We favor proactively developing projects and build the much-needed core infrastructure and create value by successfully delivering on construction projects. In terms of sectors, we continue to focus on global growth of renewables, energy infrastructure, and the growing needs of the communication infrastructure. A recent investment example is Sapphire Wind Farm, a 270-megawatt onshore wind project in the state of New South Wales in Australia, that will now be presented by Andrew Kwok.
Thanks, Christoph. My name is Andrew Kwok, and I'm a senior vice president in the Private Infrastructure Asia team based here in Singapore. In infrastructure, we're seeing valuations increase steadily since 2009. Even though U.S. interest rates have begun to rise, we expect the pricing will remain high for some time to come. A reason for this is the buyers with low return expectations and a willingness to underwrite aggressive assumptions continue to transact in the market.
As a result, we believe that current valuations don't adequately factor in the risk, which Christoph mentioned earlier. This is particularly true for core infrastructure assets, where the potential for value creation is often limited to active management or just smart structuring. This is why our investment focus remains firmly on infrastructure investments that offer upside potential. We pursue three strategies to deliver upside potential. We proactively build core infrastructure assets instead of just buying them. We invest in anchor assets and build up infrastructure platforms through add-on acquisitions. We create value in operating assets by improving their efficiency and profitability. Building core continues to be our preferred strategy to invest in renewable power generation assets, particularly in Europe and the Asia Pacific region. As Christoph said, one example is our investment in Sapphire Wind Farm, which is a 270-megawatt onshore wind farm in Australia.
The investment was an exclusive transaction between Partners Group and the developer, with whom we had a preexisting relationship with, and who decided to team up with Partners Group based on our strong renewables track record in the region. A key attraction of the investment is that around 40% of the capacity is sold to the triple-A-rated Australian Capital Territory government for a 20-year term. The risk for constructing Sapphire's 75 turbines is contracted out to Vestas, the largest wind turbine supplier in the world, under a fixed time, fixed price engineering procurement and construction contract. Another attraction of Sapphire is that it delivers the potential for a platform build-out in Australia, where we see the ability to develop an additional one gigawatt of renewable projects.
These projects may require up to AUD 1 billion in equity investments in the years to come. We believe that we're well positioned to capture a meaningful stake based on our track record. The build-out strategy has already started, as we're currently exploring the creation of an integrated renewables project by using Sapphire's interconnection infrastructure to add a solar farm and battery storage at the site. We're proud of this investment and are targeting a gross IRR of 17% for our clients. With this, I'll pass back to you, Christoph.
Thank you, Andrew. On page 20, the last slide of the presentation. Private markets continue to offer attractive long-term investment opportunities for long-term investors such as sovereign wealth funds, pension funds, life insurance companies, and family offices relative to public market investments, especially in today's low interest rate cycle. We expect, as André has explained, that the inflow of capital will continue. The high valuations, the elevated leverage ratios, and the modest but resilient growth continue to pose us challenges on the investment side. We continue to conduct our investment business following our relative value approach, selecting on a global scale niches that perform better than others, pursuing a proactive sourcing effort with focus on a clear value creation plan, and maintaining our underwriting standards and investment discipline.
Thanks to this investment approach and the breadth of our platform, we were able to deploy this USD 5.6 billion in the first half of 2017, despite the challenging environment, the result in line with our medium-term business plan. The liquid markets have continued to the robust distribution, resulting in EUR 4.2 billion of distributions at the portfolio level. The development of the global markets will obviously have an influence on the investment flows. Given the strong pipeline for both investments and distributions, we look into the second half of 2017 with confidence. With this, dear analysts and investors, I conclude today's presentation. Thank you for your interest in Partners Group and your continued trust. We're now available for your questions.
Thank you. Now we will 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, or type your questions in the Q&A box. Once your name has been announced, you can ask a question. If you're using speaker equipment today, please lift your handset before making your selection. One moment, please, for the first question. We have received the first question via the telephone lines. It's from Yang Zim Song, AWP. Your line is now open. Please go ahead.
Yes, good morning. I have a question on employees. Did I understand you correctly? Did you say you will surpass 1,000 in the quarters to come or in the quarter to come? In the quarters or in the quarter?
Well, thanks for the question. No, that is at quarters.
Yeah.
We are at about 970 employees at this point in time.
Yeah.
As a company, we want to build out the capacity on our investment platform. Clearly, we've talked about operating leverage or actually the lack of operating leverage in our business.
Yes.
With the strong interest by clients and our commitments to build out the investment capacity on the platform, my take was just that 970 is not the peak, but we'll continue to build out the platform. At 970, we are today, and it will take 2017, 2018, 2019, let's say 2018, where we will have surpassed the 1,000 employees assuming the market holds up and interest by clients remains strong.
Yes. When you speak of peak, do you think there will be a peak in the future, or where could you be heading with this number? Or do you think, is there some kind of restriction you have on your mind maybe in two or three years or in the future? Or is there no limit if business just grows?
Look, the industry in which we operate requires a very active involvement when we have made an investment. Our teams are, together with the management, pursuing a value-add sort of plan, which involves daily interaction with the companies, which involves many board meetings, which involves a lot of physical activity. As assets under management grow, we also need to grow the investment platform to conduct this active investment approach. It is very different from public investments. As such, as the company grows, we will probably also have to grow in line with the assets under management, our employee base.
Yeah. Actually there is no peak or limit in mind.
We see slight economies of scale over the years as we have increased the average ticket size in certain respects, it obviously creates some economies of scale. You cannot expect that there should be any peak or so.
The company will grow its employee base in line with the assets under management.
Yes. Mm-hmm. Thank you.
The next question we've received comes from Gurjit Kambo, J.P. Morgan. Your line is now open.
Hi, good morning. I have two questions here. First one is, in terms of the obviously asset raising, a very strong half for Partners Group. Could you just give us some sort of indication of how much of that is from the existing clients and how much of that is reaching out to new clients? The second question is just on the investment that you've made during the first half. Clearly, there's been a slightly higher skew towards Europe, and I think that's probably to do with European credit, if I'm correct. Is there any other sort of opportunities you're seeing across the globe that you could share with us?
Well, thank you for the question. I'll address the first one. Christoph will take the second one. We've not yet finalized these numbers. We will present the split in terms of mandates versus programs, existing clients versus new clients. We will present that split in September when we meet in London. It's really a continuation of what we have seen in the past years. A healthy mix between existing clients increasing capacity or allocations to private markets with Partners Group. 2017 has also been a year where we have managed to really onboard new clients to the platform. I'm very pleased with the mix that we've seen, and I believe it's going to be similar to what we have seen in the past.
Thank you.
If you look at the investment opportunities around the globe, we actually believe that the U.S. is probably one of the most attractive markets as it shows the most resilient growth. Top down, we envisage to transact roughly 45%-50% in the U.S. this year, roughly 40% in Europe, and the rest in the emerging markets. Emerging markets have become a bit more challenging as the growth has not always been the best. Latin America, for instance, for the moment, is probably a market we're not very attracted to, and the focus really is on India and China. The first half has shown a relative overweight in Europe, but that's probably more driven by the bottom-up sort of investment results. Cerba, for instance, that Kim has explained, is a visible transaction where we have deployed a significant amount, and that has actually skewed the results slightly towards Europe.
For the rest of the year, I would imagine that the U.S. will actually continue to edge up towards this 45% mark that we envisage.
That's great. Thank you very much.
The last question we've received comes from Thomas Gelang, Baader Helvea. Your line is now open.
Yes. Good morning, everyone. I have a couple of questions. Actually, the first questions are related to the latest questions asked by my colleague. I simply would like to have more color on where do you see investment opportunities in terms of countries or asset classes? In that regard, are you thinking or do you feel like you're being forced to expand into new, more exotic, riskier investment fields, countries, whatever? You still believe that you have enough upside in the, from your perspective, not yet fully tapped developed markets? This is the first sort of question. The last one would be probably very difficult for you, but what is your target IRR for the current vintage years? Thank you.
If you look at the investment opportunities, we continue to focus on the developed countries. We obviously screen all the others as well. For instance, Africa, we continue to look into on a very proactive basis. For the moment, risk return just doesn't add up. I mentioned Latin America, again, an attractive market in many ways, but risk return at the moment appears not to be the best. We do continue to focus on the developed markets for the foreseeable future. Across Europe, I think the markets remain attractive. We have been quite active in France. We are transacting in the U.K. We have looked at the Scandinavian opportunities, but we're also not shy to deploy money in countries like Italy. That would probably not be domestic companies, but mostly companies that export and have a global sort of positioning.
The U.S. continues to be highly attractive, as I mentioned, because the growth is resilient. We do identify some sectors which are doing better than others. For instance, healthcare, as I mentioned, education, business services, the outsourcing of certain business areas continues to offer us a lot of attractive opportunities. We don't necessarily see a reason why we should shift into riskier spaces. The developed places actually offer us ample investment opportunities. From a target IRR perspective, in each of the business areas, we have a benchmark. We have a hurdle rate that is in line with what we also represent to our clients, that obviously varies across the different segments. In private equity it's the highest with a 20%+ internal rate of return. These hurdles, we really have no tolerance in shifting from them. Those are representations we have made to our clients.
We need to respect them, and we also need to price, and we need to underwrite in line with these expectations. We're not lowering any of these standards. That's one of the reasons, if you actually look at the figures, we have probably missed some opportunities in the first half on a very conscious basis, because we believe we should not make too many compromises on price.
Well, in terms of return expectations, maybe let me also answer that question from a client perspective. As a matter of fact, Partners Group's clientele is largely institutional. These are long-term investors, as I mentioned, pension funds, insurance companies, sovereign wealth funds. Certainly on the private equity side, they do expect a return pickup compared to what they would expect from public markets. The typical return pickup is like the famous 3%-5% of private equity over public markets. While you underwrite individual transactions in the magnitude that Christoph just mentioned, I would expect that most clients expect 10%-15%, around 15% net from the asset class in private equity. As you go into the more yielding asset classes, real assets like infrastructure and real estate, probably return expectations are a notch lower.
That is also how Partners Group wants to position the investment portfolio at this time in the market and in the cycle, as Christoph mentioned. We do not want to be exposing our clients to undue risks. We do not want to go for the excessive return expectations, neither do we communicate such return expectations for clients. That's really our mandate by institutional clients to build up high quality private equity, real estate, and infrastructure portfolios that will outperform public markets. Quality is of essence, and that is why we construct those portfolios, and select the underlying investment opportunities in a highly prudent manner. I would say 10%-15% it is net for high quality, reasonably diversified private equity portfolios, and that is what our clients seek in this type of market environment.
Good. Thank you.
As a reminder, if you would like to ask a question, please press zero one on your telephone keypad now or type your questions in the Q&A box.
We have received another question. Your line is now open. Please shortly introduce yourself. Your line is now open. You can ask your question. Maybe you put yourself on mute? I would suggest we take another question. It's from Joachim Breininger . Your line is now open. Your line is now open. You can ask your question.
Good morning. It's Lukanyo from Bloomberg.
Yes, you can ask your question. Your line is open.
Oh, is that mine?
Yeah, exactly.
Oh, sorry. I thought somebody else was speaking. It's Lukanyo here from Bloomberg. If I may, I just wanted to follow up on what my colleagues had just asked in terms of expansion going forward. I suppose it's a bit more of a philosophical question in a way, rather than today's numbers. Would it be fair to say in terms of the future of the company, is the U.S. the next growth leg, or do you still see yourself very much still staying as a European company into the future?
If you look at our footprint, it's really a global footprint. If you look at the investment platform, we on a global scale, try to really look at every opportunity around the globe. Then relatively pick what we believe is making most sense. As I explained before, the U.S. offers us ample investment opportunities, so we continue to be very active there. That being said, we also believe there is a lot of ample investment opportunities in Europe and in the rest of the world. A mix, a blend on a global scale probably makes sense. We try to identify in each of the areas niches of transformative growth that actually grow better than the rest. There are certain sectors which will do quite fine, and that is not limited to one continent. That actually goes again around the globe.
I mentioned healthcare, I mentioned business processes, I mentioned education. Those are themes that we believe we can actually see in multiple places around the globe. Then also use best market practices to actually help the respective portfolio companies around the globe to sustain each other. In that sense, it's going to be a global effort It will continue to be diversified in terms of geographies, in terms of niches, in terms of industries, and as such is it lend. Also our company, although we have a Swiss heritage and a Swiss origin, has become quite global. If you look at our employee base, with more than 60 nations and a very diversified employee base, I wouldn't today say that we're a Swiss or a European company. We're pretty much global in how we are organized.
In terms of clients, I would say that Europe has, also in the first half, been the strongest contributor in terms of assets raised. From an asset raising or from a client perspective, Partners Group's recent inflows have been dominated to a certain extent by European clients. That is something that certainly we wish and expect to diversify in the years to come. Europe is going to be the pillar also going forward, but indeed, the Partners Group brand and the Partners Group positioning becomes clear in the United States, in Asia, in Australia as we speak. I believe Partners Group will become even more global company also in terms of clients that we cater to.
Importantly, and that may be the link between the client and the investment side, clients, no matter whether they're European, American, Asian, Australian, all these clients typically give us the flexibility to invest on a global scale. While maybe the majority at this point in time is raised from European clients, all of these clients, irrespective of origin, wish to typically build up a portfolio in private markets that is truly global in nature.
We have received another question. It's from Andreas Venditti, Bank Vontobel. Your line is now open.
Yes. Thank you. Hi. Just a clarification question, actually. When talking about open-ended structures, you mentioned 20% around of AUM being in there. When I then look on page 12, on the footnote, it says that 10% are from liquid and semi-liquid programs. Maybe you can clarify the difference between the two numbers. Thank you.
Well, actually, there's a close link between the two. When we talk to distribution partners and when we raise assets from distribution partners, very often these assets go into programs that are semi open-ended in nature. These are programs where distribution partners raise assets, programs increase in size. Clients basically have a chance to sign up or commit on a monthly or quarterly basis, and would have a similar option to redeem in such products on a quarterly or monthly basis. There's a close link. I believe at this point in time, the majority of asset raising by distribution partners typically does go into open-ended structures. We also now have increased dialogue about feeding from such sources into the classical closed-ended structures. These two figures are closely related, as you've rightly spotted.
Okay, thank you.
The next question we've received is a follow-up from Gurjit Kambo, J.P. Morgan. Your line is now open.
Hi. Sorry, just one follow-up question I had. I know that when you, in the past, you've talked about the longer-term defined contribution pension fund opportunity. I was just wondering, is there any sort of update in terms of sort of funds you have out there and how that sort of initiative is progressing?
Well, thanks for the question. Indeed, we are progressing. The first time we had talked about this was nearly two years ago, when we were about launching these structures in the U.S., in the U.K., and in Australia. By now, these programs are live in these three regions I just mentioned. There's quite some interest in this sort of private markets content in these three regions. I would say that inflows are materializing, but I also want to remind you of the outlook that we have given. We said that this is a strategic effort. It's an effort that for sure we expect to become material over the years to come. We have also mentioned that this will happen slowly, and we will fade into this new source of money in the years to come. Where do we stand?
In 2017, inflows have happened at a modest level. I expect them to be modest also for the second half of 2017. Indeed, we are very much talking to a number of interested parties that are now evaluating not only the offering, but are also focusing internally on the education of their respective investment committees, to what extent they wish to allocate to private markets. It's happening slowly, but it will happen, and I'm quite excited about this opportunity. I believe you start to read more and more about defined contribution beneficiaries not having an exposure in private markets, which is one of the reasons why we believe there's a return differential or the returns achieved between defined benefit plans and defined contribution plans.
We hope that with our offerings and with future inflows, we will be able to help close the return gap between these two plans.
That's very helpful. Thank you.
The last question we've received comes from William Louch, Private Equity News. Your line is now open.
Hi. You mentioned earlier that the U.S. provides the most attractive investment opportunities, or that you expect it to in the next half of the year, and that you'll be investing 45%-50% of the money that you invest in PE there. Is this an increase from previous years? How does this compare against the last few years in terms of where you've spent money?
Last year has also been around the 45% mark, it's a continuation of the investment strategy. The environment has not much changed over the years. The only thing that has changed is valuations that have slightly edged up. Other than that, if I look at risk and return, the picture has been largely similar the last year. Again, we have seen roughly 45% in the U.S., about 40% in Europe, and the remainder is in the emerging markets.
Okay, thanks.
As there are no further questions, I hand back to the Partners Group management.
Well, thank you everyone for your time. Thank you for following Partners Group closely. I wish to say thank you simply. I look forward to our next update, which will take place on September 12th in London. You'll have a chance to meet Christoph, myself in person, but also Cyrill Wipfli and Philippe Sauer, as I just mentioned. I look forward to sharing the semi-annual results in September with you. With this, I wish everyone a successful week. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.