Partners Private Equity cuts fees to keep investors onside

Board says fee overhaul will 'meaningfully' reduce fees as the private equity trust moves in line with peers.

Partners Group Private Equity (PEY ) has overhauled its fee structure in a bid to keep shareholders onside.

The new structure will be based on net asset value (NAV) performance, which the board said is better aligned to shareholders.

The new fee structure for the ‘incentive fee’ that is paid to Partners Group will incorporate a higher ‘watermark’ of €15.03, which was the NAV per share at the end of December. This means a performance fee is only paid if the NAV grows from this level.

The annual management fee of 1.5% will remain unchanged but is now based on NAV, whereas previously it had been based on the higher of either the NAV or the gross asset value, which includes debt and equity positions but excludes acquisition costs.

An annual cap of 5% has also been introduced, based on the lower of market cap or NAV.

The new fee structure will be applied retrospectively from 1 January 2025. 

The revised management fee excludes primary and secondary fund investments, which now represent less than 1% of NAV.

The board said the fee overhaul would ‘meaningfully’ reduce the fees paid.

It also announced a change to the investment policy. As the portfolio is now focused on direct investments, the investment team can no longer make investments in private infrastructure, private real estate, and private debt (other than for liquidity management), as well as primary and secondary investments.

The £712m private equity trust had stood out from rivals under its previous structure because incentive fees could be paid even if NAV performance was negative.

Analysts at Deutsche Numis pointed out that the revised structure will apply to both new and existing investments, which they view as another positive development under chair Peter McKellar.

Deutsche Numis pointed to ‘meaningful liquidity events’ following the IPOs of Vishal Mega Mart and Kindercare Learning,

‘Further exits should help to facilitate buybacks, once free cash flow turns positive, which might need another meaningful realisation. We believe that the discount around 32% offers value,’ the analysts noted.

Last March, the private equity trust introduced a significant share buyback programme in a bid to narrow its wide discount.

Like many alternatives investment trusts, Partners Group Private Equity has struggled in recent years. Its shares are down 1.4% over the past three years, which compares to a 134.1% gain by the average trust in the AIC’s private equity sector.

Over three years Partners’ shares are up 3.7% versus 51.3% by the sector average.