Partners Group Private Equity Limited

Ladies and gentlemen, welcome to the Prince's Private Equity Holding Q3 2022 Investor Conference Call and Live Webcast. I'm Moira, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sarah Page. Please go ahead, madam.

Good morning and welcome, everyone. I'm Sarah Page, Senior Corporate Development Manager and Head of IR for Princess. I'm joined today by Michael Studer, who will go through the portfolio management review, whereas Felix Haldner and I will cover the Q3 results. Now, before diving into the quarterly figures, just two words on Princess. Princess provides shareholders with exposure to Partners Group's direct private equity investment strategy, participating in transactions alongside our institutional clients. Partners Group is a thematic investor focusing on investments in companies where growth is underpinned by long-term transformative trends. And we bring extensive resources with a global team of over 170 investment professionals, supported by a global network of external industry advisors and operating directors. All of Princess's investments are subject to Partners Group's responsible investment policy and ESG factors are fully integrated at all stages of the investment lifecycle alongside commercial and financial factors. So performance continued to develop positively during the third quarter of 2022. Princess achieved a NAV total return of 3.7% for the quarter bringing the year-to-date performance to minus 4%. Share price total return was minus 12% for the quarter, reflecting an expansion in the company's discount to NAV. Despite not paying the second dividend this year, the yield is strong at 6.7% at 30th September and a 10-year average of 5.2% up to 2021, which makes Princess the highest dividend payer in the industry on average for the longest period of time. Top-line performance has improved with LTM revenue growth up 5.4% quarter-on-quarter, but inflationary pressure affected EBITDA growth, dropping 2.2% quarter-on-quarter. EBITDA margin, however, remains stable at 21.1%, which reinforces the fundamentally good quality of the portfolio. Now, although investment activity was curtailed due to liquidity, which we will get into in a minute, Investments that were mostly committed to earlier in the year were paid in the third quarter, amounting to €71.6 million. As Princess strengthens its liquidity position, investment activity will be muted in the short term. Princess's mature portfolio continued to benefit from limited distributions in the current challenged exit market, with €25.4 million. of the 33.5 million Euro coming from the partial redemptions from senior loans. Here on this slide we show 8.1 million in distributions because this is the amount directly attributed to investments with 2.7 million being the most from one single investment which was capital return to investors from Guardian Childcare. Now I'll hand over to Michael to go through the portfolio management review.

Good morning also from my side. Many of you have voiced your surprise and disappointment following the decision to suspend the dividend for H2. We take this very seriously and we understand that we need to work on regaining the trust with our shareholders. As such, we would like to provide you with further clarity and transparency on the main parameters that steer our portfolio management and ultimately also the sequence of events that basically led to the suspension of the dividends and actions that we have taken before and after that decision. When we look at our portfolio and risk management approach, basically for Princess, what we target is to have a high investment level in order to ultimately achieve a high total return from a fully invested portfolio. We have a dividend objective of 5% of opening NAV via semi-annual payments. Now, what are the steering parameters that we apply when basically managing the investment level? First and foremost, we look at the portfolio and anticipate or observe actual and anticipated distributions. On our own direct lead portfolio, this is based on bottom-up estimates from the investment teams. And on the indirect portfolio, on the core investments, that's basically partially from the discussions with our investment partners, but also based on top-down adjustments, taking the environment into consideration. Based on these distributions and based on the target dividend, we derive the capacity for new investments. Now, it's important to note that for as long as we have open investment capacity, we add printers into the overall transaction flow that we generate as partners group. Now, once these investments are commercially approved, obviously there are different elements that come together and play into these discussions. So on the one hand side, obviously, often we might still need to see whether we are in a position to actually kind of execute or whether we win that particular transaction. And last but not least, there's also a time lag between the commercial approval of a transaction, the signing, and ultimately the funding. The funding of transaction often can take three, four months because you might also have certain regulatory approvals that need to basically be achieved in the meantime. On top of that, as a firm, we basically have agreed or we have established a policy to hedge a significant part of our ethics exposure across our programs. With the ethics hatching strategy, we basically, we limit the NAV volatility that our clients face. And at the same time, obviously, this then basically results also in a certain volatility or variability on the cash flow side as and when the orbit contracts that we enter into as and when they settle. To account for the different elements of volatility around the planning, on the investment side, exit side, ethics, we have organized a prudent financing as a buffer for some of these unforeseen events. And currently, as we've also communicated before, the credit facility stands at 110 million euro. When we look at the bottom of the chart, we see that actually kind of over the years, we have been successful in achieving a high investment level and the dividend payout. So this shows the last 10 years. We basically decided to suspend the dividend partially in 2020 and now in age through 2022. And with that, let me move over to the next page to run you through also the positions and let's say the parameters that led to ultimately the suspension of dividends. We started into the year also on the back of the strong realization activities that we have seen in 2021 with a strong liquidity position. Based on the liquidity position, we launched our initial investment plan for the year and we started to execute on that. Now we have seen obviously the macroeconomic environment changing in the first half of the year with increased geopolitical uncertainty, with a rise in inflation and interest rates. And on top of that, we've seen a significant first depreciation of the euro against the US dollar, which ultimately resulted in 32 million cash outflows from ethics hedging. At that point in time, actually towards the end of July, beginning of August, what we have done from a portfolio management perspective, that we actually kind of stopped allocating further investments to Princess in order to protect liquidity. And based on these actions, we assessed that the liquidity would be sufficient to pay the planned second interim dividend. We have seen also somewhat of a recovery over summer, but ultimately then in September and October, we have seen markets to get again more shaky. And this led to a further 6% depreciation of the Euro against the US dollar, which led to cash out close of 28 million from ethics hedges in Q3. As we moved into October, we've seen further deterioration of the credit environment, which ultimately basically led to us asking our teams to reconsider also the outlook for distributions, the new term outlook for distributions. Ultimately, at the end of October, we have finalized these revised expectations, pointing to a limited exit environment for the coming months. As we then basically looked at the liquidity at that point in time and taking into consideration the potential further stress on ethics in a reduced exit environment, we have come to the conclusion that we would suggest to the board to actually kind of suspend the dividend for H2 given a potential risk for further FX depreciations and assuming that the debt market situation would be prolonged for longer. And this is then how we informed the market on the 2nd of November. When we look at princes and I guess let's say the volatilities of cash flows, there are mainly two sources of volatilities. On the top part of the chart, you basically see the volatility of the Euro versus the US dollar, which is the main currency part, the currency pair, when you think about the portfolio of princes. And you see that you will have periods where the trading between the two currencies is more range bound. And then you see periods of stress where you might see significant depreciation of one current visa with the other. And that's obviously taken into consideration as we size our liquidity buffers, as we size our investment strategy. On the lower part, what we show here is the variability of distributions back from buyout investments. So what you see is the average quarterly distribution activity in annualized terms as a percentage of NAV. When you think about an average holding period of a buyout investment of call it somewhere between three to five years, you would expect to see roughly 20 to 30% of the NAV to be distributed in a particular year. This curve is more stable than ethics, but it also shows that in certain periods of reduced liquidity, that it could drop quite significantly. And that's a second consideration as we basically run our stress cases and scenarios that we take into consideration from the portfolio management perspective. As we basically then, as I said before, as we moved into October, we have reassessed our outlook and with that we have taken a more conservative stance on distributions that come back from the portfolio. Just one additional comment on the variability of these distributions. In the end, this is an important benefit of private markets that given the structure of the market, you're not entering as a forced seller into the market and you don't need to realize exits or realized investments at a bad point in time. And so we can continue to create value in the underlying portfolio companies. So I guess moving to the next page, if I was to summarize, in the end for us, based on all the demand that we see kind of from the shareholders, we want to continue to target the high investment level to ultimately maximize total return. The current financing is sized to withstand an economic downturn and ethics volatility, but we have taken and are taking measures to further protect liquidity In that sense, as I mentioned before, we already stopped allocating to new investments for the time being. Obviously, yes. I mean, once we see a somewhat normalized exit environment, we will have printers continue to also benefit from an environment where ultimately we will be able to continue to be able to execute on attractive investments. At the same time, we have also initiated discussions to upsize the credit facility. We currently have a relatively modest level of financing. It's not that we will increase this significantly. We're talking about a relatively modest increase to further increase the flexibility from a financing perspective. Obviously, the hedging strategy has been one of the questions that shareholders have raised as part of the decision to suspend the dividend. Our current hedging policy focuses on NAV stability. The one further action that we have taken is that we're considering to partially potentially switch some of the FX hatching contracts to ones with longer term settlement, which would basically avoid the daily margining. We are currently in discussions with the board and internally to reassess the FX action strategy, also based on the feedback that we've received from our shareholders. As I mentioned, coming to the last point, the dividend, so in the end, we don't only look at prevailing liquidity as we derive our proposal to the board for dividend payouts. We always also look at scenarios and simulations to assess how the liquidity might develop in a stress case. As we run this analysis, this shows the potential shortfall at the end of October if the November dividend had been paid. And that's why ultimately we then also went with the proposal to suspend the dividend to the board. It is still important to note, and this was again also highlighted in the R&S this morning, that Prince's liquidity position is solid following that decision. Now, as we also have highlighted in the R&S this morning, it is our stated and remains our stated objective to pay a 5% dividend of the opening and NAV And we are confident that absent of a further significant US dollar appreciation and assuming a somewhat normalized accident market environment, that we will be in a position to pay the next dividend in June 2023. For the avoidance of doubt, we will not pay out an H2 2022 dividend. And with that, I would like to hand over to Felix. Thank you, Michael.