Below is the transcript of a First On CNBC interview with Peter Wuffli, Vice Chairman of the Board of Directors, Partners Group. The interview was first broadcast on CNBC's Squawk Box Asia on 14 September 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Nancy Hungerford and Amanda Drury
Nancy Hungerford (Nancy): We are joined by Peter Wuffli, who is the Vice Chairman of Partners Group. Hopefully he can help answer some of those questions on where to deploy in the private equity space. We talk a lot about what's going on in the public markets here. We were talking, many say, we're in anywhere near the and late stage economic cycle. So what does that mean for private markets?
Peter Wuffli (Wuffli): Good morning Nancy, I'm happy to be here. Fortunately private markets do not depend on the short term cycle. So for us it's really time horizons of 5 to 10 years based on which we look at investment. So we have the privilege not to be influenced by the short term second guessing of cycles.
Nancy: Nevertheless there are some concerns, sure you might say they are short term concerns whether they are the China-U.S. trade tensions, what's going on in the Federal Reserve and, just more broadly speaking, global liquidity is changing. I mean it won't be very long before the ECB and then, presumably, the Bank of Japan pick up too when it comes to their own tightening cycles and that could have an impact 5 to 10 years from now. I know you're invested in several areas, real estate, infrastructure among them; areas we might think are sensitive to change of interest rates. Are you repositioning at all as a result of those shifts?
Wuffli: As somebody coming from a small country, like Switzerland, we are concerned with the global trends on trade but also on politics. So being from a country that depends on free markets and economies and has a long tradition as a liberal democracy, of course we are concerned. There's no question about that. Looking at the investment cycle, we are looking very much in private equity, at category leaders, platform companies that are small niches where we help globalize and they are usually not interest rate sensitive. They are companies that produce stable cash flows. We invest in good companies and help make them better. Our leverage is operational improvements and more governance so we really help align governance and that's what we see as a key advantage of private equity investments over, for example, public equity companies.
Amanda Drury (Mandy): Talk to us about flexible multi asset class strategies and how fast is that particular sector and demands from age specific clients growing?
Wuffli: Multi?
Mandy: Flexible multi asset class strategies.
Wuffli: Partners Group invests across private equity, infrastructure, real estate and technology, and we see more and more clients wanting mandates. Half of our new business is essentially in mandates increasingly across asset classes. We see that as a big growing trend. We are positioned very well because we are close to 80 billion US dollars in assets under management. We have a market cap of 20 billion US dollars and we are globally integrated. So we have one firm, we have a top down view on the relative value of different asset classes. So we are very well positioned and I think that's also where we gain market share that clients want our advice on which segments are more valuable than others. So we do invest more and more into customized mandates for our clients.
Mandy: But when you talk about you gaining market share, what are you offering that say some of the other big giant like Blackstone, KKR etc. can't offer?
Wuffli: Well we have been among the first that offered tailored mandates for large clients and that is I think one of our hallmark offerings. We are very broad and, as I say, we are an integrated firm. We have an integrated global view; every employee is a shareholder of our company. We have a very integrated investment decision process. We are not a conglomerate of different franchises, as many other private equity firms have that essentially have a fund here and a fund there, and the people are incentivized to invest in that particular fund. In our case, everybody is incentivized to maximize and optimize essentially the investments across the platform.
Nancy: Peter, what looks attractive to you right here in Asia?
Wuffli: Some foreign investments we have made have to do with inclusive growth. For example in India, we have two investments. One, on housing finance with low income classes. Another is in consumer goods, a company called Vishal, which is a low end kind of discount with very fast growth targeting poorer segments of the society. And so inclusive growth is a big sector and I think it goes also into our push for impact investing. We are right now offering a fund that is called life and that essentially invests in all those segments that help to contribute to the sustainable development goals of the U.N. In addition, we are very active in infrastructure. Partners Group has been growing very aggressively in infrastructure investments. For example, in renewable energies in data centers and in infrastructure, we essentially build new infrastructure.
Mandy: But more from the Greenfield side as opposed to the Brownfield side because it's better ROE?
Wuffli: Well it's better ROE, it's more value creation. I think the prices on the Brownfield site are incredibly high. It's very difficult to find returns that are attractive and we are constrained by the country selection because we are investing in countries that have predictable rules, that have rule of law, that are not corrupt. And so that limits to some extent the spectrum.
Nancy: Peter, as we are talking a lot about 10 year anniversary of what happened at Lehman brothers, the global financial crisis, you were at the helm at UBS just before things really started to turn ugly. In fact, I know the bank at the time had its own problems with mortgage backed securities, subprime mortgages and the hedge fund unit. Looking back to those days, thinking of the warning signs that were there at the time, do you see any warning signs today that worry you about perhaps a future crisis?
Wuffli: Coming in Europe, I think what has not been achieved among all the great proffers in terms of making, and particularly, the systemically important banking part more resilient. I think the links between public debt and banks have not been cut. I think there is still, in a way, too much incentive today for banks to invest into government bonds and therefore not enough pressure to put governments into a situation to do reforms on their state finance. And in Europe, that's currently the biggest risk. If you look at countries like Italy, I mean there is still no risk premium on holding government bonds for a bank. And I think the same holds true in pension regulation and in life insurance regulation. Bonds are looked at as risk free. I think it would be much better for the system to encourage institutional investors to invest in real assets, for example private markets investment, where there is higher yield pickup and where there is real substantial outperformance relative to public markets. I think that's the part of the regulation, in my view, that went into the wrong direction.
Mandy: Thank you very much for talking with us today. It's been a pleasure to have you on the show. We've been speaking with Peter Wuffli in a first on CNBC the Chairman of Partners Group, which is the most successful private equity company in Switzerland.
END
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