Partners Group: Ain't No Mountain High Enough

Nori Gerardo Lietz

Teaching Note | HBS Case Collection | May 2017

Partners Group: Ain't No Mountain High Enough

Abstract

Partners Group (PG), a Swiss-based PE manager, initiated a series of strategic shifts and evolved from a predominately fund-of-funds manager into a large, multi-asset class PE firm focused on direct investments. PG was the first PE firm to go public in 2006. A number of large U.S.-based private equity firms followed to create a new category of firms: public private equity firms (PPEs). PG’s results were superlative (565% since inception total return and 22% annual compounded growth) versus the U.S.-based PPEs performance over the same time of 76% to 18%. PG’s multiple was 22x versus its PPE peer group of 8x. PG had the lowest value of AUM yet had the second largest market capitalization behind Blackstone. Why? PG had differing management practices: (i) compensation practices, (ii) corporate governance structure, (iii) accounting policies, and (iv) source of revenues. PG historically had a low percentage of its revenues derived from carried interest payments (less than 10%) while the U.S. PPEs had a significantly higher percentage (on average 50%). Should PG do more direct investments and have more of its revenues come from carried interests? This could conceivably jeopardize its trading multiple and its stock price. Should PG risk changing its business model or proceed with confidence? Teaching Note for HBS No. 217-035.

Keywords: Business Model; Entrepreneurship; Management Practices and Processes; Private Equity;

Language: English

Format: Print

18 pages

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Lietz, Nori Gerardo. "Partners Group: Ain't No Mountain High Enough." Harvard Business School Teaching Note 217-064, May 2017.

In April 2012, Mubadala, Abu Dhabi's sovereign wealth fund invested $2 billion in Brazilian conglomerate EBX, believing the company to be undervalued by the public markets. Shortly thereafter, however, EBX and its multiple business lines began to spiral downward. Hani Barhoush and Oscar Fahlgren, members of Mubadala's investment team, were now charged with leading the restructuring efforts on behalf of Mubadala. The situation was exceptionally complex and involved dealing with different creditors, untangling cross-collateral clauses from EBX’s subsidiaries’ loans, and foreclosing on personal guarantees from Batista. There were also strong political challenges, since most companies operated in tightly regulated markets, some were publicly-traded, and many had received substantial subsidized financing from Brazil’s Development Bank (BNDES). Finally, the country’s economic and political environments were rapidly deteriorating, with a combination of stagflation, rising interest rates, and successive popular demonstrations causing the gradual loss of governability and ultimate impeachment of President Dilma Vana Rousseff.

Case | HBS Case Collection | February 2018 (Revised February 2019)

The Tax Man: Taxes in Private Equity Real Estate

Nori Gerardo Lietz, Timothy J. Becker, Ricardo Andrade and Sayiddah F. McCree

In January 2018, Caelan Langan, an associate at KSW Partners LLC (“KSW”), was asked by Katherine Scott, the partner for whom he worked, to recommend a proposed structure to acquire a prominent office building in San Francisco for their most recent fund. Caelan was asked to review potential acquisition structures that would minimize the impact of taxes on their investors’ returns. The assignment was complicated as KSW had different categories of investors (a sovereign wealth fund, pension funds and high net worth individuals) each of which had different tax considerations. The differing interests created significant potential conflicts in terms of how to manage the investment and when to sell the building, as the economic consequences to each category of investor were not the same. Even the economic interests of KSW were not completely aligned with their investors. The case outlines the alternative investment structures that could be considered: REITs, Limited Partnerships, C Corporations, and combinations of those entities. The case illustrates how to manage the potential conflicts and the important consequences of tax policy on how investments are structured. Students are asked to model the results of alternative investment structures and determine what Caelan’s recommendation should be.

Keywords: real estate; alternative investment structures; Property; Acquisition; Private Equity; Investment; Management; Taxation; Policy;

Citation:

Lietz, Nori Gerardo, Timothy J. Becker, Ricardo Andrade, and Sayiddah F. McCree. "The Tax Man: Taxes in Private Equity Real Estate." Harvard Business School Case 218-077, February 2018. (Revised February 2019.) View Details

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Partners Group: Ain't No Mountain High Enough

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