The direct private equity market, rather than primaries or secondaries, is “the place to be over the next six-to-12 months”, according to the latest analysis by global private markets asset manager Partners Group. GREG BRIGHT reports.

Partners Group’s half-year analysis for investors, Buying quality assets at trough prices includes a relative-value assessment on each of the areas covered by the business: private equity, private real estate, private debt, private infrastructure, listed infrastructure and some absolute returns strategies. The direct market is particularly attractive because of its position in the cycle, offering an immediate entry at reasonable valuation multiples based on trough earnings. For primaries, which are private equity funds and funds-of-funds pursuing traditional strategies such as buyouts, Partners Group says it prefers selective, high-quality funds in the mid-market that have the right capability to source the most attractive deals in a timely manner. “We turned cautious from neutral on primary investments in the large-cap sector as we see the need for a highly selective approach in the coming quarters,” the report says.

“We believe that several well-known buyout groups should not be reconsidered for future investments, while a few will be the clear winners of a significant industry shakeout.” In the secondary market, where managers buy positions from other private equity firms, Partners Group is still seeing strong deal flow but believes valuations have reached an inflection point. “Discounts have narrowed substantially and strong competition from other buyers is driving up prices. As a result we have changed our stance to neutral from a positive outlook a few months ago.” The relative value matrix chart (see table) shows the firm’s ratings between direct deals, primaries and secondaries across sectors, types of private equity and geographical regions.

Green is positive – the darker the better – while white is neutral and yellow unattractive. The firm produces similar charts in other private markets asset classes. According to Jessie Juan of the Partners Group Beijing office, Asia and emerging markets offer a lot of opportunities, particularly in the field of small- and medium-sized direct investments. “We started investing in China in the late 1990s,” she says. “We’re increasingly doing sector analysis here. For instance, Asian consumer markets look attractive.” To date, Partners Group has deployed about US$450 million in China in a combination of funds and direct investments. The Beijing office was opened in early 2008, and the regional head office in Singapore was opened in 2004. The firm’s total staff in the region has grown from a few in Singapore in 2004 to more than 60 across five offices. For direct private equity investments, the report says:

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