How a private equity pioneer lost its grip on the market it invented

0:01Antoine Gara: In the mid-2010s, a little-known Swiss private equity firm called Partners Group was on a mission. They had basically gone from hit to hit. And now they were focused on a new opportunity with enormous upside.

0:18Alexandra Heal: Since early in President Donald Trump's first administration, Partners Group has been lobbying to open retirement plans to private equity. And they've really seen the opportunity to tap tens of millions of new customers.

0:33Antoine Gara: That's the FT's U.S. private equity and deals editor, Antoine Guerra. He tells me that this change from the Trump administration would be building on the bedrock of partners' business. It takes a while. But last August, they finally got their wish.

0:49Alexandra Heal: A potential big change is coming to your 401k. And today, President Donald Trump signed an executive order that could make it easier for 401k plans to offer alternative investment options, including private equity. After years of lobbying, Trump last year signed an executive order that really may reshape the U.S. retirement market. It opens 401k plans and other retirement plans to the possibility of adding a lot of illiquid assets like cryptocurrencies, real estate deals, hedge funds. But mostly it's about private equity and private credit. That's where the action is going to be.

1:28Antoine Gara: But a lot's changed in the near decade since the firm first started its lobbying push. And now Partners Group might not be the firm that's poised to benefit the most from the White House's order.

1:40Alexandra Heal: In the last few years, Partners Group has seen its share in the so-called U.S. retail market, which it invented, fall significantly. They were the pioneers of this industry in many respects, but now there's a flood of competitors on Wall Street who are there to take their clients and, I guess, eat their lunch.

2:03Antoine Gara: I'm Michaela Tendera from the Financial Times. Today on Behind the Money, how Partners Group invented a new market in private equity, and how they could miss out on reaping the rewards from it.

2:35Antoine Gara: Partners Group. This firm isn't exactly a household name, and it's not even headquartered in the U.S., despite all the work it did to open up Americans' retirement savings to private equity. However, my colleague Alexandra Heal, the FT's private capital reporter, tells me that being kind of different is what Partners is all about. So Partners Group was founded in the 1990s, and it's always been quite different from the start to other big private capital firms that are household names, like Blackstone, like KKR. So unlike most private equity firms, which are established by seasoned dealmakers, Partners was founded by three young Goldman Sachs alumni with backgrounds in sales and private banking.

3:26Antoine Gara: And it's always been a bit different geographically, too. Its headquarters have been in a Swiss town by the mountains called Zug. So they kind of see themselves as being different, thinking differently by being in a different place. So from the start, their expertise wasn't in doing classic private equity leverage buyouts. It was instead mostly in serving clients. Partners Group, in the early 2000s, they developed this thing called the Evergreen Fund in order to target wealthy individuals. The Evergreen Fund. This is Partners Group's key invention. And at the time, it's a totally new way of operating a private equity firm.

4:06Antoine Gara: A normal private equity firm traditionally would have something called a closed end fund. It has maybe a 10 year lifespan and then it ends. Those funds, they get investors like pension funds or university endowments, proper institutional investors to put all of the money into the fund to back it. And the private equity managers then manage that fund. They go out and buy companies. And it's only really institutions that have the capital and the wherewithal to be able to fund and lock up money for 10 years and to back these massive funds. So traditionally, PE firms raise money from these huge institutional investors.

4:43Antoine Gara: Groups that can quickly write checks for$50 to$200 million on any given day and then allow their money to be sat in a fund for a decade. Evergreen promises more flexibility and the chance to participate in these kinds of investments with significantly lower barriers to entry. The difference between an Evergreen fund and a traditional closed-end fund is that an Evergreen fund has no end date. So you can deposit money every few months and also you're able to take cash out up to a limit. So your money is not locked up in the same way that it would be if you invested in a traditional closed-end fund.

5:22Antoine Gara: This decision allows Partners Group to effectively create an entirely new market of individuals who can now participate in private equity investing.

5:31Alexandra Heal: It was brilliant, almost. They invented the retail market in private capital. And when masters of the universe think about retail, what they're really thinking about are wealthy savers. so a person who maybe ran a set of dental offices and has a half a million dollars in savings and they want to put it somewhere smart and there was a real dearth of private equity for them to invest in so Partners Group connected the dots.

6:00Antoine Gara: And the other firms for a very long time didn't do anything like it because they were fine with the money they were getting from institutions. They had a great business. They had loads of money flowing in from pension funds and endowments and they didn't need it. So for a while, Partners is able to pursue this market they invented without major competition. And the firm becomes a massive success.

6:23Alexandra Heal: Their Evergreen Fund was a huge hit. You know, through most of the 2010s, it turbocharged their growth. It gave them this kind of secret weapon relative to all the other players in the industry. And as the company went public in 2006, it gave Partners Group this steady, perpetual growth that the stock market just fell in love with. And the stock went to the moon.

6:53Antoine Gara: So Partners Group soars by attracting investments from wealthy individuals. But by the mid-2010s, the firm's looking toward the next horizon. They decide to target a new area of individual investors, that is, regular Americans' retirement savings or 401k plans.

7:11Alexandra Heal: So 401k plans in America, they're mostly invested in stocks, bonds, stock funds like mutual funds, or just even ordinary indexes like the S &P 500. These are considered liquid, easy to understand, very transparent, and easy to get in and out of. And so that's really where the vast, vast majority of the about$10 trillion in 401k plans are invested in the U.S.

7:41Antoine Gara: For a long time, none of that roughly$10 trillion market overlaps with private equity. Partners Group wants to change that. They want to bring private equity to the people. And they're in the perfect place to do it.

7:54Alexandra Heal: They're really well positioned because they have boots on the ground and it's all part of their DNA is talking to individual investors. They had these evergreen fund concept established. So they're sort of years and years ahead of these ultra competitive firms like an Apollo or a KKR.

8:13Antoine Gara: All they needed to do was convince the people in power that this should happen.

8:17Alexandra Heal: In the final stretch of Trump's first term, his Department of Labor finally did make a ruling. It effectively gave a blessing for some private equity assets to be included in 401ks in some manner. And that was really groundbreaking.

8:35Antoine Gara: But then after President Joe Biden takes office, that progress is walked back.

8:40Alexandra Heal: So basically, Partners Group and the PE industry was back at square one. But when Trump returned to the White House, they pushed again to get the ball rolling for private equity. And they did get what they wanted this time in a much more clear way.

8:58Antoine Gara: That was what happened last August. But here's the thing. Since partners first started pushing for this, the sector has changed. Do you remember those competitors, the ones who for a while left Partners Group alone in the retail market? Well, they adjusted their own strategies.

9:16Alexandra Heal: A lot in the private capital industry changed, and Partners Group in the retail marketplace, instead of being on the offensive, was facing an onslaught of competition from Blackstone, Apollo, KKR, some of the fiercest competitors on all of Wall Street.

9:38Alexandra Heal: Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.

10:01Antoine Gara: Last summer, Alexandra visited Partners Group's brand new headquarters in Switzerland. So I flew to Zurich and I got a commuter train out to Zug. It's a small town by a Swiss lake. And lots of companies have their headquarters there because local taxes are notoriously low. So, for example, the mining giant Glencore, their global headquarters is there. And partners recently just opened massive, shiny new offices there. These offices opened less than two years ago, in October 2024. It's three buildings all kind of linked together. One of them is curvy and modern and glass, but the other two, they're red brick with huge windows and designed to look like high end but old school Victorian warehouses.

10:53There are rusty old industrial tools carefully placed around the floors and the glass offices and like glass offices hung suspended from the ceiling intentionally to look like foreman's offices overlooking a factory.

11:07Antoine Gara: And it's all intended to give this industrial look and the vibe that Partners Group is different from traditional private equity and its association with financial engineering. Partners wants to be seen as really building businesses from the ground up. While Partners Group has fashioned their sturdy-looking new headquarters to appear as if they were titans of industry at the top of their game, over the last few years, the firm's longtime success has started to waver. Really, in about the last five years, things have started to falter a bit. So in 2018, the Swiss group had a market value roughly equal to Apollo and KKR combined.

11:47Antoine Gara: But now it's less than a third of the size of either. Also, last year, for the first time, their flagship US fund entered net redemption. And that means that investors were pulling more money out of the fund than other investors were putting in. and the returns of some of their flagship evergreen funds have also been weak in the last few years. So what's happened? Why has this firm slid so much? So the big part of it really is that in the last few years, firms like Blackstone, KKR, Apollo have all realized that the money from the pension funds and endowments is going to slow. The pension funds and endowments, they've kind of hit this ceiling where they can't really keep increasing the amount of money that they allocate to private capital.

12:35Antoine Gara: And firms have been struggling in general to sell assets in the wake of higher interest rates. And that's meant they've been returning less cash to their institutional investors, meaning those investors have less money to recycle into new funds. So in light of all of that, the big firms have started aggressively going after the individual investors that Partners Group built its business largely off. So in short, the major players in private equity finally came around to Partners Group's big innovation. And lately, they've been kind of beating them at it. I'm curious then, Antoine, you know, Partners Group pioneered this strategy and the Evergreen Fund.

13:19Antoine Gara: So why are investors going not with them, but with some of their other rivals?

13:25Alexandra Heal: What's happened is firms with even more recognizable brands like Blackstone and KKR and Apollo, they've entered the market and they've launched these new funds that all have pretty high early returns. So a lot of money has just poured into these newer funds. And there has been people who are pulling money from partners group funds, the older funds, and putting them into the newer funds.

13:52Antoine Gara: So aside from the higher early returns, are there any other reasons why investors would opt for Apollo's Evergreen versus partners groups?

14:01Alexandra Heal: One of the things we heard from the marketplace when we were doing our reporting was that there's a preference for the newer entrants like Blackstone and other firms because they have hundreds of dealmakers all over the world who've been doing deals for decades. And that's in their DNA versus Partners Group. Again, they do do deals, but their DNA was in allocating and so on. And so if you're thinking, I want high octane private equity in my 401k, you might just turn to like a Blackstone or Apollo because you associate them more closely with that.

14:43Antoine Gara: So last August, we know that President Trump signed an executive order opening 401ks to alternative investments like private equity. There's guidance expected to come out soon from the Labor Department on how this will all shake out. But in the meantime, how are Partners Group and its rivals preparing for this huge change?

15:05Alexandra Heal: People are preparing for this by striking what's a tidal wave of partnerships between traditional private equity and private capital firms and the asset managers like Vanguard and BlackRock that you traditionally turn to for your 401k plans. So these two worlds are converging. There's almost like a prom ball where people are sort of partnering together and Partners Group and its rivals have all been part of this dance. So Blackstone has struck this really interesting partnership with Vanguard, which is, you know, the world's second largest asset manager. KKR has done something with Capital Group.

15:45Alexandra Heal: And Partners Group has also been really active. They recently had a partnership with BlackRock, the world's largest asset manager, and that's gone live earlier this year.

15:57Antoine Gara: Okay. So Partners Group has been part of this dance per se, setting up partnerships. But these days, do they have anything to differentiate themselves from their competitors that have entered their territory? That's a good question. So there is one thing that Partners Group has been doing that some analysts say really differentiates it. So the firm does have closed end funds for institutions in the same way that Blackstone and KKR have always historically focused on those. But it also has this other line of business called separately managed accounts. And that basically allows institutional investors like pension plans to pick and choose what strategies, what asset classes, what regions they want to invest in.

16:47Antoine Gara: And that has had strong demand recently at Partners Group. And some analysts say that there's not really many other players who can do this separately managed account thing in quite the way that Partners Group does. And so if that's becoming more and more popular, they think that that's an avenue of growth for Partners Group. So do you guys think that they will be able to get back to dominating this market that they push to open up? So I don't think it's likely that they'll dominate again, at least in the US, now that all these other firms like Blackstone and Apollo are kind of barging into the market.

17:24Antoine Gara: But the way Partners Group put it to us, their CEO, Dave Layton, said, well, it's normal that we are going to lose some market share of the market we invented. And that's a good thing. We pioneered this market. It's a good thing that it's now massively growing and other people are entering. But the way they see it is that the market's growing. And so they might have a smaller piece of the overall pie. But if that overall pie is bigger, then it doesn't matter. I guess the question is how big a piece of that pie will they actually have?

17:55Alexandra Heal: My view is there's good news and bad news. The good news is they've launched about a dozen other evergreen funds, and those are attracting assets and they have high returns. So the outlook is bright for those funds. But then when you go to that flagship fund that's in net redemption, that's a$16 billion fund. It's one of the biggest in the world. And when funds get into a period of really sizable redemptions and growing redemptions, that can be really problematic. And so it's something we're watching really carefully. And it's something where other private capital groups have seen some really tough times.

18:36Alexandra Heal: So there's a lot to watch and the story will unfold.

18:44Antoine Gara: Behind the Money is hosted by me, Michela Tendera. This episode was produced by me and Safiya Effmet. Fact-checking by Simon Greaves. Sound design and mixing by Kelly Gary and Sam Giovinco. Original music is by Hannes Brown. Topher Forges is our executive producer. Cheryl Brumley is the FT's global head of audio. Thanks for listening. See you next week.

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19:49Alexandra Heal: Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at Schwab.com slash Washington Wise.