David Layton on Being an Outbound Global Driven Firm

Episode Summary

Executive Summary: Partners Group CEO David Layton describes a private-markets firm focused on long-term ownership and business building rather than transactional dealmaking. He argues that higher rates and reduced leverage are changing the industry, making deep thematic research, active stewardship, and differentiated investment platforms essential. He also sees private markets growing as investors seek access to operating businesses and private credit, while emphasizing illiquidity and the need for sophisticated investors.

Main Topics: Private-markets industry at an inflection point: Layton says higher rates, less available leverage, and changing economic conditions have removed former industry tailwinds. Firms that rely on transaction volume and financial engineering may struggle, while stronger platforms may gain ground. Thematic research and active ownership: Partners Group studies sectors before companies come to market, seeking businesses it can help transform and develop over years. Layton stresses specialist expertise, operating knowledge, and intensive board involvement over simply buying and leveraging a company. Culture and differentiated firm identity: The firm deliberately locates major offices in Zug and Colorado, rejects conventional Wall Street status markers, and deemphasizes the word “deal.” Layton presents this culture as a way to encourage independent thinking, long-term commitment, and business building. Private markets’ role and valuation: Layton argues that private markets increasingly own parts of the operating economy that public markets may overlook, while public markets have become more speculative. He attributes relatively stable private valuations partly to long holding periods and the absence of constant market pricing. Broader investor access and industry growth: Partners Group is developing investment vehicles for private clients and expects defined-contribution plans to contribute to industry growth. Layton says access must still suit sophisticated investors because private assets are illiquid and require a long horizon. Private credit and higher interest rates: Layton sees private credit as relatively attractive in the higher-rate environment. He contrasts its potential double-digit returns with the greater effort now required to generate equity returns after lower leverage and higher financing costs.

Key Arguments: Private-equity returns can no longer rely as heavily on cheap capital and high leverage; firms must identify businesses with strong prospects and create value through active ownership. Investment decisions should begin with deep sector research before a sale process, because competitive timelines have shortened and a few weeks are not enough to build expertise from scratch. Long-term board engagement and a repeatable business-building system can differentiate an owner and improve portfolio companies’ strategic execution. Private markets are increasingly important to the real economy, including less consumer-visible businesses in sectors such as agriculture, logistics, and food supply chains. Private-market valuations may fluctuate less than public-market valuations because assets are not priced continuously and investors face practical limits on selling; Layton also cites portfolio-company growth as a counterweight to market pressure. Wider access to private markets may expand the industry, but these investments remain illiquid and should be allocated according to investors’ risk tolerance and time horizon. Investment judgment improves through teamwork and challenge: Layton says partners have stopped him from making investments that would have weakened his track record.

Data Points: Partners Group market capitalization: about $25 billion - Approximate market capitalization cited by the host. Assets under management: over $135 billion - Approximate assets managed by Partners Group. Share of investment activity in the U.S.: about 55% - Layton says this was the share of the firm's investments made in the U.S. over the period discussed. Combined portfolio-company enterprise: about $100 billion - Layton's estimate of the combined scale of the portfolio companies. Partners Group employees: about 1,800 - Employees at the management company. Portfolio-company employees: over 200,000 - Employees across Partners Group's portfolio companies. Minimum investment in a cited fund: $50,000 - A fund threshold the host cited while discussing access for private investors. Average investor in the cited fund: about $200,000 - Layton's estimate; he characterized investors as sophisticated rather than typical retail investors. Private-markets assets and potential market size: about $10 trillion currently; potentially $30 trillion - The interview discusses the industry's current scale and Layton's view of its possible future size. Public-market EV/EBITDA multiples: about 11–12x historically, rising to about 18x at the peak and later falling to about 13–14x - Layton's comparison of public-market multiple expansion and subsequent contraction from 2018 to the period discussed. Average private-market company EV/EBITDA multiple: about 11x to about 12x - Layton says average private-market valuations rose less over the same period than public-market multiples. Portfolio-company growth: double-digit growth over the prior year - Layton cites growth among average portfolio companies as support for their valuations. Breitling growth: 25% last year - Layton's cited growth rate for the watch company, which Partners Group owns. Illustrative buyout leverage: 6.7x EBITDA previously; about 4–4.25x in the newer environment - Layton's example of how tighter financing conditions have reduced leverage available for an investment. Illustrative return impact from changed financing assumptions: about 250 basis points from lower leverage and another roughly 150 basis points from higher cost of capital - Layton's example of returns lost when an old investment model is adjusted for the changed rate and leverage environment. Planned graduate analyst hires: 55 - Layton says the firm expected to hire this many graduates into its analyst program that year.

Pivotal Quotes: "Our business is no longer about doing deals and providing access. It's about building businesses." — David Layton: He explains why Partners Group deemphasizes transactional dealmaking and focuses on long-term ownership. "It's never been more expensive to be naive." — David Layton: He argues that investors need specialist knowledge and a clear view of how industries will evolve. "I would say that investing is a team sport." — David Layton: He describes the value of debate and partners who challenge decisions and cover one another’s blind spots.

Implications: Private-markets firms may need to compete through research, operating expertise, and stewardship rather than leverage and deal volume. Wider access could bring new capital, but investors should weigh illiquidity, valuation differences, and the need for specialist oversight.