Q&A - Sergio Jovele - Vice president, Partners Group

Given the downturn in the markets, would you as an LP do anything differently now? What advice would you give to a first time investor?

Partners Group has traditionally taken a very strong stance in favour of diversification, even when - as in pre-credit crunch times - it was not uncommon for many investors to advocate the advantages of concentrated, high-octane portfolios. But actually, our portfolio is now holding up well because of this.

Many GPs were perhaps carried away by the overarching market sentiment in the heyday of the buyout market, taking much of the cheap debt that was being offered to them by banks and paying high valuations. Even some of the best known GPs were not immune to this. That is why we believe that it is extremely important to realise that you cannot time the market. Investors have to take a long term view and diversify in terms of market segment, geographies, instruments and vintages. Currently, I believe that anyone looking to deploy capital should look, more than ever, at the full range of instruments available, as the primary market is currently all but shut in most developed private equity markets.

From this standpoint, we are currently looking with increased interest at the private debt space (both on the primary and secondary markets), which we really believe can offer a very attractive risk/return profile. Similarly, direct equity investments, if an investor has the dealflow, can be an attractive way of getting exposure to what we believe will be great vintage years. Finally, secondaries is also an interesting area; as visibility in the market increases and the gap between buyers and sellers continues to narrow, we will see more secondaries activity in the short to medium term. Primaries are definitely not the priority right now.

What would you say is the biggest change in terms of how a GP treats its LPs now?

There has been a shift in power from GPs to LPs, but everything is in flux right now, so it is still too early to tell. What we might see is concessions not so much on the headline terms but on some of the less visible (yet very important) details in areas such as transaction fees etc.

What we saw after the venture capital bubble at the beginning of the decade was a certain polarisation between those GPs that were able to sustain good returns and others that suffered rather more. This led some to differentiate themselves based on their fee structures, as they couldn't stand out from the crowd based on their returns alone. This is clearly something to watch out for, in our view, as the dispersion of returns in private equity, as is well known, is so large that even on lower fees some of these funds are perhaps not worth pursuing. In any case, it's still very early days.

What is more relevant when assessing the merit of a GP, their track record or the current underlying portfolio?

The current underlying portfolio is all a part of a manager's track record. It is crucial to understand both. It is also necessary to understand what makes firms tick, what motivates them, their succession plans, and how old or young their teams are. These qualitative judgments are just as important. Although some GPs might have made mistakes, one shouldn't forget that many of the funds that are often referred to in the market as being "in trouble" still have significant amounts of capital yet to be deployed.

What is the best indication of the true skill of a GP - cash in vs out in the last five years, or current performance (realised and unrealised)?

Both are absolutely important. As an investor, you have to go into detail and analyse everything, including operational issues. We track more than 5,000 portfolio companies in our proprietary database, which allows us to monitor portfolio company development in terms of top line, bottom line, debt repayment etc. This allows us to be very close to our portfolio companies and track their performance on an absolute as well as relative basis.

Do you see the typical 10+2 year fund structure changing at all in the future?

There is a reason that the 10+ 2 model is the standard. It is because it works. We may see other structures created for different types of investors than perhaps a pension fund, but I think this will be the exception - not the rule. You can't change the nature of private equity. Managers have to have enough time to work with the company, create value and then divest.

Do you have any last comments on the market?

This is the time you can really make something on your investments. Investors should not be irrational and overreact. Now is the time to stay in the private equity market. As a result of the distress and lack of liquidity, the opportunities are unbelievable. We have been able to use our networks to source direct equity and debt transactions, secondaries and have been able to selectively deploy capital to take advantage of the opportunities dislocations in the market always throw at us. There is evidence to suggest that vintage years coinciding with a recessionary environment outperform those vintage years coinciding with more positive macro-economic environments. In the end, it's quite simple: in this environment you can take advantage of lower entry multiples, forced sellers and sometimes irrational behaviour.

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• UK / Ireland