Managing Partner and co-founder of EQT Partners, investment advisor to the EQT funds, shares his thoughts and insights of where EQT and the private equity industry are headed.
I believe there is a continued demand for private equity investments in general and, in particular, in the
mid-market and upper mid-market segments. Another interesting trend is the increasing importance of ties between companies in Europe and Asia, either by cooperation or cross-continent M&A activity.
The globalization of the economy is accelerating, as are the competition and opportunities that go with it. This makes it even more important for owners to truly support their portfolio companies and stay focused on development and growth.
The uncertainties surrounding some Euro zone countries and the US, in terms of fiscal balance and growth, also pose a great challenge in terms of credit financing and underlying market growth.
A more conventional corporate structure has been implemented. EQT Holdings AB is the holding company for all future General Partners, as well as support and specialist functions. The Investment Advisory functions of EQT Partners may well be included in the future.
Because it creates trust. Today, companies owned by EQT funds have more than 550,000 employees and it is vital for EQT to continue to be accepted in all aspects as a serious and responsible owner and investor. Therefore, General Partner functions have been established in Amsterdam, London and Luxembourg. EQT Infrastructure II, closed in January 2013, was the first fund in the new structure and is managed in the Netherlands.
I think it is up to each player to show what they do. EQT has had a growth focus and industrial approach right from the start, which has allowed portfolio companies and their number of employees to grow by more than 10% per year and there is always a long-term view in EQT’s investments. Such facts definitely help EQT’s image.
EQT strives to be at the forefront of this development and I strongly believe greater transparency is not only desirable but crucial. There has to be a balance though so that the business is never negatively affected.
It essentially means that you have to gain the necessary trust and respect from all stakeholders including employees, owners, unions and political bodies. You must be engaged and involved, be available and explain what you as an owner can do for a business.
It has a lot to do with creating value for all stakeholders in a sustainable way. As owner and investor, EQT can contribute by carefully selecting what to invest in, develop companies and make sure they are best-in-class with regards to environmental issues and social responsibility.
EQT is a signatory of the United Nations-backed Principles for Responsible Investment Initiative (UN PRI). Its goal is to incorporate sustainability issues into investment decision-making and ownership practices. Investing responsibly is a central part of delivering long-term superior value and by implementing the principles, EQT contributes to the development of a more sustainable global financial system.
Most of EQT’s portfolio companies are based in Northern Europe or Asia where the situations are considerably better than elsewhere, so I believe EQT is well positioned from that perspective.
The rise of economies such as China also brings new opportunities, both for the portfolio companies and for new investments, so I am rather optimistic. At the same time I am worried about the high unemployment rates, and the lack of financial resources to support the high public service level we are used to in Europe.
We must become smarter in how these services are provided, and all contribute to a society where it’s possible to get a job and support your family. I strongly believe that private equity can play an important role here. As I stated earlier, EQT allows portfolio companies to grow, which also leads to job creation.
Yes, EQT Partners has dedicated resources to evaluate the investment opportunities in the mid-market segment in Northern Europe, Greater China and Southeast Asia. Over time, there have been many companies in this segment that lack a strong governance framework, growth expertise and an international network and these are areas where EQT can contribute with competence. The plan is to identify family-owned businesses, corporate orphans and public-to-privates. Cross-border ownership and ties between Europe and Asia are other themes that will be investigated further.
These sectors are stable and display healthy growth, which is always
a good base for an investment. Often there is also considerable room to introduce new ways of working and developing these companies in a way that makes them more efficient and competitive. EQT can provide access to these skills and ultimately make the usage of tax payers’ money more efficient.
In my view, owning this type of company means a special responsibility. I hope and believe politicians and people in general will see what a terrific job these companies can do under the right ownership.
That may well happen due to increased competition and low interest rates. I do, however, firmly believe that EQT and the top tier of other private equity houses will continue to outperform the public markets in the future. It is not only the absolute return that matters but also being the best available option for investors.
Bigger and even more sustainable, with greater capital to work with. I believe, however, that the basic idea will be the same – to make good companies better by applying an industrial and operational approach with a clear focus on sustainable growth.
A strong corporate culture with an industrial and operational focus in the portfolio companies, attention to stakeholder management and the ability to recruit the best talent. These aspects are vital in growing and developing the portfolio companies – and that is what drives the value creation. A key factor is the Industrial Network which is something that really sets EQT apart from others – the size and depth of it and how it’s put to work.
By improving, rejuvenating and growing companies, making them more competitive and sustainable, EQT contributes to growth and employment like any responsible owner. Sometimes, EQT may also help shape and transform an entire industry by strategic changes and producing national or global champions. Owners are also very well positioned to promote attention to CSR and ESG issues and development through their portfolio companies, which drives value.
It has to do with perspectives. For investors, it may primarily be an asset with attractive returns but we must not forget that those investors are you and me, as future pensioners, savers and other important stakeholders in society. This means that how returns are produced is increasingly in focus, that they align with the modern ethics and codes of conduct we as savers have and that the value created is sustainable. As responsible owners with a development focus, EQT can act as catalysts in the corporate landscape and help drive growth and employment in the broader economy.