Putting the Power of Private Equity into a Portfolio

Private market investment products are primarily designed for institutional investors. However, access for private investors is growing, allowing individuals to diversify their portfolio by exploring investment opportunities in private markets.

Private market investment involves a cycle where funds raise capital from various investors, including pension funds, sovereign wealth funds, and family offices, who are focused on long-term financial goals. These funds then identify and invest in companies with growth potential in strategic industries.

Under the ownership of EQT, a comprehensive value creation plan is put into place. This plan focuses on transforming these companies to enhance their relevance, sustainability, efficiency, and value through active management. Once the objectives of the value creation plan are achieved, EQT exits these investments, typically by selling them to strategic investors, other investment funds, or through public market listings. The capital is then returned to the investors, and the funds are generally closed within a decade. This process allows private equity funds to manage and improve companies actively, aiming for profitable exits that benefit the companies involved and the investors.

The duration of an investment in a private market fund depends on the type of fund involved. Traditional private equity or venture capital funds generally have a fixed lifespan, typically around ten years. During this period, an investor's funds are locked in, and opportunities for early withdrawal are limited. The investment is committed until the fund managers execute exit strategies, such as selling the companies or taking them public.

Conversely, evergreen funds operate on a perpetual investment cycle with no fixed end date, offering greater flexibility. These funds continually reinvest returns into new opportunities, allowing for more liberal capital injection and withdrawal terms. For instance, investors in evergreen funds may have the freedom to exit with certain restrictions, like the ability to withdraw once every quarter. This structure allows for ongoing engagement and potential long-term growth without the typical time constraints of traditional funds.

Over the past 25 years, the global private equity and venture capital industry has generated average excess returns of around 12.5% over the returns associated with 3-month Treasury bills, on an annualised basis. Compare this to the annualised average excess returns of 7.3% and 7.5% for the S&P 500 and the Russell 2000 Total Return indices over the same 3-month Treasury Bills³⁾ during the same period.

The EQT track record extends over three decades, a period during which we have navigated various markets, industries, and strategies, all while maintaining a steadfast commitment to generating strong returns. The cornerstone of EQT's strategy involves implementing a detailed value-creation plan and maintaining active ownership to transform companies, making them more relevant, efficient, and prepared for future challenges—fully optimised for current market dynamics and customer demands.

Past performance is no guarantee of future returns.

Private markets offer significant diversification benefits, providing investors with an opportunity to complement and expand existing investment portfolios. They also provide access to a larger opportunity set, with over 140,000 private companies globally compared to just 19,000 public ones. This extensive universe allows for greater selectivity and risk spreading.

Private equity firms actively manage their investments, using specialized expertise to implement strategic changes, enhance governance, and control operation. Additionally, these firms leverage debt to optimize capital structures and can pursue long-term growth strategies without the pressure of short-term market fluctuations.