Business Breakdowns
· Sean Barrett
[00:00:00] S1: Historically it was all part of big flagship private equity funds and a fund. Historically the flagship strategy at EQT was roughly 40% healthcare and 60% tech-enabled services. A lot of software, a lot of tech. Increasingly over time, again Blackstone led the charge and really created the playbook for everyone. Everyone should be very grateful for that. But over time, EQT has actually started launching sleeve strategies that allow investors to have exposure to one trend if they want it. An example of that would be energy transition. So out of the infrastructure business, their infrastructure business really focuses on growing sectors. It's not toll roads or what I would call boring infrastructure. These are growthy businesses like data center businesses that have lots of underlying tailwinds from stuff like AI digitization and AI infrastructure. But then within that they've also realized that people might want exposure specifically to data centers. And they can focus on that through co-invest or specifically energy transition where EQT is very good and so they have an energy transition fund. And I think these sleeves will be more and more common. Another example is that EQT Asia, we'll get into more detail on it really has an advantage in India specifically. So something like 40% of the Asia private equity business at EQT is India focused. They've done a tremendous job investing in India. It's a very hard place to invest. You need talented people on the ground. That's become a strength. I wouldn't be surprised at all if EQT launches an India sleeve at some point so people can just focus on that. And by the way, I think it would be really valuable for their investors if they chose to do that.
· Matt Reustle
[00:00:00] S0: Unbundling of private equity or private capital, just like everything else, the conglomerate era is no more certainly makes a lot of sense and I think we see it everywhere. Diving into the strategies that you laid out a bit, there's increasingly sleeves of different strategies that they're looking into. I think when I looked at various presentations that talked about private assets, real assets, wealth. Would you say that there is a bellwether strategy for the business that you think is viewed as the most important thing to monitor or a growth strategy that you think is most important to keep an eye on? Obviously they're all important, but how would you frame that?
· Sean Barrett
[00:00:00] S1: They have four strategies. We're actually tremendously excited about all four of them and they're really great franchises. So stop me if anything becomes interesting, but the first strategy is private equity, Europe and Americas. So that's Asia. It's about 50 billion euros of fee-paying AUM and again they invest behind thematic sectors. So it's a lot of healthcare and tech within that strategy. That's most of the strategy if you really break it down. And I think they're trying to find important tech and healthcare companies of the future, usually leaders in their markets, but businesses that need some help, future-proofing and growing to get into that inflection and hit the next level of their growth. I think a good case study, for example, would be IFS, which IFS is a leader in industrial software or software that helps companies manage their assets and people. It's effectively an ERP software company for capital-intensive industries. This was a publicly traded company 10 years ago that nobody really cared too much about. It was doing a few hundred million of revenue. It was on-premise software, it was growing single digits. EQT took it over and really got to work. I think they had the vision that this was a great market and they got to work on future-proofing the company. So what did that mean here? That meant switching the company, replatforming the business into a true cloud provider. And today that business is doing 1.2 billion euros of ARR, growing 30-plus percent with EBITDA margins of 30-plus percent. So think about that as a transformation. That is not your old boring private equity playbook. That's taking a business at 300 million of revenue, growing single digits, 4x-ing the business and taking revenue growth from single digits to 30%. It's really impressive. And that's the playbook at EQT.
· Matt Reustle
[00:00:00] S0: Guessing somewhere in the one to $3 billion range. In terms of the acquisition size, is that in the ballpark of what they're normally buying? How much does that vary just in terms of the size of what they're doing when they deploy capital?
· Sean Barrett
[00:00:00] S1: Yeah, we think a lot of their check sizes end up being in the flagship fund, end up being in that 500 million to one and a half billion euro range. On the very high end, their most recent fund was 22 billion euros in private equity. That's one of the bigger private equity funds in the world. And within that they also have the ability to tack on co-invest. So if they have a need for more capital, they can tap their partners and the partners can help with co-invest. It's also something that big LPs really like. They view that co-invest as an opportunity to bring down the blended fee rate and it's good partnership. On a side note, it's also a reason that we're comfortable that EQT can continue generating great returns at larger and larger fund sizes. Because if you look back over the last five or ten years, yes, their flagship fund has doubled in the last seven years, the fund size has doubled. But at the same time they use so much co-invest along the way that they've actually been investing more and more over time, bigger dollars over time and then they've done a really good job with returns. So the private equity business has generated a 21% net IRR historically for investors. EQTerians, they like to call themselves performance gatherers, not asset gatherers. But if you keep generating 21% net IRRs for your investors, they will happily give you more and more money. And that's why this business has grown so quickly.
· Matt Reustle
[00:00:00] S0: Yeah, one certainly leads to the other. That is the case. I interrupted as we progressed through some of the strategies so we can push on.