Business Breakdowns
· Sean Barrett
[00:00:00] S1: EQT is a thematic private markets investment manager. They're based in Stockholm, but they operate globally. By thematic I mean they invest behind large secular growth trends such as digitization, AI infrastructure, healthcare for aging populations and e-commerce warehousing. EQT manages about 270 billion euros of AUM on a marked basis and about 140 billion of fee-paying AUM. The business can be broken down into four strategies. They have a private equity business that focuses on Europe and the Americas. That's about 35% of fee-paying AUM. Private equity Asia is about 20%. So together private equity is about 55% of the business. Infrastructure is about 30% of fee-paying AUM and real estate is about 15% of fee-paying AUM. Historically, and this is important for the thesis and the story, EQT's funds have been top quartile performers across strategies, generating 2.5x gross MOICs for their investors on those funds and roughly 20% net IRRs for their investors across those funds. We can get into the differences later, but I think the whole space should be grateful that Blackstone went first and created this wonderful playbook. And now folks like EQT and others get to follow that playbook and grow their businesses substantially over the next handful of years.
· Matt Reustle
[00:00:00] S0: Yeah, standing on the shoulders of giants. Even if you become a giant yourself over time. Every alt manager I feel like has this incredible backstory, typically with larger-than-life characters. You mentioned Stockholm origins here. What is the backstory to EQT? And if you can get into just some of the major stepping stones along the way, however you would describe the various chapters, because they all seem to start with these small beginnings before they get to what we know them as today. What does that look like for EQT?
· Sean Barrett, Matt Reustle
[00:00:00] S1: Yeah, absolutely. To understand EQT, you really need to understand EQT's heritage, which was driven by the Wallenberg family. So the Wallenberg family was responsible for the founding of SEB in the 1850s. SEB is the largest bank in Sweden today and was instrumental in the country's growth over the last 150 years. So early on SEB the bank took ownership stakes in companies during downturns. They would lend to these companies and they would end up with shares, which led to the creation of Investor AB in 1916 as a dedicated holding company. The Wallenbergs became investors in a bunch of Swedish industrial giants over the years. And then in the early 1990s, Conni Jonsson, now the chairman of EQT, then in his 30s and a vice president, pitched the idea of a Wallenberg-backed PE firm. And Investor AB gave Jonsson the mandate to create EQT in 1994. So that was a big moment. That launch was backed by the Wallenbergs, but it was also backed by the Rockefellers and the Mellons. And Conni's vision was really to marry Wallenberg corporate governance practices, values and industrial expertise with active ownership that EQT is known for today. [00:00:00] S0: The Wallenberg ethos, it's a name that I keep seeing as I research different things, particularly abroad. What goes into that?
· Matt Reustle, Sean Barrett
[00:00:00] S0: The Wallenberg ethos, it's a name that I keep seeing as I research different things, particularly abroad. What goes into that? [00:00:00] S1: Yeah, the Wallenberg family is really legendary. They've been a huge part of Swedish culture and financial development over the last hundred or two hundred years, but their values are incredible. And I think when it comes to their values, and it's different from a lot of the private equity world, frankly, they say do business the right way. Doing good is simply good business. They say things like make friends, not enemies. And if you actually go to EQT offices and you meet people who work there, they're kind, they're transparent, they're authentic, they're informal. These are the kinds of things that the Wallenbergs wanted to see. Those were the values they lived. And it's really played out and into this culture that embodies the old values of the Wallenbergs. And then from a more tangible perspective, it actually results in really high employee retention, which is rare in the finance space. I think the attrition rate at EQT is something like 10% as far as employee attrition per year. And regrettable attrition we think is 1 or 2% that comps very, very well to the private equity world. And a lot of that comes from these values from the Wallenbergs that makes EQT such a great place to work and a great place to be an investor.
· Sean Barrett, Matt Reustle
[00:00:00] S1: Yeah, the Wallenberg family is really legendary. They've been a huge part of Swedish culture and financial development over the last hundred or two hundred years, but their values are incredible. And I think when it comes to their values, and it's different from a lot of the private equity world, frankly, they say do business the right way. Doing good is simply good business. They say things like make friends, not enemies. And if you actually go to EQT offices and you meet people who work there, they're kind, they're transparent, they're authentic, they're informal. These are the kinds of things that the Wallenbergs wanted to see. Those were the values they lived. And it's really played out and into this culture that embodies the old values of the Wallenbergs. And then from a more tangible perspective, it actually results in really high employee retention, which is rare in the finance space. I think the attrition rate at EQT is something like 10% as far as employee attrition per year. And regrettable attrition we think is 1 or 2% that comps very, very well to the private equity world. And a lot of that comes from these values from the Wallenbergs that makes EQT such a great place to work and a great place to be an investor. [00:00:00] S0: So they got this incredible foundation or backing, but you obviously can learn a playbook. It doesn't mean you can execute a playbook. What did the execution look like over the next 25 plus years that led them on this path to where they are?
· Sean Barrett
[00:00:00] S1: There were a few really important milestones, I would say, or inflection points. So in 1994 they launched the first fund that was about 100 million euros. It was just focused on Nordic industrial companies and tech companies. But the idea was to take these companies and future proof them, find businesses in growing sectors and future proof them and make them better. So it's very similar to what you hear EQT talk about today, but it was a smaller version. And then in the late 1990s, EQT expanded out of Sweden and I think that's a really important moment. Their first office was in Munich, but it's a really important part of the company's history because they wanted to invest across Europe and someday they had aspirations to even go further than that. But they realized that they couldn't do that with just a small team sitting in Stockholm. If they wanted to grow and do it in a thoughtful way, they needed people all over. And that really led to their local with locals approach. And the local with locals approach is something they talk about a lot today. It's a differentiator for EQT, but they have people all over the world, I think 30 plus offices at this point. So if you have a deal getting done in Italy, it's led by an EQT-arian in Milan who probably knows the selling family, knows the local nuances, the local regulations. That was born by necessity really in the 90s when they realized they couldn't do it well just sitting in one office. And when it comes to putting a 22 billion euro fund to work and doing a really good job with it, they really only need to do about a deal per office versus a lot of peers that manage big funds out of two or three flagship offices. And it becomes much more difficult for those firms to generate great returns cross border.