Business Breakdowns
· Sean Barrett, Matt Reustle
So they have investor trust in this regard. If you look back, the last two really big ones: they held onto Nord Anglia for 17 years, off and on. IFS for nine or 10 years. These are huge multiples of money. So when they go to investors and they say, "Hey, we want to do a continuation vehicle for this investment," or "We want to sell it into our new flagship fund," investors actually trust them to do that. [00:00:00] S0: I have to say, I love the private IPO strategy. That's a new one, but I like it and it makes a lot of sense. So interesting to see the innovations. As you mentioned, the other side of the coin, which we've talked about throughout the conversation, is fundraising. And they hit on a staggering number. I think it was 75 billion euro in the 21 to 23 fundraising cycle. Just focusing on that period of time, was that a surprise in terms of their ability to raise at those levels? Did it just come in line with the expectations that you might have had? I just want to capture some of the historical precedent because they've obviously laid out a number for the future. And coming off that big number, how do you remember that timeframe and their ability to execute on that?
· Sean Barrett
[00:00:00] S1: Yeah, actually I do think this was a bit of a surprise, at least for me. EQT was managing about 50 billion euros of fee-paying AUM going into that last fundraise. So that jump organically took them from something like 50 billion of fee-paying AUM all the way to 125, and then they acquired a bit and all in they got to 130 to 140 billion of fee-paying AUM, which is where they are today. But for a company with 50 billion to jump and raise 75 billion euros is unbelievable. And I think it really comes down to a trend that we've seen, and I think this was an aha moment for me frankly, where at sub-50 billion, sub-75 billion you have a few channels that you can really go to for fundraising, and it's really the more traditional institutional channels. You don't have a lot of retail because your brand isn't there. And you don't have a ton of exposure to sovereign wealth funds who are writing those 1 to 2 billion euro checks. And then what we've noticed is that when alternative asset managers get to that 50 to 100 billion euro scale, their world really opens up. If they have good returns, they can go to other retail channels, new retail channels, and tap that. Retail is 10% of the business today. It was probably very little, a very small piece of the business 10 years ago. We think it'll continue getting bigger. And then more importantly, the sovereign wealth funds writing 1 to 2 billion euro checks, all of a sudden you're right in their wheelhouse. So what we've seen is that these alts that hit 50 to 100, it's very hard for an alt to get to 50 to 100. And then once they get there, if they have good returns, they can hit this inflection point. Their world opens up, their channels opened up. And I think EQT really experienced that same trend.
· Matt Reustle
[00:00:00] S0: Yeah, it's always interesting when you find something that has a slope that inflects and there's an acceleration in growth or at least the opportunity. When you mentioned retail, should I be thinking about that as high-net-worth channels that exist in large pools through whatever you might call brokerages or whatever it might be? But is that the right framing to have for the retail bucket?
· Sean Barrett
[00:00:00] S1: When we refer to retail in the alt space, it's really referring to a lot of it's coming from the wirehouse channels. So think the big banks that serve high-net-worth clients. And again, this is a benefit of not going first. So if you look back at the history of this market, the idea that the alts would serve retail was a bit of a pipe dream for a long time. And Blackstone did a ton of work on this and then other great investment firms in parallel were doing a ton of work. Ares and others that you know that are public, KKR, Apollo, et cetera. So at EQT they've built out this retail business called Nexus and it's a NAV-based strategy unlike its other funds. And it effectively offers evergreen vehicles to retail investors. So again, frankly, following the Blackstone playbook that's been so successful. So this is like BREIT, the non-traded REIT that Blackstone has BCRED, but it's for EQT's flagship funds. EQT started with a retail vehicle in 2024 in private equity. They quickly raised a billion euros. They realized, wow, this is a big opportunity. Our brand is actually good enough that we can do this now. And in 2025 they're set to launch five more retail vehicles around infrastructure in different geographies. So this is going to be a big growth driver for them. Again, we think retail for EQT is probably 10% of the capital today. We think it can go to 20% of AUM over time. Big buckets. And I think they'll take advantage of those.
· Matt Reustle
[00:00:00] S0: As you think about the fundraising target of 100 billion for the next cycle, we've touched on you drive returns that leads to higher likelihood of successful fundraising. What else would you just discuss when you think about monitoring that target and following along that pace of fundraising? Because you have the fee base and then the carry and the fee base is a big piece of the story. So how do you think about framing that? What is another very large number?
· Sean Barrett
[00:00:00] S1: And it is a big piece of the story. I mean, what we've seen historically is that the stock prices tend to be very well correlated to asset growth for the alts. So it's an important part of the thesis. It starts with generating great returns, like you said, and having LPs who are willing to entrust you with more and more capital. I think for the upcoming fundraising cycle, there is a lot of skepticism in the market from investors and research analysts as to whether EQT can raise the 100 billion euros. It's a lot of capital. They manage 140 billion euros today, so adding 100 billion euros to that is no small feat. And if you look at the market, rates are a lot higher than they were during the last fundraising cycle. And a lot of investors are increasingly full up on private equity. At the same time, large LPs need to generate good returns to cover their future liabilities, which are also growing very rapidly with higher inflation and higher social inflation. So those investors are looking to best-in-class private equity firms to help them accomplish those goals. I think smaller PE firms will struggle in this environment, especially those that haven't generated great returns for their investors. But the large, best-in-class PE firms with great returns are frankly benefiting and gaining a ton of share. We just saw a couple weeks ago, Thoma Bravo announced they'd raised $34 billion, $24 in the flagship private equity vehicle and $10 billion in sleeves around that vehicle. That tells me that the market's healthy enough for great investment firms to continue raising money. But I think the mediocre ones will have a lot of trouble. And then while the market's tougher today than it was in 2021, EQT also has some growth drivers today that it didn't have back then. So we talked about the retail business, continuation vehicles, the sovereign wealth channel. That's becoming a bigger part of their business. And then lastly, EQT is innovating and launching these carve-out strategies like the transition strategy, regional strategies, future strategy. So even if the fundraising environment is tougher, going back to the building blocks again, we build up and predict this business based on each fund.