EQT could set a new bar with €4bn impact-linked carry fund

Lessons from its debut 'impact-driven' long hold fund 'will trickle in' to the rest of the firm's platform, says EQT's Anders Misund.

EQT will try to raise €4 billion for a long-hold private equity vehicle that will be “impact-driven”, the firm has said. The EQT Future fund will invest in “mature, high-quality companies with market-shaping impact potential” where transformation requires a “longer ownership horizon” than the typical fund. Here’s what you need to know:

Interest linked carry: The rate of carried interest on the fund is 10 percent, with an additional 2.5 percent available to the GP in the event that certain portfolio-wide sustainability goals are met. These goals relate to: reduced greenhouse gas emissions using the Science Based Targets; improved employee wellbeing, as measured using eNPS (net promoter score); and increased gender diversity, “where progress will be tracked towards a 50 percent split within the top 20 percent of earners in each company”, the firm said. In the event that the sustainability targets are not met, the additional 2.5 percent carry does not go to the GP.

The portfolio: The fund will pursue investments in companies that contribute to one of three themes: people, planet and prosperity. Anders Misund, partner and head of the Future fund team, told New Private Markets that the fund will seek to invest in a portfolio of eight to 10 companies. As well as the portfolio-level impact targets, each company will have its own impact KPIs, with progress measured and reported using GIIN’s IRIS+ methodology.

Fund structure: The fund will have a 12-year life with three years’ extension. Management fees will only be paid on invested (rather than committed) capital; Misund said the fees were “in line” with the firm’s other products, but declined to be specific.

EU SFDR: Whether the fund will be classed as Article 8 (light green) or Article 9 (dark green) under EU regulations is “being discussed”, Misund said: “The way we see it today, it will be something like an 8+.”

Advisory board: EQT has assembled a “mission board” that will provide strategic direction and impact-focused advice. This will be co-chaired by Paul Polman, former chief executive of Unilever, and Jacob Wallenberg, chairperson of Investor AB (the investment group from which EQT emerged).

The context: This fund launch is significant because, while we have seen a handful of firms taking the step of linking their carried interest to impact or ESG targets, including a notable EQT alumnus’ firm Trill Impact, these tend to be emerging managers or impact specialists, raising capital in the hundreds of millions, rather than billions. With €900 million successfully raised for its debut, for example, Trill’s launch was considered to be a watershed development for this type of fund mechanism. If EQT is successful, it will prove to be another significant step forward.

The fund offering is also significant because EQT, by all accounts a progressive firm when it comes to ESG integration (it recently became the first firm to set Paris-aligned targets approved by the Science-Based Targets initiative), has previously hinted that it would not want to raise a separate impact strategy “on the side”.

Indeed, Misund tells New Private Markets, this is not what it has done. “We don’t see this as a pure impact fund… it is instead an impact-driven longer hold fund,” he said, describing it as “a lighthouse” initiative, in that it will light the way for other managers to follow.

Paul Polman, co-chair of the “mission board”, put it differently: “You need forerunners to make the dust, rather than eat the dust.”

“We need to recognise that this is the first step… it needs to be the norm-setter,” said Polman.

Misund would not be drawn on whether – given the example being set by the Future Fund – EQT would implement impact-linked carry systems for the other, more established, fund families it offers. “We think about this as the leading edge, from which experiences and learnings will trickle in to the rest of our platform,” he said.

– This article first appeared on New Private Markets.


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