EQT: in for the long haul on private equity

This year marks the 20th birthday of global private equity firm EQT. Founded in Sweden by Investor AB and the Wallenberg family, EQT emerged from a well-established industrial tradition, and started making a name for itself as an investor that knew how to build good companies. This became the core idea behind its  first independent private equity fund.

If asset growth is anything to go by, it’s been a successful strategy. The firm has to date raised about €22 billion from investors, expanding its product offering – from equity to infrastructure and debt – and broadening its geographical remit beyond Northern Europe.

Since 2007, when it raised its first infrastructure fund, it’s also been active in the US, where it focuses particularly on long-term investments. Last year, it closed a second infrastructure fund on €1.9 billion; the new vehicle has already done two US deals (for Synagro and Westway) as it continues to try and redefine infrastructure investing in the US.

“When we invest, we aren’t just looking at the next five years, or whenever we plan to exit,” says Glen Matsumoto, partner at EQT and head of US operations. “We’ll make investments in the company that may not be fully realised until well after we’ve exited. We aren’t interested in financial engineering to lever up a company or make a quick exit. We really want to leave something behind that will continue on.”

Matsumoto says EQT is looking at power plants or private toll roads, rather than waiting for governments to release more assets. “In many cases we aren’t competing against other infrastructure funds; often, we’re going up against middle-market private equity firms. What usually sets us apart is that we have the capital to invest, but we aren’t just interested in squeezing every last drop of efficiency out of company, and we aren’t just buying any toll road.  It’s really up to the management team to show us what is going to create value and justify further investment.” 

The company also launched a separate mid-market fund last year to expand this expertise from infrastructure to other verticals like consumer.

“In one of our power plant investments here, we were able to improve performance by moving some of the output over to natural gas, which is much cheaper and cleaner than coal-fired options,” Matsumoto says. “That provided an immediate value for the company, but also laid the groundwork for additional capital investment.”

The firm has also started looking at the so-called ‘Internet of Things’. By utilising new smart grid technologies at their portfolio companies, EQT is making use of data analytics to give management teams a clearer operational picture. “Those technologies are still too new for us to come in as investors. But we are using the sensors and other solutions to improve how our portfolio companies are doing business.”

Matsumoto suggests this kind of long-term thinking sometimes falls by the wayside in private equity.  But, 20 years on, he says EQT sees no reason to change. “We have a strong culture here, and we bring that culture into every hiring decision. If you’re someone who comes in with the mindset of ‘I’m going to do x number of deals’, you’re probably not going to be a great fit.  I’m more concerned with finding a company I can improve than how many deals I can do. That viewpoint often gets lost in this industry, especially during cycles like now where valuations are getting so high.”