Side Letter: EQT’s €4bn long-hold target; Japan’s tech pledge; Canadian continuation

EQT's new fund will combine two of private equity's hottest trends: long-hold investing and impact-linked carry. Plus: Japan's government is backing private tech companies and why Canada's latest continuation deal was doubly unusual. Here's today's brief, for our valued subscribers only.

They said it

“There can be mistakes. People can pledge to do something and then discover, ‘Actually, we can’t do it’. That’s not wrongdoing. The grown-up thing in that situation is to have an open conversation about it.”

Wall Street Journal reporter and The Key Man co-author Simon Clark told delegates at affiliate title Infrastructure Investor‘s Global Summit on Monday that a lack of transparency in private equity can be unhealthy (registration required).

Just happened

EQT’s plan to carry on owning
EQT will seek €4 billion for a long-hold private equity vehicle that will be “impact-driven”, affiliate title New Private Markets reports this morning (registration required). The EQT Future fund will back mature companies with market-shaping impact potential where transformation requires a longer ownership horizon than the typical vehicle. Here’s what you need to know:

  • 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 – including reduced emissions and gender diversity – are met.
  • It will pursue investments in companies that contribute to one of three themes: people, planet and prosperity.
  • The fund will have a 12-year life with three years’ extension.

The 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 EQT alumnus’ firm Trill Impact), these tend to be emerging managers or impact specialists, raising capital in the hundreds of millions. If EQT is successful, it will prove to be another significant step forward.

While we’re on the subject…
EQT released its Q3 earnings results this morning. Here are some highlights:

  • Its latest PE flagship, EQT IX, was between 65 percent and 70 percent invested as of 20 October.
  • EQT VIII‘s gross MOIC increased from 2.1x to 2.6x during the quarter, which it attributed to “strong value creation and exit events”.
  • It has begun preparing for EQT X, EQT Ventures III and a core infrastructure strategy.
  • The firm deployed €19.6 billion across all strategies in the 12 months to 30 September, well above the €8.7 billion invested in the preceding 12 months. Gross fund exits almost quadrupled to €16 billion, from €4.2 billion.
  • Uncertainty could influence future exit activity, chief executive Christian Sinding noted on a Wednesday earnings call. “The exit market actually will continue to be quite strong, there’s a lot of capital out there, interest rates overall remain quite low… but having said all that, there is more uncertainty, and of course, when there is, that might mean that some exits are either postponed or stopped.”


Stay Inovia day…
Canadian firm Inovia Capital has completed a rare continuation fund process involving venture capital assets, our colleagues at Buyouts report (registration or subscription required). The transaction included nine assets primarily from Inovia’s 2007 and 2011 funds, and was valued at around $334 million. It also had a cross-fund element: Inovia’s debut growth fund, which closed in 2019, co-invested into three of the assets, AlayaCare, AppDirect and Snapcommerce. The deal was led by BlackRock and HarbourVest.

Though continuation funds are increasingly commonplace, deals of this size are unusual in Canada, and GP-leds typically involve buyouts rather than VC. You can view our handy guide to which top PE firms have so far used continuation funds here.

Japan’s tech pledge
The Japanese government is planning to launch a fund dedicated to private tech investments, The Japan Times reports. The vehicle – expected to be around ¥100 billion ($873 million; €750 million) – will support private sector companies in their research and development for advanced technologies. It is expected to help businesses and universities develop artificial intelligence, quantum and robot technologies, biotechnology and other important tech. Japan’s rising focus on technological development in recent years has not gone unnoticed by international growth equity and VC firms, as Private Equity International explored in our latest Japan Special.

Today’s letter was prepared by Alex Lynn with Toby Mitchenall.