Good morning, everyone, and Welcome to EQT's Q1 Announcement. It's been another busy quarter as we continued EQT's strategic growth journey, launched new strategies, and continued making investments and exits despite macro and geopolitical uncertainties. Together with Christian, Caspar, and Kim, we will summarize and reflect on the first quarter. As always, there will be a Q&A after the presentation. In order to ask questions, you need to be dialed in to the conference line. With that, I hand over to Christian.
Thanks, Olof, and good morning, everyone. In the first quarter, we've taken important steps towards building a global leader in active ownership strategies. We continue to perform well for our clients across our various funds. At the same time, the year has started off distressingly with the war in the Ukraine and continued conflicts in other regions around the world. We're, of course, deeply saddened by these human tragedies, and thus, as the war broke out in Ukraine, we immediately urged portfolio companies to wind down any activities in Russia. We've also seen strong support from the EQT network in helping the Ukraine with humanitarian needs, including from portfolio companies like schülke. Turning to EQT's strategic agenda, we recently announced the combination with BPEA, and we're also thrilled to have formally closed the combinations with LSP and the Bear Logi team in Q1.
Furthermore, EQT had quite a busy quarter when it comes to fundraising, with launching EQT X and EQT Active Core Infrastructure, and also having several other ongoing fundraisings across the group. At the same time, deal activity has continued despite the market turmoil, albeit at a somewhat slower pace compared to the very active quarters we had last year. On the people side, we're now over 1,300 EQTarians globally, and we're continuing to strengthen the firm in terms of talent. With that, I'm so happy to build EQT's executive committee with Christina Drews. She's gonna join us as EQT Chief Operating Officer in June, and she's gonna be leading the scaling of our operating platform going forward. Finally, we've preemptively funded the cash portion of the BPEA transaction through a bond, and we further strengthened EQT's financing structure through a larger revolver. Next slide, please.
Let's take a step back and look at our strategic journey. With BPEA, we have a scaled platform in Asia, and as a result, EQT will have a truly global footprint. This brings several advantages. First of all, our clients have further opportunities to invest with us across geographies and strategies. Secondly, we can share knowledge and insight across global teams to be a smarter investor and owner. Third, we can leverage our platform on a global scale, be it, for example, our leadership in sustainability, our expertise in digital transformation and AI. Now with Motherbrain actually being more widely adopted across the platform and with Asia becoming truly global. Like EQT, BPEA is also performing well during these somewhat turbulent times in the world.
For these reasons, the client feedback around our combination with BPEA has been overwhelmingly positive, and we're really looking forward to the closing in Q4. Furthermore, you know, with our position now, we have an opportunity to scale our strategies on a global basis, which I'll come to on the next page. Next slide, please. With BPEA, EQT is gonna be local with locals in 25 countries, covering around 80% of global GDP. Looking ahead, we have a long-term opportunity to scale all of our strategies now on a global basis. To give a few examples of this, starting with real estate, we now have a team of over 60 people in Asia Pacific alone.
Over time, we're gonna build our real estate franchise in that region, within logistics, multifamily, and office, which means that we will have all those three investment areas covered by real estate globally. In private capital, we have a strong track record in North America now, and we have an opportunity to really expand our investment strategy in that region. In Asia, of course, in addition to private capital, which BPEA brings, we've done now a number of infrastructure investments that are performing well, and our capabilities there are only getting stronger with this combination. Of course, we also continue to grow organically with the platform, and the expertise that we have in our business.
Nevertheless, we're, you know, we're gonna continue to evaluate M&A opportunities to complement the franchise, whether it might be in specific regions or through adding thematic expertise. Near term, of course, we would primarily only consider smaller opportunities as we focus on making sure to maximize the potential and integration of our recent combinations. Next slide, please. We're all facing a number of challenges in the world, for example, with inflation and higher rates of interest, or the war in Ukraine, which of course, beyond the tragic loss of life, has also triggered a spike in energy prices and potential food shortages across the world. There are global social inequalities, and we have the climate emergency.
At EQT, we're working continuously to adapt to these types of challenges, trying to find opportunities in those challenges and also managing our risks proactively. We're really seeking possibilities to make a positive impact and create returns for our clients through active ownership, through really building the company's investments that we make. As a result of our thematic investment strategy, underlying portfolio company performance remains strong as you've seen, and valuations also remain solid in our funds. Even with inflationary challenges, the combination of pricing power and productivity gains support earnings overall in our portfolio, and most of the sectors we invest in and still enjoy robust multiples. This also goes for real estate where we see stable valuations, and in the themes we're investing behind, and the types of assets we're investing in, real inflation protection.
Having said this, of course, we're also impacted by external factors and are following up all of our investments very, very closely. On the exit side, it is now a little bit harder to find common ground between buyers and sellers. Even though the M&A market remains fairly active, as seen in our exit of IFS and WorkWave, for example, the IPO market now is effectively closed. Historically, these kinds of IPO windows come and go, and in the meantime, we continue, of course, with driving value creation in those companies that are looking to go public. In our sectors, there's still robust interest, and we expect to continue to drive divestments this year across all of our business lines. How are we thinking about new investments in this market?
Well, we're discussing these matters a lot, of course, in the Global Investment Forum, and we're being highly selective. First of all, we renew our conviction in EQT's robust strategy of thematic investing. This is really about finding long-term societal needs and backing companies that can help accelerate those trends through our value creation plans and future-proofing actions. Secondly, ensuring that we use our portfolio resources to drive full potential in each company and each asset, and truly integrating sustainable transformation into the core of every business and every asset. Thirdly, ensuring sound capital structure is designed not to maximize leverage, but to support the value creation plans. That's always been our philosophy since day one. Fourthly, remaining vigilant on risks to matters like gray swans.
What I mean by gray swans is things like the recent pandemic and the war in Ukraine, two examples that were known risks that I think we all could have been even better prepared for. Really, you know, starting to discuss those elements and making sure that our boards and management teams are ready for external shocks. Also, we're of course looking into demand costs in the value chains, pricing, and cybersecurity, where we have a task force, an internal one that's highly capable, so we can really track what's happening out in all of our companies and all the portfolio companies and portfolios so we can stay ahead of the curve.
Looking more broadly, as you know, we have our thematic investment strategy plus being local with locals in every country we invest in. With that, our pipeline remains robust for the year. One example of this is in the decarbonization and energy transition part of our investment strategy, where we see a lot of investments that need to be accelerated in order to manage higher energy prices and also reducing a dependency on imports of energy. Turning to the next page, kind of a case in point, we are really working to continuously raise the bar when it comes to our environmental ambitions.
We were the first private market firm to set science-based targets last year, and we now accelerated that target to reach net zero on all companies by 2040, which is 10 years earlier than required. More than 40 of our portfolio companies are already driving their formal actions towards net zero, and all our companies are obviously working on it and preparing it. In addition, we have new fund investments like Vinted, Covanta, and Cypress Creek Renewables that demonstrate how we drive the environmental transition through either circularity, waste reduction, or green energy generation, green electricity generation. Another interesting example is Formo, a company in EQT Ventures, which is developing animal-free dairy products, driving cutting-edge synthetic biology to become truly regenerative. Very interesting company.
Another example is Oterra, which is leading the world in moving from synthetic food colorings, which are unhealthy, to natural colorings, which are much more healthy. In total, we've recently invested more than EUR 10 billion in climate and environmental companies and assets, and we do this across various business lines rather than in a specific fund, and thus staying truly thematic. With that, I hand over to Caspar.
Yeah. Thank you. We've been busy when it comes to fundraising activities in Q1. This will continue throughout the year. It's quite crowded and competitive fundraising market out there with, I would say, most of our peers also raising flagship funds this year. This also then coincides with the broader macro uncertainties that Chris talked about. We expect continued strong momentum for well-established funds with strong track records, such as our flagship funds. For newer fund initiatives, it's likely that fundraising could take a little bit longer to complete. This year may also further accentuate the trend of clients concentrating commitments with fewer counterparties.
Firms with strong performance and track records, like EQT, will stand to benefit, and I'm confident that we will come out significantly stronger relative to the market from this year. Specifically, we set the hard cap for EQT X at EUR 21.5 billion last week, and fundraising for EQT X will likely be materially down during 2022. As expected, fundraising will continue into 2023 before we have a final close. In the first quarter, we also set the target fund sizes for EQT Ventures III and EQT Active Core Infrastructure, EQT Exeter Industrial Value Fund VI. We're continuing some of the fundraisings initiated last year, including EQT Future, EQT Growth, and Exeter's US Industrial Core-Plus Fund IV. It's a busy fundraising schedule overall. As you know, Exeter has typically various fundraisings ongoing in parallel.
On that note, we previously mentioned that EQT Exeter is expected to raise at least EUR 5 billion this year, and that number is likely to be meaningfully exceeded based on the current fundraising pipeline. When it comes to EQT Infrastructure VI , we have progressed the preparations and further calibrate the timing versus other ongoing and fundraisings, and we will likely start fundraising for EQT Infrastructure VI, in Q4 this year. Depending on the exact timing, we may book some commitments this year, but the bulk of the fundraising of EQT Infrastructure VI, will likely take place in 2023. Next slide, please. We're continuously investing in the EQT platform, and we're attracting talent at a good pace. We always invest and hire ahead in order to secure future scalable growth and, of course, future returns for our clients.
This page illustrates how we invest in new strategies which initially have lower margins as we set up the investment teams and build a track record. Over time, we expect our emerging strategies to scale, which results in a material margin uplift for such strategy. The emerging strategies include growth, future, and active core as an example. Looking at Exeter, we're actively recruiting as we build the investment organization across regions and strategies. With BPEA, we expect to build the team once the combination closes in order to broaden the thematic focus, strengthen the sustainability expertise, and add new strategies in APAC over time. With that, I'm handing back to Olof.
Thank you. Next slide, please. Thank you. In Q1, investment and exit activity continued, albeit at a slower pace compared to recent quarters. In total, we announced investments of EUR 3 billion and exits of EUR 2 billion. In terms of our key funds, EQT IX is now 75%-80% invested, which is in line with the investment level at year-end. EQT Infrastructure V is 70%-75% invested, up from 60%-65% at year-end. Exit volumes have been in line with what we had expected for Q1. For example, EQT VIII sold a large part of its stakes in IFS and WorkWave, and exits made in the quarter have seen strong valuation levels. As we look ahead, we continue to plan for further realizations.
However, as Christian mentioned, the IPO market is largely closed at the moment, and the high-yield market has also been more challenging as of late, although the leveraged loan market remains open and constructive. These factors combined make the outlook for exits somewhat more uncertain in the near term. Turning to investments, notable deals in Q1 include InstaVolt and Stockland. When it comes to the different business lines, we have a very active investment pipeline in infrastructure, for example. We expect investments in areas such as energy transition, including related technology, to increase from here, for example. We also see continued high investment activity in real estate, where the higher interest rate environment is being reflected in our acquisition underwriting. Turning to private capital, we are evaluating a number of potential private equity investments at the moment.
Sources include divestments from corporates, private equity-owned companies, and potentially, public companies. Valuations for EQT's core target sectors such as healthcare and tech remain high. In the growth segment in particular, we see a bid-ask spread between buyers and sellers given the multiple contraction seen in public markets. As a result, this market may see a continued slower pace in near-term activity as we stay disciplined to find the right opportunities. In ventures, we see continued high activity levels and a somewhat more buyer-friendly market. As always, new investments are underwritten based on long-term multiple assumptions. As a result, exit multiples are often assumed to be below multiple paid at investment. Overall, as Christian mentioned, we remain focused on thematic opportunities where we invest with the trend in companies which we expect to be resilient and perform well also in times of uncertainty.
Next slide, please. Q1 valuations were resilient across our key funds. On a high level, there are a few different factors impacting valuations in Q1 positively and negatively. On the positive side, we continue to see robust and high valuations for thematic assets, both within private capital and real assets. These are exactly the types of companies and assets that EQT owns and invests in. Underlying operating performance in terms of sales growth and profit growth has also been strong, largely offsetting any effects of lower reference multiples in public markets. As previously mentioned, our focus on market leading companies with pricing powers means a high ability to pass on price increases. In real estate, current contracts are largely inflation protected and fund valuations have been stable.
While not a major driver of fund performance, we've had a couple of examples of companies which had seen muted performance due to COVID now performing stronger. Exits this past quarter had a positive effect on valuations as well in, for example, EQT VIII. Generally, our conservative valuation approach means we at times experience uplifts in fund valuations when we secure strong exits. On the negative side, the listed companies in the portfolio have seen share price declines. Listed companies are typically valued at the current share price in our fund valuations. All these elements come together in our robust valuations. Also adding there is no change to our performance expectations. As previously communicated, EQT VII, EQT VIII, and EQT Infrastructure III are all expected to deliver returns above plan. The other key funds remain on plan.
Remember, the expectations reflect our estimates where the eventual fund performance will come out. With that, I now hand over to Kim. Next slide, please.
Thank you Olof, and good morning, everyone. Let's continue by having a look at the development in assets under management. In the last 12 months, AUM increased by 31% with Exeter co-contributing EUR 9 billion and LSP contributing with EUR 2.4 billion of AUM as of respective closing. In Q1, AUM increased by some 5%, partly driven by the addition of LSP. Remember BPEA's AUM will not be part of the group's AUM until the combination closes, which as mentioned, is expected to occur in Q4. For reference, the BPEA AUM was about EUR 18 billion as of year end. Looking ahead, we do expect AUM to grow this year as the various ongoing fundraises continue.
Remember that when we activate a new fund, the AUM base in the previous fund generation steps down to invested capital. As Caspar mentioned, we expect a large part of EQT X to be raised this year, whereas the vast majority of EQT Infrastructure VI, is likely to be raised in 2023. Next slide, please. As Chris mentioned, we're now over 1,300 employees. This includes having added almost 60 people from LSP and Bear Logi in the first quarter, and in addition, we expect to have the BPEA team joining us towards the end of the year, and we may see further complementary acquisitions during the year. We're also doing very well when it comes to recruiting, developing people, and attracting strong talent globally. As a result, we expect to be a significantly larger EQT team by year end.
Keep in mind that we're always investing ahead for future scalable growth. Hiring the right people at the right pace is critical to future-proofing growth as well as future-proofing the returns for our clients. Next slide, please. We recently raised two sustainability-linked bonds of EUR 750 million each. In addition, we have agreed to upsize the revolving credit facility from EUR 1 billion - EUR 1.5 billion to create additional flexibility. The proceeds from the bonds will be used to finance the cash portion of the combination with BPEA, and our strong balance sheet will then help support our growth and provide continued flexibility to follow our fund commitments, to support new growth initiatives, and to selectively make acquisitions.
Notwithstanding the opportunities we have, we expect to maintain a conservative leverage ratio of less than 1x net debt to EBITDA, and we have very significant liquidity. With that, I hand over to Christian to wrap it up.
Thanks, Kim.
Next slide please.
Thank you. We're continuing to build a global leader in active ownership strategies. The platform we're building provides multiple levers to grow and opportunities to become even more relevant for our clients. Our fund valuations have been resilient in Q1 based on strong underlying performance across our thematic assets, and we do expect our funds to continue to deliver for our clients. We've recently committed our portfolio companies to achieving net zero by 2040, 10 years faster than required by climate science.
I think that's quite important also from a value creation point of view and being a responsible investor. Now, it's been a somewhat slower quarter when it comes to investment and exit activity, but we're seeing really interesting opportunities ahead. If you think about it, in times of uncertainty, our active ownership focus and our thematic investment approach becomes even more relevant and may open up some new sources for deals like the public markets. We're proactively investing in people and in EQT's platform to really continue to drive scalable growth. We're attracting really great talent, which of course is the best way to continue to secure our future performance and building a very strong firm. With that, we will now open up for questions. Thank you.
If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel. Our first question comes on the line of Ermin Keric of Carnegie. Please go ahead.
Good morning. Thanks for taking the questions. The first one was on fund valuations. Could you talk a bit more about the impact from multiples versus the operational performance and growth and underlying earnings growth, perhaps in the holdings you have and how you kind of come up to the final moats of the companies?
Mm-hmm.
The funds.
Yes. Yeah. Caspar, do you want to take that?
Yeah, sure. I mean, to start with, it's difficult to answer the exact mathematical proportions here. Basically, as we've said typically, in most of our acquisitions we have, in the last years, you know assumed and anticipated a multiple contraction from where we bought it in terms of multiple where and where we're expecting to sell it. That's part of the plan, you can say. That's one part of the puzzle. If you look at real estate and infra, I think the multiples there in general have been very stable. Also, I would also say on the healthcare side, also on the buyout side, has also been quite stable, in general terms.
It's only a part of the portfolio that I would say is impacted from the multiple contraction. As you can see from the numbers, all in all, that multiple contraction is outweighed by the underlying performance in the portfolio as a whole. That of course doesn't speak for individual companies. We will have a number of individual companies where the valuations are down, most specifically the listed companies that we own. All in all, the rest is outweighing that.
Got it. Thank you. On Exeter, you mentioned that you expected to exceed the previous guidance or ambition. Was that EUR 5 billion or in dollar terms that you expected it to raise this year? And was that a net or just in capital raising, and then we'll have some exits as well?
I think when we made the acquisition a little more than a year ago, we gave some round guidance of where we expected Exeter to add. That's what we're now basically saying that we will probably exceed given the current outlook. We will probably exceed what we said by then. This is a.
Gross number.
I t's a gross number, so it's how much we're gonna raise. I think it's also fair to say that historically, if you look at the exits that Exeter has done, they have actually been to a large extent done by actually selling into other vehicles still managed by Exeter. You know, if you compare to our buyout and infra businesses where the exits are typically disappearing from our AUM, that's not always the case with Exeter.
Thank you. One final question just on Infra VI. Given the environment you currently see for capital raising and so on, is there anything that should lead us to believe that Infra VI should have any material difference in size from where you're seeing EQT X?
Thanks for the question. You know, we have not yet set the size of Infra VI. As you know, that process is quite thorough. We start with pre-marketing, which we're doing now. We build a book of demand. We look at the opportunities in the market for the investment side. Then we set the target size, and as we go through the process, we ultimately set the hard cap as we've now done in EQT X. But if I'm reading your question right, you're asking if we have any concerns around fundraising of the flagship funds, and I think it was Casper that mentioned it, that you know, we see quite a healthy demand from our clients for our flagship products.
You know, EQT is quite well differentiated. Our funds are performing exceptionally well, and have been doing so for a long time. We have a lot of credibility with our clients, and therefore, you know, we're confident of meeting our goals. I think where we're seeing a little bit of slowness is in the newer products where it takes maybe a little bit longer to raise the capital. That's actually, I think we've mentioned that before, very normal through a cycle where existing products that have a long track record, fundraising is more straightforward, assuming you perform as well as we do. In newer products, it takes a little bit more time. Was that helpful?
Perfect. Thanks for taking the questions.
Yep. Thank you.
Our next question comes from the line of Arnaud Giblat of BNP Paribas. Please go ahead.
Yeah. Good morning. I've got three questions, please. Firstly, could I start with your hiring expectations for 2022? I think you talked about 1,400 for year-end. Is that guidance still valid? It seems like your pace is going slightly ahead of your guidance. Secondly, I'm wondering, during your commentary, you asked about maybe a bit more challenge. The challenge in getting investments going is a widening of bid-ask spreads. In your experience, if volatility remains, how long does it take for purchase price multiples to come down and for this to match where your expectations might be?
Finally, in terms of the delay in exits, do you have strong opportunities to continue adding value to portfolio companies? Do you see opportunities to continue doing bolt-ons to existing portfolio companies? Thank you.
Thanks. I'll take the second one, then Kim can take the first one, and I'll start on the exits as well. When it comes to bid-ask spreads, I'd rather say it's, you know, how do you find an agreement between a seller and a buyer in a, you know, more disruptive market? That does sometimes take a little bit more time. But we are seeing is, as you've noticed, we've been able to drive exits. We have a very strong pipeline across our group in real estate, in infrastructure, and in equity. You know, we believe that we're gonna continue to invest at a reasonable pace, but we are continuing to be quite selective to make sure we write.
Buy the right assets during this slightly more disruptive period. Kim, do you wanna take the first one?
On the headcount question, what we've said before is that we wouldn't be surprised if we exceed 1,400 by the end of the year. That is still valid. I'd say it is likely that we will meaningfully exceed that number given the attractive recruiting pace we've had now. We really. It works out very well currently. You've seen the acquisitions we've made. There may, of course, be further bolt-on acquisitions which may change that number further. Of course, it excludes BPEA, which we hope and expect will close in Q4. Yeah. Maybe that gives you a bit of color on it.
Yeah. When it comes to adding value to the portfolio companies, of course, that's something we do every single day. We're also, you know, where we're, you know, continuously building capabilities is in, let's say, our value creation methodology and our approach to sustainability. Really weaving sustainability into every strategy of every company to make them stronger, and more resilient, and also more valuable over time. We continuously work with our governance, we continuously work with our capital structures, with the digitalization and AI, with protecting the companies from cybersecurity point of view. That's, you know, that is the.
Also the other important element around our active ownership strategy, and why we're focusing on that across all of our investment areas is that, you know, we are building the companies and making them more valuable and stronger and better every single day. And that's the philosophy also when we're looking at new deals. Maybe another way to answer your first question is that, you know, the sources of deals also change a little bit. Last year, you know, when multiples were very high, public to privates were quite complicated. And sometimes even divestments from corporates were complicated because price expectations were very high. When the market adjusts a little bit, new sources of deals actually arise. And we can find
You know, we can kind of activate those channels. Given that we're thematic across these various sectors, and we're local with locals, you know, our deal pipeline is always quite deep. You know, in every single investment strategy, we have a list of opportunities that's quite long and deep. Therefore, we're not that concerned about deal flows. It's rather more about being selective, and making the right deals, like I said.
Great. Thank you.
Our next question comes from the line of Magnus Andersson of ABG. Please go ahead.
Yes. Good morning. First of all, just a follow-up there on Exeter and the fundraising. Is it possible to give us some indication of how much of the increase of AUM there in the quarter-over-quarter that was driven by Exeter there, the 24 increase to EUR 24.6 billion. That's the first one on AUM.
What's your next one? Let's figure it out while you're
Okay. Okay.
I'm not sure I even follow the question, but I'll figure it out.
Secondly, just on AUM and follow up on the BPEA acquisition here for the modeling. Some things are moving here in this market, obviously. I just noted when I look at the EQT IV, V, VI of BPEA that there are still lots of assets left after quite a long time. For example, in EQT V , you have 75% drawn on the fund size still in place after 10 years. EQT VI is 90% of the fund size still there after six years. I'm just wondering how should we think about duration here of these funds?
It looks like the exiting process is taking much longer in BPEA than it is in your funds when we model this going forward and just if you can give us some color on how we should model this. Finally, just on fees, Casper, you mentioned that the fundraising environment was crowded and very competitive right now, which is understandable. Do you think that it could have any impact on the fee levels in the industry? That's my three questions.
Yeah. Maybe I can start with the last one. I would say that again, when we're talking about, you know, our the fundraising for our large flagship funds, it's really not a question about, you know, fee levels. Of course, you know, investors would always like lower fees, but we don't really see. That's not where you compete, and therefore, we don't see that. Of course, in general terms, in a weaker fundraising market, some people may try to lower fees in order to attract capital. But I don't really see a correlation here, to be quite frank. So not what we expect. No. Let me come back to the first question you had.
Without giving any specific numbers, a majority of what you see there is related to Exeter.
Mm-hmm.
Gross inflows.
Okay. Good enough. Thank you.
Yeah. When it comes to BPEA, we are a little bit restricted in what we can talk about in terms of their performance. Overall, you know, their performance is also quite strong. It's remaining clearly top quartile. The development in their fund valuations is, let's say, parallel to ours. They have done, you know, only this year actually, a number of exits or partial exits. They do partial exits, possibly more than we do. They've actually had at least $2 billion of exits this year and continue to see strong interest in their exit pipeline.
Deal flow is strong, and their fundraising for BPEA, which we talked about last time, which we expect to, you know, to grow in a similar fashion as the funds have done in the past, that's also going in line with expectations. Maybe I can answer the question in those more general terms. I think one area where EQT has been different than a lot of our competitors is actually, you know, to divest the tail end of funds. As you know, we have relatively young funds, our oldest funds being, you know, 2013, 2015 or so in private equity and infrastructure.
That is something that we, you know, we're gonna see whether that makes sense also for BPEA to drive a strategy where, you know, some of the remaining companies are exited a little bit earlier. Overall, like I said, performance, and track record and fundraising are, I would say, the very similar story to ours.
Yeah. Going forward, would you say then that it's reasonable to expect that the funds in BPEA, that the duration is closing up to your duration, i.e., that you will try to shorten the period? I mean, your funds is typically 10, 11 years or something like that.
Yeah. Yeah.
From what I've seen historically, it looks like they are going to be much longer.
Yeah. This is also a shift in the market, and we've been leading that shift with our philosophy because we think it's. You can actually drive some pretty good skew if you're, you know, on the one hand running with the winners, you know, selling your portfolio companies over time, divesting them, you know, on, you know, kind of in a normal timeframe, and then ending the fund gives us a bit more resources to actually focus on the companies that are really driving value for going forward. The one trend, not to make it too complicated, but there is a very important trend here as well, which is running with the winners, which BPEA has done really well.
it's something that we've done as you see whether we're investing in you know in new funds and existing companies or finding other ways to divest parts and continuing to create value in the existing funds. there are a number of elements here that play in.
I think your question is, directionally, correct or your comment.
Okay. Thank you.
Our next question comes from the line of Hubert Lam of Bank of America. Please go ahead. Hubert Lam of Bank of America, you may unmute your line.
Yeah
Ask your question.
Yeah, sorry. Thank you for that. Good morning, everybody. First question is on carry. How should we think about carry for this year? Any particular guidance you can help us on this? Obviously, exits have been slower, but you know, are there funds which you think could potentially drive some carry this year? Or how should we think about it maybe as a percentage of revenues or any potential range that we should think about? That's the first question. Second question is on slide nine of the deck. You talk about you know, the gross profit percentage of the different strategies, emerging, scaling, and leading strategies. Can you just give us a definition of gross profit and what do you mean by that? Thank you.
S hould i ?
Yeah.
Well, first of all, you should see that slide nine as illustrative of the sort of various buckets of where the strategies are in their life cycle. The gross profit there excludes all of the central costs. So it's really just a cost for the investment professional organization and related costs related to that. That's kind of the broad definition of it. On your first question on carry, as you know, we really don't give guidance on carry as carry is a function of two things, essentially. One is the value development in the portfolio and the other is exits. Well, both of those are difficult to forecast.
We have, like we discussed, a solid exit pipeline, but you don't know what the market will look like towards the end of the year. Maybe I could add to that that there are, of course, you've seen how the value development has been so far this year, so robust, and you've seen that we have been exiting some companies, we have closed some exits that we did last year, et c. We feel comfortable. I can't give you any numerical guidance more than that.
Okay. Thank you.
Thank you.
Our next question comes from the line of Jakob Brink of Nordea. Please go ahead.
Thank you very much, and good morning. Just two questions, please. Just for my modeling on the comments you had on Infra VI. What does that mean in terms of initiation of the fund? I see you're still 70%-75% invested. You say fundraising will take place starting in Q4, I believe you said, lasting into next year. Are your comments more related to basically late fees being booked next year and not so much fees being booked this year? Or did your comment also include any guidance on when we should expect the initiation of the fund? That was the first question.
The second one is maybe a bit more tricky, but the divestment of sale of IFS and WorkWave from EQT VIII, how much of the discount you had applied to those two companies before the sale, how much is that? Basically, I'm just trying to estimate how much could that sort of elimination of discount absorb of potential value decline in EQT VIII?
Should I start, Chris?
Please, go ahead.
and WorkWave, we're not gonna give exact numbers on that. Again, on a general note, we use a 30%-50% discount for the IFRS carry in our funds. Like I have mentioned before, given the environment, we have been at the higher end of that range. That's the discount. In addition, it is of course not at all inconceivable that the divestments were made at the value that exceeded the value that they were booked at in our books. There could be a sort of double effect like that from those divestments.
On Infra VI, the comment we made was related to the fundraising pace rather than the investment base. As you know, we may start investing earlier based on bridge financings, et c. If that happens, then we will also start booking fees from that time period when we start investing. Whether they will be booked this year or next year, we don't know now. It depends on the investment pace, really.
I mean, technically, if you would do the investment on this side of the year and raise money on the next side of the year, the late fees will obviously occur next year.
Yeah, of course. Yeah. I was just more thinking if there is any sort of correlation. I understand you can do bridge financing, but also given you have some
Room left in EQT Infra V. I was just wondering if you would try to match the fundraising more with the investments. I understand it doesn't have to be that way.
We basically think we've been pretty clear with that before. We basically, when it comes to flagship funds, we don't want them to overlap or to sort of hit each other in that sense. The pacing of Infra VI is basically made out of the expectations of the fundraising of EQT X.
Okay. Fair enough c lear. Many thanks.
Thank you.
Before we go to our next question, may I remind everyone that if you wish to ask a question, please dial zero one on your telephone keypads. If you find your questions answered before it is your turn to speak, you can dial zero two to cancel. Our next question comes from the line of Jacob Hesslevik of SEB. Please go ahead.
Yes. Good morning, everyone. Just two questions from me. The first one is on higher inflation environment. I'm just curious what shift you're seeing taking hold today of in the midst of rising rates, inflation, supply chain challenges. We also have geopolitics and the return of the great power complex. What are the implications that you see from investing from all of that? What are the new risk and challenges does that create? And could you maybe talk a little bit about how you're evolving and positioning EQT to capitalize on all of this change in environment? That's my first question.
Yeah. I talked about it during my introduction. If you look at our thematic investing approach, we have relatively few companies that have complicated value chains. We have relatively few companies that have you know, really deep, broad manufacturing structures around the world, looking at private capital that is first. A lot of our investments are in healthcare, in TMT, in tech-enabled services, in industrial tech, where a lot of the you know, value created is actually through innovation, through the technology itself, the provision of services, etc. , which is more local often.
We you know we are not like you know let's say the private equity world was 15, 20 years ago, where yeah we owned a number of engineering companies and more manufacturing bases and also even a lot more consumer-facing businesses, retail, etc., None of those elements are present in our portfolio. Therefore, in private capital, what we're seeing is you see some energy prices rising, we see some wage inflation, and you know possibly you know some inflation in terms of you know goods that you need to deliver your services.
Given the pricing power, the types of companies we're buying, which are very typically market leading in robust industries, where you're providing quite essential services or products, you know, we are not seeing a particularly negative effect. In certain circumstances, actually, our pricing power, you know, exceeds any of those inflationary tendencies. If you look at infrastructure that is, you know, truly local infrastructure essential services that are either on the social side, or driving energy transition, or you know, on the technology communication side. You know, we're one of the world's largest owners of broadband fiber, et c. There we see, you know, well, it's the same.
We see some inflationary tendencies, but given that these are, you know, truly essential services, strong pricing power, very robust market positions, and typically they're local or regional in form. Even more so on the real estate side, which is, you know, real estate is by definition a local business. If you break it down, you know, in those three categories, you know, we see continued, you know, strong sales growth, strong margins across the group, and we're able to manage the situation pretty well. The other area where we're staying very vigilant is in cybersecurity.
That is, I mentioned also that we have a special cybersecurity team that works with all of our portfolio companies to make sure that all the companies are well protected and staying ahead of the curve there, as we see, you know, a lot more risk in the cyber world than we have in the past. Hopefully, that helps give a little bit more color as to how we break it down. What we also do is, in our investment committees and our portfolio review committees, we actually follow up every single company on all these questions, and then we bring that up to the portfolio level, and up to the group level.
That's why we, you know, we remain confident on performance.
Great. Very clear. Thank you. My second question is, number of employees increased by 159 in this quarter. Kim, you mentioned it could be over 1,400 at the end of the year. So my question is just how should we view the split between the remaining quarters? Do you have a seasonal strong inflow hiring process in the first half of the year, or is it evenly spread out over the full year? Maybe you could also please remind me of how many employees BPEA currently has. Thank you.
Well, I think we've said that it may well exceed 1,400, and I think we've guided now that it could exceed meaningfully that, given also the acquisitions that we made. Historically, the pattern has been actually more geared towards the latter part of the year. During COVID, et c., it has looked slightly different. I can't give you a sort of mathematical percentage per quarter, really, what it will look like. Historically it's been geared more towards the latter part of the year.
Secondly, you know, remember that there may be other sort of add-on acquisitions here taking place during the course of the year and then, as mentioned on BPEA. Obviously they are also growing as we speak, so they will also add people. They had 236, I believe, as of year-end.
Yes.
Okay. Thank you very much.
We have no further questions on the telephone lines at this time. Please go ahead, speakers.
Okay. With that, we thank you very much for your attention, for your support of EQT and all your questions, and have a great day. Thank you very much.